8-KFinancial EventsExhibits & Filings

WESTERN DIGITAL CORP 8-K Report, Exit or Disposal Costs (Mar 21, 2008)

Filed March 21, 2008For Securities:WDC

Summary

Western Digital Corporation (WDC) filed an 8-K on March 20, 2008, announcing a significant streamlining of its media and substrate operations, primarily related to its September 2007 acquisition of Komag. The company will cease fulfilling media and substrate supply obligations to external customers by May 2008, focusing these operations exclusively on its internal hard drive manufacturing needs. This strategic shift involves consolidating substrate plating and polishing operations in Malaysia and ceasing external business at its San Jose, California facility. This operational realignment will result in a workforce reduction of approximately 800 employees, with the majority in Malaysia. The company estimates total costs associated with these exit activities to be around $16 million, comprising $8 million in termination benefits and $8 million in asset impairment charges, with approximately $8 million expected to be cash expenditures. The precise accounting treatment of these costs, whether impacting operating results or the Komag acquisition purchase price allocation, is pending and will be disclosed in the upcoming third-quarter earnings release.

Key Highlights

  • 1WDC is streamlining media and substrate operations, moving away from external customer supply obligations by May 2008.
  • 2The company will focus media and substrate manufacturing solely on its internal hard drive business.
  • 3Operations in Penang, Malaysia, will focus exclusively on magnetic media production.
  • 4Substrate plating and polishing operations will be consolidated into other Malaysian facilities in Kuching and Johor Bahru.
  • 5Approximately 800 employees will be laid off, with the majority located in Malaysia.
  • 6The total estimated cost for these actions is $16 million ($8 million termination benefits, $8 million asset impairment).
  • 7Approximately $8 million of the total costs are expected to result in future cash expenditures.

Frequently Asked Questions

Western Digital is announcing a strategic realignment of its media and substrate operations to serve only its internal hard drive business, following the fulfillment of external supply obligations related to the Komag acquisition.

The company estimates total costs of approximately $16 million, consisting of $8 million for termination benefits and $8 million for asset impairment charges. About $8 million of these costs are expected to involve future cash expenditures.

Approximately 800 employees will be impacted, with roughly 770 in Malaysia and 30 in the United States. This represents less than 2% of the company's total workforce.

The company is still determining the portion of costs to be charged against third-quarter operating results versus those that may be adjusted against the Komag acquisition purchase price allocation. This will be disclosed during the third-quarter earnings conference call in April 2008.