1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________________________
FORM 10-Q
(Mark One)
[X] Quarterly Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended October 1, 1994.
OR
[ ] Transition Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from to
Commission file number 1-8703
WESTERN DIGITAL CORPORATION
-------------------------------------------------------------------
(Exact name of Registrant as specified in its charter)
DELAWARE 95-2647125
------------------------------- -----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
8105 Irvine Center Drive
Irvine, California 92718
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number including area code (714) 932-5000
Effective July 1, 1994, the Company changed its fiscal year from
July 1 through June 30 to a
52/53 week year ending on the Saturday nearest June 30,
(July 1, 1995 for fiscal 1995)
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Former name, former address and former fiscal year
if changed since last report.
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
Number of shares outstanding of Common Stock, as of November 1, 1994
is 45,355,362.
2
WESTERN DIGITAL CORPORATION
INDEX
PAGE NO.
--------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Operations - Three Months Ended October 1, 1994 and September 25, 1993 . . . . 3
Consolidated Balance Sheets - October 1, 1994 and June 30, 1994 . . . . . . . . . . . . . . . . . . . . . 4
Consolidated Statements of Cash Flows - Three Months Ended October 1, 1994 and September 25, 1993 . . . . 5
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations . . . . . . . . . . 7
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Index to Exhibits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
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PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
WESTERN DIGITAL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
THREE-MONTH PERIOD ENDED
--------------------------
OCTOBER 1, SEPTEMBER 25,
1994 1993
---------- -------------
Revenues, net . . . . . . . . . . . . . . . . . . . . . . . $464,590 $285,498
Costs and expenses:
Cost of revenues . . . . . . . . . . . . . . . . . . . 366,823 239,079
Research and development . . . . . . . . . . . . . . . 28,698 26,352
Selling, general and administrative . . . . . . . . . 31,167 22,112
-------- --------
Total costs and expenses . . . . . . . . . . . 426,688 287,543
-------- --------
Operating income (loss) . . . . . . . . . . . . . . . . . . . . 37,902 (2,045)
Interest and other income (expense) . . . . . . . . . . . . . . 2,943 (3,053)
-------- --------
Income (loss) before income taxes . . . . . . . . . . . . . . . 40,845 (5,098)
Provision for income taxes . . . . . . . . . . . . . . . . . . 6,127
-------- --------
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . $ 34,718 $ (5,098)
======== ========
Earnings (loss) per common and common equivalent share (Note 2):
Primary . . . . . . . . . . . . . . . . . . . $ .73 $ (.14)
======== ========
Fully diluted . . . . . . . . . . . . . . . . $ .70 $ (.14)
======== ========
Common and common equivalent shares
used in computing per share amounts:
Primary . . . . . . . . . . . . . . . . . . . 47,264 35,367
======== ========
Fully diluted . . . . . . . . . . . . . . . . 51,323 35,367
======== ========
The accompanying notes are an integral part of these financial statements.
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4
WESTERN DIGITAL CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
OCTOBER 1, JUNE 30,
1994 1994
---------- --------
ASSETS
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . $229,473 $243,484
Accounts receivable, less allowance for doubtful accounts
of $11,150 and $10,825 . . . . . . . . . . . . . . . . . . . 243,963 201,512
Inventories (Note 3) . . . . . . . . . . . . . . . . . . . . . 96,031 79,575
Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . 19,542 12,917
-------- --------
Total current assets . . . . . . . . . . . . . . . . . 589,009 537,488
Property and equipment, at cost, less accumulated depreciation and
amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . 82,392 73,417
Intangible and other assets, net . . . . . . . . . . . . . . . . . . . 28,660 29,608
-------- --------
Total assets . . . . . . . . . . . . . . . . . . . . . $700,061 $640,513
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . $192,728 $172,730
Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . 104,341 103,014
-------- --------
Total current liabilities . . . . . . . . . . . . . . 297,069 275,744
Convertible subordinated debentures . . . . . . . . . . . . . . . . . . 58,646 58,646
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . 17,934 17,884
Commitments and contingent liabilities (Note 4)
Shareholders' equity:
Preferred stock, $.10 par value;
Authorized: 5,000 shares
Outstanding: None . . . . . . . . . . . . . . . . . .
Common stock, $.10 par value;
Authorized: 95,000 shares
Outstanding: 45,292 shares at
October 1 and 44,895 shares
at June 30 . . . . . . . . . . . . . . . . . . . . . . 4,529 4,490
Additional paid-in capital . . . . . . . . . . . . . . . . . . 286,891 283,475
Retained earnings . . . . . . . . . . . . . . . . . . . . . . 34,992 274
-------- --------
Total shareholders' equity . . . . . . . . . . . . . . 326,412 288,239
-------- --------
Total liabilities and shareholders' equity . . . . . . $700,061 $640,513
======== ========
The accompanying notes are an integral part of these financial statements.
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WESTERN DIGITAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
THREE-MONTH PERIOD ENDED
-------------------------------------
OCTOBER 1, SEPTEMBER 25,
1994 1993
---------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) . . . . . . . . . . . . . . . . . . $ 34,718 $ (5,098)
Adjustments to reconcile net income (loss)
to net cash provided by (used for) operating
activities:
Depreciation and amortization . . . . . . . . 9,428 14,238
Changes in current assets and liabilities:
Accounts receivable . . . . . . . . . (42,451) 4,712
Inventories . . . . . . . . . . . . . (16,456) 12,308
Prepaid expenses . . . . . . . . . . (6,625) (1,015)
Accounts payable and accrued
expenses. . . . . . . . . . . . . . 21,325 (10,292)
Other assets . . . . . . . . . . . . . . . . . 182 (1,230)
Deferred income taxes . . . . . . . . . . . . 50 (829)
-------- --------
Net cash provided by operating
activities . . . . . . . . . . . . 171 12,794
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures, net . . . . . . . . . . . . . . (17,637) (5,158)
-------- --------
Net cash used for investing activities . . . . (17,637) (5,158)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of debt . . . . . . . . . . . . . . . . . . (6,232)
Exercise of stock options and warrants . . . . . . . . 3,455 230
-------- --------
Net cash provided by (used for) financing
activities . . . . . . . . . . . . . . . . . 3,455 (6,002)
-------- --------
Net increase (decrease) in cash and cash
equivalents . . . . . . . . . . . . . . . . . . . . (14,011) 1,634
Cash and cash equivalents, beginning of period . . . . 243,484 33,837
-------- --------
Cash and cash equivalents, end of period . . . . . . . $229,473 $ 35,471
======== ========
SUPPLEMENTAL DISCLOSURES:
Cash paid during the period for:
Interest . . . . . . . . . . . . . . . . . . . . . . . $ 33 $ 1,221
Income taxes . . . . . . . . . . . . . . . . . . . . . 3,195 471
The accompanying notes are an integral part of these financial statements.
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WESTERN DIGITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The accounting policies followed by the Company are set forth in Note
1 of Notes to Consolidated Financial Statements included in the
Company's Annual Report on Form 10-K for the year ended June 30, 1994.
Effective July 1, 1994, the Company changed its fiscal year from July
1 through June 30 to a 52/53 week year ending on the Saturday nearest
June 30 (July 1, 1995 for fiscal 1995). Accordingly, the 13-week
period ended October 1, 1994 is six days longer than the comparative
quarter in fiscal 1994.
2. 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 reflect
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
equivalents are not included in the computation because their effect
would be antidilutive.
3. Inventories comprised the following:
OCTOBER 1, JUNE 30,
1994 1994
---------- --------
(in thousands)
Finished goods . . . . . . . . . . . . $29,249 $27,847
Work in process . . . . . . . . . . . 38,237 32,178
Raw materials and component parts . . 28,545 19,550
------- -------
$96,031 $79,575
======= =======
4. On November 8, 1994, the Company entered a patent cross-license
agreement with International Business Machines Corporation ("IBM").
The license grant from IBM covers the Company's entire product line.
Under the agreement, the Company will make a series of payments to
IBM. The payments are not expected to have a material impact on the
Company.
5. In the opinion of management, all adjustments necessary to fairly
state the results of operations for the three months ended October 1,
1994 and September 25, 1993 have been made. All such adjustments are
of a normal recurring nature. Certain information and footnote
disclosures normally included in the financial statements prepared in
accordance with generally accepted accounting principles have been
condensed or omitted pursuant to the rules and regulations of the
Securities and Exchange Commission. These consolidated financial
statements should be read in conjunction with the consolidated
financial statements and the notes thereto included in the Company's
Annual Report on Form 10-K for the year ended June 30, 1994.
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ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Net income for the first quarter of 1995 was $34.7 million, compared with a net
loss of $5.1 million in the corresponding quarter of the prior year and net
income of $37.3 million in the immediately preceding quarter. Revenue for the
three month period ending October 1, 1994 increased 63% to $464.6 million from
$285.5 million in the first quarter of 1994 and was essentially flat as
compared with the fourth quarter of 1994.
Revenue for drive products totaled $413.8 million in the first quarter of 1995,
an increase of $171.5 million, or 71% from the first quarter of 1994. The
increase in drive revenue was the result of an 85% increase in drive units
shipped when compared to the first quarter of fiscal 1994 offset by a 15%
decline in average selling prices ("ASPs") year-over-year. Revenue for drive
products decreased slightly from the immediately preceding quarter primarily
due to a decline in ASPs quarter-to-quarter.
Revenue for microcomputer products ("MCP") increased 18% to $50.8 million in
the first quarter of 1995 from $43.2 million in the first quarter of 1994 and
increased 14% from $44.7 million in the fourth quarter of 1994, reflecting
increased sales in the input/output product line and increased sales of the
Company's portable graphics accelerator chips.
Gross margins improved approximately five percentage points from 16.3% in the
first quarter of 1994 to 21.1% in the first quarter of 1995, reflecting
improvements in gross profit margins of approximately five and ten percentage
points, respectively, for the drive and MCP businesses. The improvement in
drive gross margin from 13.9% in the first quarter of 1994 to 18.8% in the
first quarter of 1995, was the result of an increase in unit shipments which
reduced per unit product costs and a favorable product mix. MCP gross margin
improved from 29.6% in the first quarter of 1994 to 39.4% in the first quarter
of 1995, reflecting the cost benefits realized from selling its wafer
fabrication facility during 1994, which resulted in reduced manufacturing
costs.
As compared with the immediately preceding quarter, gross margins declined
approximately two percentage points, and drive gross margin declined from 21.0%
to 18.8%, as a result of a 14% decline in ASPs quarter-to-quarter. MCP gross
margin was essentially flat at 39% quarter-to-quarter.
Research and development expense ("R&D") for the first three months of 1995
increased $2.3 million, or 9% over the same period a year ago primarily due to
planned expenditures to support new product introductions. R&D expense in the
current quarter was essentially flat as compared with the immediately preceding
quarter.
Selling, general and administrative ("SG&A") expense for the first quarter of
1995 increased approximately $9.1 million, or 41% from the first quarter of
1994 as a result of increased selling and marketing expenses in support of
higher revenue levels and higher bonus plan accruals. SG&A expense decreased
slightly from the fourth quarter of 1994.
Interest and other income for the current quarter was $2.9 million, comprising
net interest income of $.9 million and a $2.0 million gain from the sale of
stock held for investment. Net interest income of $.9 million for the first
quarter of 1995, a $6.0 million improvement over net interest expense of $3.1
million in the first quarter of 1994, is the result of significantly lower
levels of debt outstanding period-to-period. As compared with the immediately
preceding quarter, interest and other income improved $3.4 million primarily
due to the gain from the sale of stock held for investment.
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ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION
Cash and cash equivalents totaled $229.5 million at October 1, 1994 as compared
with $243.5 million at June 30, 1994. Cash flows from operations was $.2
million, with cash flows from earnings, depreciation and an increase in
payables being offset by cash used to fund increases in accounts receivable and
inventories. Capital additions during the first quarter totaled $17.6 million
and were incurred primarily for increased disk drive manufacturing and wafer
testing capacity.
Notwithstanding the significant improvements in financial position realized
over the past year, 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,
procurement of fabricated wafers and finished ICs from outside suppliers and
the timely development and introduction of new products which address market
needs.
PART II. OTHER INFORMATION
ITEM 6. Exhibits and reports on Form 8-K.
(a) Exhibits:
11 Computation of Per Share Earnings.
(b) Reports on Form 8-K:
On July 18, 1994, the Company filed a Current Report on Form
8-K with the Securities and Exchange Commission reporting that
the bylaws of the Company have been amended.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WESTERN DIGITAL CORPORATION
-----------------------------------
Registrant
/s/Scott Mercer
-----------------------------------
D. Scott Mercer
Executive Vice President,
Chief Financial and Administrative Officer
Date: November 11, 1994
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EXHIBIT INDEX
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- ------ ----------- ------------
11 Computation of Per Share Earnings . . . . . . . . . . . . . . . 11
10
1
EXHIBIT 11
WESTERN DIGITAL CORPORATION
COMPUTATION OF PER SHARE EARNINGS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS ENDED
------------------------------------
OCTOBER 1, SEPTEMBER 25,
1994 1993
---------- -------------
PRIMARY
Net income (loss) . . . . . . . . . . . . . . . . . . $34,718 $(5,098)
======= =======
Weighted average number of common shares outstanding
during the period . . . . . . . . . . . . . . . . . . 45,141 35,367
Incremental common shares attributable to exercise of
outstanding options and warrants . . . . . . . . . . . 2,123
------- -------
Total shares . . . . . . . . . . . . . . . . . 47,264 35,367
======= =======
Net income (loss) per share . . . . . . . . . . . . . $ .73 $ (.14)
======= =======
FULLY DILUTED
Net income (loss) . . . . . . . . . . . . . . . . . . $34,718 $(5,098)
Add back: interest expense, net of income tax effect,
applicable to convertible subordinated debentures . . 1,161
------- -------
$35,879 $(5,098)
======= =======
Weighted average number of common shares outstanding
during the period . . . . . . . . . . . . . . . . . . 45,141 35,367
Incremental common shares attributable to exercise of
outstanding options and warrants . . . . . . . . . . . 2,124 --
Incremental common shares attributable to conversion of
convertible subordinated debentures . . . . . . . . . 4,058 --
------- -------
Total shares . . . . . . . . . . . . . . . . . 51,323 35,367
======= =======
Net income (loss) per share . . . . . . . . . . . . . $ .70 $ (.14)
======= =======
5
1,000
3-MOS
JUL-01-1995
JUL-01-1994
OCT-01-1994
229,473
0
243,963
11,150
96,031
589,009
195,482
113,090
700,061
297,069
58,646
4,529
0
0
321,883
700,061
464,590
464,590
366,823
366,823
28,698
0
(2,943)
40,845
6,127
34,718
0
0
0
34,718
.73
.70
