Document/Exhibit Description Pages Size
1: 10-Q Form 10-Q for the Quarter Ended December 28,1996 15 69K
2: EX-10.1.1 Amended and Restated Employee Stock Option Plan 6 41K
3: EX-10.3.1 1993 Employee Stock Purchase Plan 7 36K
4: EX-10.32.1 Third Amendment to the Company's Retirement Saving 4 17K
5: EX-11 Computation of Per Share Earnings 2± 7K
6: EX-27 Financial Data Schedule 1 9K
10-Q — Form 10-Q for the Quarter Ended December 28,1996
Document Table of Contents
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------------------------------
FORM 10-Q
(Mark One)
[X] Quarterly Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended December 28, 1996.
OR
[ ] Transition Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from to
Commission file number 1-8703
WESTERN DIGITAL CORPORATION
---------------------------------------------------------------
(Exact name of Registrant as specified in its charter)
DELAWARE 95-2647125
---------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
8105 Irvine Center Drive
Irvine, California 92618
---------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER INCLUDING AREA CODE (714) 932-5000
N/A
---------------------------------------------------------------
Former name, former address and former fiscal year if changed since last
report.
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
Number of shares outstanding of Common Stock, as of February 1, 1997 is
43,879,587.
WESTERN DIGITAL CORPORATION
INDEX
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PAGE NO.
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Income - Three-Month Periods
Ended December 28, 1996 and December 30, 1995 . . . . . . . . . . . . . 3
Consolidated Statements of Income - Six-Month Periods
Ended December 28, 1996 and December 30, 1995 . . . . . . . . . . . . . 4
Consolidated Balance Sheets - December 28, 1996 and
June 29, 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Consolidated Statements of Cash Flows - Six-Month Periods
Ended December 28, 1996 and December 30, 1995 . . . . . . . . . . . . . 6
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . . . . . . . . 8
PART II. OTHER INFORMATION
Item 4. Submission of Matters to Vote of Security Holders . . . . . . . . . . . 12
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . 13
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Exhibit Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
WESTERN DIGITAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
[Enlarge/Download Table]
THREE-MONTH PERIOD ENDED
----------------------------------
DEC. 28, DEC. 30,
1996 1995
------------ ----------
Revenues, net . . . . . . . . . . . . . . . . . . . . . . $ 1,118,647 $ 757,992
Costs and expenses:
Cost of revenues . . . . . . . . . . . . . . . . . 955,258 654,613
Research and development . . . . . . . . . . . . . 36,001 38,665
Selling, general and administrative . . . . . . . . 55,553 43,539
------------ ----------
Total costs and expenses . . . . . . . . . . . 1,046,812 736,817
------------ ----------
Operating income . . . . . . . . . . . . . . . . . . . . 71,835 21,175
Interest and other income . . . . . . . . . . . . . . . . 3,729 3,155
Gain on sale of multimedia business . . . . . . . . . . . -- 17,275
------------ ----------
Income before income taxes . . . . . . . . . . . . . . . 75,564 41,605
Provision for income taxes . . . . . . . . . . . . . . . 11,335 5,212
------------ ----------
Net income . . . . . . . . . . . . . . . . . . . . . . . $ 64,229 $ 36,393
============ ==========
Earnings per common and common
equivalent share (Note 2):
Primary . . . . . . . . . . . . . . . . . . . $ 1.36 $ .75
============ ==========
Fully diluted . . . . . . . . . . . . . . . . $ 1.35 $ .75
============ ==========
Common and common equivalent shares used
in computing per share amounts:
Primary . . . . . . . . . . . . . . . . . . . 47,380 48,438
============ ==========
Fully diluted . . . . . . . . . . . . . . . . 47,543 48,688
============ ==========
The accompanying notes are an integral part of these financial statements.
3
WESTERN DIGITAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
[Enlarge/Download Table]
SIX-MONTH PERIOD ENDED
----------------------------------
DEC. 28, DEC. 30,
1996 1995
------------ ----------
Revenues, net . . . . . . . . . . . . . . . . . . . . . . $ 2,001,762 $1,316,141
Costs and expenses:
Cost of revenues . . . . . . . . . . . . . . . . . 1,725,484 1,131,970
Research and development . . . . . . . . . . . . . 70,261 79,388
Selling, general and administrative . . . . . . . . 98,413 77,443
------------ ----------
Total costs and expenses . . . . . . . . . . . 1,894,158 1,288,801
------------ ----------
Operating income . . . . . . . . . . . . . . . . . . . . 107,604 27,340
Interest and other income . . . . . . . . . . . . . . . . 6,640 6,787
Gain on sale of multimedia business . . . . . . . . . . . -- 17,275
------------ ----------
Income before income taxes . . . . . . . . . . . . . . . 114,244 51,402
Provision for income taxes . . . . . . . . . . . . . . . 17,137 6,682
------------ ----------
Net income . . . . . . . . . . . . . . . . . . . . . . . $ 97,107 $ 44,720
============ ==========
Earnings per common and common
equivalent share (Note 2):
Primary . . . . . . . . . . . . . . . . . . . $ 2.07 $ .89
============ ==========
Fully diluted . . . . . . . . . . . . . . . . $ 2.06 $ .89
============ ==========
Common and common equivalent shares used
in computing per share amounts:
Primary . . . . . . . . . . . . . . . . . . . 46,841 50,039
============ ==========
Fully diluted . . . . . . . . . . . . . . . . 47,184 50,166
============ ==========
The accompanying notes are an integral part of these financial statements.
4
WESTERN DIGITAL CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
[Enlarge/Download Table]
DEC. 28, JUNE 29,
1996 1996
------------ -----------
ASSETS
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . $ 273,969 $ 182,565
Short-term investments (Note 3) . . . . . . . . . . -- 36,598
Accounts receivable, less allowance for doubtful
accounts of $9,929 and $9,376 . . . . . . . . 494,194 409,473
Inventories (Note 4) . . . . . . . . . . . . . . . 155,740 142,622
Prepaid expenses . . . . . . . . . . . . . . . . . 27,669 23,006
------------ ------------
Total current assets . . . . . . . . . . . . . 951,572 794,264
Property and equipment at cost, net . . . . . . . . . . . 192,983 148,258
Intangible and other assets, net . . . . . . . . . . . . 33,136 41,621
------------ ------------
Total assets . . . . . . . . . . . . . . . . . $ 1,177,691 $ 984,143
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable . . . . . . . . . . . . . . . . . $ 422,839 $ 345,866
Accrued compensation . . . . . . . . . . . . . . . 37,893 30,457
Accrued expenses . . . . . . . . . . . . . . . . . 189,648 137,699
------------ ------------
Total current liabilities . . . . . . . . . . 650,380 514,022
Deferred income taxes . . . . . . . . . . . . . . . . . . 16,016 16,229
Commitments and contingent liabilities
Shareholders' equity:
Preferred stock, $.10 par value;
Authorized: 5,000 shares
Outstanding: None -- --
Common stock, $.10 par value;
Authorized: 95,000 shares
Outstanding: 50,666 shares at
December 28 and at June 29 . . . . . . . . . . 5,066 5,066
Additional paid-in capital . . . . . . . . . . . . 342,621 349,773
Retained earnings . . . . . . . . . . . . . . . . . 317,577 220,470
Treasury stock-common stock at cost;
7,153 shares at December 28 and
7,095 shares at June 29 (Note 5) . . . . . . . (153,969) (121,417)
------------ ------------
Total shareholders' equity . . . . . . . . . . 511,295 453,892
------------ ------------
Total liabilities and shareholders' equity . . $ 1,177,691 $ 984,143
============ ============
The accompanying notes are an integral part of these financial statements.
5
WESTERN DIGITAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
[Enlarge/Download Table]
SIX-MONTH PERIOD ENDED
-----------------------------------
DEC. 28, DEC. 30,
1996 1995
------------ -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income . . . . . . . . . . . . . . . . . . . . . . . $ 97,107 $ 44,720
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization . . . . . . . . . . . 28,323 25,854
Gain on sale of multimedia business . . . . . . . . -- (17,275)
Changes in current assets and liabilities:
Accounts receivable . . . . . . . . . . . . . . (84,721) (57,096)
Inventories . . . . . . . . . . . . . . . . . . (13,118) (30,721)
Prepaid expenses . . . . . . . . . . . . . . . (4,663) 3,552
Accounts payable and accrued expenses . . . . . 136,358 47,495
Other assets . . . . . . . . . . . . . . . . . . . . 500 (1,275)
Deferred income taxes . . . . . . . . . . . . . . . (213) 920
------------ -----------
Net cash provided by operating activities . . . . 159,573 16,174
------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Decrease in short-term investments (Note 3) . . . . . . . 36,598 27,346
Capital expenditures, net . . . . . . . . . . . . . . . . (69,566) (35,404)
Decrease (increase) in other assets . . . . . . . . . . . 4,503 (4,375)
Proceeds from sale of multimedia business . . . . . . . . -- 51,915
------------ -----------
Net cash provided by (used for)
investing activities . . . . . . . . . . . . . (28,465) 39,482
------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repurchase of common stock (Note 5) . . . . . . . . . . . (49,840) (72,656)
Proceeds from stock options exercised . . . . . . . . . . 5,758 2,472
Proceeds from ESPP shares issued . . . . . . . . . . . . 4,378 3,795
------------ -----------
Net cash used for financing activities . . . . . (39,704) (66,389)
------------ -----------
Net increase (decrease) in cash and cash equivalents . . 91,404 (10,733)
Cash and cash equivalents, beginning of period . . . . . 182,565 217,531
------------ -----------
Cash and cash equivalents, end of period . . . . . . . . $ 273,969 $ 206,798
============ ===========
SUPPLEMENTAL DISCLOSURES:
Cash paid during the period for income taxes . . . . . . . . . $ 4,996 $ 1,682
The accompanying notes are an integral part of these financial statements.
6
WESTERN DIGITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The accounting policies followed by the Company are set forth in Note
1 of Notes to Consolidated Financial Statements included in the
Company's Annual Report on Form 10-K for the year ended June 29, 1996.
2. Primary and fully diluted earnings per share amounts are based upon
the weighted average number of shares and dilutive common stock
equivalents for each period presented.
3. At June 29, 1996, the Company held $36.6 million in U.S. Treasury
Bills that were classified as short-term investments. During the
first six months of 1997, these securities matured and were replaced
by highly liquid investments with original maturities of three months
or less. The new investments were classified as cash equivalents on
the Company's consolidated balance sheet at December 28, 1996.
4. Inventories comprised the following:
[Download Table]
DEC. 28, JUNE 29,
1996 1996
------------ -----------
(in thousands)
Finished goods . . . . . . . . . . . . . . . . . $ 55,629 $ 72,239
Work in process . . . . . . . . . . . . . . . . 49,778 31,781
Raw materials and component parts . . . . . . . 50,333 38,602
------------ -----------
$ 155,740 $ 142,622
============ ===========
5. During the six-month period ended December 28, 1996, the Company
purchased 1.1 million shares of its common stock in the open market at
a cost of $49.8 million. During the same period, approximately
290,000 and 789,000 shares were distributed in connection with the
Employee Stock Purchase Plan ("ESPP") and common stock option
exercises, respectively, for $11.5 million.
6. In the opinion of management, all adjustments necessary to fairly
state the results of operations for the three- and six-month periods
ended December 28, 1996 and December 30, 1995 have been made. All
such adjustments are of a normal recurring nature. Certain
information and footnote disclosures normally included in the
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to the
rules and regulations of the Securities and Exchange Commission.
These consolidated financial statements should be read in conjunction
with the consolidated financial statements and the notes thereto
included in the Company's Annual Report on Form 10-K for the year
ended June 29, 1996.
7
WHEN USED IN THIS DISCUSSION, THE WORDS "ANTICIPATES", "BELIEVES", "EXPECTS",
"INTENDS", "FORECASTS", "PLANS", "FUTURE", "STRATEGY" OR WORDS OF SIMILAR
IMPORT ARE INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS. SUCH STATEMENTS
ARE SUBJECT TO CERTAIN RISKS AND UNCERTAINTIES WHICH COULD CAUSE ACTUAL RESULTS
TO DIFFER MATERIALLY FROM THOSE EXPRESSED IN THE FORWARD-LOOKING STATEMENTS.
READERS ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON THESE FORWARD-LOOKING
STATEMENTS WHICH SPEAK ONLY AS OF THE DATE HEREOF. THE COMPANY UNDERTAKES NO
OBLIGATION TO PUBLISH REVISED FORWARD-LOOKING STATEMENTS TO REFLECT EVENTS OR
CIRCUMSTANCES AFTER THE DATE HEREOF OR TO REFLECT THE OCCURRENCE OF
UNANTICIPATED EVENTS. READERS ARE URGED TO CAREFULLY REVIEW AND CONSIDER THE
VARIOUS DISCLOSURES MADE BY THE COMPANY WHICH ATTEMPT TO ADVISE INTERESTED
PARTIES OF THE FACTORS WHICH AFFECT THE COMPANY'S BUSINESS, INCLUDING THE
DISCLOSURES MADE UNDER THE CAPTION "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS" IN THIS REPORT, AS WELL AS THE
COMPANY'S OTHER PERIODIC REPORTS ON FORMS 10-K, 10-Q AND 8-K FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Unless otherwise indicated, references herein to specific years and quarters
are to the Company's fiscal years and fiscal quarters. Consolidated sales were
$1.1 billion in the second quarter of 1997, compared with $883 million in the
immediately preceding quarter and $758 million in the second quarter of 1996.
Consolidated sales were $2.0 billion in the first six months of 1997, an
increase of $686 million or 52% from the same period of the prior year. The
growth in revenues stemmed from 53% and 62% increases in hard drive unit
shipments for the three- and six-month periods ended December 28, 1996,
respectively, over the corresponding periods of the prior year. The higher
volume was partially offset by a decline in the average selling prices of hard
drive products. The increase in revenues from the immediately preceding
quarter is primarily the result of a 24% increase in hard drive unit shipments
and an improved pricing environment for the Company's hard-drive products.
The consolidated gross margin percentage was 14.6% in the second quarter of
1997, an increase of 1.8 and 1.0 percentage points from the immediately
preceding quarter and the second quarter of 1996, respectively. The increases
in the consolidated gross margin percentage were primarily the result of the
improved pricing environment combined with reductions in the cost of the
Company's hard drive products. The Company started volume shipments of hard
drives from its enterprise storage product line in the second quarter of 1997.
However, this did not have a material effect on the consolidated gross margin
percentage. The consolidated gross margin percentage was 13.8% in the first
six months of 1997, down .2 percentage points from the same period of 1996.
The decrease in gross margin percentage from the first six months of 1996 was
primarily due to the sale of the Company's microcomputer products ("MCP")
businesses in 1996, which had higher average gross margins than the Company's
hard drive products.
Research and development ("R&D") expense for the current quarter was 3.2% of
revenues, versus 3.9% and 5.1% of revenues in the immediately preceding quarter
and second quarter of 1996, respectively. R&D expense for the first six months
of 1997 was 3.5% of revenues as compared to 6.0% of revenues in the
corresponding period of 1996. The decreases were primarily attributable to the
elimination of MCP-related expenditures and the higher revenue base in the
current year. These amounts were partially offset by higher expenditures to
support the development of enterprise and mobile hard-drive products.
8
Selling, general and administrative ("SG&A") expenses for the second quarter of
1997 were 5.0% of revenues, as compared to 4.9% and 5.7% of revenues in the
immediately preceding quarter and second quarter of 1996, respectively. SG&A
expenses for the first six months of 1997 were 4.9% of revenues as compared to
5.9% of revenues in the corresponding period of 1996. The decreases from the
prior year were primarily attributable to the higher revenue base in the
current year. The increases in the absolute dollars of SG&A expenses from the
three- and six-month periods ended December 30, 1995 were primarily the result
of incremental selling, marketing and other related expenses in support of the
higher revenue levels and higher accruals for the Company's pay-for-performance
and profit sharing plans.
The effective tax rate for the first six months of 1997 was 15%, as compared to
13% for the corresponding period of 1996. The increase reflects a change in
the mix of earnings among the Company's subsidiaries and the various tax
jurisdictions within which they operate.
FINANCIAL CONDITION
Cash and short-term investments totaled $274.0 million at December 28, 1996 as
compared with $219.2 million at June 29, 1996. Net cash provided by operating
activities was $159.6 million for the six-month period ended December 28, 1996.
Cash flows from earnings, depreciation and an increase in current liabilities
were partially offset by cash used to fund increases in accounts receivable and
inventories. Other significant uses of cash during the first six months of
1997 were $69.6 million of capital expenditures, which was incurred primarily
to support increased production of hard drives and related components, and the
acquisition of 1.1 million shares of the Company's common stock in the open
market for $49.8 million. Partially offsetting these uses of cash was $36.6
million provided by short-term investments that matured during the first six
months of 1997.
During the quarter ended December 28, 1996, the allowance for doubtful accounts
decreased by $2.4 million. The decrease is primarily the result of write-offs
of accounts receivable that were fully reserved in prior periods, partially
offset by normal provisions for doubtful accounts.
The Company has an $150 million revolving credit agreement with certain
financial institutions extending through April 1999. This facility is intended
to meet short-term working capital requirements which may arise from time to
time. The Company believes that its current cash balances combined with cash
flow from operations and its revolving credit agreement will be sufficient to
meet its working capital needs for the foreseeable future. However, the
Company's ability to sustain its favorable working capital position is
dependent upon a number of factors that are discussed below and in the
Company's Annual Report on Form 10-K for the year ended June 29, 1996 under the
heading "Certain Factors Affecting Future Operating Results."
CERTAIN FACTORS AFFECTING WESTERN DIGITAL CORPORATION AND THE DISK DRIVE
INDUSTRY
The hard drive industry in which the Company competes is subject to a number of
risks which have affected the Company's operating results in the past and could
affect its future operating results. Demand for the Company's hard drive
products depends on the demand for the computer systems manufactured by its
customers and storage upgrades to computer systems, which in turn are affected
by computer system product cycles, end user demand for increased storage
capacity, and prevailing economic conditions. The press has reported slower
retail computer sales during the 1996 holiday season, but the Company believes
that overall the computer market remains strong, with the non-retail sector
showing a combination of corporate upgrades to Windows NT on Pentium Pro
desktop systems, a strong demand for higher capacity, high-performance Western
Digital Caviar desktop drives and strength in the server market.
9
The computing industry is intensely competitive and has been characterized by
significant price erosion over the life of a product, periodic rapid price
declines due to industry over-capacity or other competitive factors,
technological changes, changing market requirements, occasional shortages of
materials, dependence upon a limited number of vendors for certain components,
dependence upon highly skilled engineering and other personnel, and significant
expenditures for product development. The hard drive market in particular has
been subject to recurring periods of severe price competition, although the
Company believes that the current pricing environment remains stable by
historical industry standards.
The Company's principal competitors are Quantum Corporation ("Quantum"),
Seagate Technology, Inc. ("Seagate Technology") and large computer
manufacturers such as IBM that manufacture drives for use in their own products
and for sale to others. In February 1996, Seagate Technology merged with
Conner Peripherals, Inc. ("Conner") formerly one of the Company's principal
competitors. This merger changed the industry dynamics by reducing the number
of competitors and by significantly increasing the size of Seagate Technology.
The Company is unable to predict the long-term effects that the merger will
have on this industry and/or the Company, although the Company currently
believes that consolidation has brought more stability to the hard drive
industry. The Company has increased its market share recently in part by
capitalizing on some missteps made by its competitors. While the Company
believes that its products and its marketing efforts will continue to be
competitive, there can be no assurance that its competitors will not improve
their position in the market through new product introduction or other means.
Even during periods of consistent demand, the hard drive industry has been
characterized by intense competition and ongoing price erosion over the life of
a given drive product, and the Company expects that price erosion in the data
storage industry will continue for the foreseeable future. In general, the
unit price for a given product in all of the Company's markets decreases over
time as increases in industry supply and cost reductions occur and as
technological advancements are achieved. Cost reductions are primarily
achieved as volume efficiencies are realized, component cost reductions are
achieved, experience is gained in manufacturing the product and design
enhancements are made. Competitive pressures and customer expectations result
in these cost improvements being passed along as reductions in selling prices.
At times, the rate of general price decline is accelerated when some
competitors lower prices to absorb excess capacity, to liquidate excess
inventories and/or to gain market share. The competition and continuing price
erosion could adversely affect the Company's results of operations in any given
quarter, and such adverse effect often cannot be anticipated until late in any
given quarter.
A number of the components used by the Company are available from a single or
limited number of outside suppliers. Some of these materials may periodically
be in short supply, and the Company has, on occasion, experienced temporary
delays or increased costs in obtaining these materials. Because the Company is
less vertically integrated than its competitors, an extended shortage of
required materials and supplies could have a more severe effect on the
Company's revenues and earnings as compared to its competition. The Company
must allow for significant lead times when procuring certain materials and
supplies. The Company has more than one available source of supply for most of
its required materials. Where there is only one source of supply, the Company
has entered into close technical and manufacturing relationships, has access
to more than one manufacturing location in most instances, and believes that a
second source could be obtained over a period of time. However, no assurance
can be given that the Company's results of operations would not be adversely
affected until a new source could be secured. Although the Company obtains
headstack assemblies from several sources, the supply of these components at
the desired technology levels is currently a critical issue for the Company as
it plans to meet the current strong demand for desktop storage products. A
shortage in the supply of headstack assemblies at the desired technology levels
could adversely affect the Company's ability to meet anticipated customer
demand for enterprise storage products and could limit the Company's ability to
manufacture desktop storage products to or above its current planned levels.
10
Hard drive customers' demand for greater storage capacity and higher
performance has led to short product life cycles that require the Company to
constantly develop and introduce new drive products on a cost effective and
timely basis. Failure of the Company to execute its strategy of achieving
time-to-market in sufficient volume with these new products, or any delay in
introduction of advanced and cost effective products, could result in
significantly lower gross margins. The Company's future is therefore dependent
upon its ability to develop new products, to qualify these new products with
its customers, to successfully introduce these products to the market on a
timely basis, and to commence volume production to meet customer demands.
The Company experiences fluctuations in manufacturing yields that can
materially affect the Company's operations, particularly in the start-up phase
of new products or new manufacturing processes. With the continued pressures
to shorten the time required to introduce new products, the Company must
accelerate production learning curves to shorten the time to achieve acceptable
manufacturing yields and costs. Production of the Company's new enterprise
storage products is expected to increase considerably over the next several
quarters. The Company's inability to successfully achieve its production and
sales goals for its enterprise storage products would significantly impact the
Company's future operating results. Although the mobile PC market represents a
smaller portion of the Company's potential business, the Company is also
working to achieve volume production of the 3.0-inch form factor hard drive for
mobile products in 1997. The Company's future operating results may be
adversely affected if it is unsuccessful in ramping to volume production and
marketing the 3.0-inch form factor hard drive.
All of the Company's hard drive products currently utilize conventional thin
film or metal-in-gap ("MIG") inductive head technologies. The Company believes
that MR heads, which enable higher capacity per disk than conventional thin
film or MIG inductive heads, will eventually replace thin film and MIG
inductive heads as the leading recording head technology. Several of the
Company's major competitors incorporate MR head technology into some of their
current products and with higher capacity drives using MR heads, the Company's
competitors have achieved time-to-market leadership. Failure of the Company to
successfully manufacture and market products incorporating MR head technology
in a timely manner and/or in sufficient volume could have a material adverse
effect on the Company's business and results of operations.
The Company's operating results have been and may in the future be subject to
significant quarterly fluctuations as a result of a number of other factors.
These factors have included the timing of orders from and shipment of products
to major customers, product mix, pricing, delays in product development and/or
introduction to production, competing technologies, variations in product cost,
component availability due to single or limited sources of supply, foreign
exchange fluctuations, increased competition and general economic and industry
fluctuations. The Company's future operating results may also be adversely
affected by an adverse judgment or settlement in the legal proceedings in which
the Company is currently involved. This statement should be read in
conjunction with "PART I, Item 3. Legal Proceedings" included in the Company's
Annual Report on Form 10-K for the year ended June 29, 1996.
11
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
The annual meeting of shareholders was held on November 14, 1996.
The shareholders elected the following eight directors to hold
office until the next annual meeting and until their successors are
elected and qualified:
[Download Table]
Number of Votes
---------------
For Withheld
--- --------
James A. Abrahamson 40,863,553 167,394
Peter D. Behrendt 40,865,172 165,775
I. M. Booth 40,861,758 169,189
Irwin Federman 40,862,925 168,022
Charles A. Haggerty 40,870,282 160,665
Andre R. Horn 40,863,385 167,562
Anne O. Krueger 40,861,318 169,629
Thomas E. Pardun 40,865,925 165,022
In addition, the shareholders approved the following proposals:
[Download Table]
Number of Votes
-------------------
For Against*
--- -------
<S
1. To approve the amendment to the Company's
Employee Stock Option Plan. 20,217,558 11,292,078
2. To approve the amendment to the Company's
Employee Stock Purchase Plan. 30,784,469 725,167
3. To ratify the selection of KPMG Peat Marwick LLP
as independent accountants for the Company for
the fiscal year ended June 28, 1997. 40,911,170 119,774
* includes abstentions
12
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
4.2.1 Amendment No. 2 to Rights Agreement dated as of
January 15, 1997, by and between Western Digital
Corporation and American Stock Transfer & Trust
Company, as Rights Agent (1)
10.1.1 Western Digital Corporation Amended and Restated
Employee Stock Option Plan, as amended on November
14, 1996.
10.3.1 Western Digital Corporation 1993 Employee Stock
Purchase Plan, as amended on November 14, 1996.
10.32.1 Third Amendment to the Company's Retirement Savings
and Profit Sharing Plan.
11 Computation of Per Share Earnings.
27 Financial Data Schedule.
--------------
(1) Incorporated by reference to the Company's Current
Report on Form 8-K as filed with the Securities and
Exchange Commission on February 5, 1997.
(b) Reports on Form 8-K:
On February 5, 1997, the Company filed a Current Report on
Form 8-K with the Securities and Exchange Commission reporting
that the Company's Rights Agreement has been amended.
13
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WESTERN DIGITAL CORPORATION
------------------------------------------
Registrant
/s/Duston Williams
------------------------------------------
Duston M. Williams
Senior Vice President
and Chief Financial Officer
Date: February 10, 1997
14
EXHIBIT INDEX
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
10.1.1 Western Digital Corporation Amended and Restated
Employee Stock Option Plan, as amended on
November 14, 1996 . . . . . . . . . . . . . . . . . . . .
10.3.1 Western Digital Corporation 1993 Employee Stock
Purchase Plan, as amended on November 14, 1996 . . . . .
10.32.1 Third Amendment to the Company's Retirement Savings and
Profit Sharing Plan . . . . . . . . . . . . . . . . . . .
11 Computation of Per Share Earnings . . . . . . . . . . . .
27 Financial Data Schedule . . . . . . . . . . . . . . . . .
15
Dates Referenced Herein and Documents Incorporated by Reference
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