Western Digital 2015 Annual Report Download - page 39

Our cash balances and investment portfolio are subject to various risks, any of which could adversely impact our financial
position.
Given the international footprint of our business, we have both domestic and international cash balances and
investments. We maintain an investment portfolio of various holdings, security types, and maturities. These invest-
ments are subject to general credit, liquidity, market, political, sovereign and interest rate risks, which may be
exacerbated by unusual events that affect global financial markets. A material part of our investment portfolio consists
of U.S. government securities and bank deposits. If global credit and equity markets experience prolonged periods of
decline, or if there is a downgrade of the U.S. government credit rating due to an actual or threatened default on gov-
ernment debt, our investment portfolio may be adversely impacted and we could determine that our investments may
experience an other-than-temporary decline in fair value, requiring impairment charges that could adversely affect our
financial results. A failure of any of these financial institutions in which deposits exceed FDIC limits could also have
an adverse impact on our financial position.
In addition, if we are unable to generate sufficient cash flows from operations to fund acquisitions, pay dividends,
or repurchase shares of our common stock, we may choose or be required to increase our borrowings, if available, or to
repatriate funds to the United States at a substantial tax cost.
If our internal controls are found to be ineffective, our stock price may be adversely affected.
Our most recent evaluation resulted in our conclusion that as of July 3, 2015, in compliance with Section 404 of the
Sarbanes-Oxley Act of 2002, our internal control over financial reporting was effective. If our internal control over finan-
cial reporting is found to be ineffective or if we identify a material weakness in our financial reporting in future periods,
investors may lose confidence in the reliability of our financial statements, which may adversely affect our stock price.
Restrictive covenants in our credit agreement could restrict current and future operations or limit our flexibility to take certain
actions.
Our credit agreement includes covenants relating to our financial performance and financial position. In addition, our
credit agreement restricts our ability to take other actions with respect to our current and future operations, including our
ability to incur certain additional indebtedness or consolidate, merge or sell assets. Our ability to meet these restrictive
covenants may be affected by events that could be beyond our control, and a breach of these restrictive covenants could result
in an event of default under the credit agreement, which, if not cured or waived, could result in the indebtedness becoming
immediately due and payable and could result in material adverse consequences that negatively impact our business.
From time to time we may become subject to income tax examinations or similar proceedings, and as a result we may incur
additional costs and expenses or owe additional taxes, interest and penalties that may negatively impact our operating results.
We are subject to income taxes in the United States and certain foreign jurisdictions, and our determination of our
tax liability is subject to review by applicable domestic and foreign tax authorities. For example, as we have previously
disclosed, we are under examination by the Internal Revenue Service for certain fiscal years and in connection with that
examination, we received Notice of Proposed Adjustments seeking certain adjustments to income as disclosed in Part II,
Item 8, Note 9 of the Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K.
Although we believe our tax positions are properly supported, the final timing and resolution of any tax examinations are
subject to significant uncertainty and could result in our having to pay amounts to the applicable tax authority in order
to resolve examination of our tax positions, which could result in an increase or decrease of our current estimate of
unrecognized tax benefits and may negatively impact our financial position, results of operations or cash flows.
We are subject to risks associated with loss or non-renewal of favorable tax treatment under agreements or treaties with foreign
tax authorities.
Portions of our operations are subject to a reduced tax rate or are free of tax under various tax holidays that expire
in whole or in part from time to time. Many of these holidays may be extended when certain conditions are met, or
terminated if certain conditions are not met. If the tax holidays are not extended, or if we fail to satisfy the conditions
of the reduced tax rate, then our effective tax rate could increase in the future. In addition, any actions by us to repa-
triate non-U.S. earnings for which we have not previously provided for U.S. taxes may impact our effective tax rate.
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