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 30, 1995.
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, 1996 is
45,122,582.
2
WESTERN DIGITAL CORPORATION
SEC FORM 10-Q
INDEX
PAGE NO.
--------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Income - Three-Month Periods
Ended December 30, 1995 and December 31, 1994 ............. 3
Consolidated Statements of Income - Six-Month Periods
Ended December 30, 1995 and December 31, 1994 ............. 4
Consolidated Balance Sheets - December 30, 1995 and
July 1, 1995 .............................................. 5
Consolidated Statements of Cash Flows - Six-Month Periods
Ended December 30, 1995 and December 31, 1994 ............. 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 ......... 10
Item 6. Exhibits and Reports on Form 8-K .......................... 10
Signatures ......................................................... 11
Index to Exhibits .................................................. 12
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3
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
WESTERN DIGITAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
THREE-MONTH PERIOD ENDED
------------------------
DEC. 30, DEC. 31,
1995 1994
-------- --------
Revenues, net ....................................... $757,992 $551,944
Costs and expenses:
Cost of revenues ................................. 654,613 442,904
Research and development ......................... 38,665 30,889
Selling, general and administrative .............. 43,539 30,821
-------- --------
Total costs and expenses ..................... 736,817 504,614
-------- --------
Operating income .................................... 21,175 47,330
Net interest and other income ....................... 3,155 2,733
Gain on sale of Multimedia business (Note 5) ........ 17,275 --
-------- --------
Income before income taxes .......................... 41,605 50,063
Provision for income taxes .......................... 5,212 7,509
-------- --------
Net income .......................................... $ 36,393 $ 42,554
======== ========
Earnings per common and common
equivalent share (Note 2):
Primary ...................................... $ .75 $ .89
======== ========
Fully diluted ................................ $ .75 $ .85
======== ========
Common and common equivalent shares used
in computing per share amounts:
Primary ...................................... 48,438 47,683
======== ========
Fully diluted ................................ 48,688 51,562
======== ========
The accompanying notes are an integral part of these financial statements.
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WESTERN DIGITAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
SIX-MONTH PERIOD ENDED
-----------------------
DEC. 30, DEC. 31,
1995 1994
---------- ----------
Revenues, net ........................................ $1,316,141 $1,016,534
Costs and expenses:
Cost of revenues .................................. 1,131,970 809,727
Research and development .......................... 79,388 59,587
Selling, general and administrative ............... 77,443 61,988
---------- ----------
Total costs and expenses ...................... 1,288,801 931,302
---------- ----------
Operating income ..................................... 27,340 85,232
Net interest and other income ........................ 6,787 5,676
Gain on sale of Multimedia business (Note 5) ......... 17,275 --
---------- ----------
Income before income taxes ........................... 51,402 90,908
Provision for income taxes ........................... 6,682 13,636
---------- ----------
Net income ........................................... $ 44,720 $ 77,272
========== ==========
Earnings per common and common
equivalent share (Note 2):
Primary ....................................... $ .89 $ 1.63
========== ==========
Fully diluted ................................. $ .89 $ 1.55
========== ==========
Common and common equivalent shares used
in computing per share amounts:
Primary ....................................... 50,039 47,473
========== ==========
Fully diluted ................................. 50,166 51,353
========== ==========
The accompanying notes are an integral part of these financial statements.
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WESTERN DIGITAL CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
DEC. 30, JULY 1,
1995 1995
-------- --------
ASSETS
Current assets:
Cash and cash equivalents ............................ $206,798 $217,531
Short-term investments ............................... 62,831 90,177
Accounts receivable, less allowance for doubtful
accounts of $13,689 and $9,309 ................... 356,937 303,841
Inventories (Note 3) ................................ 122,617 98,925
Prepaid expenses ..................................... 14,932 19,663
-------- --------
Total current assets ............................. 764,115 730,137
Property and equipment, at cost, less accumulated
depreciation and amortization ........................ 100,195 88,576
Intangible and other assets, net ......................... 41,376 40,127
-------- --------
Total assets ..................................... $905,686 $858,840
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable ...................................... $310,574 $250,325
Accrued compensation .................................. 15,625 30,064
Accrued expenses ...................................... 110,998 89,213
-------- --------
Total current liabilities ......................... 437,197 369,602
Deferred income taxes .................................... 16,732 15,812
Shareholders' equity:
Preferred stock, $.10 par value;
Authorized: 5,000 shares
Outstanding: None ................................ -- --
Common stock, $.10 par value;
Authorized: 95,000 shares
Outstanding: 50,666 shares at
December 30 and 50,482 shares
at July 1 ....................................... 5,066 5,048
Additional paid-in capital ............................ 356,637 355,624
Retained earnings ..................................... 168,296 123,576
Treasury stock-common stock at cost;
4,969 shares at December 30 and
805 shares at July 1 (Note 4) ..................... (78,242) (10,822)
-------- --------
Total shareholders' equity ........................ 451,757 473,426
-------- --------
Total liabilities and shareholders' equity ........ $905,686 $858,840
======== ========
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)
SIX-MONTH PERIOD ENDED
----------------------
DEC. 30, DEC. 31,
1995 1994
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ............................................ $ 44,720 $ 77,272
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization ..................... 25,854 19,615
Gain on sale of Multimedia business ............... (17,275) --
Changes in current assets and liabilities, net of
the effect of the sale of the Multimedia
business:
Accounts receivable ............................ (57,096) (38,210)
Inventories .................................... (30,721) (31,908)
Prepaid expenses ............................... 3,552 (12,891)
Accounts payable and accrued expenses .......... 47,495 44,946
Other assets .......................................... (1,275) (4,765)
Deferred income taxes ................................. 920 5,686
-------- --------
Net cash provided by operating activities ...... 16,174 59,745
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Decrease (increase) in short-term investments ......... 27,346 (71,571)
Capital expenditures, net ............................. (35,404) (28,913)
Decrease (increase) in other assets ................... (4,375) 2,000
Proceeds from sale of Multimedia.......................
business (Note 5) ................................. 51,915 --
-------- --------
Net cash provided by (used for) investing
activities .................................. 39,482 (98,484)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Exercise of stock options ............................. 2,472 1,527
Proceeds from ESPP shares issued ...................... 3,795 2,656
Repurchase of common stock (Note 4) ................... (72,656) --
-------- --------
Net cash provided by (used for) financing
activities .................................. (66,389) 4,183
-------- --------
Net decrease in cash and cash equivalents ............. (10,733) (34,556)
Cash and cash equivalents, beginning of period ........ 217,531 243,484
-------- --------
Cash and cash equivalents, end of period .............. $206,798 $208,928
======== ========
SUPPLEMENTAL DISCLOSURES:
Cash paid during the period for:
Interest .............................................. $ -- $ 2,718
Income taxes .......................................... 1,682 4,115
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 July 1, 1995.
2. Primary earnings per share amounts are based upon the weighted average
number of shares and dilutive common stock equivalents for each period
presented. For the three- and six-month periods ended December 31, 1994,
fully diluted earnings per share additionally reflect dilutive shares
assumed to be issued upon conversion of the Company's convertible
subordinated debentures.
3. Inventories consist of the following:
DEC. 30, JULY 1,
1995 1995
-------- -------
(in thousands)
Finished goods .................................... $ 28,104 $31,811
Work in process ................................... 48,984 35,763
Raw materials and component parts ................. 45,529 31,351
-------- -------
$122,617 $98,925
======== =======
4. During the six-month period ended December 30, 1995, the Company
repurchased 4,553,700 shares of its common stock in the open market at a
cost of $72.7 million. This amount was offset by 339,176 and 50,623
shares distributed in connection with the Employee Stock Purchase Plan
("ESPP") and common stock option exercises, respectively.
5. In October 1995, the Company sold its Multimedia business to Philips
Semiconductors, Inc. ("Philips") for approximately $51.9 million under an
asset purchase agreement. Through this transaction, Philips acquired
specific assets and intellectual properties and assumed certain
liabilities directly related to the Multimedia business.
6. In the opinion of management, all adjustments necessary to fairly state
the results of operations for the three- and six-month periods ended
December 30, 1995 and December 31, 1994 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 July 1, 1995.
7. Certain prior quarter amounts have been reclassified to conform to the
current quarter presentation.
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ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Sales of hard drive products were $742.1 million in the second quarter of 1996,
compared with $522.9 million in the immediately preceding quarter and $499.8
million in the second quarter of 1995. The growth in hard drive product
revenues was the result of an increase in hard drive unit shipments of 43% and
54% in the current quarter as compared to the quarters ended September 30, 1995
and December 31, 1994, respectively. These increases were partially offset by
a decline in average selling prices, although pricing pressures eased
moderately in the current quarter. Sales of hard drive products were $1.3
billion in the six months ended December 30, 1995, an increase of $351.4
million or 38% from the same period of the prior year. The increase in hard
drive product revenues was due to a 43% increase in hard drive units shipped,
partially offset by lower average selling prices.
Sales of input/output products for the current quarter were $15.9 million, down
$36.2 million or 69% from the second quarter of 1995 and $19.3 million or 55%
from the immediately preceding quarter. Sales for the six-month period ended
December 30, 1995 decreased $51.8 million or 50% from the corresponding period
of the prior year. The decreases in revenues were primarily related to the
sale of the Multimedia business during the second quarter of 1996.
Gross profit margins were as follows:
Three-Month Period Ended Six-Month Period Ended
12/30/95 9/30/95 12/31/94 12/30/95 12/31/94
-------- -------- -------- -------- --------
Hard drive products 13.1% 13.0% 17.4% 13.0% 18.1%
Input/output products 40.7% 36.9% 42.0% 38.1% 40.7%
Overall 13.6% 14.5% 19.8% 14.0% 20.3%
The decrease in hard drive product gross profit margin from the second quarter
of 1995 and the six-month period ended December 31, 1994 was primarily due to
two factors. First, higher-capacity products were introduced at lower average
selling prices as a result of competitive pricing pressures. Second, the
Company shipped a broader mix of hard drives during fiscal year 1996. This
resulted in higher shipments of lower-capacity products at lower price points,
which generally have smaller gross margins.
The gross profit margin percentage for input/output products declined from the
second quarter of 1995 and the six-month period ended December 31, 1994 because
of the relationship between fixed costs and the lower revenue base. The
increase in gross profit margin from the first quarter of 1996 was primarily
due to the change in mix of products sold as a result of the sale of the
Multimedia business.
Research and development expense ("R&D") for the current quarter decreased $2.1
million or 5% as compared to the first quarter of 1996. The decline was
primarily due to lower expenditures for input/output products as a result of
the sale of the Multimedia business. R&D expense for the three- and six-month
periods ended December 30, 1995 increased $7.8 million or 25% and $19.8 million
or 33%, respectively, over the same periods of the prior year. Higher
expenditures to support the development of higher-capacity products was the
primary factor contributing to the increase.
Selling, general and administrative ("SG&A") expense for the current quarter
increased $12.7 million, or 41% over the same period a year ago and $9.6
million or 28% as compared to the first quarter of 1996. SG&A expense for the
six-month period ended December 30, 1995 increased $15.5 million or 25% over
the first six months of fiscal year 1995. The increases were primarily the
result of incremental expenses in support of the higher revenue levels and
higher royalty expense.
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ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Net interest and other income for the three- and six-month periods ended
December 30, 1995 increased $.4 million and $1.1 million, respectively, over
the corresponding periods of fiscal year 1995. The elimination of the
Company's outstanding debt was responsible for the improvements in net interest
and other income over the prior year.
FINANCIAL CONDITION
Cash and short-term investments totaled $269.6 million at December 30, 1995 as
compared with $307.7 million at July 1, 1995. Net cash provided by operating
activities was $16.2 million for the six-month period ended December 30, 1995.
Cash flow from earnings (net of the gain on sale of the Multimedia business),
depreciation and an increase in current liabilities were partially offset by
cash used to fund increases in accounts receivable and inventories. Other
significant uses of cash during the first six months of 1996 were capital
expenditures, which totaled $35.4 million and were incurred primarily to
support increased production of hard drives and related components, and the
acquisition of 4.6 million shares of the Company's common stock in the open
market for $72.7 million. Offsetting these uses of cash was approximately
$51.9 million received in connection with the sale of the Multimedia business
(see Note 5).
The ability of the Company to continue to effectively manage its working
capital and operate 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 introduction of new products which address market needs.
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PART II. OTHER INFORMATION
ITEM 4. Submission of Matters to Vote of Security Holders
The annual meeting of shareholders was held on November 1, 1995. The
shareholders approved the following proposals:
Number of Votes
---------------------
For Against*
---------- ---------
1. To approve the amendment and restatement of the
Company's Stock Option Plan for Non-Employee
Directors. 41,146,228 2,246,067
2. To ratify the selection of KPMG Peat Marwick LLP
as independent accountants for the Company for
the fiscal year ended June 29, 1996. 43,197,323 194,923
* includes abstentions
ITEM 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
11 Computation of Per Share Earnings.
27 Financial Data Schedule
(b) Reports on Form 8-K:
None
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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: February 12, 1996
11
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EXHIBIT INDEX
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- ------- ----------- ------------
11 Computation of Per Share Earnings.......................
27 Financial Data Schedule.................................
12
1
EXHIBIT 11
WESTERN DIGITAL CORPORATION
COMPUTATION OF PER SHARE EARNINGS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE-MONTH PERIOD ENDED SIX-MONTH PERIOD ENDED
------------------------ ----------------------
DEC. 30, DEC. 31, DEC. 30, DEC. 31
1995 1994 1995 1994
-------- -------- -------- -------
PRIMARY
Net income ................................. $ 36,393 $ 42,554 $ 44,720 $77,272
======== ======== ======== =======
Weighted average number of common
shares outstanding during the period ....... 46,941 45,437 48,257 45,289
Incremental common shares attributable
to exercise of outstanding options and
warrants ................................... 1,497 2,246 1,782 2,184
-------- -------- -------- -------
Total shares ............................... 48,438 47,683 50,039 47,473
======== ======== ======== =======
Net income per share ....................... $ .75 $ .89 $ .89 $ 1.63
======== ======== ======== =======
FULLY DILUTED
Net income ................................. $ 36,393 $ 42,554 $ 44,720 $77,272
Add back: interest expense, net of
income tax effect, applicable to
convertible subordinated debentures ........ -- 1,111 -- 2,223
-------- -------- -------- -------
$ 36,393 $ 43,665 $ 44,720 $79,495
======== ======== ======== =======
Weighted average number of common
shares outstanding during the period ....... 46,941 45,437 48,257 45,289
Incremental common shares attributable
to exercise of outstanding options and
warrants ................................... 1,747 2,247 1,909 2,186
Incremental common shares attributable
to conversion of convertible subordinated
debentures ................................. -- 3,878 -- 3,878
-------- -------- -------- -------
Total shares ............................... 48,688 51,562 50,166 51,353
======== ======== ======== =======
Net income per share ....................... $ .75 $ .85 $ .89 $ 1.55
======== ======== ======== =======
5
1,000
6-MOS
JUN-29-1996
JUL-02-1995
DEC-30-1995
206,798
62,831
370,626
13,689
122,617
764,115
233,502
133,307
905,686
437,197
0
0
0
4,569
447,188
905,686
1,316,141
1,316,141
1,131,970
1,131,970
79,388
400
(6,787)
51,402
6,682
44,720
0
0
0
44,720
.89
.89
