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 December 31, 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
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER INCLUDING AREA CODE (714) 932-5000
N/A
- --------------------------------------------------------------------------------
Former name, former address and former fiscal year if changed since last
report.
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
Number of shares outstanding of Common Stock, as of February 1, 1995
is 47,051,578.
2
WESTERN DIGITAL CORPORATION
INDEX
PAGE NO.
--------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Operations - Three
Months Ended December 31, 1994 and December 25, 1993 . . . . . . . . . . . . . 3
Consolidated Statements of Operations - Six
Months Ended December 31, 1994 and December 25, 1993 . . . . . . . . . . . . . 4
Consolidated Balance Sheets - December 31, 1994 and
June 30, 1994 5
Consolidated Statements of Cash Flows - Six
Months Ended December 31, 1994 and December 25, 1993 . . . . . . . . . . . . . 6
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . . . . . . . . . . . 8
PART II. OTHER INFORMATION
Item 4. Submission of Matters to Vote of Security Holders . . . . . . . . . . . 9
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . 9
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Index to Exhibits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
2
3
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
------------------------------------
DECEMBER 31, DECEMBER 25,
1994 1993
------------ ------------
Revenues, net . . . . . . . . . . . . . . . . . . . . $551,944 $371,072
Costs and expenses:
Cost of revenues . . . . . . . . . . . . . . . . 442,904 298,251
Research and development . . . . . . . . . . . . 30,889 30,073
Selling, general and administrative . . . . . . 30,821 26,406
-------- --------
Total costs and expenses . . . . . . . . 504,614 354,730
-------- --------
Operating income . . . . . . . . . . . . . . . . . . . . 47,330 16,342
Interest and other income (expense), net . . . . . . . . 2,733 (2,551)
-------- --------
Income before income taxes . . . . . . . . . . . . . . . 50,063 13,791
Provision for income taxes . . . . . . . . . . . . . . . 7,509 1,304
-------- --------
Net income . . . . . . . . . . . . . . . . . . . . $ 42,554 $ 12,487
======== ========
Earnings per common and common
equivalent share (Note 2):
Primary . . . . . . . . . . . . . . . . $ .89 $ .32
======== ========
Fully diluted . . . . . . . . . . . . . $ .85 $ .32
======== ========
Common and common equivalent shares used
in computing per share amounts:
Primary . . . . . . . . . . . . . . . . 47,683 38,673
======== ========
Fully diluted . . . . . . . . . . . . . 51,562 39,117
======== ========
The accompanying notes are an integral part of these financial statements.
3
4
WESTERN DIGITAL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
SIX MONTH PERIOD ENDED
-----------------------------------------
DECEMBER 31, DECEMBER 25,
1994 1993
-------------------- --------------------
Revenues, net . . . . . . . . . . . . . . . . . . . . $1,016,534 $656,570
Costs and expenses:
Cost of revenues . . . . . . . . . . . . . . . . 809,727 537,330
Research and development . . . . . . . . . . . . 59,587 56,425
Selling, general and administrative . . . . . . 61,988 48,518
---------- --------
Total costs and expenses . . . . . . . . 931,302 642,273
---------- --------
Operating income . . . . . . . . . . . . . . . . . . . . 85,232 14,297
Interest and other income (expense), net . . . . . . . . 5,676 (5,604)
---------- --------
Income before income taxes . . . . . . . . . . . . . . . 90,908 8,693
Provision for income taxes . . . . . . . . . . . . . . . 13,636 1,304
---------- --------
Net income . . . . . . . . . . . . . . . . . . . . . . . $ 77,272 $ 7,389
========== ========
Earnings per common and common
equivalent share (Note 2):
Primary . . . . . . . . . . . . . . . . $ 1.63 $ .20
========== ========
Fully diluted . . . . . . . . . . . . . $ 1.55 $ .19
========== ========
Common and common equivalent shares used
in computing per share amounts:
Primary . . . . . . . . . . . . . . . . 47,473 37,020
========== ========
Fully diluted . . . . . . . . . . . . . 51,353 38,984
========== ========
The accompanying notes are an integral part of these financial statements.
4
5
WESTERN DIGITAL CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
DECEMBER 31, JUNE 30,
1994 1994
------------- ------------
ASSETS
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . $208,928 $243,484
Short-term investments (Note 1) . . . . . . . . . . 71,571 --
Accounts receivable, less allowance for doubtful
accounts of $10,373 and $10,825 . . . . . . . . 239,722 201,512
Inventories (Note 3) . . . . . . . . . . . . . . . 111,483 79,575
Prepaid expenses . . . . . . . . . . . . . . . . . . 25,808 12,917
-------- --------
Total current assets . . . . . . . . . . . . 657,512 537,488
Property and equipment, at cost, less accumulated
depreciation and amortization . . . . . . . . . . . 83,850 73,417
Intangible and other assets, net . . . . . . . . . . . . . . 31,238 29,608
-------- --------
Total assets . . . . . . . . . . . . . . . . . . . . $772,600 $640,513
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable . . . . . . . . . . . . . . . . . . $212,913 $172,730
Accrued expenses . . . . . . . . . . . . . . . . . . 107,777 103,014
-------- --------
Total current liabilities . . . . . . . . . 320,690 275,744
Convertible subordinated debentures (Note 4). . . . . . . . . 56,040 58,646
Deferred income taxes . . . . . . . . . . . . . . . . . . . . 23,570 17,884
Commitments and contingent liabilities (Note 5)
Shareholders' equity:
Preferred stock, $.10 par value;
Authorized: 5,000 shares
Outstanding: None . . . . . . . . . . . . . -- --
Common stock, $.10 par value;
Authorized: 95,000 shares
Outstanding: 45,617 shares at
December 31 and 44,895 shares
at June 30 . . . . . . . . . . . . . . . . . 4,561 4,490
Additional paid-in capital . . . . . . . . . . . . . 290,193 283,475
Retained earnings . . . . . . . . . . . . . . . . . 77,546 274
-------- --------
Total shareholders' equity . . . . . . . . . 372,300 288,239
-------- --------
Total liabilities and shareholders' equity . $772,600 $640,513
======== ========
The accompanying notes are an integral part of these financial statements.
5
6
WESTERN DIGITAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
SIX-MONTH PERIOD ENDED
------------------------------------
DECEMBER 31, DECEMBER 25,
1994 1993
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income . . . . . . . . . . . . . . . . . . . . . $ 77,272 $ 7,389
Adjustments to reconcile net income to net
cash provided by (used for) operating activities:
Depreciation and amortization . . . . . . . . . 19,615 26,382
Changes in current assets and liabilities:
Accounts receivable . . . . . . . . . . . . (38,210) (17,732)
Inventories . . . . . . . . .. . . . . . . (31,908) 15,950
Prepaid expenses . . . . . . . . . . . . . (12,891) (1,340)
Accounts payable and accrued expenses . . . 44,946 32,397
Intangible and other assets . . . . . . . . . . (2,765) (505)
Deferred income taxes . . . . . . . . . . . . . 5,686 (1,129)
--------- ---------
Net cash provided by operating activities . 61,745 61,412
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Increase in short-term investments . . . . . . . . . (71,571) --
Capital expenditures, net . . . . . . . . . . . . . . (28,913) (9,131)
Proceeds from the sale of facility . . . . . . . . . -- 103,942
--------- ---------
Net cash provided by (used for) investing
activities . . . . . . . . . . . . . . . . (100,484) 94,811
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of debt . . . . . . . . . . . . . . . . . . -- (107,307)
Exercise of stock options and warrants . . . . . . . 4,183 2,093
--------- ---------
Net cash provided by (used for) financing
activities . . . . . . . . . . . . . . . . . . 4,183 (105,214)
--------- ---------
Net increase (decrease) in cash and cash
equivalents . . . . . . . . . . . . . . . . . . . . (34,556) 51,009
Cash and cash equivalents, beginning of period . . . 243,484 33,837
--------- ---------
Cash and cash equivalents, end of period . . . . . . $ 208,928 $ 84,846
========= =========
SUPPLEMENTAL DISCLOSURES:
Cash paid during the period for:
Interest . . . . . . . . . . . . . . . . . . . . $ 2,718 $ 5,619
Income taxes . . . . . . . . . . . . . . . . . . 4,115 310
The accompanying notes are an integral part of these financial statements.
6
7
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.
All highly liquid investments purchased with an original maturity of
three months or less are considered cash equivalents. Similar
investments with original maturities beyond three months are
considered short-term investments and are carried at cost, which
approximates market.
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.
3. Inventories comprised the following:
DECEMBER 31, JUNE 30,
1994 1994
------------ --------
(in thousands)
Finished goods . . . . . . . . . . . . . . . . . $ 38,328 $ 27,847
Work in process . . . . . . . . . . . . . . . . 45,312 32,178
Raw materials and component parts . . . . . . . 27,843 19,550
--------- --------
$ 111,483 $ 79,575
========= ========
4. During the six months ended December 31, 1994, approximately $2.6
million of the Company's 9% convertible subordinated debentures, due
2014, were converted into 180,345 shares of the Company's common
stock.
Subsequent to December 31, 1994, approximately $15.6 million of the
convertible subordinated debentures were converted into 1,077,921
shares of the Company's common stock.
5. On November 8, 1994, the Company entered into a patent cross-license
agreement with International Business Machines Corporation ("IBM").
The license granted 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 and six months ended
December 31, 1994 and December 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.
7
8
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Net income for the second quarter of 1995 was $42.6 million, compared with
$12.5 million in the corresponding quarter of the prior year and $34.7 million
in the immediately preceding quarter. Net income for the six months ended
December 31, 1994 was $77.3 million, compared with $7.4 million for the same
period a year ago. Revenue for the three month period ended December 31, 1994
increased 49% to $551.9 million from $371.1 million in the second quarter of
1994 and 19% from the first quarter of 1995. For the six months ended December
31, 1994, revenue totaled $1.0 billion, a 55% increase over revenue of $656.6
million for the same period a year ago.
Revenue for drive products totaled $499.8 million in the second quarter of
1995, an increase of $85.9 million or 21% from the first quarter of 1995, as a
result of an 18% increase in drive units shipped. Revenue for drive products
for the three and six months ended December 31, 1994 increased $167 million or
50% and $338.5 million or 59%, respectively, over the corresponding periods of
the prior year. These increases were attributable to a 63% and 55% increase in
drive units shipped over the corresponding three and six month periods,
respectively, of the prior year, offset by a decline in average selling prices
("ASPs").
Revenue for microcomputer products ("MCP") totaled $52.1 million in the
second quarter of 1995, up slightly over the first quarter of 1995. Revenue
for MCP for the three and six months ended December 31, 1994 increased $13.8
million or 36% and $21.5 million or 26%, respectively, as compared with the
corresponding periods of the prior year, reflecting increased sales of the
Company's portable graphics accelerator chips.
Gross margin decreased from 21% in the first quarter of 1995 to 20% in the
second quarter of 1995, reflecting a one percentage point decrease in drive
gross margin. Drive gross margin was 17.4% for the second quarter of 1995, a
one percentage point decrease from the second quarter of 1994. The decline in
drive gross margin resulted from a change in the mix of products sold and a 9%
decline in ASPs, which were not fully offset by reductions in product costs.
Drive gross margin was 18.1% for the first half of 1995, a two percentage point
improvement over the corresponding period of the prior year. MCP gross margin
for the three and six month periods of the current fiscal year was 42% and
40.7%, respectively, an increase of approximately 11 and ten percentage points,
respectively, over the same periods of the prior year. The improvements in MCP
gross margins were primarily attributable to the cost benefits realized from
selling its wafer fabrication facility during 1994, which reduced product
costs.
Research and development ("R&D") expense in the current quarter increased $2.2
million over the immediately preceding quarter. R&D expense for the three and
six months ended December 31, 1994 increased $.8 million or 3% and $3.2 million
or 6%, respectively, as compared with the corresponding periods of the prior
year. These increases were primarily attributable to planned expenditures to
support new product introductions for the current fiscal year.
Selling, general and administrative ("SG&A") expense for the second quarter of
1995 was essentially unchanged from the first quarter of 1995. SG&A expense
for the three and six months ended December 31, 1994 increased $4.4 million or
17% and $13.5 million or 28%, respectively, as compared with the corresponding
periods of the prior year. These increases are primarily the result of
increased selling and marketing expenses in support of higher revenue levels
and higher variable compensation plan accruals.
8
9
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Interest and other income for the current quarter was $2.7 million,
comprising net interest income of $1.6 million and a $1.1 million gain from the
sale of stock held for investment. Net interest income was $1.6 million and
$2.5 million for the three and six months ended December 31, 1994,
respectively, an improvement of $4.2 million and $8.2 million, respectively,
over net interest expense in the corresponding periods of the prior year. This
improvement is the result of significantly lower levels of debt outstanding
period-to-period and higher average cash balances. As compared with the
immediately preceding quarter, interest and other income was essentially
unchanged.
FINANCIAL CONDITION
Cash and short-term investments totaled $280.5 million at December 31, 1994 as
compared with $243.5 million at June 30, 1994. Cash flows from operations were
$61.7 million, with cash flows from earnings, net of depreciation, and an
increase in payables being offset by cash used to fund increases in accounts
receivable and inventories. Capital additions for the first half of 1995
totaled $28.9 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 integrated circuits from outside
suppliers and the timely development and introduction of new products which
address market needs.
PART II. OTHER INFORMATION
ITEM 4. Submission of Matters to Vote of Security Holders
The annual meeting of shareholders was held on November 10, 1994.
The shareholders approved the following proposals:
Number of Votes
---------------
For Against*
--- -------
1. To approve the amendment and restatement of the
Company's Employee Stock Option Plan. 24,883,910 7,282,291
2. To approve an amendment to the Company's Stock
Option Plan for Non-Employee Directors which will
extend the term of such plan for an additional ten-year
period. 23,131,804 9,034,397
* includes abstentions
ITEM 6. Exhibits and reports on Form 8-K.
(a) Exhibits:
11 Computation of Per Share Earnings.
(b) Reports on Form 8-K:
None
9
10
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: February 13, 1995
10
11
EXHIBIT INDEX
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- ------ ----------- -------------
11 Computation of Per Share Earnings. . . . . . . . . . . . . . . . . . . . . 12
11
1
EXHIBIT 11
WESTERN DIGITAL CORPORATION
COMPUTATION OF PER SHARE EARNINGS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS ENDED SIX-MONTHS ENDED
---------------------------- ----------------------------
DECEMBER 31, DECEMBER 25, DECEMBER 31, DECEMBER 25,
1994 1993 1994 1993
------------ ------------ ------------ ------------
PRIMARY
Net income . . . . . . . . . . . . . . . . $ 42,554 $ 12,487 $ 77,272 $ 7,389
======== ======== ======== ========
Weighted average number of common
shares outstanding during the period . . . 45,437 35,634 45,289 35,501
Incremental common shares attributable
to exercise of outstanding options and
warrants . . . . . . . . . . . . . . . . 2,246 3,039 2,184 1,519
-------- -------- -------- --------
Total shares . . . . . . . . . . . . . 47,683 38,673 47,473 37,020
======== ======== ======== ========
Net income per share . . . . . . . . . . . $ .89 $ .32 $ 1.63 $ .20
======== ======== ======== ========
FULLY DILUTED
Net income . . . . . . . . . . . . . . . . $ 42,554 $ 12,487 $ 77,272 $ 7,389
Add back: interest expense, net of
income tax effect, applicable to
convertible subordinated debentures . . . . 1,111 -- 2,223 --
-------- -------- -------- --------
$ 43,665 $ 12,487 $ 79,495 $ 7,389
======== ======== ======== ========
Weighted average number of common
shares outstanding during the period . . . 45,437 35,634 45,289 35,501
Incremental common shares attributable
to exercise of outstanding options and
warrants . . . . . . . . . . . . . . . . 2,247 3,483 2,186 3,483
Incremental common shares attributable
to conversion of convertible subordinated
debentures . . . . . . . . . . . . . . . . 3,878 -- 3,878 --
-------- -------- -------- --------
Total shares . . . . . . . . . . . . . 51,562 39,117 51,353 38,984
======== ======== ======== ========
Net income per share . . . . . . . . . . . $ .85 $ .32 $ 1.55 $ .19
======== ======== ======== ========
12
5
1000
US DOLLARS
6-MOS
JUL-1-1995
JUL-1-1994
DEC-31-1994
1
208,928
71,571
239,722
10,373
111,483
657,512
202,700
118,850
772,600
320,690
56,040
4,561
0
0
367,739
772,600
1,016,534
1,016,534
809,727
809,727
121,575
0
(5,676)
90,908
13,636
77,272
0
0
0
77,272
1.63
1.55
