UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): August 14, 2013
Western Digital Corporation
(Exact Name of Registrant as Specified in its Charter)
Delaware | 001-08703 | 33-0956711 | ||
(State or Other Jurisdiction of Incorporation or Organization) |
(Commission File Number) |
(I.R.S. Employer Identification No.) |
3355 Michelson Drive, Suite 100 Irvine, California |
92612 | |
(Address of Principal Executive Offices) | (Zip Code) |
(949) 672-7000
(Registrants Telephone Number, Including Area Code)
Not applicable
(Former name or former address, if changed since last report.)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
¨ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 240.425) |
¨ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
¨ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
¨ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Item 2.02 Results of Operations and Financial Condition.
On July 24, 2013, Western Digital Corporation (Western Digital or the Company) announced financial results for the fourth fiscal quarter and fiscal year ended June 28, 2013.
On July 22, 2013, Western Digital reported in a Current Report on Form 8-K that the Court of Appeals of the State of Minnesota (the Appellate Court) had reversed the decision of the District Court of Hennepin County, Minnesota (the District Court), which had vacated a $630.4 million final arbitration award against the Company and ordered a rehearing of certain claims in the arbitration between Western Digital and Seagate Technology, LLC.
Western Digital stated in its July 24, 2013 earnings press release that the financial information reported in the press release did not include any additional accrual for the arbitration award. The press release further stated that Western Digital was reviewing the decision of the Appellate Court and would make a determination of whether or not to record an accrual in its results for the quarter ended June 28, 2013, after it completed its review.
Western Digital has now completed its review. The Company continues to strongly disagree with the decision of the Appellate Court, believes that the District Courts decision was correct, and will file a petition for review with the Minnesota Supreme Court. The Company will continue to vigorously defend this matter. Nevertheless, in light of uncertainties, including the fact that the review of the Appellate Courts decision by the Minnesota Supreme Court is discretionary, the Company has determined it will record an accrual of $681 million for this matter in its financial statements for the three months ended June 28, 2013. This amount is in addition to the $25 million previously accrued in the fourth quarter of fiscal 2011. The total amount accrued of $706 million represents the amount of the final arbitration award, plus interest accrued on the initial arbitration award at the statutory rate of 10% from January 24, 2012 through June 28, 2013.
A copy of financial information attached to our July 24, 2013 press release, updated to reflect the accrual, is attached hereto as Exhibit 99.1 and is incorporated herein by reference. A copy of Western Digitals Quarterly Fact Sheet for the fourth quarter ended June 28, 2013, updated to reflect the accrual, is attached hereto as Exhibit 99.2 and is incorporated herein by reference.
In accordance with General Instruction B.2 of Form 8-K, the information in this Item 2.02, shall not be deemed to be filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the Exchange Act), or otherwise subject to the liabilities of that section, and shall not be incorporated by reference into any registration statement or other document filed under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such filing.
Item 5.02 Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers.
On August 14, 2013, the Compensation Committee established the performance goals for cash bonus awards to be made under the Companys Incentive Compensation Plan (the ICP) for the six-month period beginning June 29, 2013 and ending December 27, 2013. Under the ICP, the Companys executive officers and certain other employees are eligible to receive cash bonus awards that are determined based on the Companys achievement of the established performance goals as well as other discretionary factors, including non-financial and strategic operating objectives, business and industry conditions and individual and business group performance. For the six-month period beginning June 29, 2013 and ending December 27, 2013, the Compensation Committee selected earnings per share as the financial performance goal for each of the Companys Chief Executive Officer and Chief Financial Officer, and selected operating income as the financial performance goal for the Companys other named executive officers. The Compensation Committee then established the specific earnings per share and operating income goals, as applicable, that correspond to specific achievement percentages ranging between 0% and 200%.
2
For executive officers, the Compensation Committee has previously approved an ICP target bonus under the ICP for each executive officer that is expressed as a percentage of the executives semi-annual base salary and that currently ranges from 85% to 150% for the executive officers. At the end of the six-month performance period, the ICP will fund in an amount ranging from 0% to 200% based on an interpolation between the Companys performance as measured against the applicable pre-established goals and a consideration of the Companys overall achievement of key non-financial and strategic operating objectives as well as changes in the business and industry that occur during the performance period. Each executive will be eligible to receive a bonus in an amount equal to his target bonus multiplied by the funding percentage approved by the Compensation Committee, subject to further adjustment by the Compensation Committee depending upon the executives individual and business groups performance.
Item 9.01 Financial Statements and Exhibits.
(d) Exhibits
99.1 | Updated financial information for the fourth fiscal quarter and fiscal year ended June 28, 2013. | |
99.2 | Updated Fourth Quarter Fiscal Year 2013 Western Digital Corporation Quarterly Fact Sheet. |
3
SIGNATURE
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) | ||||
By: | /s/ Michael C. Ray | |||
Date: August 15, 2013 | Michael C. Ray | |||
Senior Vice President, General Counsel and Secretary |
Exhibit 99.1
WESTERN DIGITAL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(in millions; unaudited)
Jun. 28, 2013 |
Jun. 29, 2012 |
|||||||
ASSETS | ||||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ | 4,309 | $ | 3,208 | ||||
Accounts receivable, net |
1,793 | 2,364 | ||||||
Inventories |
1,188 | 1,210 | ||||||
Other |
308 | 359 | ||||||
|
|
|
|
|||||
Total current assets |
7,598 | 7,141 | ||||||
Property, plant and equipment, net |
3,700 | 4,067 | ||||||
Goodwill |
1,954 | 1,975 | ||||||
Other intangible assets, net |
605 | 799 | ||||||
Other assets |
179 | 224 | ||||||
|
|
|
|
|||||
Total assets |
$ | 14,036 | $ | 14,206 | ||||
|
|
|
|
|||||
LIABILITIES AND SHAREHOLDERS EQUITY | ||||||||
Current liabilities: |
||||||||
Accounts payable |
$ | 1,990 | $ | 2,773 | ||||
Accrued arbitration award |
706 | 25 | ||||||
Accrued expenses |
480 | 457 | ||||||
Accrued compensation |
453 | 376 | ||||||
Accrued warranty |
114 | 171 | ||||||
Current portion of long-term debt |
230 | 230 | ||||||
|
|
|
|
|||||
Total current liabilities |
3,973 | 4,032 | ||||||
Long-term debt |
1,725 | 1,955 | ||||||
Other liabilities |
445 | 550 | ||||||
|
|
|
|
|||||
Total liabilities |
6,143 | 6,537 | ||||||
Total shareholders equity |
7,893 | 7,669 | ||||||
|
|
|
|
|||||
Total liabilities and shareholders equity |
$ | 14,036 | $ | 14,206 | ||||
|
|
|
|
WESTERN DIGITAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in millions, except per share amounts)
(unaudited)
Three Months Ended | Years Ended | |||||||||||||||
Jun. 28, 2013 |
Jun. 29, 2012 |
Jun. 28, 2013 |
Jun. 29, 2012 |
|||||||||||||
Revenue, net |
$ | 3,728 | $ | 4,754 | $ | 15,351 | $ | 12,478 | ||||||||
Cost of revenue |
2,678 | 3,282 | 10,988 | 8,840 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Gross profit |
1,050 | 1,472 | 4,363 | 3,638 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Operating expenses: |
||||||||||||||||
Research and development |
402 | 406 | 1,572 | 1,055 | ||||||||||||
Selling, general and administrative |
180 | 178 | 706 | 518 | ||||||||||||
Charge related to arbitration award |
681 | | 681 | | ||||||||||||
Employee termination benefits and other charges |
8 | 80 | 138 | 80 | ||||||||||||
Charges related to flooding, net |
| | | 214 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total operating expenses |
1,271 | 664 | 3,097 | 1,867 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Operating income (loss) |
(221 | ) | 808 | 1,266 | 1,771 | |||||||||||
Net interest and other |
(9 | ) | (7 | ) | (44 | ) | (14 | ) | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Income (loss) before income taxes |
(230 | ) | 801 | 1,222 | 1,757 | |||||||||||
Income tax provision |
35 | 56 | 242 | 145 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net income (loss) |
$ | (265 | ) | $ | 745 | $ | 980 | $ | 1,612 | |||||||
|
|
|
|
|
|
|
|
|||||||||
Income (loss) per common share: |
||||||||||||||||
Basic |
$ | (1.12 | ) | $ | 2.93 | $ | 4.07 | $ | 6.69 | |||||||
|
|
|
|
|
|
|
|
|||||||||
Diluted |
$ | (1.12 | ) | $ | 2.87 | $ | 3.98 | $ | 6.58 | |||||||
|
|
|
|
|
|
|
|
|||||||||
Weighted average shares outstanding: |
||||||||||||||||
Basic |
236 | 254 | 241 | 241 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Diluted |
236 | 260 | 246 | 245 | ||||||||||||
|
|
|
|
|
|
|
|
WESTERN DIGITAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions; unaudited)
Three Months Ended | Year Ended | |||||||||||||||
Jun. 28, 2013 |
Jun. 29, 2012 |
Jun. 28, 2013 |
Jun. 29, 2012 |
|||||||||||||
Cash flows from operating activities |
|
|||||||||||||||
Net income (loss) |
$ | (265 | ) | $ | 745 | $ | 980 | $ | 1,612 | |||||||
Adjustments to reconcile net income to net cash provided by operations: |
||||||||||||||||
Depreciation and amortization |
302 | 339 | 1,233 | 825 | ||||||||||||
Stock-based compensation |
30 | 31 | 137 | 92 | ||||||||||||
Deferred income taxes |
(24 | ) | (8 | ) | 35 | 34 | ||||||||||
Non-cash portion of employee termination benefits and other charges |
3 | 61 | 19 | 61 | ||||||||||||
Non-cash portion of charges related to flooding |
| | | 119 | ||||||||||||
Changes in operating assets and liabilities, net |
638 | (40 | ) | 715 | 324 | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net cash provided by operating activities |
684 | 1,128 | 3,119 | 3,067 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Cash flows from investing activities |
||||||||||||||||
Purchases of property, plant and equipment |
(136 | ) | (324 | ) | (952 | ) | (717 | ) | ||||||||
Acquisitions, net |
| 15 | (1 | ) | (3,526 | ) | ||||||||||
Purchase of investments |
| | (17 | ) | | |||||||||||
Proceeds from sale of equipment |
| 76 | | 76 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net cash used in investing activities |
(136 | ) | (233 | ) | (970 | ) | (4,167 | ) | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Cash flows from financing activities |
||||||||||||||||
Employee stock plans, net |
53 | 93 | 205 | 141 | ||||||||||||
Repurchases of common stock |
(235 | ) | (604 | ) | (842 | ) | (604 | ) | ||||||||
Dividends to shareholders |
(60 | ) | | (181 | ) | | ||||||||||
Repayment of debt |
(57 | ) | (558 | ) | (230 | ) | (908 | ) | ||||||||
Proceeds from debt, net of issuance costs |
| | | 2,775 | ||||||||||||
Repayment of assumed debt |
| | | (585 | ) | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net cash provided by (used in) financing activities |
(299 | ) | (1,069 | ) | (1,048 | ) | 819 | |||||||||
|
|
|
|
|
|
|
|
|||||||||
Effect of exchange rate changes on cash |
| 5 | | (1 | ) | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net increase (decrease) in cash and cash equivalents |
249 | (169 | ) | 1,101 | (282 | ) | ||||||||||
Cash and cash equivalents, beginning of period |
4,060 | 3,377 | 3,208 | 3,490 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Cash and cash equivalents, end of period |
$ | 4,309 | $ | 3,208 | $ | 4,309 | $ | 3,208 | ||||||||
|
|
|
|
|
|
|
|
Exhibit 99.2
|
Amounts in millions, except per share amounts, ASP, percentages TAM 152.4 160.4 163.3 156.2 164.0 167.5 159.5 165.8 176.3 119.1 146.4 156.7 139.1 135.8 135.9 133.3 Share 28.9% 30.9% 31.3% 31.8% 30.9% 31.2% 31.2% 32.5% 32.8% 23.9% 30.2% 45.3% 44.9% 43.6% 44.3% 44.9% Units (HDD)2 44.1 49.5 51.1 49.7 50.7 52.2 49.8 53.8 57.8 28.5 44.2 71.0 62.5 59.2 60.2 59.9 ASP (HDD) $49 $52 $51 $47 $46 $47 $45 $44 $46 $69 $68 $65 $62 $62 $61 $60 Revenue $2,208 $2,619 $2,641 $2,382 $2,396 $2,475 $2,252 $2,403 $2,694 $1,995 $3,035 $4,754 $4,035 $3,824 $3,764 $3,728 Gross Profit $514 $687 $665 $535 $437 $475 $410 $469 $541 $648 $977 $1,472 $1,193 $1,059 $1,061 $1,050 Gross Margin 23.3% 26.2% 25.2% 22.5% 18.2% 19.2% 18.2% 19.5% 20.1% 32.5% 32.2% 31.0% 29.6% 27.7% 28.2% 28.2% R&D $142 $154 $160 $154 $167 $169 $179 $188 $193 $191 $265 $406 $396 $378 $396 $402 SG&A 53 60 64 61 59 66 63 77 71 85 122 178 179 162 185 180 Other 27 10 32 18 210 48 80 26 41 63 689 Total Operating Expenses $195 $214 $224 $242 $226 $235 $252 $297 $282 $486 $435 $664 $601 $581 $644 $1,271 Operating Income (Loss) $319 $473 $441 $293 $211 $240 $158 $172 $259 $162 $542 $808 $592 $478 $417 $(221) Net Income (Loss) $288 $429 $400 $265 $197 $225 $146 $158 $239 $145 $483 $745 $519 $335 $391 $(265) EPS $1.25 $1.85 $1.71 $1.13 $0.84 $0.96 $0.62 $0.67 $1.01 $0.61 $1.96 $2.87 $2.06 $1.36 $1.60 $(1.12) Diluted Shares Outstanding 230 232 234 235 234 235 236 237 237 237 246 260 252 246 245 236 $514 $687 $665 $535 $437 $475 $410 $469 $541 $648 $1,077 $1,511 $1,231 $1,097 $1,099 $1,085 23.3% 26.2% 25.2% 22.5% 18.2% 19.2% 18.2% 19.5% 20.1% 32.5% 35.5% 31.8% 30.5% 28.7% 29.2% 29.1% $288 $429 $400 $292 $197 $225 $156 $193 $260 $358 $619 $872 $594 $513 $514 $477 $1.25 $1.85 $1.71 $1.24 $0.84 $0.96 $0.66 $0.81 $1.10 $1.51 $2.52 $3.35 $2.36 $2.09 $2.10 $1.96 52% 48% 49% 54% 50% 45% 47% 55% 53% 59% 64% 69% 63% 61% 60% 66% 31% 30% 33% 29% 32% 33% 33% 29% 29% 25% 28% 21% 24% 24% 26% 23% 17% 22% 18% 17% 18% 22% 20% 16% 18% 16% 8% 10% 13% 15% 14% 11% 22% 25% 24% 25% 23% 22% 22% 20% 19% 22% 21% 27% 23% 27% 27% 28% 22% 25% 24% 21% 23% 25% 24% 20% 22% 21% 18% 18% 18% 23% 22% 19% 56% 50% 52% 54% 54% 53% 54% 60% 59% 57% 61% 55% 59% 50% 51% 53% 56% 55% 51% 52% 50% 48% 49% 53% 49% 51% 53% 53% 44% 45% 45% 48% 16.528 17.735 17.072 16.802 16.582 17.385 16.227 16.867 19.622 9.814 18.067 32.773 25.887 21.300 21.547 23.989 18.282 19.290 21.461 20.282 20.918 20.411 20.118 22.348 21.588 11.391 15.975 21.211 16.819 17.717 18.383 16.185 3.064 4.083 4.643 5.306 5.239 4.709 4.765 6.459 7.188 2.352 3.643 4.155 8.019 6.452 6.517 6.544 4.539 6.219 5.565 5.005 5.678 7.427 6.404 5.672 7.060 3.191 2.926 4.986 5.767 7.139 6.517 5.281 1.669 2.170 2.356 2.346 2.319 2.284 2.318 2.463 2.369 1.724 3.616 7.913 5.988 6.633 7.211 7.897 44.082 49.497 51.097 49.741 50.736 52.216 49.832 53.809 57.827 28.472 44.227 71.038 62.480 59.241 60.175 59.896 386 443 463 453 512 581 578 608 634 578 581 668 708 804 805 797 17.0 21.9 23.7 22.5 26.0 30.3 28.8 32.7 36.7 16.5 25.7 47.4 44.3 47.6 48.4 47.7 54.0 64.3 76.5 85.1 94.1 102.5 107.7 117.8 128.5 114.6 111.5 126.3 133.9 165.1 187.8 188.0
Balance sheet, casFY13 Cash and Cash Equivalents $2,056 $2,435 $2,826 $2,734 $2,858 $3,110 $3,230 $3,490 $3,675 $3,924 $3,377 $3,208 $3,537 $3,816 $4,060 $4,309 Debt 463 444 425 400 375 350 325 294 263 231 2,743 2,185 2,128 2,128 2,013 1,955 Net Cash and Cash Equivalents $1,593 $1,991 $2,401 $2,334 $2,483 $2,760 $2,905 $3,196 $3,412 $3,693 $634 $1,023 $1,409 $1,688 $2,047 $2,354 Cash Flow From Operations $434 $557 $588 $363 $390 $505 $313 $447 $352 $378 $1,208 $1,128 $936 $772 $727 $684 Free Cash Flow $258 $358 $411 $178 $190 $255 $138 $294 $218 $258 $1,069 $804 $554 $526 $539 $548 Capital Expenditures $176 $199 $177 $185 $200 $250 $175 $153 $134 $120 $139 $324 $382 $246 $188 $136 Depreciation and Amortization $121 $126 $128 $134 $150 $151 $151 $150 $158 $140 $188 $339 $313 $309 $309 $302 EBITDA $440 $599 $569 $427 $361 $391 $309 $322 $417 $302 $730 $1,147 $905 $787 $726 $81 Accounts Receivable, Net $1,131 $1,365 $1,257 $1,256 $1,325 $1,250 $1,171 $1,206 $1,356 $747 $2,377 $2,364 $1,951 $1,732 $1,700 $1,793 Inventory Raw Materials $96 $102 $115 $159 $155 $141 $151 $172 $170 $191 $329 $245 $237 $193 $191 $167 Work in Process 173 212 254 255 266 274 260 263 275 185 667 552 559 581 583 575 Finished Goods 126 139 138 146 140 153 163 142 200 90 286 413 508 430 423 446 Total Inventory $395 $453 $507 $560 $561 $568 $574 $577 $645 $466 $1,282 $1,210 $1,304 $1,204 $1,197 $1,188 Property, Plant and Equipment, Net $1,625 $1,696 $1,756 $2,159 $2,245 $2,277 $2,249 $2,224 $2,209 $2,091 $4,171 $4,067 $4,027 $3,938 $3,803 $3,700 Accounts Payable $1,342 $1,507 $1,508 $1,507 $1,703 $1,628 $1,486 $1,545 $1,708 $883 $2,774 $2,773 $2,545 $2,185 $2,037 $1,990 Days Sales Outstanding 47 47 43 48 50 46 47 46 46 34 71 45 44 41 41 44 Days Inventory Outstanding 21 21 23 28 26 26 28 27 27 31 57 34 42 40 40 40 Days Payables Outstanding 72 71 69 74 79 74 73 73 72 60 123 77 82 72 69 67 Cash Conversion Cycle (4) (3) (3) 2 (3) (2) 21 5 5 2 4 9 12 17 Inventory Turns 17 17 16 13 14 14 13 13 13 12 6 11 9 9 9 9 Dividends Paid $$$$$$$$$$$$$$121 $$60 Shares Repurchased 1.8 16.4 5.2 4.2 5.2 4.4 Shares Repurchased $$$$$50 $$$$$$$604 $218 $146 $243 $235 Remaining Amount Authorized $466 $466 $466 $466 $416 $416 $416 $416 $416 $416 $416 $1,312 $2,594 $2,448 $2,205 $1,970 R4Q Economic Profit $275 $569 $885 $964 $836 $579 $291 $187 $231 $344 $484 $1,197 $1,484 $1,602 $1,423 $1,030 R4Q ROIC 15.3% 24.9% 31.2% 30.2% 26.4% 21.1% 15.6% 13.2% 13.6% 11.9% 14.8% 20.4% 21.3% 21.0% 20.0% 10.1% R4Q ROA 10.4% 17.0% 21.2% 20.7% 18.1% 14.6% 10.9% 9.2% 9.5% 8.5% 10.5% 14.3% 14.9% 14.7% 14.2% 7.0% Worldwide Headcount3 52,208 55,128 61,803 62,500 62,817 62,991 61,349 65,431 67,799 67,121 106,604 103,111 96,002 93,820 87,565 85,777 Business Model Gross Margin* 27%-32% Operating Expense* 10%-12% Operating Income* 15%-22% Tax 7%-10% of Income Before Tax Capital Expenditures* 5%-7% Conversion Cycle 4-8 Days *Percent of Revenue
Non-GAAP Financial Measures Free Cash Flow: Free cash flow is a non-GAAP financial measure defined as cash flows from operations less capital expenditures. We consider free cash flow to be useful as an indicator of our overall liquidity, as the amount of free cash flow generated in any period is representative of cash that is available for strategic opportunities including, among others, investing in the Companys business, making strategic acquisitions, strengthening the balance sheet, repaying debt, paying dividends and repurchasing stock. We also believe that free cash flow is one of several benchmarks used by investors for comparison of our liquidity with other companies in our industry, although our measure of free cash flow may not be directly comparable to similar measures reported by other companies. Free cash flow should not be construed as an alternative to cash flows from operations or other cash flow measurements determined in accordance with GAAP. EBITDA: EBITDA is a non-GAAP financial measure defined as net income before interest, income tax expense, depreciation and amortization. We include information concerning EBITDA because we believe it is a useful measure to evaluate our operating performance. As a measure of our operating performance, we believe EBITDA provides a measure of operating results unaffected by differences in capital structures, capital investment cycles and ages of related assets among otherwise comparable companies. While EBITDA is a relevant and widely used measure of operating performance, it does not represent net income as defined by GAAP and it should not be considered as an alternative to that measure in evaluating operating performance. Non-GAAP Gross Margin and Non-GAAP Gross Profit: Non-GAAP gross margin is a non-GAAP measure defined as non-GAAP gross profit divided by revenue. Non-GAAP gross profit is a non-GAAP measure defined as gross profit before any charges to cost of goods sold that are unusual, non-recurring, or may not be indicative of ongoing operations. Because we believe some charges may not be indicative of ongoing operations, we believe that non-GAAP gross profit is a useful measure to investors as an alternative method for measuring our operating performance and comparing it against prior periods performance. Non-GAAP Net Income and Non-GAAP EPS: Non-GAAP net income and non-GAAP EPS are non-GAAP measures defined as net income and EPS, respectively, before any charges that are unusual, non-recurring, or may not be indicative of ongoing operations, or any tax impact related to those charges. In millions, except gross margin and per share amounts Q1FY13 Reconciliation of Cash Flows from Operations to Free Cash Flow Cash Flows from Operations $434 $557 $588 $363 $390 $505 $313 $447 $352 $378 $1,208 $1,128 $936 $772 $727 $684 Capital Expenditures (176) (199) (177) (185) (200) (250) (175) (153) (134) (120) (139) (324) (382) (246) (188) (136) Free Cash Flow $258 $358 $411 $178 $190 $255 $138 $294 $218 $258 $1,069 $804 $554 $526 $539 $548 Reconciliation of Net Income to EBITDA Net Income (Loss) $288 $429 $400 $265 $197 $225 $146 $158 $239 $145 $483 $745 $519 $335 $391 $(265) Interest 2 2 1 11 (1) 2 1 2 4 7 14 10 11 9 Income Tax Expense 29 42 40 27 14 14 13 12 19 15 55 56 59 133 15 35 Depreciation and Amortization 121 126 128 134 150 151 151 150 158 140 188 339 313 309 309 302 EBITDA $440 $599 $569 $427 $361 $391 $309 $322 $417 $302 $730 $1,147 $905 $787 $726 $81 Reconciliation of Gross Margin to Non-GAAP Gross Margin & Gross Profit to Non-GAAP Gross Profit Gross Profit $514 $687 $665 $535 $437 $475 $410 $469 $541 $648 $977 $1,472 $1,193 $1,059 $1,061 $1,050 Acquisition-Related Fair Value Adjustments 91 Amortization of Intangibles Related to the Acquisition of HGST 9 39 38 38 38 35 Non-GAAP Gross Profit $514 $687 $665 $535 $437 $475 $410 $469 $541 $648 $1,077 $1,511 $1,231 $1,097 $1,099 $1,085 Revenue $2,208 $2,619 $2,641 $2,382 $2,396 $2,475 $2,252 $2,403 $2,694 $1,995 $3,035 $4,754 $4,035 $3,824 $3,764 $3,728 Gross Margin 23.3% 26.2% 25.2% 22.5% 18.2% 19.2% 18.2% 19.5% 20.1% 32.5% 32.2% 31.0% 29.6% 27.7% 28.2% 28.2% Non-GAAP Gross Margin 23.3% 26.2% 25.2% 22.5% 18.2% 19.2% 18.2% 19.5% 20.1% 32.5% 35.5% 31.8% 30.5% 28.7% 29.2% 29.1% Reconciliation of Net Income (Loss) to Non-GAAP Net Income Net Income (Loss) $ 288 $ 429 $ 400 $265 $197 $ 225 $ 146 $158 $239 $ 145 $ 483 $745 $519 $ 335 $ 391 $ (265) Acquisition-Related Expense 10 10 14 14 34 7 Litigation Accruals 27 25 7 681 Charges Related to Flooding, Net 199 15 Acquisition-Related Fair Value Adjustments 91 Amortization of Intangibles Related to the Acquisition of HGST 12 51 49 49 49 46 Restructuring 80 26 41 63 8 Tax Impact (16) (4)88 Other 11 Non-GAAP Net Income $288 $429 $400 $292 $197 $225 $156 $193 $260 $358 $619 $872 $594 $513 $514 $477 EPS $1.25 $1.85 $1.71 $1.13 $0.84 $0.96 $0.62 $0.67 $1.01 $0.61 $1.96 $2.87 $2.06 $1.36 $1.60 $(1.12) Non-GAAP EPS $1.25 $1.85 $1.71 $1.24 $0.84 $0.96 $0.66 $0.81 $1.10 $1.51 $2.52 $3.35 $2.36 $2.09 $2.10 $1.96 Diluted Shares Outstanding 230 232 234 235 234 235 236 237 237 237 246 260 252 246 245 236 Non-GAAP Diluted Shares Outstanding6 230 232 234 235 234 235 236 237 237 237 246 260 252 246 245 243
Footnotes 1. ASP, Revenue by Channel and Revenue by Geography exclude external sales of media/substrates 2. Unit volume excludes WD TV Media Players without hard drives, WD Livewire, SSD and media 3. Worldwide Headcount excludes temporary and contracted employees 4. Consumer Electronics includes gaming 5. PC includes shipments to distributors, second/third tier retailers and white box manufacturers 6. Q4 FY13 non-GAAP EPS is calculated using the same number of shares used for Q413 GAAP EPS plus 7 million dilutive shares . Dilutive shares are not included in the Q4FY13 GAAP EPS calculation as Q4 FY13 resulted in a net loss. Formulas Share = Units (HDD) / TAM ASP = Revenue / Units (HDD) Free Cash Flow = Cash Flow from Operations Capital Expenditures EBITDA = Net Income (Loss) + Interest + Income Tax Expense + Depreciation and Amortization Days Sales Outstanding (DSO) = Accounts Receivable / (Revenue / 91 days) Days Inventory Outstanding (DIO) = Inventory / (Cost of Revenue / 91 days) Days Payables Outstanding (DPO) = Accounts Payable / (Cost of Revenue / 91 days) Cash Conversion Cycle = DSO + DIO DPO Inventory Turns = 364 days / DIO R4Q Economic Profit = Net Operating Profit After Taxes (Invested Capital x WACC) Invested Capital = Debt + Equity WACC = 11% R4Q ROIC = R4Q (Operating Income (Loss) + Interest Expense) / R4Q Average (Equity + Debt) R4Q ROA = R4Q Operating Income (Loss) / R4Q Average Total Assets