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Previous: WEST TEXAS UTILITIES CO, 10-Q, 1995-11-13 |
Next: WESTINGHOUSE ELECTRIC CORP, 10-Q, 1995-11-13 |
<PAGE> 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 September 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 November 1, 1995
is 47,514,239.
<PAGE> 2
WESTERN DIGITAL CORPORATION
INDEX
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Income - Three-Month Periods
Ended September 30, 1995 and October 1, 1994 . . . . . . . . . . . . . 3
Consolidated Balance Sheets - September 30, 1995 and
July 1, 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Consolidated Statements of Cash Flows - Three-Month Periods
Ended September 30, 1995 and October 1, 1994 . . . . . . . . . . . . . . 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 . . . . . . . . . . . . . . . . . . . 9
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Index to Exhibits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
</TABLE>
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
WESTERN DIGITAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE-MONTH PERIOD ENDED
--------------------------------------
SEPT. 30, OCT. 1,
1995 1994
-------------- --------------
<S> <C> <C>
Revenues, net . . . . . . . . . . . . . . . . . . . . . . $ 558,149 $ 464,590
Costs and expenses:
Cost of revenues . . . . . . . . . . . . . . . . . 477,357 366,823
Research and development . . . . . . . . . . . . . 40,723 28,698
Selling, general and administrative . . . . . . . . 33,904 31,167
------------ ------------
Total costs and expenses . . . . . . . . . . . 551,984 426,688
------------ ------------
Operating income . . . . . . . . . . . . . . . . . . . . 6,165 37,902
Interest and other income . . . . . . . . . . . . . . . . 3,632 2,943
------------ ------------
Income before income taxes . . . . . . . . . . . . . . . 9,797 40,845
Provision for income taxes . . . . . . . . . . . . . . . 1,470 6,127
------------ -----------
Net income . . . . . . . . . . . . . . . . . . . . . . . $ 8,327 $ 34,718
============ ============
Earnings per common and common
equivalent share (Note 2):
Primary . . . . . . . . . . . . . . . . . . . $ .16 $ .73
============ ============
Fully diluted . . . . . . . . . . . . . . . . $ .16 $ .70
============ ============
Common and common equivalent shares used
in computing per share amounts:
Primary . . . . . . . . . . . . . . . . . . . 51,641 47,264
============ ============
Fully diluted . . . . . . . . . . . . . . . . 51,643 51,323
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE> 4
WESTERN DIGITAL CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
SEPT. 30, JULY 1,
1995 1995
------------ -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . $ 159,174 $ 217,531
Short-term investments . . . . . . . . . . . . . . 82,690 90,177
Accounts receivable, less allowance for doubtful
accounts of $9,673 and $9,309 . . . . . . . . 319,148 303,841
Inventories (Note 3) . . . . . . . . . . . . . . . 147,078 98,925
Prepaid expenses . . . . . . . . . . . . . . . . . 20,799 19,663
------------ ------------
Total current assets . . . . . . . . . . . . . 728,889 730,137
Property and equipment, at cost, less accumulated
depreciation and amortization . . . . . . . . . . . 94,856 88,576
Intangible and other assets, net . . . . . . . . . . . . 40,087 40,127
------------ ------------
Total assets . . . . . . . . . . . . . . . . . $ 863,832 $ 858,840
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable . . . . . . . . . . . . . . . . . $ 288,883 $ 250,325
Accrued compensation . . . . . . . . . . . . . . . 10,513 30,064
Accrued expenses . . . . . . . . . . . . . . . . . 86,071 89,213
------------ ------------
Total current liabilities . . . . . . . . . . 385,467 369,602
Deferred income taxes . . . . . . . . . . . . . . . . . . 16,597 15,812
Commitments and contingent liabilities
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
September 30 and 50,482 shares
at July 1 . . . . . . . . . . . . . . . . . . 5,066 5,048
Additional paid-in capital . . . . . . . . . . . . 357,051 355,624
Retained earnings . . . . . . . . . . . . . . . . . 131,903 123,576
Treasury stock-common stock at cost;
2,040 shares at September 30 and
805 shares at July 1 (Note 4) . . . . . . . . (32,252) (10,822)
------------ ------------
Total shareholders' equity . . . . . . . . . . 461,768 473,426
------------ ------------
Total liabilities and shareholders' equity . . $ 863,832 $ 858,840
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE> 5
WESTERN DIGITAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE-MONTH PERIOD ENDED
-------------------------------------
SEPT. 30, OCT. 1,
1995 1994
------------- --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income . . . . . . . . . . . . . . . . . . . . . . . $ 8,327 $ 34,718
Adjustments to reconcile net income to net
cash provided by (used for) operating activities:
Depreciation and amortization . . . . . . . . . . . 12,363 9,428
Changes in current assets and liabilities:
Accounts receivable . . . . . . . . . . . . . . (15,307) (42,451)
Inventories . . . . . . . . . . . . . . . . . . (48,153) (16,456)
Prepaid expenses . . . . . . . . . . . . . . . (1,136) (6,625)
Accounts payable and accrued expenses . . . . . 15,865 21,325
Other assets . . . . . . . . . . . . . . . . . . . . . . 669 (1,183)
Deferred income taxes . . . . . . . . . . . . . . . . . . 785 50
------------ ----------
Net cash used for operating activities . . . . . . . (26,587) (1,194)
------------ ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Decrease in short-term investments . . . . . . . . . . . 7,487 --
Capital expenditures, net . . . . . . . . . . . . . . . . (16,647) (17,637)
Decrease (increase) in other assets . . . . . . . . . . . (2,625) 1,365
------------ ----------
Net cash used for investing activities . . . . . . . (11,785) (16,272)
------------ ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Exercise of stock options . . . . . . . . . . . . . . . . 2,203 799
Proceeds from ESPP shares issued . . . . . . . . . . . . . 3,795 2,656
Repurchase of common stock (Note 4) . . . . . . . . . . . (25,983) --
------------ -----------
Net cash provided by (used for) financing
activities . . . . . . . . . . . . . . . . . . (19,985) 3,455
------------ -----------
Net decrease in cash and cash equivalents . . . . . . . . (58,357) (14,011)
Cash and cash equivalents, beginning of period . . . . . 217,531 243,484
------------ -----------
Cash and cash equivalents, end of period . . . . . . . . $ 159,174 $ 229,473
============ ===========
SUPPLEMENTAL DISCLOSURES:
Cash paid during the period for income taxes . . . . . . . . . $ 1,127 $ 3,195
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE> 6
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 quarter ended October 1, 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 comprised the following:
<TABLE>
<CAPTION>
SEPT. 30, JULY 1,
1995 1995
------------- ------------
(in thousands)
<S> <C> <C>
Finished goods . . . . . . . . . . . . . . . . . $ 61,134 $ 31,811
Work in process . . . . . . . . . . . . . . . . 40,824 35,763
Raw materials and component parts . . . . . . . 45,120 31,351
------------ ------------
$ 147,078 $ 98,925
============ ============
</TABLE>
4. During the quarter ended September 30, 1995, the Company repurchased
1,574,400 shares of its common stock in the open market at a cost of
approximately $26.0 million. This amount was offset by 339,176 shares
distributed in conjunction with the Employee Stock Purchase Plan
("ESPP").
5. In the opinion of management, all adjustments necessary to fairly
state the results of operations for the three-month periods ended
September 30, 1995 and October 1, 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.
6. Certain prior quarter amounts have been reclassified to conform to the
current quarter presentation.
6
<PAGE> 7
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Sales of hard drive products were $522.9 million in the first quarter of 1996,
an increase of $109.1 million or 26% from the first quarter of 1995. The
growth in hard drive product revenues was the result of a 29% increase in hard
drive units shipped, offset by a decline in average selling prices ("ASPs").
Hard drive product revenues decreased $22.7 million or four percent from the
immediately preceding quarter primarily due to the decline in ASPs.
Sales of microcomputer products for the current quarter were $35.2 million,
down $15.6 million or 31% from the first quarter of 1995 and $4.3 million or
11% from the immediately preceding quarter. The decline in microcomputer
product sales is primarily due to lower sales of the Company's multimedia
products.
Gross profit margins were as follows:
<TABLE>
<CAPTION>
Three-Month Period Ended
----------------------------------------
9/30/95 7/1/95 10/1/94
------- ------ -------
<S> <C> <C> <C>
Hard drive products 13.0% 15.0% 18.8%
Microcomputer products 36.9% 43.0% 39.4%
Overall 14.5% 16.9% 21.1%
</TABLE>
The decrease in hard drive product gross profit margin from the first quarter
of 1995 is due to the decline in ASPs combined with a broader product mix
shipped to retail customers (including lower capacity hard drives which
typically have lower gross margins). The reduction in gross profit margin from
the immediately preceding quarter was the result of continued competitive
pricing pressures, particularly with the Company's higher capacity product
offerings.
The gross profit margin percentage for microcomputer products declined from the
first quarter of 1995 and the immediately preceding quarter because of the
relationship between fixed costs and the lower revenue base.
Research and development ("R&D") expense for the current quarter increased
$12.0 million or 42% over the same period a year ago and $3.0 million or 8% as
compared to the fourth quarter of 1995. Higher expenditures to support new
product introductions, including high performance storage product development
activities, was the primary factor contributing to the increases.
Selling, general and administrative ("SG&A") expenses increased $2.7 million or
9% from the first quarter of 1995 in support of higher revenue levels. SG&A
expense decreased slightly from the fourth quarter of 1995 as the decline in
pretax income resulted in lower accruals for annual incentive plans.
7
<PAGE> 8
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Net interest and other income for the current quarter was $3.6 million, as
compared to $2.9 million in the first quarter of 1995 and $3.9 million in the
immediately preceding quarter. The elimination of the Company's outstanding
debt generated the improvement in interest and other income over the prior
year. The decrease from the immediately preceding quarter is primarily the
result of lower average cash and short-term investment balances.
FINANCIAL CONDITION
Cash and short-term investments totaled $241.9 million at September 30, 1995 as
compared to $307.7 million at July 1, 1995. Net cash used for operating
activities was $26.6 million. Cash flow from earnings, depreciation and an
increase in current liabilities was more than offset by cash used to fund
increases in accounts receivable and inventories. Capital additions during the
first quarter totaled $16.6 million and were incurred primarily to support
increased production of hard drives and related components. Also, $26.0
million was used to repurchase 1.6 million shares of the Company's common stock
in the open market.
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.
8
<PAGE> 9
PART II. OTHER INFORMATION
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
9
<PAGE> 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: November 13, 1995
10
<PAGE> 11
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- ------ ----------- ------------
<S> <C> <C>
11 Computation of Per Share Earnings. . . . . . . . . . . . . . . . . . . . .
27 Financial Data Schedule . . . . . . . . . . . . . . . . . . . . . . . . .
</TABLE>
11
<PAGE> 1
EXHIBIT 11
WESTERN DIGITAL CORPORATION
COMPUTATION OF PER SHARE EARNINGS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE-MONTH PERIOD
-------------------------------------
SEPT. 30, OCT. 1,
1995 1994
------------- -------------
PRIMARY
<S> <C> <C>
Net income . . . . . . . . . . . . . . . . . . . . $ 8,327 $ 34,718
============ ============
Weighted average number of common
shares outstanding during the period . . . . . . . 49,574 45,141
Incremental common shares attributable
to exercise of outstanding options,
warrants, put options and ESPP contributions . . . 2,067 2,123
------------ ------------
Total shares . . . . . . . . . . . . . . . . . 51,641 47,264
============ ============
Net income per share . . . . . . . . . . . . . . . $ .16 $ .73
============ ============
FULLY DILUTED
Net income . . . . . . . . . . . . . . . . . . . . $ 8,327 $ 34,718
Add back: interest expense, net of
income tax effect, applicable to
convertible subordinated debentures . . . . . . . . -- 1,161
------------ ------------
$ 8,327 $ 35,879
============ ============
Weighted average number of common
shares outstanding during the period . . . . . . . 49,574 45,141
Incremental common shares attributable
to exercise of outstanding options,
warrants, put options and ESPP contributions . . . 2,069 2,124
Incremental common shares attributable
to conversion of convertible subordinated
debentures . . . . . . . . . . . . . . . . . . . . -- 4,058
------------ ------------
Total shares . . . . . . . . . . . . . . . . . 51,643 51,323
============ ============
Net income per share . . . . . . . . . . . . . . . $ .16 $ .70
============ ============
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED STATEMENTS OF OPERATIONS AND BALANCE SHEETS OF WESTERN DIGITAL
CORPORATION AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH QUARTERLY
REPORT ON FORM 10-Q FOR THE FISCAL QUARTER ENDED SEPTEMBER 30, 1995.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-29-1996
<PERIOD-START> JUL-02-1995
<PERIOD-END> SEP-30-1995
<EXCHANGE-RATE> 1
<CASH> 159,174
<SECURITIES> 82,690
<RECEIVABLES> 328,821
<ALLOWANCES> 9,673
<INVENTORY> 147,078
<CURRENT-ASSETS> 728,889
<PP&E> 227,049
<DEPRECIATION> 132,193
<TOTAL-ASSETS> 863,832
<CURRENT-LIABILITIES> 385,467
<BONDS> 0
<COMMON> 4,862
0
0
<OTHER-SE> 456,906
<TOTAL-LIABILITY-AND-EQUITY> 863,832
<SALES> 558,149
<TOTAL-REVENUES> 558,149
<CGS> 477,357
<TOTAL-COSTS> 477,357
<OTHER-EXPENSES> 40,723
<LOSS-PROVISION> 250
<INTEREST-EXPENSE> (3,632)
<INCOME-PRETAX> 9,797
<INCOME-TAX> 1,470
<INCOME-CONTINUING> 8,327
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,327
<EPS-PRIMARY> .16
<EPS-DILUTED> .16
</TABLE>
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