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  • 1. T C Western Digital Corporation is a leader in information storage management. The Company makes hard disk drives for the world’s leading makers of per- sonal computers, and serves consumer markets for replacement and add-on data storage. The Company is using proven technol- ogy and production methods as it begins the manufacture of high- performance, high-capacity hard drives for use in workstations, servers and other network appli- cations. Storage connectivity is provided by Western Digital’s high-performance hard drive con- trollers and its family of host bus controllers for SCSI, Fibre Channel and PCI interfaces. These products enhance data communication between proces- sors, storage units and peripherals.
  • 2. Financial Highlights     . Years ended (in millions, except per July 1, June 30, June 30, June 30, June 30, share and employee data) 1995 1994 1993 1992 1991 Revenues, net $ 2,130.9 $1,539.7 $1,225.2 $ 938.3 $ 986.2 Gross profit 394.1 317.9 182.0 110.6 173.2 Operating income (loss) 133.0 91.9 (10.0) (67.0) (117.8) Net income (loss) 123.3 73.1 (25.1) (72.9) (134.2) Earnings (loss) per share: Primary 2.56 1.77 (.79) (2.49) (4.59) Fully diluted $ 2.47 $ 1.70 $ (.79) $ (2.49) $ (4.59) Working capital $ 360.5 $ 261.7 $ 111.5 $ 138.9 $ 167.3 Total assets 858.8 640.5 531.2 532.5 620.4 Total long-term debt — 58.6 182.6 243.0 234.9 Shareholders’ equity $ 473.4 $ 288.2 $ 131.0 $ 112.3 $ 185.1 Number of employees 7,647 6,593 7,322 6,906 6,740
  • 3. To O u r S h a r e h o l d e r s :     . W D    . Revenues and Operating Income (in millions) earnings grew to record levels in fiscal 1995 even though competition remained intense, particularly in our core hard drive business. We were able to gain hard drive market share, improve our financial position and earn an important quality distinction last year, thanks to the dedication and hard work of more than seven thousand Western Digital employees worldwide. Charles A. Haggerty Our Microcomputer Products Group posted very satisfying results, operating profitably throughout the year for the first time. This improvement was made in con- cert with the conversion of the Group’s integrated circuit packaging and test plant in Malaysia to hard drive production, which required a shift to complete reliance on external sources for compo- nents. We have ambitious long-term growth goals for this operation. The Company’s Personal Storage Group again set records in unit shipments and revenues. Competition remains very tough in this part of our business, which has settled into a cluster of five principal competitors. Western Digital ranks among the top producers of 3.5-inch hard drives for personal computers, and indications are that our Personal Storage Group was a leader in market share gains last year. Revenues (in millions) This very profitable and responsive operation, by far our largest, is regularly first to market and first to volume in its industry’s unending product-development marathon. Its facilities are being expanded, and its prospects are bright. A third product group has been created to design and produce high-performance, high- capacity hard drives. The market for these drives, currently with capacities of two gigabytes or more, is being driven by strong demand from producers of workstations and servers. These segments account for roughly 22 percent of the hard drive industry’s revenue and a greater por- tion of its operating earnings. We are certain that Western Digital’s reputation for quality, relia- bility, responsiveness and customer satisfaction will help our new product line take hold quickly. This is an extremely important strategic step for our Company. A manufacturing facility for this activity is now being prepared in Singapore and is scheduled to be in production by the end of fiscal 1996. The amount and quality of the competition in all our product lines require that the Company maintain a regular flow of fresh, innovative products. With a goal of keeping
  • 4.     . Earnings per Western Digital first in quality market, first to market and first to volume, we have committed to Share invest more than $1 billion in research and development over the next five years. Western Digital’s strong financial performance last year enabled us to reduce the Company’s long-term debt to zero. The last debt issue, about $40 million of convertible subordinated deben- tures, was called for redemption in June 1995. The Company’s share-repurchase program, extended by the Board of Directors until September 1996, was interrupted by the call of our convertible debenture issue. As of the fiscal year’s end, our treasury had completed the purchase of about one and a half percent of the Company’s shares. The Board’s authorization is for as much as 10 percent. We will continue to monitor stock price movements and act when appropriate in order to build value for our shareholders. During the 1995 fiscal year, Western Digital earned company-wide ISO 9001 registration, becoming the first of the then-member companies of the FORTUNE 500 to be so recognized. The award of this registration honors the establishment of quality-assurance processes throughout Western Digital, from manufacturing and marketing to such enterprise-wide services as human resources and finance, and in locations from Singapore and Malaysia to Irvine and Munich. We Shareholders’ Equity (in millions) take it as a challenge to further improve our commitment to excellence in high-technology prod- ucts, processes and communication. We have many opportunities: continued rapid market growth in PC hard drives; the leverage of our Company’s expertise in semiconductor devices, input/output links, software and board designs into the development of fibre channel fabric products; and the great promise offered by markets for our exciting new high-performance, high-capacity hard drives. So, we are optimistic about the future of our markets and of Western Digital. We aim to take advantage of the opportu- nities before us. Sincerely, ? ? ? ? ? ?@K62WW? ? ?@@@@&&WW? ? ?@@@@@@&&W ? ?@@??@@@ ? Charles A. Haggerty @J?5 ? @@2Wh?5@7?Y(@@&W?f@@@@@2O?O? ? September 21, 1995 5@@&W?h@@eY(@@7?e?L@@@@@@@2 ?H5@J??Y(@@J X-W? ? ,@&WW? ? Y(@@&WhH@&WeY(@&W??1@?eM0@@@2W? Y(@&&W ? ?H@@@&W?g?5@&W??Y(@&W?5@JfM0@@&W ?Y(@@&W?@2O?h@2O? @2W? ? ?H5@@@S?@@&WgH@@@@@2Wfh5@@@&Wg?Y(@7?eH@@&WH@7gM(@&O?W? Y(@@&T@@@2W?g5@@@2O @@&W ? Y(@@@&W?gH@@Je?5@@&W@@J?f?Y(@@2 ?eh@@@@@@@@@@2Oe5@@&W? ? Y(@@7?5@@7g?5@@@@@&W?fh(@@@&Wg?5@&W??Y(@@@@@7?gY0@@&WW? ?Y Y@@@&O ?Y(@@JY(@@J?f?Y(@@@@@&WfX6@@2WeY(@@@7g?Y(@&OeY(@@@@@J?@2WfM(@&&WW? ?eh@@@@@@@@@@@@@@@@@@@@@@@@@2O?@@@@@@@@@? ?H@@@@J?gY(@@2W?Y(@@@@&OY@&W?e?Y(@@& ?eh?M0@@4?0@@@@@@@@@@@@@@@@@@@@@@@@@@@@@? Chairman of the Board, Y(@&WY(@&WgH@@@@@@7e?X)@@@@7f5@@@&Wg?Y(@@&W?Y(@@@@@@@@7?fY(@@&W ?Y(@@@@WW?@@ M(@@@@@@@@ ? ?H@@&WY(@&W?f?5@@@@@@J??1@@?@@@fY(@@@7hY(@@&W?H@@@@@@@@@Jf?H5@@7 ? 5@@7?Y(@&Wf?H@@@@@@&O?@@3?@@3f?Y(@@@J?g?Y0@@&O=@@@@@@@@@7gY(@@J? Y(@@@& ? Y(@@J?H@@&O?f5@@@@@@@@@'VL@@NgY(@@&Wh?M(@@@>@@@X@@@@@g?Y(@7? ?Y(@@@&WW? ? ?Y(@&W?5@@@@2OeY@@@@@@@@@VK)@3?g?U@@@&W?hU@@@@V@@@SM0@@g Y(@@@&&Oe@@2?6@2W ? @2O?K)@@@@@@2T@@@@@@@&e?@@2W?fhH@@7?H@@@@@@@@@@@@@@@@@@@@@'V?g@@>@@@7?g@@@VX@@@@@@7fhH@@J @@@@ ? @@@@@@@@@@@@@@V@@@@@@@W??@@@&OK@O?h=@@@J?@@@@X@@@@@@@@@@@@@@@4Vh@@@>@@@?e?@O=@@@@@>@@@@@@J?eh?5@7 ? 5@@@@@@@@@@@@@@@@@@@@@&OeM(@@@@@@2Oe@@@@@V@@&W@@@@@SeM0@@@@@@@@@Weh5@@@V@@@2W?@@@>@@@@@SM(@@@&Oeh?H@@7? ? Y(@@@@@@@@@@@@@@@@@@@@@@3??1@@'V@@@@@@@@@@@@@@@@@@@?@@7?e?5@@@@Y(@@7?e?@@2O??Y@@@@@@@@@>@@@@@@@@@&W@@@@@@@@2O?g@@J? @@@?e@@@@@@@@2OY@@@@@@@@@@@@@@&W?e?@@@@@@@@&W?hY(@@@@@@@&T@@@@V@@@@&WH@@@@@@2O?h@@ ? ? ?Y(@@@@'?(@@@?M0@4?0@@@4V??5@@e5@@@@@@@@@@@@@@@@@@?5@@Je?H@@@@?Y(@@Je?5@@@@@@@@@@@@@@@@V@@@@@@@@@@@@@@@@@@@@@2Of@@3? ? President and Chief Executive Officer ?YY(@@&W0@@?fh?Y?5@@&WY(@@7?g?Y(@@?h?@4Ve?Y+VfY0@4I?eM0@@@?Y0M0@@eh?Y(@7??M0@@@@@@@N? H@@&WY(@@&W?g?5@@@?hH@@3eY(@'e?Y(@@@@@@@@@@@@Y(@@@@@Y0@@@@4IeY(@@J?@@@@@@@@@@ @@@@@@@@@@@@4?(@@@Y0 (@&WY(@@@WeM0@@@4V@@@@?Y0@@f5@@@ Y((@@&W? @@@??Y ? ? ? Y0@? ?Y(@@&WY(@@JhH@@? ?Y(@@7J? ? ?YY(@@?Y0@@?g?@@? @@&WH@@&W? Y((@@7?5@@7? Y(@@&W ? ?YH@@&W? (@ ? ? ?Y0@ ?5(@@? @@7? ? ?YY0@? ? ? ? ? ? ? ?
  • 5.     . Serving Global Markets for Infor mation Storage Management Western Digital Products Data Storage Personal Storage Data Storage High Performance Storage Connectivity Input/Output
  • 6.      . Personal Computing Desktop PC Mobile PC Enterprise Computing Printers CD-ROMs Other Peripherals Storage/Network/ Application Server Desktop/Workstation/Client PC A leader in information storage management, Western Digital makes possible the most effective individual and enterprise uses of computers by offering products that provide high-efficiency data storage and connectivity.
  • 7. Personal Storage Products     . P      , home offices and small Worldwide Desktop businesses continued to dominate computer-industry sales over the past (3.5-Inch) and Mobile year. These fast-growing segments propelled the computer industry to (2.5-Inch) Hard Drive record shipments of 52 million desktop and mobile units, and with them, Market Forecast record shipments of hard drives. Once again, our market grew faster than (units in millions) expected. Western Digital shipped 10.2 million drives last year, 49 percent more Source: IDC, August 1995 than in the preceding fiscal year. Industry analysts tell us our unit-shipment growth in calendar year 1994 yielded a three-point increase in share of the global hard drive market, the industry’s largest. We benefited in fiscal 1995 from numerous industry awards, and widespread market recognition and acceptance of our Caviar hard drives, the industry’s best known brand. Of every ten drives we make, three are Kathryn A. Braun marketed through resellers for system integration, storage capacity addi- tions, and to meet the upgrade demand from the PC installed base. The industry outlook is bright. International economies are growing stronger. While U.S. consumer demand drove the growth last year, a strong consumer market is emerging in Europe and Asia. As PC microprocessor technology continues its fast pace and new, capacity-hungry software applications and operating systems such as Windows 95 enter the market, the demand for bigger, better, faster storage systems will continue to be met by our world-class team. The Personal Storage Group’s production capacity grew 50 percent over the past year, from 1.9 million units per quarter to 2.85 million. Additions and improvements now under way could raise our capacity to four million units per quarter by the end of the current calendar year. Component and material scarcities that plagued our industry during its recent rapid growth were made known to us early because of Western Digital’s first-to-market, first-to-volume product introduction techniques. As we saw shortages developing, we were able to make changes to improve the availability of adequate supplies of most materials. In the case of disk media, we changed manufacturing methods and added a line to increase capacity by one third. Two more lines will be added this year. We now make about a third of our own media. For the future, we will continue to focus aggressively on the quality and reliability that built the Caviar drive line’s great reputation. We will continue our cost leadership under Western Digital’s “virtual vertical integration” style of production management. We’ll continue to leverage the Company’s electronic design expertise into every new product. And, we will continue our effort to lead the fast growing retail market as consumers increasingly prefer our widely recog- nized Caviar drives. ? ? ? ? ? ? ? ?X-W ? ?1@7J? ? ?5@@7? ? ?H@@@J ? Kathryn A. Braun, @@ ? 5@@&W?f?@@@ ? H@@@7?f?H@@ ? ?5@@@7g@@ @@@Jg ? ?H5@@@J?f@@J? ? H@@@7?f5@7? ? ?5@@@JfH@@? ? ?H@@@7f?@@? ? @@@@J?e?5@J ? 5@@@7?f@7 ?H ? H@@@@?f@@J? ? ?5@@@Jf@@7? ? ?H@@@7f5@@? ? 5@@@J?eH@@J ? H@?@7?e?@@7 ? ?5@@@Je?5@@ ? ?H ? ?H@@@7f@@ ? 5@@@f ? H@@@J?e5@J? ? ?@@@7?eH@7? ? ?5@@@Je?@@? ? ?H@@@7e?@@? K6@@@@@@@@@@@@@@@@@@@@@@2O 2O ? ?K6@?K6@@@@@@@@@@4I?f?M0@@@M0@@@@@2W?fhH@@@J??5@J 5@@@e ? M0@@&Ofh?@@@7??H@7J? @@@@@4I? ? M0M0@@2Wh?5@@@Je@@7? K6@@K6@@@@@4I? ? @@2Oeh?H@@@7e5@ @@4I ? MY(@&WhH@@@J?H@@? (@&W?h5@@@e?@@? ?K6@?K6@@@4I ? e @@@4I? ? Executive Vice President, Personal Storage Group ? Y(@&W?g?@@@7??@@J K6@@@@4I ? ?Y0@&Og?5@@@??5@7 K6?K6@I@4I @@@4@? ? ?M(@2Wf?H@@@??H@@J? ? Y(@&W?f5@@Je5@ ?K6@K6@@@@4I ? e @@@4I? ? ?Y(@&WfH@@7eH@7? ?K6@K6@@@4I? ? Y((@&We?@@@e?@@? @&W?e @@4I ? ?YY(@&W??5@@e?@@? K6?K6@@@@4I? ? ?Y(@&O?H@@J??5@J @@e @@@@4I ? Y(@@e@@7??H@7 ?K6@?K6@@@@4I? ? ?Y0@@@@@@Je5@J? e@ @@ @@@@4I ? @7eH@7? ?K6@K6@@@@4I ? @ @@@4I? ? 5@J??@@? K6?K6@@@@@4I ? H@7??5@J @@@@@4I? ? ?5@J?H@7 K6@@K6@@@@@@4I ? ?H@7e@@ @@@@@4I? ? 5@J?@@J? X)O?@@@@@@@@K6@@@@@@@4I? ? H@&T@@ 1@@@eK6@@ @@@@4I ? ?5@@V@7? @@@@@@@4I?@@4I ? ?H@@?@@? ? 5@@@3? ? Y0@4V? ? ? ? ? ? ? ? Personal Storage Products
  • 8. Input/Output Products ? ? ? ? ? ? ? ? ?@@? ? H@@? ? ?Y(@@? ? ? ?MY0@?h?Y0@@?h?M0@@?h?5@@7? (@@?eM0@@@4?(@@@?fM0@@@@@@@?hH@@&W? ? ?Y0@@? ? ?5@@7? M0@@4I?M0@@@?Y?M0@@@@?M0@@@@@@@@@@7?eM0@@@@@@@@@@@4I?e?Y(@@J 0@@@@@@@@@@@@@@@@@@&W?M0@@@@@@@&OK6@@@@@@4?(@@7? ? ? ? H@@@J? ?M0@M0@@@@@@@@@@@@Y(@@@@@@@@@@@V@@@@@@@JY0@@@@@@@@2WfK6@@@@@@@&W? @@@@@@@@@@@@@@@@@@@@@@@@2OU@@@@@@@@Y(@@@@@@@&OhK)@@@@&W ? ? ?Y0@ ?Y(@@7h@@@@@@@@@@@2O?U@@@@&O?H@@@&T@@@@@2W??5@@@&W@@@@@&W@@@@&Weh?H@@@7J? H5@@@W@4I?eM0?M0@@@@@@@@@@@@V@@@@@2W@@@@@V@@@@@&O?Y(@@@@@@@@@@@@@@@@&W?h?L@@@@ @@@@@ ? ?M0@@? M(@@ 5@@@@@@@@@@@@@@@@@@@@@@&O? M(@@&W ? ? ?M0@@@e?M?M0@@@@4V?eM0@@@@@?g?M0@@@@?h@@@@@@fY(@@@'V?e?Y(@@@f?M0@@@@@@@@@@@@@@@@@@@3? 0@@@@@@@'IM0@@@@@@@?f?M0@@@@@7?eM0@@@@?M0@@@f?Y0@4VgY0@@@@g?M0@@@@@@@@@@@@@@4V? ?H@@&O?Y@@@@@@@@@@e@@@@&We?Y(@@@&We5@@&W?@@@&O?e?@@@2W?@@@@2W?@@@&W?eh@@@7f?M@? Y0M0@@@@J? ? ?M0@4IeM0@@@?eY0@@@@@@?M0@@@@@2?)@@@@@@@@@@@@@@@@@@@@@@@@@WM0@@@@@@@@@@2O?e?Y(@@@@@3?eY(@@@7f@@@@@@2Oeh?@@@7? H@@@R0@@@@@2O??K)@@@@@@@f?@@@&Wf@2W? ?5@@J?M(@@@@@@@@@@@@@@@@J?e?5@@@&W?e@@&We@@2Weh?@@2O?e@@2Weh@@@@&We?Y0@@? ?M(@@@ ? Y0 ?M(@@X@@@@2Og?@@@@@@@@@ ?@@2W? ?M0@@@@@@@J? @@@@@@@@@@@@@@@@@@@@@@@@@@@??M0@@@@4I?M04Vf?M?M0@@@@@@@@@@@@??M(@@@@@@@@@@@@2O?e?@@@@@2OY@@@@@@@@@@@@@@@@@@@@@@@@@@@@2O?fY(@&OK)@@N?Y(@@@ 0@@@@@@@@@@@@@@Y0@@@@@V@@@@@@2O?e?M(@@@2O?M(@@@@@@2W@@@@@@@@@@@@2OY@@@&O?f?Y(@@JeX)@'?(@@@& ?M(@@@@2W? ?M(@@@@@@@@@ ?M0@@@2W@@@7eeY(@@7? ?eh?M@?@I@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@Y0@@@@@@@@@@@@3e?Y0@@@@@@@@@@@2OY@@@@@@2OU@@@@@2O?e?Y0@@@@?e@@@@@@2Oe?@@2?)@@@@2OeY(@@&WgY(@@7?e?L@@@@@@&W&W @@@@@&O? @@@@@@@@@?g@@@@@@@@@@@@ @@ ?M0@@@2O?H@@&We?Y(@@&W? ?h?@@@@@@@K6@@@@@@?K6@@@@@@@@@@@@@@@@2O?eY@@@@@@@2W@@@@@@@7eM(@@@@@@@@@@2Oe5@@@@&O??5@@@&O?fY(@@@@@?e@@@@2Oh?X62O?e?Y(@@&W?g5@@&W?f@@@@@@J?W? ? ?H@@&O2W @@@@@@@@@@@@@@@@ ?M0@@@2Oe?5@@J?Y0M(@@2W ? @@@@@@ ?Y(@@@@@ ?H@@&Wf?H@@@@@7 @@W? @@@@@@@@@@@@@@@@@@@@@@@@@2O? ?M0@@@2Of?@@@?M(@@@&O Executive Vice President, Microcomputer Products Group ? 5@@@@2O??H@@@@@@&WY0@@@2OY@@@@&Oe?H@@@@2WeH@@@&WfY(@@&W@@@? ?5@@&WgY(@&W?fY(@@@@&W ?5@@@4I? ?Y0@@@@&O?e?K6@@@@@@@@2O? ?Y0@@@&OgH@@@@@@@@&W? ? 1@@&O?e?5@@V@@@JY(@@&O??5@@@&W?e?5@@&Of)@@&W?f(@@&W?@@@?e@@2O ?Y ?@@&W?g(@@Jf?Y(@@@@@J? ?Y ?16@@@@@ Y(@@@&&W M(@@@2W?g5@@@@@&O2W ? X62Wf?@?=@@@XR(@@2We?@@@&Wf?@@2W?fX62WfY(@@&W?H@@7? ?@2Wg?5@@7?fY(@@@@@@N? ?X?Y@@@@fh?Y(@@@&WW? ? ?H@@@@@@&Of?@@2W? ?Y(@@&W??5@7J? M(@@@@ M0M0@@&Oeh@@@@@2W? ? ?5@@@@@&W? H@@&W?eY(&OU@@@?@@? M(@@@7fh@@@@@7 Y0@@@@@2W?eh@@@&O? ? H@@@&O2W ?YY(@@&WeH@@J ?Y(@&Wf?Y(@@V@@@@3?fhY0@?g@@@@2Weh(@@@@@&WJ? ?5@@J?e?Y(&W?5@@7?@@?fh5@@??M0@@@ ?YY0 ?Y(@@&@2O?fh@@2W ? ?Y(@@&W? Y((@@&W??Y(@7? M(@@2WO? ? 5@@@&We?5@@J? ?Y(@&We?M(2W?Y(@@J??@@?fhX6@@@@@2O? H@@7fY(&W?H@@&W?@@?fh1@@@@@@@@@@@2Oeh(@&OY@@7J? ?YY(@@@@@@ ? ?YY(@@&W (@@&W? ?H@@@&W?eH@@7 ?5@@J??Y0&O?e5@@7e?1@? Y(@&W?5@ ?YY0@@&O ? Y(@&&We?Y(@&W H@@7e?5&We?H@@&We?L@? ?Y(@&W?H@@@J Y((@@&W? ? ?YY(@@&W ?Y(@&WW?eY(@@J? ?Y(@&We?&W?eY(@@J?f@? Y(@&W?Y(@&7? ?Y(@@@&W ? Y((@@@J? ?5@@J?e?Y(@@7 ?5@@J?h5@@7g@? ?Y(@&We5@@JW? M(@&@2W? ? ?Y(@@@@7 H@@7eeY(@@&W H@@7h?H@@&Wg@? Y(@& Y0@@&WO? ? Y(@@@@&W 5@&We?Y(@@&W? ?Y(@&WW??H@@7? ?Y(@@@S? ? 5@@@@&W? @@J??MY(@@&W ?H5@@JhY(@@J? ?5@&W?eY(@&W? Y( ? ?H@@@&&W @7?Y0@(@@&W? Y(@@7?h5@@@ H@&We?Y(@@J ?Y(@@@@X@@@? ? ?5@@&WW? @WM(@@@@&W 5@@&W?h@@@7 5@J?e?5@@7? Y(@@@@@@2O ? ?@@2W? @@@@@2@2W? ?H@@@Jeh@@2W @7e?MH@@&W? 5@@&@@2O ? @@@2O?O? ?5@@7? @J?Y @@2WO? ? H@@7J? ?H@?M(0@(@&W ? ?Y(@@J ?5@@@@@@@&W? Kenneth E. Hendrickson, ? Y(@@ ?1@@@2@2&W ? 5@@&7? ?L@2O?O?W? ? 1@&WW? ? X-W? ? ? ? ? ? cation channels. leverage its knowledge into a much broader line of products for high-performance data communi- grated semiconductor devices, input/output links, software and board designs, our team is set to enhanced by the addition of these new products. With the Company’s background in highly inte- Western Digital’s leadership position in information storage management is further communication of data across the campus of a university, a medical center or a large corporation. fabric communications. This remarkable technology permits better and faster enterprise-wide strategic move, as it improved our capabilities in the exciting business of high-speed, fibre channel Developments in fiscal 1995 proved Western Digital’s Modulinc acquisition to be a sound capabilities for personal computers using the familiar Peripheral Component Interconnect bus. controllers—products that provide access to high-performance Small Computer System Interface announced and shipped three host controller products based on our highly successful SCSI device ucts that were leveraged from earlier technological developments. We Kenneth E. Hendrickson Microcomputer Products last year began shipping exciting new prod- links between computing, storage and peripherals. opportunities for exciting technological advancements in the high-speed growth opportunities. They are highly competitive, but these markets offer Markets for the Group’s input/output products offer outstanding will be added in the current year. Source: IDC, 1995 costs as we enlarged our set of dependable supply partners. More suppliers ity. On that new basis we were able to show shorter cycle times and lower (units in millions) Fiscal 1995 was our Group’s first full year without a fabrication facil- and Multi-user Systems) or exceeded its plan in revenue and gross profit. Servers, Workstations, cal 1995. The Group improved its financial predictability as our team met Forecast (Clients, Computer Market fiscal 1994, and contributed to the Company’s bottom line throughout fis- Worldwide Enterprise T M P G   in late .     Microcomputer Products
  • 9. High Performance Storage Products ?YY04V ?5(@@3 @@@@ H@@@@@ 5@@@@7 ?H@@@@@J ?5@@@@7? ?@@@@@ H@@@@7J? ?H5@@@&W @@ Y(@@@&W? ?M(@@@&W ?Y0@@@@@J? ?M0@@4I? Y04VfhM0@@@@M04I@4I? @@@@ Y(@@@@@7 ?Y0@@@@@@@4V ?M(@@@V@@Jeh?M0@@4?0@@4Ve?@@@ ?Y04V?g?M0@4If?M@IgM(@@@@@@@@@'V? @@f M(@@@@@@0@@@f(@@2O?gK) ?M0@@@2T@@@?e?M0@@@?Y0@@@@@@@@@@3eH@@@fM0@@@@@?fM(@@'?e?M0@@@@@@@@@@@@@@@@?eY0@@@@2O?K6@@@'V @@@@@@N?e?Y04I?M04I?Y(@@'IM@@@@?Y0@@&O?h@@@4V? @@@@e?MY0@@@@@@@@@@?X @@@@)@3??Y(@@@@@@@@@@@@@@@@@@@@7?5@@&Wfh@@'VN? X)@@ ?M?M0@@@2Oe@@@??Y0@@@@@Y(@@@@@@@@@@@@?M(@@7eY0@@@@@@@NeY0@@@@J?M0@@@@@@@@@@@@@@@@@@@??Y(@@@&Of?K)@@'V? 0@@@2Oe?H@@@BM(@@@@@@@@@@@@@@@@X)@@@@@@@W?M(@@@@@@@@'IM(@@@@@Y0@@@@@@@@@@@@@@@@@2O?eY(@@@&W?gX)@@'V @O?KL@@?M(Y(@@@@@@@@@@@@@@@@@@&WH@@&W?fh)@@33? @@@@@@2Of?5@@X@@@@@@@@@@@@@@@@@@@?L@@@@@@@@@@@@@2O??@@@@@@@@@@@@@@@@2OY@@@@@@&Og?Y(@@@@Wh?X@@@'V? ?@@@@@@@@@@@@@@@@@V@@@@@@&W?5@&W @@@@@@&W@@&T@@@@@@ ?X)@@? L@ ?@@@@@@&?6@2W?@@JH@@@@@@&We@@J? ?@@N @@@2O?gH@@@@@@@@@@@@@@@V@@@@@@@e@@@@@@@@@@@&O?e?@@@@@@@@@@@@@@2O?Y(@@@@@&W?gY(@@@@@@@@@@@@@@@@@@@@'I@4V? 5@@@@@&?)@@@@2O=@@@@@@@7e@@@2?6@@@@2Wf?@@@@@2O?@@@&Of5@@@@@&Wg?M(@@@@@@@@@@@@@@@@@@@@@@@ ?@@3 Vice President, Operations, High Performance Storage Group ?@@@@@&Wg@@?@@@@@&Wf@@ H@@@@2W?h?5@@@@@&W?e@@ ?@@@ @@@@@2W?X6@2O?e@@@@2O ?X)O @@@@@&W?e@@@@@@@@@@2Oh @@@@@X@? @@@2O?eh@@@@@@2WhK62Og?1@@2Oe?@@2W?f@@2O?M0@@@?M0@@@@@'Ie?M0@@@@@?M0@@@@@@@@@3? @@@@2WeM0@@2Oe@@V?e 1@'VgM0?M0@@@@??1@@ ?M0@@@2Og1@@@@@@@@@@@@@@@@@@@@@@@@N @@@@2OeK)@3 ?H5@@@fh?@@@@2W?f@@N?h@@2Of?5@@ @@@@fh?@@2O?gX)@'I??M0@@@@@@@@@@?e@@ @@ ?YY(@@@7 (@@@ )@@@@@@@@@e?M04V??@@7 @@@2O? @@N? ?5@@@@@J ?X?@@@@@@@@@@@@@@@*??@@J M0M0@@@@2OhX6@@@@@@@@2Oeh?L1@3? ?@@@@@@? ?@@? Y0M0@@@2O? @@@2O? L@@? ?M(@@@@@@@@@@@@@@2W??@@? ?@@? ?@@@2&7? ?@@@@WW? ?M0@@@2Oe?K6@@@2OfH@@? ?Y?M(@@2O? ?@@? ?@2O ?M?M0@@@2O Y(0@@&O? @@&W ?@ ?M0@0@@@2O ?H5@7? ?Y(@@&W? ?@@? ?M0@@@@@2O ?5@@J? ?5@@&W ?@@? ?Y0@@@2O2O H@@7 ?@@&W? ?@@? ?Y(@@J @J ?@@? M0M(@@2O @@&O Y(@&7? ?@@? ?@@? 5@&WW? ?@@? H@@? ?YY0@@@2W? (@@&O? ?@@? 5@@? ?Y @&W? ?@@N ?H@@7? ?YY(@@2W (@&O Y(0@&W ?@@'V? ?5@7J? ?5@@J? ?M(@@&W? ?1@@3? H@@J @7 ?Y0@@&&W ?L1@@? ?Y(@7? H@@J M(@@2WW? @@4V 5@@? X)6@@'I? ?YY(@&W? (@&W 1@@? ?M M0@@2O ?X?K)@@4I? L@@@4I ?M0@0@ @@@4I? M0M(@&W? @@2W ?1)@@@4Ih?M0@@@@@@@@@2O Paul A. Penney, X6?K6@@4I? ?XX6@@@@@@@@@@@@@@@@@2O?2O2O @@@4I? ?M0@@@@@2O ?K6@@@@@@@@@@2O? ?K6@K6@@@@@@@@4Ie?M0@@@@@@@@@?M0@@@2O K6@@@@@@@@@@@@@@@@@2O?@@2O M04I ?M0@4I?M0@@4I?f?M0@@@ ?@@@@@@4V?fhY0@@4IM0@@@@@?e?MY0M04VV?f@@ @@@@@@'V (@@@@''?f@@ @@@@ 0@@@@@@@@@@@@@@@@@@@@@0@@@@@ @ I? ?L@@@@@@@'V?h?M(@@@@@@@@@@@@Y0@@@@@@@@@J?f@@N? ?Y?M0@@@@@@@@@@@@@@@@@4?@@@@@@f?M0@@@@@@@@@@@@@@4@@@@@@@@@4I? ?K62?)@@3?eM0@@@@@@@@@@@@@@&O?@ ?5@@@2O?fh?K6@K@@@@@BM0@@@@@@@@@@@@@@@@@@@K6@@@@@@@@@@@@@@@@4V ?@@2O? @@@@@@@@@@&Wg@@@? ?)@@@>@@@@@2O? 6@>@@@ @@@' ?XL@@@@@@@2OY@@@@??5@@&We?X@@@@@@@@@@@7g@@3? )@@?M0@@@@@@@@@??Y@@@&W??162O??K6@@2W?g@@@? X?=@@&O2O K6@@@@K@O? ?1@@@@2O?Y(@@@@??@@& @@@? ?H@& ?X6@2Oe?5@@@@7?H@@JW? @@@? ?5@JW? ? @@@N ?@@? ?@@@@&W?5@@? @@@'I? ?@@? Vice President, Research and Development, High Performance Storage Group @@2W?e@@@?0@@@@? ?H@@@Y @@@@@@@@@@ ?@@? ?@@@&WM(@@@@@@@@@?eh?M0@@@@@@@@@@@@2O? ?1@N Y04If?M0@@@@@@@@@@@@@@@@?f?M0@@@@@@@@@2W@@e@@V? @3 ?Y(@@@@@@@@@@@@@@@@@@@hM0@@@@@@@@@2O?f@@N?1@'V ?L@@N? @@3?X)@'V? 1@3? ?,@@@@@@@@@@@@@2O??K6@fM0@@@@@@@2O?eh@@@??X)@'V ?X6@@@2O M0@@@@@@2O L@@Neh?M0@@@ M0@@@@ X)@'V? ?1@3g?M0@@@@@@@ M0@@@2O?2O ?X)@'I ?L@@N?e?M0@@@@@@2O? Y0@@@2 @@4V 1@'V?Y0@@@@2 ?Y(@@2O?O? X6K)@'I? X)@'?(@@@2O?O? ?5@& )@@4V? @@@@@2 ?@@JO? ?XX6@@'V ?L@@@&O?O? ?@@N ?@@3 @@@J ?1@'I? ?@@@ @@@? )@@4I? M0@@@@ @@@? ?XX6@@@@4I ?M0@@@@2O? @@@N 1@@3 K6@@@@@@4I@@4I ?K6@@@@@ ?M0@@@?M0@@@@@@2O? @@@@@@2O L@@7 @@@@@@@@@@@@@@@@@@@@@@ ?@2W Townsend H. Porter, Jr., ?K6@?K6@@@@@@@@@@@@@@@@@2O@@@@2O ing yields and cost will meet Western Digital’s high standards. production later this fiscal year, we are certain that customer satisfaction, reliability, manufactur- and superior production yields in which Western Digital is a recognized leader. As we commence long-term suppliers. In that plant, we plan to leverage the manufacturing processes, technology We are preparing a production facility in Singapore, near many of Western Digital’s trusted, first product. Prototypes currently being tested have exceeded the requirements set for them. Functional Integrity Testing Laboratory (FIT Lab), and is well along in the development of our agers and engineers has constructed a research and development center, pilot production line and Minnesota, has made significant strides to meet these goals. Our staff of experienced drive man- drives before the end of the current fiscal year. The Group, headquartered in Rochester, creation of the High Performance Storage Group in November 1994, which will produce its first Western Digital entered this business with the tinue to be strong. Paul A. Penney Townsend H. Porter, Jr. market segments, demand in this industry will con- and moderate increases in workstation and multi-user years. With the explosion of the LAN server market pound growth rate of 22 percent over the next three growth is expected to continue at an annual com- Source: IDC, August 1995 seven million units will be shipped in 1995. This million units in 1994, and industry estimates are that (units in millions) Industry shipments of this class of drive totaled two Market Forecast opportunity for Western Digital Corporation. 3.5-Inch Hard Drive bytes and higher—represents a tremendous growth Capacity (2 GB+) —those with storage capacities of two giga- Worldwide High T   -  .     High Perfor mance Storage Products
  • 10. Asset Management Leadership     . T C    all its fiscal 1995 goals for Average Operating financial performance, and led its industry in the key measurements we Asset Turns consider most important for a manufacturing company in a brutally com- petitive industry. We maintained our high-velocity employment of assets, and led in the turnover of inventory, operating assets and total assets. Our finished goods inventory of hard drives, for example, was equal to three days’ production at year’s end. Our cash conversion cycle, which measures the elapsed time from the outlay of cash for inventories to the receipt of cash, was reduced fur- ther to 19 days. Reflecting our “virtual vertical integration” manufacturing strategy, Western Digital produced $26 in sales per dollar of property, plant and equipment last year, more than twice the average for our industry. The D. Scott Mercer Company also doubled the merchant hard drive industry’s averages with its 28 percent operating return on operating assets and with returns of 16 percent on total assets and 32 percent on shareholders’ equity. Western Digital’s balance sheet, already the industry’s strongest, improved further as the last of our long-term debt was extinguished. Especially satisfying was the growth of our cash position to $308 million, and the 64 percent growth in shareholders’ equity to a record $473 million. Last year’s $55 million in capital expenditures was directed mainly to the expansion of hard drive media production and to the retooling of our Malaysian facility into a drive manufacturing site. This year, spending will be increased to about $125 million as we expand the Singapore manufacturing operation, increase the size of the Malaysian facility, and make preparations for high-performance drive production. Western Digital’s financial disciplines have enabled the Company to grow rapidly and profitably. We will continue to adhere to them as we extend the Western Digital record of proven performance. D. Scott Mercer, ,,,,,,,,,,,,,,,,,, ,,,,,,,,,,, ,,,,,,,, ,,,,,,,,,,,,, ,,,,,,, ,,,,,, ,,,,,, ,,,,, ,,,,,,,,,,,,,,,,,, ,,,,,,,,,,,,, ,,,,,,,,, ,,,,, ,,,,,,,,,,,,,,,,,,, ,, ,,,,,, ,,,,,,,,,,,,,,,,,,,,,,,,,,,,,, ,,,,,,,,, ,,,,,,,,,,,,,,,,, ,,,,, ,,, ,,,, ,,,,,,,,,,,,,,, ,,,,,,,,,, ,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,, ,,,,,,,,,,,,,,, ,,,,,,,,, , ,,,,,,,,, , ,,,,,,,,,, ,,,,,,,,, ,,,,,,,,, , ,,,,,,,,,,,,,,,,,,,,,,,,,,,, ,,,,,,,,,,,,,,, ,,,,,,,,,,,,,,, ,,,,,,, ,,,,,,,,,,, , , ,,,, ,,,,,,,,, ,,,,,,,,,,, ,,,,,,,,,,,,,,,,,,,,,,,,,,,, ,,,,,,,,,,,,,,,,, ,,,,,,,,,,,,, ,,,,,,,,, , , ,,, , ,,,,,,,,,,, , ,,,,,,, , ,,,,,,, ,,,,,,,,, ,,,,,, ,,,, ,,,,,,,,,,, ,,, ,,,,,,,,,,,,,,,,,,,,,, ,,,,, , ,,, ,,, ,,,, ,,,,,,,,,,,,,,,,, ,,,,, , ,,, ,,,,,,,,,,, ,,,,,, ,,,,,,,, , ,,,, , , ,,,,,, ,,,, , ,,,,,,, ,,,,,,, >, Executive Vice President, Chief Financial and Administrative Officer B
  • 11.    Serving a Big New Market For Replacement and Add-on Applications  . A- W D  have rapidly gained retail recognition and acceptance as cus- tomers increasingly reach for these products to answer needs for greater efficiency in data storage management. Caviar hard drive kits marketed through retail chan- nels help consumers upgrade and enlarge their data storage capacities as the larger “footprints” of software programs and operating systems, such as Windows 95, consume ever- greater amounts of storage capacity. Western Digital’s PCI-SCSI adapter kit makes avail- able the increased performance of the Small Computer Hard Drive Products System Interface (SCSI) to users of personal computers and workstations employing the Peripheral Component Interconnect (PCI) bus. Input/Output Products
  • 12. Index to Consolidated Financial Statements     . Management’s Discussion and Analysis of Financial Condition and Results of Operations 12. Consolidated Financial Statements 16. Notes to Consolidated Financial Statements 20. Independent Auditors’ Report 30. Quarterly Information (unaudited) 31. Common Stock Information 32.
  • 13.     . Management’s Discussion and Analysis of Financial Condition and Results of Operations O Western Digital operates in an extremely competitive industry characterized by short product life cycles, dependence upon a limited number of suppliers for certain component parts, dependence upon highly skilled engineering and other personnel and significant expenditures for product development. The hard drive market is also subject to recurring periods of severe price competition, the most recent of which occurred during the fourth quarter of fiscal 1993 and the first quarter of fiscal 1994. The Company’s hard drive product strategy is to be the first to market with the highest capacity per platter hard drives at competitive prices. The successful implementation of this strategy during the last three fiscal years has resulted in significant increases in unit shipments of hard drives, with attendant improve- ments in factory utilization and manufacturing efficiencies, lower component costs and overall reductions in per unit manufacturing costs. During fiscal 1994 the Company also implemented a “fabless” manufacturing strategy for its microcom- puter products business by selling its silicon wafer manufacturing facility and entering into supply agreements with several suppliers of integrated circuits. This resulted in an immediate reduction in manufacturing costs, which significantly improved microcomputer products gross profit margins during fiscal 1994 and 1995. These factors, combined with stabilizing industry conditions, resulted in Western Digital improving operating earnings to $133.0 and $91.9 million in fis- cal 1995 and 1994, respectively, after incurring an operating loss of $10.0 million in fiscal 1993. Although microcomputer product operations improved signifi- cantly from fiscal 1993 to fiscal 1994, hard drive product operations accounted for the majority of the increase in operating income during this period. During fiscal 1995, hard drive product operations improved modestly, while continuing improvement in microcomputer products operations, although at a reduced rate from fiscal 1994, provided most of the increase in operating income from fiscal 1994. Western Digital’s continuing focus on asset management, combined with the improvement in operating income, has resulted in the Company strengthening its financial position during each of the last three years. Key measures of these improvements are as follows (dollar amounts in millions): 1995 1994 1993 Cash and short-term investments $ 307.7 $ 243.5 $ 33.8 Cash flows from operating activities 121.3 178.8 55.9 Long-term debt — 58.6 182.6 Net interest and other income (expense) $ 12.0 $ (5.8) $ (15.1) Average: Inventory turns 19.5 12.7 9.5 Operating asset turns 4.5 3.4 2.5 Asset turns 2.8 2.6 2.3
  • 14.     . Unless otherwise indicated, references hereinafter to specific years and quarters are to the Company’s fiscal years and to fiscal quarters. R  O: Comparison of 1995, 1994 and 1993 The Company reported net income of $123.3 million for 1995 compared with net income of $73.1 million for 1994 and a net loss of $25.1 million for 1993. The increase in net income in 1995 over 1994 resulted from a 38% increase in revenues, a reduction in operating expenses as a percentage of revenues, and higher net interest and other income. Partially offsetting these improvements was an approximately two percentage point decline in gross profit margin. The improved operating results from 1993 to 1994 resulted from a 26% increase in revenues and an improvement in gross margin of approximately six percentage points. Sales of hard drive products were $1.9, $1.4, and $1.0 billion in 1995, 1994 and 1993, respectively. During 1995, unit shipments increased 49% which, combined with a modest decline in average selling prices (“ASPs”), resulted in hard drive revenues increasing 41% from 1994. Increased business with original equip- ment manufacturers (“OEMs”) during 1995 accounted for the majority of the increase in unit shipments. During 1994, unit shipments increased 56% from 1993, but declining ASPs reduced the 1993 to 1994 hard drive revenue growth rate to 32%. The revenue increase in 1994 resulted primarily from increased busi- ness in the retail and distribution channels. Sales of microcomputer products were $191.0, $160.0 and $178.0 million in 1995, 1994 and 1993, respectively. Year-to-year variations in microcomputer product sales were generally attributable to product introduction cycles. Gross profit margins were as follows: 1995 1994 1993 Hard drive products 16.2% 19.1% 15.3% Microcomputer products 41.8% 33.7% 12.5% Overall 18.5% 20.6% 14.9% During 1995, the Company increased its shipments of hard drive products to OEMs, which typically require lower prices and a broader product mix (includ- ing lower capacity hard drives) in exchange for high volumes. Overall hard drive industry conditions also became more competitive during 1995 as the industry’s manufacturing capacity more closely matched demand and competitors continued to shorten product development cycles. These were the primary factors which con- tributed to the decline in hard drive product gross margin during 1995.
  • 15.     . Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued) The improvement in hard drive product gross margin from 1993 to 1994 was the result of a significant increase in unit shipments which reduced per unit production costs by lowering component costs and increasing manufacturing effi- ciencies. As compared to 1993, the Company also increased its relative level of business with retail and distribution customers that typically purchase product in lower volumes, but at higher ASPs. The improvements in microcomputer products gross margins were generally attributable to lower product costs resulting from the Company’s fabless manufac- turing strategy implemented in January 1994. Research and development expense (“R&D”) in 1995 increased approxi- mately $18.0 million, or 16%, as compared with the prior year and increased approximately $11.2 million, or 11%, from 1993 to 1994. These increases were primarily attributable to planned expenditures to support new hard drive product introductions. Selling, general and administrative expenses (“SG&A”) increased $17.1 mil- lion, or 15%, from the prior year and $22.8 million, or 25%, from 1993 to 1994 primarily as a result of higher selling, marketing and other related expenses in sup- port of higher revenue levels and higher variable compensation plan accruals. Interest and other income was $12.0 million in 1995, comprising net inter- est income of $8.9 million and a $3.1 million gain from the sale of stock held for investment. Net interest expense was $5.8 million and $15.1 million in 1994 and 1993, respectively. The improvement from 1994 to 1995 was the result of signifi- cantly lower levels of outstanding debt and higher average cash and short-term investment balances. The $9.3 million decline in net interest expense from 1993 to 1994 was due to significant reductions in outstanding debt. The provision for income taxes in 1995 and 1994 consists primarily of taxes associated with certain of the Company’s foreign subsidiaries which had tax- able income. The Company’s effective tax rate of 15% recorded in 1995 and 1994 results primarily from the earnings of certain subsidiaries which are taxed at sub- stantially lower tax rates as compared with United States statutory rates (see Note 6 to the consolidated financial statements).
  • 16.     . L  C R At July 1, 1995, the Company had $307.7 million in cash and short-term invest- ments as compared with $243.5 million at June 30, 1994. During 1995, the Company generated $121.3 million in cash flow from operations, with cash flow from earnings, net of depreciation and amortization, and an increase in current liabilities being offset by cash used to fund increased accounts receivable, invento- ries and other assets. Capital expenditures totaled $54.8 million and were incurred primarily for the expansion of media production and the retooling of the Company’s Malaysian facility into a hard drive manufacturing site. The Company anticipates that capital expenditures in 1996 will total approximately $125.0 mil- lion and will relate to increased hard drive capacity and normal replacement of existing assets. Approximately $10.8 million was used to repurchase 805,000 shares of the Company’s common stock in the open market in 1995. The Company believes that its current cash and short-term investments and anticipated future cash flow from operations will be sufficient to meet all currently planned expenditures and sustain operations during the next fiscal year. The Company has an $85.0 million accounts receivable facility with certain financial institutions. The facility consists of a $50.0 million arrangement at Eurodollar or reference rates of the participating banks which expires in 1997 and a $35.0 million committed arrangement at a rate approximating commercial paper rates which expires in 1996. This facility is intended to serve as a source of work- ing capital as may be needed from time to time. Notwithstanding the significant improvements in financial position realized over the past years, the ability of the Company to sustain its improved working capital management and to continue operating profitably is dependent upon a number of factors including competitive conditions in the marketplace, general economic conditions, the efficiency of the Company’s manufacturing operations and the timely development and introductions of new products which address market needs.
  • 17. Consolidated Statements of Operations     . Years ended (in thousands, except per share amounts) July 1, 1995 June 30, 1994 June 30, 1993 Revenues, net $ 2,130,867 $ 1,539,680 $ 1,225,231 Costs and expenses: Cost of revenues 1,736,761 1,221,749 1,043,184 Research and development 130,789 112,827 101,593 Selling, general and administrative 130,286 113,224 90,470 Total costs and expenses 1,997,836 1,447,800 1,235,247 Operating income (loss) 133,031 91,880 (10,016) Net interest and other income (expense) (Note 2) 12,002 (5,838) (15,092) Income (loss) before income taxes 145,033 86,042 (25,108) Provision for income taxes (Note 6) 21,731 12,906 — Net income (loss) $ 123,302 $ 73,136 $ (25,108) Earnings (loss) per common and common equivalent share: Primary $ 2.56 $ 1.77 $ (.79) Fully diluted $ 2.47 $ 1.70 $ (.79) Common and common equivalent shares used in computing per share amounts: Primary 48,198 41,363 31,813 Fully diluted 51,420 45,680 31,813 The accompanying notes are an integral part of these financial statements.
  • 18. Consolidated Balance Sheets     . July 1, June 30, (in thousands, except per share amounts) 1995 1994 A Current assets: Cash and cash equivalents $ 217,531 $ 243,484 Short-term investments 90,177 — Accounts receivable, less allowance for doubtful accounts of $9,309 in 1995 and $10,825 in 1994 (Note 4) 303,841 201,512 Inventories (Note 2) 98,925 79,575 Prepaid expenses 19,663 12,917 Total current assets 730,137 537,488 Property and equipment at cost, less accumulated depreciation and amortization (Note 2) 88,576 73,417 Intangible and other assets, net (Note 2) 40,127 29,608 Total assets $ 858,840 $ 640,513 L  S’ E Current liabilities: Accounts payable $ 250,325 $ 172,730 Accrued compensation 30,064 21,706 Accrued expenses 89,213 81,308 Total current liabilities 369,602 275,744 Convertible subordinated debentures (Note 4) — 58,646 Deferred income taxes (Note 6) 15,812 17,884 Commitments and contingent liabilities (Note 5) Shareholders’ equity (Notes 4 and 7): Preferred stock, $.10 par value; Authorized-5,000 shares; Outstanding-None Common stock, $.10 par value; Authorized-95,000 shares; Outstanding-50,482 shares in 1995 and 44,895 shares in 1994 5,048 4,490 Additional paid-in capital 355,624 283,475 Retained earnings 123,576 274 Treasury stock-common shares at cost; 805 shares in 1995 (10,822) — Total shareholders’ equity 473,426 288,239 Total liabilities and shareholders’ equity $ 858,840 $ 640,513 The accompanying notes are an integral part of these financial statements.
  • 19. Consolidated Statements of Shareholders’ Equity     . Retained Additional Earnings Total Three years ended July 1, 1995 Common Stock Paid-in (Accumulated Treasury Shareholders ’ (in thousands) Shares Amount Capital Deficit) Stock Equity Balance at June 30, 1992 29,212 $2,921 $157,090 $(47,754) $ — $112,257 Exercise of stock options 376 38 1,373 1,411 Common stock offering, net (Note 7) 5,750 575 41,815 42,390 Net loss (25,108) (25,108) Balance at June 30, 1993 35,338 3,534 200,278 (72,862) — 130,950 Exercise of stock options 1,838 184 7,324 7,508 Common stock offering, net (Note 7) 7,619 762 72,531 73,293 Common stock issued upon conversion of debentures 24 2 352 354 Common stock issued in settlement of shareholder lawsuit 76 8 1,031 1,039 Income tax benefit from stock options exercised (Note 6) 1,959 1,959 Net income 73,136 73,136 Balance at June 30, 1994 44,895 4,490 283,475 274 — 288,239 Exercise of stock options 1,076 107 5,583 5,690 ESPP shares issued (Note 7) 484 48 5,557 5,605 Common stock issued upon conversion of debentures (Note 4) 4,027 403 56,987 57,390 Income tax benefit from stock options exercised (Note 6) 4,022 4,022 Purchase of treasury stock (Note 7) (10,822) (10,822) Net income 123,302 123,302 Balance at July 1, 1995 50,482 $5,048 $355,624 $123,576 $(10,822) $473,426 The accompanying notes are an integral part of these financial statements.
  • 20. Consolidated Statements of Cash Flows     . Years ended July 1, June 30, June 30, (in thousands) 1995 1994 1993 C     Net income (loss) $ 123,302 $ 73,136 $ (25,108) Adjustments to reconcile net income (loss) to net cash provided by (used for) operating activities: Depreciation and amortization 43,612 46,175 53,741 Changes in current assets and liabilities net of effects from the sale of facility (Note 3): Accounts receivable (102,329) (42,034) (6,887) Inventories (19,350) 23,793 (5,682) Prepaid expenses (6,746) (2,130) (3,573) Accounts payable and accrued expenses 93,858 74,149 47,236 Deferred income taxes (2,072) 7,133 (3,210) Other assets (8,958) (1,384) (640) Net cash provided by operating activities 121,317 178,838 55,877 C     Capital expenditures, net (54,774) (16,282) (35,565) Proceeds from sale of facility (Note 3) — 110,677 — Increase in short-term investments (90,177) — — Increase in other assets (6,287) — — Net cash provided by (used for) investing activities (151,238) 94,395 (35,565) C     Repayment of long-term debt — (146,346) (64,091) Proceeds from stock offering, net (Note 7) — 73,293 42,390 Exercise of stock options and warrants, including tax benefit 9,712 9,467 1,411 Proceeds from ESPP shares issued 5,605 — — Redemption of convertible debentures (Note 4) (527) — — Repurchase of common stock (Note 7) (10,822) — — Net cash provided by (used for) financing activities 3,968 (63,586) (20,290) Net increase (decrease) in cash and cash equivalents (25,953) 209,647 22 Cash and cash equivalents at beginning of year 243,484 33,837 33,815 Cash and cash equivalents at end of year $ 217,531 $ 243,484 $ 33,837 The accompanying notes are an integral part of these financial statements.
  • 21. Notes to Consolidated Financial Statements     . N 1 ‒ S A P Western Digital Corporation (“Western Digital” or the “Company”) has prepared its financial statements in accordance with generally accepted accounting principles and has adopted accounting policies and practices which are generally accepted in the industry in which it operates. Following are the Company’s significant account- ing policies: Fiscal Year Effective July 1, 1994, the Company changed its fiscal year end from June 30 to a 52 or 53-week year ending on the Saturday nearest June 30. Accordingly, the 1995 fiscal year ended on July 1, whereas the previous two fiscal years ended on June 30. All general references to years relate to fiscal years unless otherwise noted. Basis of Presentation The consolidated financial statements include the accounts of the Company and all of its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. The accounts of foreign sub- sidiaries have been translated using the U.S. dollar as the functional currency. As such, foreign exchange gains or losses resulting from remeasurement of these accounts are reflected in the results of operations. Monetary and non-monetary asset and liability accounts have been translated at the exchange rate in effect at each year end and at historical rates, respectively. Operating statement accounts have been translated at average monthly exchange rates. Cash Equivalents and Short-Term Investments The Company’s cash equivalents represent highly liquid investments, primarily money market funds and commercial paper, with original maturities of three months or less. Short-term investments represent investments in U. S. Treasury Bills with original maturities beyond three months and less than twelve months. These investments are considered held to maturity and valued at amortized cost, which approximates fair market value. Concentration of Credit Risk The Company designs, manufactures and sells hard drives and microcomputer products to personal computer manufacturers and resellers throughout the world. The Company performs ongoing credit evaluations of its customers’ financial con- dition and generally requires no collateral. The Company maintains reserves for potential credit losses, and such losses have historically been within management’s expectations. The Company also has cash equivalent and short-term investment policies that limit the amount of credit exposure to any one financial institution or investment instrument and restrict placement of these investments with financial institutions or investment instruments evaluated as highly credit-worthy. Inventory Valuation Inventories are valued at the lower of cost or net realizable value. Cost is on a first-in, first-out basis for raw materials and is computed on a currently adjusted standard basis (which approximates first-in, first-out) for work in process and finished goods.
  • 22.     . Depreciation and Amortization The cost of property and equipment is depreciated over the estimated useful lives of the respective assets. Depreciation is computed on a straight-line basis for finan- cial reporting purposes and on an accelerated basis for income tax purposes. Leasehold improvements are amortized over the lesser of the estimated useful lives of the assets or the related lease terms. Goodwill and purchased technology, the recoverability of which are subject to periodic evaluation, are capitalized at cost and amortized on a straight-line basis over their estimated lives which are fifteen and five to fifteen years, respectively. Revenue Recognition The Company recognizes revenue at time of shipment and records a reserve for price adjustments and estimated sales returns. The Company has agreements with its resellers to provide price protection for inventories held by the resellers at the time of published list price reductions and, under certain circumstances, stock rotation for slow-moving items. These agreements may be terminated upon written notice by either party. In the event of termination, the Company may be obligated to repurchase a certain portion of the resellers’ inventory. Income Taxes The Company accounts for income taxes under the provisions of Statement of Financial Accounting Standards No. 109 (“SFAS 109”), “Accounting for Income Taxes.’’ SFAS 109 generally provides that deferred tax assets and liabilities be recog- nized for temporary differences between the financial reporting basis and the tax basis of the Company’s assets and liabilities and expected benefits of utilizing net operating loss (“NOL”) carryforwards. The Company records a valuation allowance for certain temporary differences for which it is not certain whether the Company will receive future tax benefits. The impact on deferred taxes of changes in tax rates and laws, if any, are applied to the years during which temporary dif- ferences are expected to be settled and reflected in the financial statements in the period of enactment. Per Share Information Primary earnings per share amounts are based upon the weighted average number of shares and dilutive common stock equivalents for each period presented. Fully diluted earnings per share additionally reflects dilutive shares assumed to be issued upon conversion of the Company’s convertible subordinated debentures. Loss per share amounts are based upon the weighted average number of shares of common stock outstanding during the period. Common stock equiva- lents are not included in the computation because their effect would be antidilutive. Reclassifications Certain prior years’ amounts have been reclassified to conform to the current year presentation.
  • 23.     . Notes to Consolidated Financial Statements (Continued) N 2 ‒ S F S D 1995 1994 1993 (in thousands) N I  O I (E) Interest income $ 12,976 $ 2,942 $ 868 Other income 3,056 — — Interest expense (4,030) (8,780) (15,960) Net interest and other income (expense) $ 12,002 $ (5,838) $ (15,092) Cash paid for interest $ 4,471 $ 9,035 $ 15,391 I Finished goods $ 31,811 $ 27,847 Work in process 35,763 32,178 Raw materials and component parts 31,351 19,550 $ 98,925 $ 79,575 P  E Land and buildings $ 11,067 $ 6,643 Machinery and equipment 163,857 151,014 Furniture and fixtures 11,302 11,702 Leasehold improvements 30,965 22,980 217,191 192,339 Accumulated depreciation and amortization (128,615) (118,922) Net property and equipment $ 88,576 $ 73,417 I  O A Purchased technology $ 28,700 $ 24,800 Goodwill 14,036 14,036 42,736 38,836 Accumulated amortization (19,092) (16,341) Net intangible assets 23,644 22,495 Other assets 16,483 7,113 $ 40,127 $ 29,608 N 3 ‒ S  W F F In December 1993, the Company sold its silicon wafer fabrication facility and certain tangible assets to Motorola, Inc. (“Motorola”) for $111.0 million plus cer- tain other considerations, including the assumption by Motorola of equipment leases and certain other liabilities associated with the facility. The gain on the sale of the facility was not material to the financial position or results of operations of the Company. Concurrent with the sale, the Company entered into a supply con- tract with Motorola under which Motorola is supplying silicon wafers to Western Digital through December 1995. N 4 ‒ D Senior Debt During 1994, the Company entered into an $85.0 million accounts receivable facility with certain financial institutions. The facility consists of a $50.0 million arrangement at Eurodollar or reference rates of the participating banks which expires in 1997 and a $35.0 million one-year committed arrangement at a rate approximating commercial paper rates. During 1995, the Company renewed the $35.0 million one-year committed arrangement with terms similar to the original
  • 24.     . arrangement. The facility is intended to serve as a source of working capital as may be needed from time to time. The facility, under which there has been no bor- rowings, requires the Company to maintain certain financial ratios and restricts the payment of dividends. Subordinated Debt During 1995, $58.1 million of the Company’s 9% convertible subordinated debentures, due 2014, were converted into 4,026,623 shares of the Company’s common stock. In connection with this conversion, the Company charged $.7 mil- lion of unamortized issue costs to shareholders’ equity. The remaining $.5 million of the Company’s debentures were redeemed for cash. N 5 ‒ C  C L Patents and Licenses Although the Company owns numerous patents and has many patent applications in process, the Company believes that the successful manufacture and marketing of its products generally depends more upon the experience, technical know-how and creative ability of its personnel rather than upon ownership of patents. The Company pays royalties under several patent licensing agreements which require periodic payments. From time to time, the Company receives claims of alleged patent infringement from patent holders which typically contain an offer to grant the Company a license. Foreign Exchange Contracts The Company enters into short-term, forward exchange contracts to hedge the impact of foreign currency fluctuations on certain underlying assets, liabilities and future commitments denominated in foreign currencies. At July 1, 1995 and June 30, 1994, the Company had outstanding $110.0 and $30.5 million, respectively, of forward exchange contracts with commercial banks. These contracts generally have maturity dates that do not exceed twelve months. The realized and unrealized gains and losses on these contracts are deferred and recognized in the results of operations in the year in which the underlying transaction is consummated and are not material for all periods presented. Costs associated with entering into such contracts are amortized over the life of the instrument. At July 1, 1995 and June 30, 1994, the carrying value of the foreign currency contracts approximated their fair market value. Operating Leases The Company leases certain facilities and equipment under long-term, non- cancelable operating leases which expire at various dates through 2000. Rental expense under these leases, including month-to-month rentals, was $25.5, $26.5 and $29.5 million in 1995, 1994 and 1993, respectively.
  • 25.     . Notes to Consolidated Financial Statements (Continued) Future minimum rental payments under non-cancelable operating leases as of July 1, 1995 are (in thousands): 1996 $ 19,029 1997 13,193 1998 11,334 1999 9,916 2000 8,573 Total future minimum rental payments $ 62,045 Legal Claims The Company was sued by Amstrad plc (“Amstrad”) in December 1992 under a complaint that alleges that hard drives supplied by the Company in 1988 and 1989 were defective and caused damages to Amstrad of $186.0 million. The Company filed a counterclaim for $3.0 million in actual damages plus exemplary damages in an unspecified amount. The Company believes that it has meritorious defenses to Amstrad’s claims and intends to vigorously defend itself against the Amstrad lawsuit. The Company was sued in March 1993 by Conner Peripherals, Inc. (“Conner”). The suit alleges that the Company infringes five Conner patents and seeks damages (including treble damages) in an unspecified amount and injunctive relief. If Conner were to prevail in its claims, the Company could be enjoined from using any of the Conner patents found to be valid and infringed that are the sub- ject of this action as well as held liable for past infringement damages. The amount of such damages, if any, could be material. The Company believes that it has meri- torious defenses to Conner’s claims and intends to defend itself against the Conner lawsuit. The Company has also filed a suit alleging that Conner infringes two of the Company’s patents. The Company was sued in December 1994 by Rodime plc (“Rodime”). The suit alleges that the Company infringes one of Rodime’s patents which relates to 3.5-inch hard drives. Based on the opinion of patent counsel, the Company believes that the broad claims of the Rodime patent, if scrutinized in court, will not withstand an attack on validity and believes the Company has not infringed any valid claim of the Rodime patent. If Rodime were to prevail on its claim, the Company could be held liable for damages for past infringement. The damages, if any, are uncertain but could be material. The Company believes that it has merito- rious defenses to Rodime’s claims and intends to vigorously defend itself against the Rodime lawsuit. The Company is also subject to certain other legal proceedings and claims arising in connection with its business. There can be no assurance that litigation will not be commenced on one or more of these or other future such claims, and that, if commenced, all such litigation would be resolved without any material adverse effect on the Company’s business, consolidated financial position or results of operations.
  • 26.     . It is management’s opinion, however, that none of the above mentioned and other claims will have a material adverse effect on the Company’s business, consoli- dated financial position or results of operations. The costs of defending such liti- gation can be substantial, regardless of outcome. N 6 ‒ I T The domestic and international components of income (loss) before income taxes are as follows: (in thousands) 1995 1994 1993 United States $ 26,421 $ (25,140) $ (63,753) International 118,612 111,182 38,645 Income (loss) before income taxes $ 145,033 $ 86,042 $ (25,108) The components of the provision for income taxes are as follows: (in thousands) 1995 1994 1993 Current United States $ 342 $ 337 $ — International 15,941 4,313 1,671 State 310 620 183 16,593 5,270 1,854 Deferred, net United States 1,867 4,857 (1,854) International (751) 820 — 1,116 5,677 (1,854) Additional paid-in capital from benefit of stock options exercised 4,022 1,959 — Provision for income taxes $ 21,731 $ 12,906 $ — Cash paid for income taxes $ 4,934 $ 1,067 $ 1,451
  • 27.     . Notes to Consolidated Financial Statements (Continued) Temporary differences and carryforwards which give rise to a significant portion of deferred tax assets and liabilities at July 1, 1995 and June 30, 1994 are as follows: 1995 1994 (in thousands) Deferred tax assets: NOL carryforward $ 52,648 $ 53,646 Business credit carryforward 18,480 16,204 Reserves not currently deductible 12,479 13,952 Depreciation 1,919 — All other 10,756 12,839 96,282 96,641 Valuation allowance (92,083) (95,024) Total deferred tax assets $ 4,199 $ 1,617 Deferred tax liabilities: Depreciation $ — $ 995 Leases 3,479 3,458 All other 16,532 12,732 Total deferred tax liabilities $ 20,011 $ 17,185 The net change in the total valuation allowance for the years ended July 1, 1995, June 30, 1994 and June 30, 1993 was a decrease of $2.9 million, and increases of $14.8 and $18.4 million, respectively. Reconciliation of the United States Federal statutory rate to the Company’s effective tax rate is as follows: 1995 1994 1993 U.S. Federal statutory rate 35.0 % 35.0 % (34.0%) State income taxes, net 0.2 0.7 0.7 Tax rate differential on international income (19.3) (34.7) (53.5) NOL with no tax benefit realized — 10.2 78.9 Other (0.9) 3.8 7.9 Effective tax rate 15.0 % 15.0 % —% Certain income of selected subsidiaries is taxed at substantially lower income tax rates as compared with local statutory rates. The lower rates reduced income taxes and increased net earnings by $33.2 million ($.65 per share, fully diluted), $27.4 million ($.60 per share, fully diluted) and $8.6 million ($.27 per share, fully diluted) in 1995, 1994 and 1993, respectively. These lower rates expire peri- odically through 2005. At July 1, 1995, the Company had Federal NOL carryforwards of $149.8 million and tax credit carryforwards of $18.5 million, which expire in 1996 through 2009. Net undistributed earnings from international subsidiaries at July 1, 1995 were $206.5 million. The net undistributed earnings are intended to finance local operating requirements. Accordingly, an additional United States tax provision has not been made.
  • 28.     . N 7 ‒ S’ E The following table summarizes all shares of common stock reserved for issuance as of July 1, 1995 (in thousands): Number of Shares Issuable upon: Exercise of stock options, including options available for grant 7,090 Employee stock purchase plan 1,266 8,356 Common Stock Offerings In February 1993, the Company issued 5,750,000 shares of its common stock in a public common stock offering. Proceeds from the offering, net of commissions and other related expenses totaling $3.6 million, were $42.4 million. In February 1994, the Company issued 7,618,711 shares of its common stock in a public common stock offering. Proceeds from the offering, net of com- missions, and other related expenses totaling $4.2 million, were $73.3 million. Stock Option Plans Western Digital’s Employee Stock Option Plan (“Employee Plan”) is administered by the Compensation Committee of the Board of Directors which determines the vesting provisions, the form of payment for the shares and all other terms of the options. Terms of the Employee Plan require that the exercise price of options be not less than the fair market value at the date of grant. Options granted vest 25% one year from the date of grant and in twelve quarterly increments thereafter. As of July 1, 1995, 1,252,665 options were exercisable and 2,033,599 options were available for grant. Participants in the Employee Plan are permitted to utilize stock purchased previously as consideration to exercise options. The following table sum- marizes activity under the Employee Plan (in thousands, except per share amounts): Options Outstanding Number Price of Shares Per Share Amount Options outstanding at June 30, 1992 3,920 $ 2.88 – $13.63 $16,092 Granted 1,879 4.38 – 9.00 10,981 Exercised, net of value of redeemed shares (376) 2.88 – 6.88 (1,411) Cancelled or expired (329) 2.88 – 9.88 (1,693) Options outstanding at June 30, 1993 5,094 2.88 – 13.63 23,969 Granted 1,731 3.88 – 19.13 21,320 Exercised, net of value of redeemed shares (1,785) 2.88 – 9.00 (7,120) Cancelled or expired (664) 2.88 – 19.13 (4,710) Options outstanding at June 30, 1994 4,376 2.88 – 19.13 33,459 Granted 1,429 13.38 – 18.13 22,210 Exercised, net of value of redeemed shares (1,036) 2.88 – 13.88 (5,478) Cancelled or expired (351) 2.88 – 19.13 (2,979) Options outstanding at July 1, 1995 4,418 $ 2.88 – $19.13 $47,212
  • 29.     . Notes to Consolidated Financial Statements (Continued) In 1985, the Company adopted the Stock Option Plan for Non-Employee Directors (“Director Plan”) and reserved 800,000 shares for issuance thereunder. The Director Plan provides for initial option grants to new directors of 20,000 shares per director and additional grants of up to 30,000 options per director fol- lowing the exercise of the initial options. Terms of the Director Plan require that the exercise price of options be not less than the fair market value at the date of grant. As of July 1, 1995, 125,250 options were exercisable and 468,188 options were available for grant. The following table summarizes activity under the Director Plan (in thousands, except per share amounts): Options Outstanding Number Price of Shares Per Share Amount Options outstanding at June 30, 1992 184 $ 5.25 – $14.63 $ 1,611 Cancelled or expired (1) 6.88 (9 ) Options outstanding at June 30, 1993 183 5.25 – 14.63 1,602 Granted 90 4.25 – 17.13 941 Exercised (53) 4.25 – 11.50 (388 ) Cancelled or expired (30) 12.88 (386 ) Options outstanding at June 30, 1994 190 4.25 – 17.13 1,769 Granted 40 14.00 – 17.75 614 Exercised (40) 4.25 – 7.44 (212 ) Cancelled or expired (20) 4.25 – 17.75 (279 ) Options outstanding at July 1, 1995 170 $ 4.88 – $17.13 $ 1,892 Stock Purchase Rights In 1989, the Company implemented a plan to protect stockholders’ rights in the event of a proposed takeover of the Company. Under the plan, each share of the Company’s outstanding common stock carries one Right to Purchase Series “A” Junior Participating Preferred Stock (“the Right”). The Right enables the holder, under certain circumstances, to purchase common stock of Western Digital or of the acquiring company at a substantially discounted price ten days after a person or group publicly announces it has acquired or has tendered an offer for 15% or more of the Company’s outstanding common stock. The Rights are redeemable by the Company at $.01 per Right and expire in 1999. Employee Stock Purchase Plan During 1994, the Company implemented an employee stock purchase plan (“ESPP”) in accordance with Section 423 of the Internal Revenue Code whereby eligible employees may authorize payroll deductions of up to 10% of their salary to purchase shares of the Company’s common stock at 85% of the fair market value of common stock on the date of grant or the exercise date, whichever is less. Approximately 1.8 million shares of common stock have been reserved for issuance under this plan. Approximately 484,000 shares were issued under this plan during 1995. No shares were issued during 1994. Profit Sharing Plan Effective July 1, 1991, the Company adopted an annual Profit Sharing Plan cover- ing eligible domestic employees. During 1995, 1994 and 1993, the Company authorized 8% of defined pre-tax profits to be allocated to the participants. Payments to participants of the Profit Sharing Plan were $11.3, $7.4 and $1.2 million in 1995, 1994 and 1993, respectively.
  • 30.     . Repurchase of Common Stock During the year ended July 1, 1995, the Company repurchased 805,000 shares of its common stock in the open market at a cost of $10.8 million. N 8 ‒ B S  I O Western Digital operates in one industry segment—the design, manufacture and marketing of hard drives, integrated circuits and board-level products to the per- sonal computer industry. During 1995, one customer accounted for 11% of the Company’s revenues. During 1994 and 1993, two customers accounted for 24% of the Company’s revenues. The Company’s operations outside the United States include manufacturing facilities in Singapore and Malaysia as well as sales offices throughout the world. The following table summarizes operations by entities located within the indicated geographic areas for the past three years. United States revenues to unaf- filiated customers include export sales, principally to Asia, of $399.2, $300.0 and $237.7 million in 1995, 1994, and 1993, respectively. Transfers between geographic areas are accounted for at prices comparable to normal sales through outside distributors. General and corporate expenses of $49.6, $43.6 and $32.7 million in 1995, 1994 and 1993, respectively, have been excluded in determining operating income (loss) by geographic region. United (in millions) States Europe Asia Eliminations Total Year ended July 1, 1995 Sales to unaffiliated customers $1,596 $ 485 $ 50 $ — $ 2,131 Transfers between geographic areas 139 57 1,216 (1,412) — Revenues, net $1,735 $ 542 $ 1,266 $ (1,412) $ 2,131 Operating income (loss) $ 64 $6 $ 117 $ (4) $ 183 Identifiable assets $ 597 $ 78 $ 185 $ (1) $ 859 Year ended June 30, 1994 Sales to unaffiliated customers $1,171 $ 321 $ 48 $ — $ 1,540 Transfers between geographic areas 50 28 874 (952) — Revenues, net $1,221 $ 349 $ 922 $ (952) $ 1,540 Operating income (loss) $ 24 $6 $ 108 $ (3) $ 135 Identifiable assets $ 430 $ 61 $ 150 $ — $ 641 Year ended June 30, 1993 Sales to unaffiliated customers $ 924 $ 274 $ 27 $ — $ 1,225 Transfers between geographic areas 41 21 793 (855) — Revenues, net $ 965 $ 295 $ 820 $ (855) $ 1,225 Operating income (loss) $ (16 ) $7 $ 38 $ (6) $ 23 Identifiable assets $ 336 $ 42 $ 154 $ (1) $ 531
  • 31. M0@@g@4I? Y0@?fh?M04I? @4V? @@@@@@@?e?@@3?YY0@@@@Y0@@?H@@@4I?M0@@@@4Vh5@@?ehY0@@@@@@@@@@?@@@@@f@@3? gh?H@@4I@@@@@@@4V?@@@@?M0@@@@@@?h@@@@@@4V@@@@@@@@@@@@7?eH@@7?5@@@@@@@@@X@@@@@@@@@@@@@@@@gY(@@J?g?@@@@@@@@@@@@@@JeY@@@e?5@@J?eh?@@@@@@@3??H@@f?H@@f?H@@e?@4VfY0@@ gh?5@@@@@@@@@@@@3?@@@@@@@@@@@@7? @@@@ @@@@@@@@J? @@4?0@M0@@@@@?e?@4Ve(@@@@@@@@@R(@@@@@@@@@@@@@3g?H@@7?g?@4?(@@@@@@@@@@7?@@@@@e?H@@7?eh?@@@@@@4V?e@@g@@g@@e?@@'V?e5@@7 ghH@@@@@@@@@@@@@7?hY@@7eh@@@@@@@@@@@@@2O? July 17, 1995 h?Y0@4?(@@?gY@@@J?h5@@Jeh?K6@@@@@@@@2O?e?@@@J?e5@@JH@@@@@@@@@@@@@@?@@@@@@@@@@@7?Y+Ve@@@Jg?Y(@@&O?@@@?@@@@X@@@@@@Je5@@Jh?@@@@@@@@W@@@??@@@@@'?5@@7fH@@@e?X)@@'I?@@@? H@@7f@@7?5@@?@@@@@@@@@@@@@@@@@@@@@@@JY(@3?H5@@7hH@@@@@@@@@@@@@@B?M(@@7eH@@7fh?@@@Y@@@@??5@@@4V?Y(@@f?5@@e?1@@'Ve@@@J @@@@@@@??@@@@@JH@@@Jf5@@@fX)@@@@@@7? h(@@@@@@@J?f?H@@@Jh?5@@J?fhY(@@@@@7f?,@@J?e?5@7eX-W?@2W@@@@@@@?@@@@@@&T@@@X@@@@@@@@&W?f?Y(@@@f@@@@@@@@@@@@@@@@@@@@J? g?YY(@@@@@@7?g5@@7h?H@@7?fh?Y@@@@@@f?Y(@&We?H@@J?1@7?@@@@@@@@@@?@@@?@@@@V@@@R(@@@Y(@@7?gY(@@&We@@@@@@@@@@@@@@@?e@@7?h?@@@@@K)@@@@7?H@@@@@?5@@7?f@@@7f?X6@@@@@J? g?5@@&W@@@@g?5@@7?h?@@@ @@@@@J 2WH@@@@@@@@?@@@JgM(@@@@3?e?K6@2W@@@@@@@@@@@@@@ g?@@&WH@@@7g?@@@J?hH@@7 5@@@@@7?f?X6@f?@ @@@@@@@@e5@@@@@@@@@@@7?e@@@@@@@@@@@?h1@@@@@@@@@@@@7 Y(@@@&W?@@@@@@@@@7?5@@@@@@@?gY(@@@@ @@&We5@@@@@?@@@JY0@@@@@@Jg?Y@@@@ g?@@WM(@@@Jg?@@7eh5@@J @@@@@@J?eh@@4V2Wh?@@2?6?K6@@@2O?H@@@@@&W@@@@&W?e@@@@@@@&O?ehX6@2W@@@e@@@J ?M(@@&W?e@@@@@@@@@JH@@@@@@@7?f?Y(@@@@7 g?@@@@@@@@?g?@@Jeh1@7? ?H@@@7 ?5@@@@&W?@@@@Jh@@@J ?@@@e@@@?fh?Y0@@@&Wf@@@@@@@@7?5@@?Y@@@J?fY(@@@@@J g?1@@@@2Oh?@@?ehX-W? ?5@@@Jfh1@@3 g?X6@2O H@@@7?fhX6@@ H@@@@&W??X62W?h@2W? 5@@@&We?1@@7?h@@7? ?@@@N?@@7?fh?5@@@&W?f@@@@@@@@J?1@@?@@@JfY(@@&T@@@? ?1@@'V@@J?fh?@@@2Wg@@@@@@@@e@@@?5@@7f?Y(@@@V@@? 5@@& @@@& ?X)@@@@@Y0@? @@&WW? @@&WW? X6@@@@@@7? @2?6@@@7eL@@@@@7?e?Y(@@&W?@@J? K62We?1@@@@J?e?5@@&We@@7? @2W? @2W? K6@@@2W? ?X6@@@f?@@2W?e@@ @@ @@ Orange County, California 1995, in conformity with generally accepted accounting principles. tions and its cash flows for each of the years in the three-year period ended July 1, Corporation as of July 1, 1995 and June 30, 1994, and the results of its opera- sent fairly, in all material respects, the financial position of Western Digital In our opinion, the consolidated financial statements referred to above pre- that our audits provide a reasonable basis for our opinion. ment, as well as evaluating the overall financial statement presentation. We believe assessing the accounting principles used and significant estimates made by manage- the amounts and disclosures in the financial statements. An audit also includes misstatement. An audit includes examining, on a test basis, evidence supporting reasonable assurance about whether the financial statements are free of material standards. Those standards require that we plan and perform the audit to obtain We conducted our audits in accordance with generally accepted auditing audits. to express an opinion on these consolidated financial statements based on our ments are the responsibility of the Company’s management. Our responsibility is in the three-year period ended July 1, 1995. These consolidated financial state- statements of operations, shareholders’ equity and cash flows for each of the years Corporation as of July 1, 1995 and June 30, 1994, and the related consolidated We have audited the accompanying consolidated balance sheets of Western Digital Western Digital Corporation: The Board of Directors .     Inde pendent Auditors’ Re port
  • 32. Quarterly Infor mation (unaudited)     . (in thousands, except per share amounts) First Second Third Fourth 1995 Revenues, net $ 464,590 $ 551,944 $ 529,297 $ 585,036 Gross profit 97,767 109,040 88,368 98,931 Operating income 37,902 47,330 20,664 27,135 Net income 34,718 42,554 19,650 26,380 Primary earnings per share $ .73 $ .89 $ .40 $ .54 Fully diluted earnings per share $ .70 $ .85 $ .40 $ .52 1994 Revenues, net $ 285,498 $ 371,072 $ 420,878 $ 462,232 Gross profit 46,419 72,821 93,762 104,929 Operating income (loss) (2,045) 16,342 34,149 43,434 Net income (loss) (5,098) 12,487 28,448 37,299 Primary earnings (loss) per share $ (.14) $ .32 $ .64 $ .79 Fully diluted earnings (loss) per share $ (.14) $ .32 $ .61 $ .75
  • 33. Common Stock Infor mation     . Western Digital’s common stock is listed on the New York Stock Exchange (“NYSE”). The approximate number of holders of record of common stock of the Company as of September 1, 1995 was 3,800. The Company has not paid any cash dividends on its common stock and does not intend to pay any cash dividends in the foreseeable future. The high and low closing prices of the Company’s common stock, as reported by the NYSE, for each quarter of 1995 and 1994 are as follows: First Second Third Fourth 1995 High $ 16⅛ $ 18¾ $ 19¼ $ 21¼ Low 12⅞ 14⅛ 13⅜ 13½ 1994 High $ 6⅛ $ 10¼ $ 20⅛ $ 19½ Low 3¾ 4⅞ 8¾ 11⅞
  • 34. Cor porate Directory     . B  D C O Charles A. Haggerty Charles A. Haggerty Chairman of the Board, Chairman of the Board, President and Chief Executive Officer President and Chief Executive Officer Kathryn A. Braun James A. Abrahamson Executive Vice President, Senior Advisor Personal Storage Group Galway Partners, L.L.C. Investment and Merchant Banking Kenneth E. Hendrickson Executive Vice President, Peter D. Behrendt Microcomputer Products Group Chairman, President and Chief Executive Officer D. Scott Mercer Exabyte Corporation Executive Vice President, Computer Tape Storage Products Chief Financial and Administrative Officer I. M. Booth Chairman, President Marc H. Nussbaum and Chief Executive Officer Senior Vice President, Polaroid Corporation Engineering Photographic Equipment Michael A. Cornelius George L. Bragg Vice President, Law Chairman and Secretary Markwood Capital Alliance Management and Investment Consulting Scott T. Hughes Vice President, Irwin Federman Human Resources General Partner U.S. Venture Partners David W. Schafer Venture Capital Investments Vice President, Worldwide Sales André R. Horn Retired, Former Chairman of the Board Duston M. Williams Joy Manufacturing Company Vice President and Treasurer Capital Equipment for the Energy Industry Dr. Anne O. Krueger Professor of Economics Department of Economics Stanford University Thomas E. Pardun President and Chief Executive Officer US WEST Multimedia Communications Group Diversified Communications
  • 35. Cor porate Infor mation     . I S O D S O S I Western Digital Irvine, California Annual Report on Form 10-K Canada Corporation Mountain View, California A copy of the Company’s Annual Mississauga, Ontario, Canada Chicago, Illinois Report on Form 10-K, without Baltimore, Maryland exhibits, is available to shareholders Western Digital (Deutschland) GmbH Andover, Massachusetts without charge upon request to Mr. Munich, Germany Detroit, Michigan Michael A. Cornelius, Vice President, Muenster, Germany Minneapolis, Minnesota Law and Secretary, at the Company’s Princeton, New Jersey headquarters located at 8105 Irvine Western Digital (France) SARL Raleigh, North Carolina Center Drive, Irvine, California Orsay, France Sioux City, South Dakota 92718. Copies of the Company’s Austin, Texas Quarterly Report on Form 10-Q Western Digital Hong Kong Limited Dallas, Texas will be furnished without charge to Tsimshatsui, Kowloon, Hong Kong Houston, Texas any shareholder upon written request to the same address. For additional Western Digital (I.S.) Limited information about the Company, Dublin, Ireland contact Investor Relations at (800) 695-6399 or see our Internet Western Digital Japan Ltd. site at http://www.wdc.com. Tokyo, Japan S E L Western Digital (S.E. Asia) Pte Ltd Western Digital common stock is Singapore listed on the New York Stock Exchange and traded under the Western Digital Taiwan Co., Ltd. symbol WDC. Taipei, Taiwan R.O.C. Western Digital and Caviar are regis- Western Digital (U.K.) Limited tered trademarks and FIT Lab is a Leatherhead, Surrey, England trademark of Western Digital Corporation. Other marks may be M F mentioned herein that belong to other Santa Clara, California companies. Kuala Lumpur, Malaysia Singapore T A  R American Stock Transfer & Trust Company 40 Wall Street, 46th Floor New York, NY 10005 Telephone: (718) 921-8200 C P A KPMG Peat Marwick LLP