UNITED STATES

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 March 29, 2002.

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
(State or other jurisdiction of
incorporation or organization) 33-0956711
(I.R.S. Employer
Identification No.)

20511 Lake Forest Drive
Lake Forest, California
(Address of principal executive offices)
92630
(Zip Code)

REGISTRANT’S TELEPHONE NUMBER INCLUDING AREA CODE: (949) 672-7000
REGISTRANT’S WEB SITE: http://www.westerndigital.com

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 April 26, 2002, is 192,088,108.

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION
	Item 1. FINANCIAL STATEMENTS
		CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
		CONDENSED CONSOLIDATED BALANCE SHEETS
		CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
		NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
	Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
	Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
PART II. OTHER INFORMATION
	Item 1. LEGAL PROCEEDINGS
	Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
	Item 6. EXHIBITS AND REPORTS ON FORM 8-K
SIGNATURES
EXHIBIT INDEX
EXHIBIT 3.1
EXHIBIT 10.2
EXHIBIT 10.47.6

WESTERN DIGITAL CORPORATION
INDEX

		PAGE NO.
PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements
	Condensed Consolidated Statements of Operations — Three-Month Periods Ended March 30, 2001 and March 29, 2002		3
	Condensed Consolidated Statements of Operations — Nine-Month Periods Ended March 30, 2001 and March 29, 2002		4
	Condensed Consolidated Balance Sheets — June 29, 2001 and March 29, 2002		5
	Condensed Consolidated Statements of Cash Flows — Nine-Month Periods Ended March 30, 2001 and March 29, 2002		6
	Notes to Condensed Consolidated Financial Statements		7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		12
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		23
PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings		25
Item 2.	Changes in Securities and Use of Proceeds		26
Item 6.	Exhibits and Reports on Form 8-K		26
Signatures			27

2

PART I. FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS

WESTERN DIGITAL CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)

			THREE-MONTH PERIOD ENDED
			MAR. 30,			MAR. 29,
			2001			2002
Revenues, net			$	511,723		$	594,867
Costs and expenses:
	Cost of revenues			448,428			513,849
	Research and development			32,085			33,206
	Selling, general and administrative			30,225			29,760
		Total costs and expenses		510,738			576,815
Operating income				985			18,052
Net interest and other income (expense)				52			(492	)
Income from continuing operations before income tax benefit and extraordinary gain				1,037			17,560
Income tax benefit				—			1,624
Income from continuing operations before extraordinary gain				1,037			19,184
Loss from discontinued operations				(7,156	)		—
Extraordinary gain from redemption of debentures				371			14
Net income (loss)			$	(5,748	)	$	19,198
Basic income (loss) per common share:
	Income from continuing operations before extraordinary gain		$	.01		$	.10
	Loss from discontinued operations			(.04	)		—
	Extraordinary gain			.00			.00
			$	(.03	)	$	.10
Diluted income (loss) per common share:
	Income from continuing operations before extraordinary gain		$	.01		$	.10
	Loss from discontinued operations			(.04	)		—
	Extraordinary gain			.00			.00
			$	(.03	)	$	.10
Shares used in computing income per share amounts:
	Basic			176,250			190,091
	Diluted			177,618			198,355

The accompanying notes are an integral part of these condensed consolidated financial statements.

3

WESTERN DIGITAL CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)

			NINE-MONTH PERIOD ENDED
			MAR. 30,			MAR. 29,
			2001			2002
Revenues, net			$	1,497,659		$	1,610,480
Costs and expenses:
	Cost of revenues			1,340,887			1,402,897
	Research and development			97,703			96,040
	Selling, general and administrative			91,673			88,071
		Total costs and expenses		1,530,263			1,587,008
Operating income (loss)				(32,604	)		23,472
Net interest and other income (expense)				(741	)		2,769
Income (loss) from continuing operations before income tax benefit, extraordinary gain (loss) and cumulative effect of change in accounting principle				(33,345	)		26,241
Income tax benefit				—			1,624
Income (loss) from continuing operations before extraordinary gain (loss) and cumulative effect of change in accounting principle				(33,345	)		27,865
Discontinued operations:
	Loss from discontinued operations			(25,028	)		—
	Gain on disposal of discontinued operations			—			24,532
Extraordinary gain (loss) from redemption of debentures				22,190			(87	)
Cumulative effect of change in accounting principle				(1,504	)		—
Net income (loss)			$	(37,687	)	$	52,310
Basic income (loss) per common share:
	Income (loss) from continuing operations before extraordinary gain (loss) and cumulative effect of change in accounting principle		$	(.20	)	$	.15
	Discontinued operations
		Loss from discontinued operations		(.15	)		—
		Gain on disposal of discontinued operations		—			.13
	Extraordinary gain (loss)			.13			(.00	)
	Cumulative effect of change in accounting principle			(.01	)		—
			$	(.23	)	$	.28
Diluted income (loss) per common share:
	Income (loss) from continuing operations before extraordinary gain (loss) and cumulative effect of change in accounting principle		$	(.20	)	$	.14
	Discontinued operations
		Loss from discontinued operations		(.15	)		—
		Gain on disposal of discontinued segments		—			.13
	Extraordinary gain (loss)			.13			(.00	)
	Cumulative effect of change in accounting principle			(.01	)		—
			$	(.23	)	$	.27
Shares used in computing income (loss) per share amounts:
	Basic			165,156			188,139
	Diluted			165,156			192,372

The accompanying notes are an integral part of these condensed consolidated financial statements.

4

WESTERN DIGITAL CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)

				JUN. 29,			MAR. 29,
				2001			2002
ASSETS
Current assets:
	Cash and cash equivalents			$	167,582		$	226,487
	Accounts receivable, less allowance for doubtful accounts of $13,298 at June 29, 2001 and $8,811 at March 29, 2002				127,767			186,173
	Inventories				78,905			94,513
	Prepaid expenses and other current assets				11,455			17,388
			Total current assets		385,709			524,561
Property and equipment at cost, net					106,166			110,742
Other assets, net					15,777			2,155
			Total assets	$	507,652		$	637,458
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
	Accounts payable			$	224,544		$	316,932
	Accrued expenses				82,741			73,132
	Accrued warranty				30,943			28,471
	Net liabilities of discontinued operations				2,118			—
			Total current liabilities		340,346			418,535
Other liabilities					38,629			39,968
Convertible debentures					112,491			89,517
Minority interest					9,383			—
Shareholders’ equity:
	Preferred stock, $.01 par value;
		Authorized: 5,000 shares Outstanding: None			—			—
	Common stock, $.01 par value; Authorized: 450,000 shares
		Outstanding: 192,800 shares at June 29, 2001 and 195,437 shares at March 29, 2002			1,928			1,955
	Additional paid-in capital				731,694			719,019
	Accumulated deficit				(581,720	)		(529,410	)
	Accumulated other comprehensive income				3,112			4,094
	Treasury stock-common stock at cost: 6,420 shares at June 29, 2001 and 3,648 shares at March 29, 2002				(148,211	)		(106,220	)
			Total shareholders’ equity		6,803			89,438
			Total liabilities and shareholders’ equity	$	507,652		$	637,458

The accompanying notes are an integral part of these condensed consolidated financial statements.

5

WESTERN DIGITAL CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)

					NINE-MONTH PERIOD ENDED
					MAR. 30,			MAR. 29,
					2001			2002
Cash flows from operating activities:
		Net income (loss)			$	(37,687	)	$	52,310
		Adjustments to reconcile net loss to net cash used for operating activities of continuing operations:
			Gain on sale of discontinued operations			—			(24,532	)
			Loss from discontinued operations			25,028			—
			Extraordinary (gain) loss on debenture redemptions			(22,190	)		87
			Depreciation and amortization			39,531			34,324
			Non-cash interest expense			5,912			4,446
			Other, net			(264	)		(2,391	)
			Changes in assets and liabilities:
				Accounts receivable		29,394			(57,870	)
				Inventories		(4,649	)		(15,608	)
				Prepaid expenses and other assets		(3,737	)		(3,075	)
				Accrued warranty		(12,582	)		(3,834	)
				Accounts payable and accrued expenses		(72,677	)		79,888
				Other, net		(5,401	)		(781	)
				Net cash provided by (used for) continuing operations		(59,322	)		62,964
Cash flows from investing activities:
		Capital expenditures, net				(39,893	)		(39,484	)
		Proceeds from sales of marketable equity securities				14,979			912
		Proceeds from recovery of Komag note receivable				—			9,000
				Net cash used for investing activities of continuing operations		(24,914	)		(29,572	)
Cash flows from financing activities:
	Proceeds from ESPP shares issued and stock option exercises					6,427			8,810
	Common stock issued for cash					72,674			—
	Cash used in debenture redemptions					—			(13,217	)
	Proceeds from minority investment in subsidiary					—			2,950
	Proceeds from subsidiary bridge loan					5,000			—
				Net cash provided by (used for) financing activities of continuing operations		84,101			(1,457	)
	Net cash provided by (used for) discontinued operations					(23,017	)		26,970
	Net increase (decrease) in cash and cash equivalents					(23,152	)		58,905
	Cash and cash equivalents, beginning of period					184,021			167,582
	Cash and cash equivalents, end of period				$	160,869		$	226,487
Supplemental disclosures of cash flow information:
Cash paid during the period for income taxes					$	1,519		$	1,843
Cash paid during the period for interest						132			—

The accompanying notes are an integral part of these condensed consolidated financial statements.

6

WESTERN DIGITAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

1.	Basis of Presentation
	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 as of and for the year ended June 29, 2001.
	In the opinion of management, all adjustments necessary to fairly state the condensed consolidated financial statements have been made. All such adjustments are of a normal recurring nature. Certain information and footnote disclosures normally included in the consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission. These condensed 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 as of and for the year ended June 29, 2001.
	The Company has a 52 or 53-week fiscal year and each fiscal month ends on the Friday nearest to the last day of the calendar month. All general references to years relate to fiscal years unless otherwise noted.
	Certain prior periods’ amounts have been reclassified to conform to the current period presentation as a result of the adoption of Staff Accounting Bulletin No. 101 and related interpretations and the discontinuance of the Company’s Connex and SANavigator businesses.
2.	Supplemental Financial Statement Data (in thousands)

		JUN. 29,		MAR. 29,
		2001		2002
Inventories:
	Finished goods	$	48,123	$	67,498
	Work in process		8,888		14,091
	Raw materials and component parts		21,894		12,924
		$	78,905	$	94,513

		THREE-MONTH						NINE-MONTH
		PERIOD ENDED						PERIOD ENDED
		MAR. 30,			MAR. 29,			MAR. 30,			MAR. 29,
		2001			2002			2001			2002
Net Interest and Other Income (Expense):
	Interest income	$	1,986		$	875		$	5,934		$	3,226
	Interest and other expense		(2,187	)		(2,177	)		(6,939	)		(6,557	)
	Gains (losses) on investments, net (See note 6)		—			810			(738	)		4,289
	Minority interest in losses of consolidated subsidiaries		253			—			1,002			1,811
		$	52		$	(492	)	$	(741	)	$	2,769

		NINE-MONTH
		PERIOD ENDED
		MAR. 30,		MAR. 29,
		2001		2002
Supplemental disclosure of non-cash investing and financing activities:
	Common stock issued for redemption of convertible debentures	$	94,122	$	13,585
	Redemption of convertible debentures for Company common stock, net of capitalized issuance costs	$	116,312	$	13,358

7

3.	Income (loss) per Share
	The following table illustrates the computation of basic and diluted net income (loss) per common share (in thousands, except per share data):

		THREE-MONTH					NINE-MONTH
		PERIOD ENDED					PERIOD ENDED
		MAR. 30,			MAR. 29,		MAR. 30,			MAR. 29,
		2001			2002		2001			2002
Numerator for basic and diluted income (loss) per share:
	Net income (loss)	$	(5,748	)	$	19,198	$	(37,687	)	$	52,310
Denominator:
	Basic weighted average common shares outstanding		176,250			190,091		165,156			188,139
	Incremental common shares attributable to exercise of outstanding options, stock awards and ESPP contributions		1,368			8,264		—			4,233
	Diluted shares		177,618			198,355		165,156			192,372
Basic income (loss) per share		$	(.03	)	$	.10	$	(.23	)	$	.28
Diluted income (loss) per share		$	(.03	)	$	.10	$	(.23	)	$	.27

	The computation of diluted income per share for the three months ended March 30, 2001 and March 29, 2002 excludes 22.4 and 21.4 million shares, respectively, relating to the possible exercise of outstanding stock options. The computation of diluted income (loss) per share for the nine months ended March 30, 2001 and March 29, 2002 excludes 22.3 and 25.2 million shares, respectively, relating to the possible exercise of outstanding stock options. The computation of diluted income per share for the three months ended March 30, 2001 and March 29, 2002 excludes 4.0 and 3.0 million shares, respectively, issuable upon conversion of the convertible debentures.The computation of diluted income (loss) per share for the nine months ended March 30, 2001 and March 29, 2002 excludes 4.9 and 3.5 million shares, respectively, issuable upon conversion of the convertible debentures. These items were not included in the computation of diluted income (loss) per share as their effect would have been anti-dilutive.
4.	Common Stock Transactions
	During the nine months ended March 30, 2001, the Company issued approximately 1,199,000 shares of its common stock in connection with ESPP purchases and 631,000 shares of its common stock in connection with common stock option exercises, for aggregate cash proceeds of $6.4 million. During the nine months ended March 29, 2002, the Company issued approximately 1,343,000 shares of its common stock in connection with ESPP purchases and 1,204,000 shares of its common stock in connection with common stock option exercises, for aggregate cash proceeds of $8.8 million.
	Under shelf registrations (the “equity facility”) previously in effect with the Securities and Exchange Commission, the Company issued shares of common stock to institutional investors for cash. Shares sold under the equity facility were at the market price of the Company’s common stock less a discount ranging from 2.75% to 4.25%. During the nine months ended March 30, 2001, the Company issued 14.5 million shares of common stock under the equity facility for net cash proceeds of $72.7 million.During the nine months ended March 29, 2002, no common stock was issued under the shelf registrations. During the three months ended March 29, 2002, the Company withdrew these shelf registrations.
	During the nine months ended March 30, 2001, the Company issued 15.7 million shares of common stock to redeem a portion of its 5.25% zero coupon convertible subordinated debentures due February 18, 2018 (the “Debentures”) with a book value of $118.7 million, and an aggregate principal amount at maturity of $291.9 million.During the nine months ended March 29, 2002, the Company issued 2.6 million shares of common stock and $13.2 million in cash to redeem a portion of its Debentures with a book value of $27.1 million, and an aggregate principal amount at maturity of $62.3 million.These redemptions were private, individually negotiated transactions with certain institutional investors. The redemptions resulted in an extraordinary gain of $22.2 million during the nine months ended March 30, 2001 and an extraordinary loss of $0.1 million during the nine months ended March 29, 2002.As of March 29, 2002, the book value of the remaining outstanding Debentures was $89.5 million and the aggregate principal amount at maturity was $203.6 million.

8

5.	Credit Facility
	The Company has a three-year Senior Credit Facility for its hard drive business, Western Digital Technologies, Inc. (“WDT”), which provides up to $125 million in revolving credit (subject to outstanding letters of credit and a borrowing base calculation), matures on September 20, 2003 and is secured by WDT’s accounts receivable, inventory, 65% of the stock in its foreign subsidiaries and other assets. At the option of WDT, borrowings bear interest at either LIBOR (with option periods of one to three months) or a base rate, plus a margin determined by the borrowing base. The Senior Credit Facility requires WDT to maintain certain amounts of tangible net worth, prohibits the payment of cash dividends on common stock and contains a number of other covenants. As of March 29, 2002, there were no borrowings under the facility. During March 2002, the Company issued a $25 million standby letter of credit to Cirrus Logic, Inc. (“Cirrus”) concerning $25 million in disputed accounts payable to Cirrus. These accounts payable are included in the Company’s balance sheet, but subject to the Company’s litigation against Cirrus (See Note 10 — Legal Proceedings).The availability under the Senior Credit Facility has been reduced by a corresponding amount of the outstanding letter of credit.
6.	Investments
	As of March 29, 2002, the Company owned 1.0 million shares of Vixel Corporation (“Vixel”) common stock. The Company has identified these shares as “available for sale” under the provisions of SFAS 115, and accordingly, the shares were marked to market value. At March 29, 2002, accumulated other comprehensive income consisted of an unrealized gain of $4.1 million from these shares. The aggregate book value of the shares was $4.1 million as of March 29, 2002, and the investment was classified as current. During the three months ended March 29, 2002, the Company sold 0.3 million shares of Vixel common stock for a realized gain of $0.9 million.
	During the three months ended December 28, 2001, the Company recorded a $9.0 million cash recovery from its Komag note receivable that was written off during the fourth quarter of 2001. Also during the quarter ended December 28, 2001, the Company recorded a $5.5 million non-cash loss on the write-down of certain cost-method investments that were determined to be impaired. The net amount of the recovery and write-downs for the nine-months ended March 29, 2002 is classified in the accompanying statement of operations in “Net interest and other income”.
7.	Other Comprehensive Income (Loss)
	Other comprehensive income (loss) refers to revenue, expenses, gains and losses that are recorded as an element of shareholders’ equity but are excluded from net income (loss). The Company’s other comprehensive income is comprised of unrealized gains and losses on marketable securities categorized as “available for sale” under SFAS 115. The components of total comprehensive income (loss) for the three and nine months ended March 30, 2001 and March 29, 2002 were as follows (in thousands):

		THREE-MONTH					NINE-MONTH
		PERIOD ENDED					PERIOD ENDED
		MAR. 30,			MAR. 29,		MAR. 30,			MAR. 29,
		2001			2002		2001			2002
Net income (loss)		$	(5,748	)	$	19,198	$	(37,687	)	$	52,310
Other comprehensive income (loss):
	Unrealized gain (loss) on available for sale investments, net		585			1,916		(10,813	)		982
Total comprehensive income (loss)		$	(5,163	)	$	21,114	$	(48,500	)	$	53,292

8.

Business Segments

The Company’s primary segment is its hard drive business, WDT. In addition, the Company formed new business ventures in 1999, 2000 and 2001. The Company’s new business ventures have included Connex, Inc. (“Connex”), SANavigator, Inc. (“SANavigator”), SageTree, Inc. (“SageTree”), Keen Personal Media, Inc. (“Keen PM”), and Cameo Technologies, Inc. (“Cameo”). Connex was formed in 1999 to design and market network attached storage products. SANavigator was formed as a subsidiary of Connex in 2001 to develop and market storage area network (“SAN”) management software. SageTree was formed in 2000 to design and market packaged analytical software and related services for supply chain and product lifecycle applications. Keen PM was formed in 2000 to develop and sell interactive personal video recorder and set-top box software, services and hardware for broadband television content management and commerce. Cameo was formed in 2000 to develop technologies and services for delivering broadcast-quality video content to PC users. During the three months ended September 28, 2001, substantially all of the assets of Connex and SANavigator were sold and, accordingly, their operations were

9

discontinued (See Note 9).During January 2002, the Company’s ownership percentage of its SageTree subsidiary decreased to less than 50%, through the sale by SageTree of additional preferred stock to another investor.As a result, the Company began accounting for its remaining investment in SageTree as an equity method investment, and no longer under the consolidation method. The carrying value of the SageTree investment as of March 29, 2002 was $0 due to the accumulated losses of SageTree exceeding the amounts invested. Prior to January 2002, the operating results of SageTree were consolidated with those of the Company.

The Company’s chief operating decision maker uses the segment information for WDT and the Company’s combined new business ventures to assess performance and to determine resource allocation. The new business venture amounts have been combined and presented in an “all other” category, separate from the WDT segment results. General and corporate expenses of the Company are included in the WDT segment. The loss from discontinued operations of $7.2 million and $25.0 million during the three and nine months ended March 30, 2001, respectively, and the gain from the disposal of discontinued operations of $24.5 million during the nine months ended March 29, 2002 have been excluded from the tables below.

Segment information (in thousands):

	THREE-MONTH PERIOD							THREE-MONTH PERIOD
	ENDED MAR. 30, 2001							ENDED MAR. 29, 2002
	WDT		ALL OTHER			TOTAL		WDT		ALL OTHER			TOTAL
Revenues	$	511,557	$	166		$	511,723	$	594,867	$	—		$	594,867
Operating income (loss)		9,176		(8,191	)		985		22,334		(4,282	)		18,052
Total assets		525,195		15,531			540,726		637,164		294			637,458
Depreciation and amortization		11,835		1,007			12,842		11,606		109			11,715
Additions to property and equipment		12,655		389			13,044		13,446		—			13,446

	NINE-MONTH PERIOD									NINE-MONTH PERIOD
	ENDED MAR. 30, 2001									ENDED MAR. 29, 2002
	WDT			ALL OTHER			TOTAL			WDT		ALL OTHER			TOTAL
Revenues	$	1,497,232		$	427		$	1,497,659		$	1,609,586	$	894		$	1,610,480
Operating income (loss)		(6,368	)		(26,236	)		(32,604	)		41,701		(18,229	)		23,472
Total assets		525,195			15,531			540,726			637,164		294			637,458
Depreciation and amortization		36,558			2,973			39,531			33,208		1,116			34,324
Additions to property and equipment		38,474			1,419			39,893			39,484		—			39,484

9.	Discontinued Operations
	In July 2001, the Company decided to discontinue its Connex and SANavigator businesses. Connex and SANavigator were separate major lines of business and legal entities with separate facilities, operations, management teams, and classes of end-user customers from the Company’s hard drive business. As such, the disposals have been accounted for as discontinued operations and, accordingly, the consolidated financial statements for the periods presented have been reclassified. On August 8, 2001, substantially all of the operating assets of Connex were sold to Quantum Corporation for cash proceeds of $11.0 million, and on September 21, 2001 substantially all of the operating assets of SANavigator were sold to McData Corporation for cash proceeds of $29.8 million. Approximately $4.1 million of the combined cash proceeds are held in escrow for one year pending expiration of customary indemnification periods and included in cash and cash equivalents on the accompanying balance sheet. As a result of these transactions, during the three months ended September 28, 2001, the Company recognized a gain of $24.5 million, net of costs incurred from the measurement date of July 1, 2001 through the end of the period to shutdown the businesses.At June 29, 2001, the net liabilities of discontinued operations consisted principally of individually immaterial amounts of inventories, fixed assets, accounts payable and accrued compensation.Revenues for the three and nine months ended March 30, 2001 were $0 and $0.3 million, respectively, for Connex and SANavigator combined.
10.	Legal Proceedings
	The following discussion contains forward-looking statements within the meaning of the federal securities laws. These statements relate to the Company’s legal proceedings described below. The “Company”, as used in this discussion, includes the Company’s operating subsidiary Western Digital Technologies, Inc.Litigation is inherently uncertain and may result in adverse rulings or judgments, or lead to settlements, that may, individually or in the aggregate, have a material adverse effect on the Company’s consolidated financial position, results of operations or liquidity. In addition, the costs of defending such litigation, individually or in the aggregate, may be material, regardless of the outcome. Accordingly, actual results could differ materially from those projected in the forward-looking statements.

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In 1992 Amstrad plc (“Amstrad”) brought suit against the Company in California State Superior Court, County of Orange, alleging that disk drives supplied to Amstrad by the Company in 1988 and 1989 were defective and caused damages to Amstrad of not less than $186 million. The suit also sought punitive damages. The Company denied the material allegations of the complaint and filed cross-claims against Amstrad. The case was tried, and in June 1999 the jury returned a verdict in favor of Western Digital. Amstrad has appealed the judgment. The Company does not believe that the outcome of this matter will have a material adverse effect on its consolidated financial position, results of operations or liquidity.

In 1994 Papst Licensing (“Papst”) brought suit against the Company in federal court in California alleging infringement by the Company of five of its patents relating to disk drive motors that the Company purchased from motor vendors. Later that year Papst dismissed its case without prejudice, but it has notified the Company again recently that it intends to reinstate the suit if the Company does not enter into a license agreement with Papst. Papst has also put the Company on notice with respect to several additional patents. The Company does not believe that the outcome of this matter will have a material adverse effect on its consolidated financial position, results of operations or liquidity.

In June 2000 Discovision Associates (“Discovision”) notified the Company in writing that it believes certain of the Company’s hard disk drive products may infringe certain of Discovision’s patents. Discovision has offered to provide the Company with a license under its patent portfolio. The Company is in discussions with Discovision regarding its claims. There is no litigation pending. The Company does not believe that the outcome of this matter will have a material adverse effect on the Company’s consolidated financial position, results of operations or liquidity.

On July 5, 2001, the Company (and its Malaysian subsidiary) filed suit against Cirrus Logic, Inc. (“Cirrus”) in California Superior Court for the County of Orange for breach of contract and other claims resulting from Cirrus’ role as a strategic supplier of read channel chips for the Company’s hard drives.The Company also stopped making payments to Cirrus for past deliveries of chips and terminated all outstanding purchase orders from Cirrus for such chips.The Company’s complaint alleges that Cirrus’ unlawful conduct caused damages in excess of any amounts that may be owing on outstanding invoices or arising out of any alleged breach of the outstanding purchase orders.On August 20, 2001, Cirrus filed an answer and cross-complaint. Cirrus denied the allegations contained in the Company’s complaint and asserted counterclaims against the Company for, among other things, the amount of the outstanding invoices and the Company’s alleged breach of the outstanding purchase orders.The disputed payable, which is included in the Company’s balance sheet in accounts payable, is approximately $27 million.Cirrus claims that the canceled purchase orders, which are not reflected in the Company’s financial statements, total approximately $26 million.On October 9, 2001, the Court granted Cirrus’ Motion for Judgment on the Pleadings, with leave to amend, and on November 8, 2001, the Company filed its First Amended Complaint.Cirrus demurred to the First Amended Complaint, and on December 18, 2001, the Court denied Cirrus’ demurrer.On November 2, 2001, Cirrus filed Applications for Right to Attach Orders and for Writs of Attachment against the Company and its Malaysian subsidiary in the amount of $25.2 million as security for the approximately $27 million allegedly owed for read-channel chips purchased from Cirrus that is disputed by the Company.On December 20, 2001, the Court granted Cirrus’ Applications but required Cirrus to post undertakings in the amount of $0.5 million on each Writ before issuance.Pursuant to agreement with Cirrus, the Company posted a letter of credit in the amount of $25.2 million in satisfaction of the Writs.The parties have begun discovery and expect that such discovery will continue for the next several months.Based on its initial investigation and the limited discovery done to date, the Company does not believe that the ultimate resolution of this matter will have a material adverse effect on the Company’s consolidated financial position, results of operations or liquidity.

In November 2001, Dynacore Holding Corporation (“Dynacore”) filed suit against the Company and several other defendants in the United States District Court for the Southern District of New York.The suit alleges that the Company’s 1394 external hard drives fall within the scope of the subject matter of Dynacore’s patent covering communication between nodes within a network, wherein nodes have both enhanced and common capabilities.During January 2002, the Company filed an answer denying Dynacore’s complaint and alleged counterclaims.The Company does not believe that the outcome of this matter will have a material adverse effect on its consolidated financial position, results of operations or liquidity.

In the normal course of business, the Company receives and makes inquiries regarding possible intellectual property matters, including alleged patent infringement. Where deemed advisable, the Company may seek or extend licenses or negotiate settlements. Although patent holders often offer such licenses, no assurance can be given that in a particular case a license will be offered or that the offered terms will be acceptable to the Company. The Company does not believe that the ultimate resolution of these matters will have a material adverse effect on its consolidated financial position, results of operations or liquidity.

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From time to time the Company receives claims and is a party to suits and other judicial and administrative proceedings incidental to its business. Although occasional adverse decisions (or settlements) may occur, the Company does not believe that the ultimate resolution of these matters will have a material adverse effect on its consolidated financial position, results of operations or liquidity.

Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-Looking Statements

     This report contains forward-looking statements within the meaning of federal securities laws. The statements that are not purely historical should be considered forward-looking statements. Often they can be identified by the use of forward-looking words, such as “may,” “will,” “could,” “project,” “believe,” “anticipate,” “expect,” “estimate,” “continue,” “potential,” “plan,” “forecasts,” and the like. Statements concerning current conditions may also be forward-looking if they imply a continuation of current conditions. These statements appear in a number of places in this report and include statements regarding the intentions, plans, strategies, beliefs or current expectations of the Company with respect to, among other things:

• the financial prospects of the Company;

• litigation and other contingencies potentially affecting the Company’s financial position, operating results or liquidity;

• trends affecting the Company’s financial condition or operating results;

• the Company’s strategies for growth, operations, product development and commercialization; and

• conditions or trends in or factors affecting the computer, data storage, home entertainment or hard drive industry.

     Forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those expressed in the forward-looking statements. Readers are urged to carefully review the disclosures made by the Company concerning risks and other factors that may affect the Company’s business and operating results, including those made under the captions “Risk factors related to the hard drive industry in which we operate” and “Risk factors relating to Western Digital particularly”, in this report, as well as the Company’s other reports filed with the Securities and Exchange Commission. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. The Company undertakes no obligation to publish revised forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.

     Unless otherwise indicated, references herein to specific years and quarters are to the Company’s fiscal years and fiscal quarters.

Overview

     Western Digital is a longtime leader and one of the pioneers of the data storage industry. Through significant reorganization of its hard drive business in 1999 and 2000, close relationships with its suppliers and its design expertise, the Company has become one of the most cost-effective producers of hard drives in the industry. The Company is one of the world’s three largest suppliers of hard drives to the desktop personal computer market. The Company’s products are based on the EIDE interface (primarily used for desktop applications), while its key competitors have product lines which utilize both the EIDE interface and the SCSI interface (for use in high-end workstations and servers).

     The hard drive industry is intensely competitive and has experienced a great deal of growth, entry and exit of competitors, and technological change over recent years. This industry is characterized by short product life cycles, dependence upon highly skilled engineering and other personnel, significant expenditures for product development, competitive pricing and declining average selling prices.

     The Company continuously evaluates opportunities to apply its data storage core competencies beyond traditional markets for hard drives. In the past, the Company has pursued these opportunities directly through its hard drive business and by establishing new business ventures. The Company’s new business ventures have included Connex, Inc. (“Connex”), SANavigator, Inc. (“SANavigator”), SageTree, Inc. (“SageTree”), Keen Personal Media, Inc. (“Keen PM”) and Cameo Technologies, Inc. (“Cameo”). During the three months ended September 28, 2001, the Company discontinued the operations of both Connex and SANavigator, selling substantially all the assets of the two companies. In January 2002, the Company’s ownership percentage of SageTree

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decreased to less than 50% and, as a result, the Company began accounting for its remaining investment in SageTree under the equity method, rather than the consolidation method. These new business ventures have not generated significant revenue. Currently, new business opportunities are evaluated for their direct impact on the Company’s ability to increase the sale of hard drives. These opportunities include the design of hard drives for use in consumer devices, such as gaming devices or personal video recorders, and for use in higher-end computer applications, such as server appliances.

Critical Accounting Policies

     The following discussion and analysis of the Company’s results of operations is based on its consolidated financial statements which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of the financial statements requires estimation and judgment that affect the reported amounts of revenues, expenses, assets and liabilities. The Company has adopted accounting policies and practices that are generally accepted in the industry in which it operates. Following are the Company’s most critical accounting policies that affect significant areas and involve management’s judgment and estimates. If these estimates differ materially from actual results, the impact to the consolidated financial statements may be material.

Revenue and Accounts Receivable

     In accordance with standard industry practice, the Company has agreements with resellers that provide price protection for inventories held by resellers at the time of published list price reductions. In addition the Company may have agreements with resellers that provide for stock rotation on slow-moving items and other incentive programs. In accordance with current accounting standards, the Company recognizes revenue upon shipment or delivery to resellers and records a corresponding adjustment for estimated price protection and other programs in effect until the resellers sell such inventory to their customers. Adjustments are based on anticipated price decreases, estimated amounts to be reimbursed to qualifying customers, estimated future returns, as well as historical pricing information.

     The Company establishes an allowance for doubtful accounts by analyzing specific customer accounts and assessing the risk of uncollectibility based on insolvency, disputes or other collection issues. In addition, the Company routinely analyzes the different receivable aging categories and establishes reserves based on the length of time receivables are past due.

     The Company records a provision against revenue for estimated sales returns on sales of products in the same period that the related revenues are recognized. The Company bases the reserve on existing product return notifications as well as historical returns by product type (see Warranty).

Warranty

     The Company records an accrual for estimated warranty costs when revenue is recognized. Warranty covers cost of repair or replacement of the hard drive, and the warranty periods range from 1 to 3 years. The Company has comprehensive processes with which to estimate accruals for warranty, which include specific detail on hard drives in the field by product type, historical field return rates and costs to repair.

Inventory

     Inventories are valued at the lower of cost (first-in, first-out basis) or net realizable value. Reserves are established for the valuation of inventory at the lower of cost or net realizable value by analyzing market conditions, estimates of future sales prices, inventory costs and inventory balances.

     The Company evaluates inventory balances for excess quantities and obsolescence on a regular basis by analyzing backlog, estimated demand, inventory on hand, sales levels and other information. The Company establishes a reserve against inventory balances for excess and obsolete inventory based on the analysis.

Litigation and Other Contingencies

     In the normal course of business, the Company receives and makes inquiries regarding possible intellectual property matters and receives claims and is a party to suits and other judicial and administrative proceedings incidental to its business. Litigation is inherently uncertain and may result in adverse rulings, judgments, or settlements. In addition, in the normal course of business, the

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Company is subject to other contingencies. The Company applies Statement of Financial Accounting Standards No. 5, “Accounting for Contingencies” to determine when and how much to accrue for legal and other contingencies.

Results of Operations

Summary Comparison

     The following table sets forth, for the periods indicated, items in the Company’s statements of operations expressed as a percentage of total revenue. This table and the following discussion exclude the results of the discontinued Connex and SANavigator businesses.

			THREE- MONTH						NINE- MONTH
			PERIOD ENDED						PERIOD ENDED
			MAR 30,			MAR 29,			MAR 30,			MAR 29,
			2001			2002			2001			2002
Revenues, net				100.0	%		100.0	%		100.0	%		100.0	%
Costs and expenses:
	Cost of revenues			87.6			86.4			89.5			87.1
	Research and development			6.3			5.6			6.5			5.9
	Selling, general and administrative			5.9			5.0			6.2			5.5
		Total costs and expenses		99.8			97.0			102.2			98.5
Operating income (loss)				0.2			3.0			(2.2	)		1.5
Net interest and other income (expense)				0.0			(0.1	)		(0.0	)		0.1
Income (loss) from continuing operations before income tax benefit				0.2	%		2.9	%		(2.2	)%		1.6	%

     The Company’s income from continuing operations before income tax benefit of $17.6 million for the three months ended March 29, 2002 increased by $16.5 million from the three months ended March 30, 2001 and $4.9 million from the immediately preceding quarter. The increase in income from continuing operations as compared to the corresponding period of the prior year was due to a $13.1 million increase in operating income in the hard drive business and a $3.9 million decrease in operating losses from new business ventures (excluding the change in minority interest) offset by a $0.5 million decrease in interest and other income. The increase as compared to the immediately preceding quarter was due to a $7.0 million increase in operating income in the hard drive business and a $1.5 million decrease in operating losses from new business ventures offset by a $3.6 million decrease in interest and other income. The Company’s income from continuing operations before income tax benefit of $26.2 million for the nine months ended March 29, 2002 increased by $59.6 million, or 179%, from the nine months ended March 30, 2001. The increase was due to a $48.1 million increase in operating income in the hard drive business, an $8.0 million decrease in operating losses from new business ventures and a $3.5 million increase in interest and other income.

     The operating losses of the new ventures (excluding minority interest) consist principally of research and development and selling, general and administrative costs. Operating losses of new ventures of $4.3 million for the three months ended March 29, 2002 decreased $3.9 million from the three months ended March 30, 2001 and decreased $1.5 million from the immediately preceding quarter. The operating losses of the new ventures of $18.2 million for the nine months ended March 29, 2002 decreased $8.0 million from the nine months ended March 30, 2001. These decreases result from a strategic shift of available resources from the new ventures to the hard drive business, including the reduction of spending at all new ventures, the sale of a majority interest in SageTree, and the closure of other new ventures.

     Consolidated revenues were $594.9 million for the three months ended March 29, 2002, an increase of 16%, or $83.1 million, from the three months ended March 30, 2001 and an increase of 4%, or $20.2 million, from the immediately preceding quarter. The increase in consolidated revenues as compared to the corresponding period of the prior year resulted from a 39% increase in unit shipments, partially offset by a 17% decrease in average selling prices (ASP’s). The increase in consolidated revenues as compared to the immediately preceding quarter resulted from a 5% increase in unit shipments, partially offset by a 2% decrease in ASP’s. Consolidated revenues were $1,610.5 million for the nine months ended March 29, 2002, an increase of 8%, or $112.8 million, from the nine months ended March 30, 2001. The increase in consolidated revenues resulted from a 24% increase in unit shipments, partially offset by a 14% decrease in ASP’s. The significant change in units and ASP’s from the corresponding period of the prior year is partially due to expansion of the Company’s hard drive product line into lower-end desktop PC and consumer electronics markets. Revenues from new business ventures were not material for all periods presented.

     Gross profit for the three months ended March 29, 2002 totaled $81.0 million, or 13.6% of revenue. This compares to a gross profit of $63.3 million, or 12.4% of revenue, for the three months ended March 30, 2001 and gross profit of $70.6 million, or 12.3% of

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revenue, for the immediately preceding quarter. Gross profit for the nine months ended March 29, 2002 totaled $207.6 million, or 12.9% of revenue. This compares to a gross profit of $156.8 million, or 10.5% of revenue, for the nine months ended March 30, 2001. The increase in gross profit over prior periods was primarily the result of lower cost design efforts and higher unit volume, partially offset by lower ASP’s.

     Research and development (“R&D”) expense for the three months ended March 29, 2002 was $33.2 million, an increase of $1.1 million from the three months ended March 30, 2001 and an increase of $1.9 million from the immediately preceding quarter. R&D expense for the nine months ended March 29, 2002 was $96.0 million, a decrease of $1.7 million from the corresponding period of the prior year. The changes from prior periods were primarily due to hard drive business and new venture expense reduction efforts, offset by increases in new development programs and higher incentive payments.

     Selling, general and administrative (“SG&A”) expense for the three months ended March 29, 2002 was $29.8 million, a decrease of $0.5 million from the three months ended March 30, 2001 and an increase of $0.1 million from the immediately preceding quarter. SG&A expense for the nine months ended March 29, 2002 was $88.1 million, a decrease of $3.6 million from the corresponding period of the prior year. The changes in SG&A expense from prior periods were primarily due to expense reduction efforts in the hard drive business and the new business ventures, partially offset by higher incentive payments.

     Net interest and other income (expense) for the three months ended March 29, 2002 was ($0.5) million, compared to $0.1 million for the three months ended March 30, 2001 and $3.1 million for the immediately preceding quarter. The decrease in income from the corresponding period of the prior year was due primarily to a decrease in interest income due to lower interest rates, partially offset by a gain on the sale of “available for sale” investments. The decrease in income from the immediately preceding quarter was primarily the result of net investment gains of $3.5 million, consisting of a $9.0 million cash recovery from its Komag note receivable and a $5.5 million write-down of certain cost-method investments which were determined to be impaired. Net interest and other income (expense) for the nine months ended March 29, 2002 was $2.8 million, compared to ($0.7) million for the nine months ended March 30, 2001. The increase in income was primarily the result of an increase in net investment gains and minority interests in losses of consolidated subsidiaries, partially offset by lower net interest income.

     During the three months ended March 29, 2002, the Company recorded a federal income tax benefit of $3.1 million offset by a provision for income taxes of $1.5 million. The tax benefit relates to a loss carryback available as a result of tax legislation enacted during the quarter. During the three and nine months ended March 30, 2001 the Company did not record an income tax benefit as no additional loss carrybacks were available at that time and management deemed it “more likely than not” that the deferred tax benefits generated would not be realized.

     During the three months ended September 28, 2001, the Company decided to discontinue the operations of Connex and SANavigator and sold substantially all of the assets of these two businesses for a net gain of $24.5 million. Accordingly, the operating results of Connex and SANavigator for the periods reported and the net gain recognized on the sale of the businesses during the nine months ended March 29, 2002 have been segregated from continuing operations and reported separately on the statements of operations as discontinued operations.

     During the nine months ended March 29, 2002, the Company issued 2.6 million shares of common stock and $13.2 million in cash in exchange for $62.3 million in face value of the Debentures (with a book value of $27.1 million). During the corresponding period of the prior year, the Company issued 15.7 million shares of common stock in exchange for $291.9 million in face value of the Debentures (with a book value of $118.7 million). These redemptions were private, individually negotiated transactions with certain institutional investors. As a result of the redemptions, the Company recognized an extraordinary gain of $14 thousand and an extraordinary loss of $0.1 million for the three and nine months ended March 29, 2002, respectively, and extraordinary gains of $0.4 million and $22.2 million for the three and nine months ended March 30, 2001, respectively.

Liquidity and Capital Resources

     At March 29, 2002, the Company had cash and cash equivalents of $226.5 million as compared to $167.6 million at June 29, 2001. Net cash provided by continuing operations was $63.0 million during the nine months ended March 29, 2002, as compared to net cash used for continuing operations of $59.3 million during the nine months ended March 30, 2001. This $122.3 million improvement in cash provided by continuing operations consists of a $53.9 million improvement in the Company’s net income, net of non-cash items, and a $68.4 million decrease in cash used to fund working capital requirements. These improvements are due to lower new venture losses and significantly better operating performance by the Company’s hard drive business, including higher sales volume, improved cost management, and a lower conversion cycle. The Company’s cash conversion cycle, which represents the sum

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of the number of days sales outstanding (“DSO”) and days inventory outstanding (“DIO”) less days payable outstanding (“DPO”), was reduced by 3 days for the nine months ended March 29, 2002 compared to the corresponding period of the prior year.

     Other uses of cash during the nine months ended March 29, 2002 included net capital expenditures of $39.5 million, primarily for normal replacement of existing assets and the purchase of assets for the Company’s new manufacturing facility in Thailand, and $13.2 million for debenture redemptions. Other sources of cash during the nine month period included $9.9 million received from the sale of assets, $8.8 million received in connection with stock option and warrant exercises and Employee Stock Purchase Plan purchases, and $3.0 million received by the Company’s subsidiaries from minority investors.

     During the nine months ended March 30, 2001, other uses of cash included net capital expenditures of $39.9 million. Other sources of cash during that period included proceeds of $15.0 million received upon the sale of marketable equity securities, $72.7 million received upon issuance of 14.5 million shares of the Company’s stock under the Company’s equity facility, $5.0 million received from a third-party bridge loan to one of the Company’s subsidiaries and $6.4 million received in connection with stock option exercises and Employee Stock Purchase Plan purchases.

     The sale of discontinued operations provided $27.0 million of net proceeds for the nine months ended March 29, 2002, compared to $23.0 million in net cash used to fund the operating, investing and financing activities of the discontinued operations for the nine months ended March 30, 2001.

     The Company has a three-year Senior Credit Facility for its hard drive business, Western Digital Technologies, Inc. (“WDT”), which provides up to $125 million in revolving credit (subject to outstanding letters of credit and a borrowing base calculation), matures on September 20, 2003 and is secured by WDT’s accounts receivable, inventory, 65% of the stock in its foreign subsidiaries and other assets. At the option of WDT, borrowings bear interest at either LIBOR (with option periods of one to three months) or a base rate, plus a margin determined by the borrowing base. The Senior Credit Facility requires WDT to maintain certain amounts of tangible net worth, prohibits the payment of cash dividends on common stock and contains a number of other covenants. As of the date hereof, there were no borrowings under the facility. The Company issued a $25 million standby letter of credit to Cirrus Logic, Inc. (“Cirrus”) concerning $25 million in disputed accounts payable to Cirrus. These accounts payable are included in the Company’s balance sheet, but are part of the Company’s litigation against Cirrus (See Part II, Item 1 — Legal Proceedings). The availability under the Senior Credit Facility has been reduced by a corresponding amount of the outstanding letter of credit.

     During the nine months ended March 30, 2001, the Company issued 14.5 million shares of common stock under preexisting shelf registrations for net cash proceeds of $72.7 million. During the nine months ended March 29, 2002, no common stock was issued under the shelf registrations. During January 2002, the Company withdrew these shelf registrations as management determined they would not be utilized in the foreseeable future.

     At March 29, 2002, the Company had cash and cash equivalents of $226.5 million, working capital of $106.0 million and shareholders’ equity of $89.4 million. In addition, the Company has a Senior Credit Facility providing up to $125 million in revolving credit (subject to outstanding letters of credit and a borrowing base calculation). The Company believes its current cash and cash equivalents and its existing credit facility will be sufficient to meet its working capital needs through the foreseeable future. There can be no assurance that the Senior Credit Facility will continue to be available to the Company. Also, the Company’s ability to sustain its working capital position is dependent upon a number of factors that are discussed below under the headings “Risk factors related to the hard drive industry in which we operate” and “Risk factors relating to Western Digital particularly.”

Commitments

     The following paragraphs summarize the Company’s significant contractual cash obligations and commercial commitments at March 29, 2002:

Convertible Debentures

     The Debentures are subordinated to all senior debt; are redeemable at the option of the Company any time after February 18, 2003 at the issue price plus accrued original issue discount to the date of redemption; and at the holder’s option, will be repurchased by the Company, as of February 18, 2003, February 18, 2008 or February 18, 2013, or if there is a Fundamental Change (as defined in the Debenture documents), at the issue price plus accrued original issue discount to the date of repurchase. The payment on those dates, with the exception of a Fundamental Change, can be in stock, cash or any combination, at the Company’s option. Accordingly, the Debentures are classified as long-term debt. The Debentures are

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convertible into shares of the Company’s common stock at the rate of 14.935 shares per $1,000 principal amount at maturity. The principal amount at maturity of the Debentures as of March 29, 2002 is $203.6 million.

Operating Leases

     The Company leases certain facilities and equipment under long-term, non-cancelable operating leases which expire at various dates through 2010. The following table summarizes the future payments of these leases:

		Operating
		Leases
Remaining 2002		$	4,015
2003			10,322
2004			7,995
2005			6,940
2006			6,993
Thereafter			25,279
	Total future minimum obligations	$	61,544

Purchase Orders

     In the normal course of business, to reduce the risk of component shortages, the Company enters into purchase commitments with suppliers for the purchase of hard drive components used to manufacture the Company’s products. These commitments generally cover forecasted component supplies needed for production during the next quarter, become payable upon receipt of the components and may be non-cancelable (cancellation charges may be significant). The Company’s relationship with suppliers allows for some flexibility within these commitments and quantities are subject to change as a quarter progresses and the Company’s needs change.

Forward Exchange Contracts

     Although the majority of the Company’s transactions are in U.S. Dollars, some transactions are based in various foreign currencies. The Company purchases short-term, forward exchange contracts to hedge the impact of foreign currency fluctuations on certain underlying assets, liabilities and commitments for operating expenses denominated in foreign currencies. The Company does not purchase short-term forward exchange contracts for trading purposes. As of March 29, 2002, the Company had $21.1 million outstanding of purchased foreign currency forward exchange contracts. The contracts have maturity dates that do not exceed three months and the carrying value of the contracts approximates fair value at March 29, 2002.

New Accounting Pronouncements

     During July 2001, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards No. 141, “Business Combinations” (“SFAS 141”) and Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets” (“SFAS 142”). Effective June 30, 2001, the Company adopted SFAS 141. SFAS 141 addresses financial accounting and reporting for business combinations and requires that all business combinations initiated after June 30, 2001 be accounted for using the purchase method. The adoption of SFAS 141 did not have a material impact on the Company’s financial position or results of operations.

     SFAS 142 requires that goodwill and intangible assets that have indefinite useful lives not be amortized but rather be tested at least annually for impairment. The Company is required to adopt SFAS 142 on June 29, 2002. However, goodwill and intangible assets acquired after June 30, 2001 are subject to the amortization provisions of SFAS 142. The Company does not expect the adoption of SFAS 142 to have a material impact on the Company’s financial position or results of operations.

     During October 2001 the FASB issued Statement of Financial Accounting Standards No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (“SFAS 144”). SFAS 144 is effective for fiscal years beginning after December 15, 2001. The Company does not expect the adoption of SFAS 144 to have a material impact on its consolidated financial position, results of operations or liquidity.

Risk factors related to the hard drive industry in which we operate

Our operating results depend on our being among the first-to-market and first-to-volume with our new products.

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     To achieve consistent success with computer manufacturer customers we must be an early provider of next generation hard drives featuring leading technology and high quality. If we fail to:

• consistently maintain or improve our time-to-market performance with our new products

• produce these products in sufficient volume within our rapid product cycle

• qualify these products with key customers on a timely basis by meeting our customers’ performance and quality specifications

• achieve acceptable manufacturing yields and costs with these products

then our market share would be adversely affected, which would harm our operating results.

Short product life cycles make it difficult to recover the cost of development.

     Over the past few years hard drive areal density (the gigabytes of storage per disk) has increased at a much more rapid pace than previously experienced. The technical challenges of maintaining this pace are becoming more formidable, and the risk of not achieving the targets for each new generation of drives increases, which could adversely impact product manufacturing yields and schedules, among other impacts. Higher areal densities mean that fewer heads and disks are required to achieve a given drive capacity. This has significantly shortened product life cycles, since each generation of drives is more cost effective than the previous one. Shorter product cycles make it more difficult to recover the cost of product development.

Short product life cycles force us to continually qualify new products with our customers.

     Due to short product life cycles, we must regularly engage in new product qualification with our customers. To be considered for qualification we must be among the leaders in time-to-market with our new products. Once a product is accepted for qualification testing, any failure or delay in the qualification process can result in our losing sales to that customer until the next generation of products is introduced. The effect of missing a product qualification opportunity is magnified by the limited number of high volume computer manufacturers, most of which continue to consolidate their share of the PC market. These risks are magnified because we expect cost improvements and competitive pressures to result in declining sales and gross margins on our current generation products.

Unexpected technology advances in the hard drive industry could harm our competitive position.

     If one of our competitors were able to implement a significant advance in head or disk drive technology that enables a step-change increase in areal density allowing greater storage of data on a disk, it would harm our operating results.

     Advances in magnetic, optical, semiconductor or other data storage technologies could result in competitive products that have better performance or lower cost per unit of capacity than our products. If these products prove to be superior in performance or cost per unit of capacity, we could be at a competitive disadvantage to the companies offering those products.

Our average selling prices are declining.

     We expect that our average selling prices for hard drives will continue to decline. Rapid increases in areal density mean that the average drive we sell has fewer heads and disks, and is therefore lower cost. Because of the competitiveness of the hard drive industry, lower costs generally mean lower prices. This is true even for those products that are competitive and introduced into the market in a timely manner. Our average selling prices decline even further when competitors lower prices to absorb excess capacity, liquidate excess inventories, restructure or attempt to gain market share.

The hard drive industry is highly competitive and characterized by rapid shifts in market share among the major competitors.

     The price of hard drives has fallen over time due to increases in supply, cost reductions, technological advances and price reductions by competitors seeking to liquidate excess inventories or gain market share. In addition, rapid technological changes often reduce the volume and profitability of sales of existing products and increase the risk of inventory obsolescence. These factors, taken together, result in significant and rapid shifts in market share among the industry’s major participants. For example, during 1998 and 1999, we lost significant share of the desktop market. During the first quarter of 2000, the Company lost market share as a result of a

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previously announced product recall; since then we have recovered significant market share, although our share is still significantly below its 1997 level.

Our prices and margins are subject to declines due to unpredictable end-user demand and oversupply of hard drives.

     Demand for our hard drives depends on the demand for computer systems manufactured by our customers and on storage upgrades to existing systems. The demand for computer systems has been volatile in the past and often has had an exaggerated effect on the demand for hard drives in any given period. As a result, the hard drive market tends to experience periods of excess capacity, which typically lead to intense price competition. During calendar year 2001, the industry experienced weak PC demand in the U.S. and other markets, and forecasts for calendar year 2002 are cautious. If intense price competition occurs as a result of weak demand, we may be forced to lower prices sooner and more than expected, which could result in lower revenues.

Changes in the markets for hard drives require us to develop new products.

     Over the past few years the consumer market for desktop computers has shifted significantly towards lower priced systems, especially those systems priced below $1,000. Although we were late to market with a value line hard drive to serve the low-cost PC market, we are now offering such value line products at prices that we view as competitive. However, if we are not able to continue to offer a competitively priced value line hard drive for the low-cost PC market, our share of that market will likely fall, which could harm our operating results.

     The PC market is fragmenting into a variety of computing devices and products. Some of these products, such as Internet appliances, may not contain a hard drive. On the other hand, many industry analysts expect, as do we, that as broadcasting and communications are increasingly converted to digital technology from the older, analog technology, the technology of computers and consumer electronics and communication devices will converge, and hard drives will be found in many consumer products other than computers. For the quarter ended March 29, 2002 more than 10% of our unit sales were for consumer products other than computers, primarily gaming devices. If we are not successful in using our hard drive technology and expertise to develop new products for these emerging markets, it will likely harm our operating results.

We depend on our key personnel.

     Our success depends upon the continued contributions of our key employees, many of whom would be extremely difficult to replace. Worldwide competition for skilled employees in the hard drive industry is intense. We have lost a number of experienced hard drive engineers over the past two years as a result of the loss of retention value of their employee stock options (because of the decrease in price of our common stock) and aggressive recruiting of our employees. If we are unable to retain our existing employees or hire and integrate new employees, our operating results would likely be harmed.

Risk factors relating to Western Digital particularly

Loss of market share with a key customer could harm our operating results.

     A majority of our revenue comes from a few customers. For example, during 2001, sales to our top 10 customers accounted for approximately 60% of revenues. These customers have a variety of suppliers to choose from and therefore can make substantial demands on us. Even if we successfully qualify a product with a customer, the customer generally is not obligated to purchase any minimum volume of products from us and is able to terminate its relationship with us at any time. Our ability to maintain strong relationships with our principal customers is essential to our future performance. If we lose a key customer, or if any of our key customers reduce their orders of our products or require us to reduce our prices before we are able to reduce costs, our operating results would likely be harmed. For example, this occurred with our enterprise hard drive product line early in the third quarter of 2000 and is one of the factors which led to our decision to exit the enterprise hard drive market.

Dependence on a limited number of qualified suppliers of components could lead to delays or increased costs.

     Because we do not manufacture any of the components in our hard drives, an extended shortage of required components or the failure of key suppliers to remain in business, adjust to market conditions, or to meet our quality, yield or production requirements could harm us more severely than our competitors, some of whom manufacture certain of the components for their hard drives. A number of the components used by us are available from only a single or limited number of qualified outside suppliers. If a component is in short supply, or a supplier fails to qualify or has a quality issue with a component, we may experience delays or increased costs in

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obtaining that component. This occurred in September 1999 when we had to shut down our Caviar product line production for approximately two weeks as a result of a faulty power driver chip that was sole-sourced from a third-party supplier.

     To reduce the risk of component shortages, we attempt to provide significant lead times when buying these components. As a result, we may have to pay significant cancellation charges to suppliers if we cancel orders, as we did in 1998 when we accelerated our transition to magnetoresistive recording head technology, and as we did in 2000 as a result of our decision to exit the enterprise hard drive market.

     In April 1999, we entered into a three-year volume purchase agreement with Komag under which we buy a substantial portion of our media components from Komag. In October 2001, we amended the volume purchase agreement to extend the initial term to six years. This strategic relationship has reduced our media component costs; however, it has increased our dependence on Komag as a supplier. Our future operating results may depend substantially on Komag’s ability to timely qualify its media components in our new development programs and to supply us with these components in sufficient volume to meet our production requirements. A significant disruption in Komag’s ability to manufacture and supply us with media could harm our operating results. Komag is currently in Chapter 11 reorganization proceedings, during which it is continuing its operations.

To develop new products we must maintain effective partner relationships with our strategic component suppliers.

     Under our “virtual vertical integration” business model, we do not manufacture any of the parts used in our hard drives. As a result, the success of our products depends on our ability to gain access to and integrate parts that are “best in class” from reliable component suppliers. To do so we must effectively manage our relationships with our strategic component suppliers. We must also effectively integrate different products from a variety of suppliers and manage difficult scheduling and delivery problems. Although we believe that our relationships with our current strategic suppliers are good, we are currently engaged in litigation with Cirrus, which until this year was the sole source of read-channel chips for our hard drives. As a result of the disputes that gave rise to the litigation, our business operations were at risk until another supplier could be designed into our products.

We have only one primary high-volume manufacturing facility, and a secondary smaller facility, which subjects us to the risk of damage or loss of either facility.

     Most of our manufacturing volume comes from one facility in Malaysia. We have recently acquired a second, smaller manufacturing facility in Thailand. A fire, flood, earthquake or other disaster or condition affecting either our Malaysian or Thailand facility would result in a loss of sales and revenue and harm our operating results.

Manufacturing our products abroad subjects us to numerous risks.

     We are subject to risks associated with our foreign manufacturing operations, including:

• obtaining requisite United States and foreign governmental permits and approvals

• currency exchange rate fluctuations or restrictions

• political instability and civil unrest

• transportation delays or higher freight rates

• labor problems

• trade restrictions or higher tariffs

• exchange, currency and tax controls and reallocations

• loss or non-renewal of favorable tax treatment under agreements or treaties with foreign tax authorities.

     We have attempted to manage the impact of foreign currency exchange rate changes by, among other things, entering into short-term, forward exchange contracts. However, those contracts do not cover our full exposure and can be canceled by the issuer if

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currency controls are put in place, as occurred in Malaysia during the first quarter of 1999. As a result of the Malaysian currency controls, we are no longer hedging the Malaysian currency risk. Currently, we hedge the Thai Baht and British Pound Sterling.

Our plan to broaden our business takes us into new markets.

     We are developing storage devices and content management software for the emerging broadband television market through our Keen PM subsidiary. We will be facing the challenge of developing products for a market that is still evolving and subject to rapid changes and shifting consumer preferences. There are several competitors that have also entered this emerging market, and there is no assurance that the market for digital storage devices for television and other audio-visual content will materialize or support all of these competitors.

     We are considering other initiatives related to data and content management, storage and communication. In any of these initiatives we will be facing the challenge of developing products and services for markets that are still evolving and which have many current and potential competitors. If we are not successful in these new initiatives it will likely harm our operating results.

Our reliance on intellectual property and other proprietary information subjects us to the risk of significant litigation.

     The hard drive industry has been characterized by significant litigation. This includes litigation relating to patent and other intellectual property rights, product liability claims and other types of litigation. We are currently evaluating notices of alleged patent infringement or notices of patents from patent holders. We also are a party to several judicial and other proceedings relating to patent and other intellectual property rights. If we conclude that a claim of infringement is valid, we may be required to obtain a license or cross-license or modify our existing technology or design a new non-infringing technology. Such licenses or design modifications can be extremely costly. We may also be liable for any past infringement. If there is an adverse ruling against us in an infringement lawsuit, an injunction could be issued barring production or sale of any infringing product. It could also result in a damage award equal to a reasonable royalty or lost profits or, if there is a finding of willful infringement, treble damages. Any of these results would likely increase our costs and harm our operating results.

Our reliance on intellectual property and other proprietary information subjects us to the risk that these key ingredients of our business could be copied by competitors.

     Our success depends, in significant part, on the proprietary nature of our technology, including non-patentable intellectual property such as our process technology. Despite safeguards, to the extent that a competitor is able to reproduce or otherwise capitalize on our technology, it may be difficult, expensive or impossible for us to obtain necessary legal protection. Also, the laws of some foreign countries may not protect our intellectual property to the same extent as do the laws of the United States. In addition to patent protection of intellectual property rights, we consider elements of our product designs and processes to be proprietary and confidential. We rely upon employee, consultant and vendor non-disclosure agreements and a system of internal safeguards to protect our proprietary information. However, any of our registered or unregistered intellectual property rights may be challenged or exploited by others in the industry, which might harm our operating results.

Inaccurate projections of demand for our product can cause large fluctuations in our quarterly results.

     If we do not forecast total quarterly demand accurately, it can have a material adverse effect on our quarterly results. We typically book and ship a high percentage of our total quarterly sales in the third month of the quarter, which makes it difficult for us to match our production plans to customer demands. In addition, our quarterly projections and results may be subject to significant fluctuations as a result of a number of other factors including:

• the timing of orders from and shipment of products to major customers

• our product mix

• changes in the prices of our products

• manufacturing delays or interruptions

• acceptance by customers of competing products in lieu of our products

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• variations in the cost of components for our products

• limited access to components that we obtain from a single or a limited number of suppliers, such as Komag

• competition and consolidation in the data storage industry

• seasonal and other fluctuations in demand for computers often due to technological advances.

Rapidly changing market conditions in the hard drive industry make it difficult to estimate actual results.

     We have made and continue to make a number of estimates and assumptions relating to our consolidated financial reporting. The rapidly changing market conditions with which we deal means that actual results may differ significantly from our estimates and assumptions. Key estimates and assumptions for us include:

• accruals for warranty against product defects

• price protection adjustments on products sold to resellers and distributors

• inventory adjustments for write-down of inventories to fair value

• reserves for doubtful accounts

• accruals for product returns.

The market price of our common stock is volatile.

     The market price of our common stock has been, and may continue to be, extremely volatile. Factors such as the following may significantly affect the market price of our common stock:

• actual or anticipated fluctuations in our operating results

• announcements of technological innovations by us or our competitors which may decrease the volume and profitability of sales of our existing products and increase the risk of inventory obsolescence

• new products introduced by us or our competitors

• periods of severe pricing pressures due to oversupply or price erosion resulting from competitive pressures

• developments with respect to patents or proprietary rights

• conditions and trends in the hard drive, data and content management, storage and communication industries

• changes in financial estimates by securities analysts relating specifically to us or the hard drive industry in general.

     In addition, the stock market from time to time experiences extreme price and volume fluctuations that particularly affect the stock prices of many high technology companies. These fluctuations are often unrelated to the operating performance of the companies.

     Securities class action lawsuits are often brought against companies after periods of volatility in the market price of their securities. A number of such suits have been filed against us in the past, and should any new lawsuits be filed, such matters could result in substantial costs and a diversion of resources and management’s attention.

We may be unable to raise future capital through debt or equity financing.

     Due to the risks described herein, in the future we may be unable to maintain adequate financial resources for capital expenditures, working capital and research and development. We have a credit facility for our WDT subsidiary, which matures on September 20, 2003. If we decide to increase or accelerate our capital expenditures or research and development efforts, or if results of

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operations do not meet our expectations, we could require additional debt or equity financing. However, we cannot ensure that additional financing will be available to us or available on favorable terms. An equity financing could also be dilutive to our existing stockholders.

     We have zero coupon convertible subordinated debentures due February 18, 2018 (the “Debentures”) that, at the holder’s option, will be repurchased by the Company, as of February 18, 2003, February 18, 2008 or February 18, 2013, or if there is a Fundamental Change (as defined in the Debenture documents), at the issue price plus accrued original issue discount to the date of repurchase. The payment on those dates, with the exception of a Fundamental Change, can be in cash, stock or any combination, at the Company’s option. The issuance of stock to redeem the bonds could be dilutive to the existing stockholders. Alternatively, redemption of the debentures for cash would reduce our capital resources.

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Disclosure About Foreign Currency Risk

     Although the majority of the Company’s transactions are in U.S. Dollars, some transactions are based in various foreign currencies. The Company purchases short-term, forward exchange contracts to hedge the impact of foreign currency fluctuations on certain underlying assets, liabilities and commitments for operating expenses denominated in foreign currencies. The purpose for entering into these hedge transactions is to minimize the impact of foreign currency fluctuations on the results of operations. A majority of the increases or decreases in the Company’s local currency operating expenses are offset by gains and losses on the hedges. The contracts have maturity dates that do not exceed three months. The Company does not purchase short-term forward exchange contracts for trading purposes.

     Historically, the Company has focused on hedging its foreign currency risk related to the Singapore Dollar, the British Pound and the Malaysian Ringgit. With the establishment of currency controls and the prohibition of purchases or sales of the Malaysian Ringgit by offshore companies, the Company discontinued hedging its Malaysian Ringgit currency risk in 1999. Future hedging of this currency will depend on currency conditions in Malaysia. As a result of the closure of the Company’s Singapore operations in 2000, the Company has also discontinued its hedging program related to the Singapore Dollar. During the third quarter of 2002, the Company purchased a manufacturing facility in Thailand and began hedging the Thai Baht.

     As of March 29, 2002, the Company had outstanding the following purchased foreign currency forward exchange contracts (in millions, except average contract rate):

		MARCH 29, 2002
				WEIGHTED
		CONTRACT		AVERAGE		UNREALIZED
		AMOUNT		CONTRACT RATE		GAIN (LOSS)
		(U.S. DOLLAR EQUIVALENT AMOUNTS)
FOREIGN CURRENCY FORWARD CONTRACTS:
	British Pound Sterling		2.2		1.42		—
	Thai Baht		18.9		43.74		—

     During the three and nine months ended March 30, 2001 and March 29, 2002, total realized transaction and forward exchange contract currency gains and losses were not material to the consolidated financial statements and the carrying value of the contracts approximates fair value. Based on historical experience, the Company does not expect that a significant change in foreign exchange rates would materially affect the Company’s consolidated financial statements.

Disclosure About Other Market Risks

Fixed Interest Rate Risk

     At March 29, 2002, the market value of the Company’s 5.25% zero coupon convertible subordinated debentures due in 2018 was approximately $86.3 million, compared to the related book value of $89.5 million. The convertible debentures will be repurchased by the Company, at the option of the holder, as of February 18, 2003, February 18, 2008, or February 18, 2013, or if there is a Fundamental Change (as defined in the Debenture documents), at the issue price plus accrued original issue discount to the date of redemption. The payment on those dates, with the exception of a Fundamental Change, can be in cash, stock or any combination, at the Company’s option.

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Variable Interest Rate Risk

     At the option of WDT, borrowings under the Senior Credit Facility would bear interest at either LIBOR (with option periods of one to three months) or a base rate, plus a margin determined by the borrowing base. This is the only borrowing facility that does not have a fixed-rate of interest. As of the date hereof, there were no borrowings under the Senior Credit Facility.

Fair Value Risk

     The Company owns approximately 1.0 million shares of Vixel common stock. As of March 29, 2002, the market value of the Vixel shares was $4.1 million. The Company determines, on a quarterly basis, the fair market value of the Vixel shares and records an unrealized gain or loss resulting from the difference in the fair market value of the shares as of the previous quarter end and the fair market value of the shares on the measurement date. As of March 29, 2002, a $4.1 million total accumulated unrealized gain has been recorded in accumulated other comprehensive income. If the Company sells all or a portion of this common stock, any unrealized gain or loss on the date of sale will be recorded as a realized gain or loss in the Company’s results of operations. As a result of market conditions, the market value of the shares had decreased from $4.1 million as of March 29, 2002 to $3.3 million as of April 26, 2002.

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PART II. OTHER INFORMATION

Item 1. LEGAL PROCEEDINGS

     The following discussion contains forward-looking statements within the meaning of the federal securities laws. These statements relate to the Company’s legal proceedings described below. The “Company”, as used in this discussion, includes the Company’s operating subsidiary Western Digital Technologies, Inc. Litigation is inherently uncertain and may result in adverse rulings or judgments, or lead to settlements, that may, individually or in the aggregate, have a material adverse effect on the Company’s consolidated financial position, results of operations or liquidity. In addition, the costs of defending such litigation, individually or in the aggregate, may be material, regardless of the outcome. Accordingly, actual results could differ materially from those projected in the forward-looking statements.

     In 1992 Amstrad plc (“Amstrad”) brought suit against the Company in California State Superior Court, County of Orange, alleging that disk drives supplied to Amstrad by the Company in 1988 and 1989 were defective and caused damages to Amstrad of not less than $186 million. The suit also sought punitive damages. The Company denied the material allegations of the complaint and filed cross-claims against Amstrad. The case was tried, and in June 1999 the jury returned a verdict in favor of Western Digital. Amstrad has appealed the judgment. The Company does not believe that the outcome of this matter will have a material adverse effect on its consolidated financial position, results of operations or liquidity.

     In 1994 Papst Licensing (“Papst”) brought suit against the Company in federal court in California alleging infringement by the Company of five of its patents relating to disk drive motors that the Company purchased from motor vendors. Later that year Papst dismissed its case without prejudice, but it has notified the Company again recently that it intends to reinstate the suit if the Company does not enter into a license agreement with Papst. Papst has also put the Company on notice with respect to several additional patents. The Company does not believe that the outcome of this matter will have a material adverse effect on its consolidated financial position, results of operations or liquidity.

     In June 2000 Discovision Associates (“Discovision”) notified the Company in writing that it believes certain of the Company’s hard disk drive products may infringe certain of Discovision’s patents. Discovision has offered to provide the Company with a license under its patent portfolio. The Company is in discussions with Discovision regarding its claims. There is no litigation pending. The Company does not believe that the outcome of this matter will have a material adverse effect on the Company’s consolidated financial position, results of operations or liquidity.

     On July 5, 2001, the Company (and its Malaysian subsidiary) filed suit against Cirrus Logic, Inc. (“Cirrus”) in California Superior Court for the County of Orange for breach of contract and other claims resulting from Cirrus’ role as a strategic supplier of read channel chips for the Company’s hard drives. The Company also stopped making payments to Cirrus for past deliveries of chips and terminated all outstanding purchase orders from Cirrus for such chips. The Company’s complaint alleges that Cirrus’ unlawful conduct caused damages in excess of any amounts that may be owing on outstanding invoices or arising out of any alleged breach of the outstanding purchase orders. On August 20, 2001, Cirrus filed an answer and cross-complaint. Cirrus denied the allegations contained in the Company’s complaint and asserted counterclaims against the Company for, among other things, the amount of the outstanding invoices and the Company’s alleged breach of the outstanding purchase orders. The disputed payable, which is included in the Company’s balance sheet in accounts payable, is approximately $27 million. Cirrus claims that the canceled purchase orders, which are not reflected in the Company’s financial statements, total approximately $26 million. On October 9, 2001, the Court granted Cirrus’ Motion for Judgment on the Pleadings, with leave to amend, and on November 8, 2001, the Company filed its First Amended Complaint. Cirrus demurred to the First Amended Complaint, and on December 18, 2001, the Court denied Cirrus’ demurrer. On November 2, 2001, Cirrus filed Applications for Right to Attach Orders and for Writs of Attachment against the Company and its Malaysian subsidiary in the amount of $25.2 million as security for the approximately $27 million allegedly owed for read-channel chips purchased from Cirrus that is disputed by the Company. On December 20, 2001, the Court granted Cirrus’ Applications but required Cirrus to post undertakings in the amount of $0.5 million on each Writ before issuance. Pursuant to agreement with Cirrus, the Company posted a letter of credit in the amount of $25.2 million in satisfaction of the Writs. The parties have begun discovery and expect that such discovery will continue for the next several months. Based on its initial investigation and the limited discovery done to date, the Company does not believe that the ultimate resolution of this matter will have a material adverse effect on the Company’s consolidated financial position, results of operations or liquidity.

     In November 2001, Dynacore Holding Corporation (“Dynacore”) filed suit against the Company and several other defendants in the United States District Court for the Southern District of New York. The suit alleges that the Company’s 1394 external hard drives

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fall within the scope of the subject matter of Dynacore’s patent covering communication between nodes within a network, wherein nodes have both enhanced and common capabilities. During January 2002, the Company filed an answer denying Dynacore’s complaint and alleged counterclaims. The Company does not believe that the outcome of this matter will have a material adverse effect on its consolidated financial position, results of operations or liquidity.

     In the normal course of business, the Company receives and makes inquiries regarding possible intellectual property matters, including alleged patent infringement. Where deemed advisable, the Company may seek or extend licenses or negotiate settlements. Although patent holders often offer such licenses, no assurance can be given that in a particular case a license will be offered or that the offered terms will be acceptable to the Company. The Company does not believe that the ultimate resolution of these matters will have a material adverse effect on its consolidated financial position, results of operations or liquidity.

     From time to time the Company receives claims and is a party to suits and other judicial and administrative proceedings incidental to its business. Although occasional adverse decisions (or settlements) may occur, the Company does not believe that the ultimate resolution of these matters will have a material adverse effect on its consolidated financial position, results of operations or liquidity.

Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

     During the three months ended March 29, 2002, the Company engaged in transactions pursuant to which it exchanged an aggregate principal amount at maturity of $32.3 million of the Company’s Zero Coupon Convertible Subordinated Debentures due 2018, for an aggregate of 1,091,518 shares of the Company’s common stock and $6,953,940 in cash. These transactions were undertaken in reliance upon the exemption from the registration requirements of the Securities Act afforded by Section 3(a)(9) thereof, as exchanges of securities by the Company with its existing security holders. No commission or other remuneration was paid or given directly or indirectly for soliciting such exchanges. These exchanges were consummated in private, individually negotiated transactions with institutional investors.

Item 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits:

3.1	Amended and Restated By-laws of the Company, adopted as of March 28, 2002.
10.2	Amended and Restated 401(K) Plan, adopted as of March 28, 2002.
10.47.6	Sixth Amendment to Credit Agreement among Western Digital Technologies, Inc., the lenders identified therein and General Electric Capital Corporation and Bank of America, N.A., dated as of January 11, 2002.

(b)	Reports on form 8-K:
	On January 17, 2002, the Company filed a current report on Form 8-K to file its press release dated December 20, 2001, announcing that its revenues, units and profitability for its second quarter of the 2002 fiscal year were expected to exceed earlier guidance. In addition, the Company announced in its December 20, 2001 press release that it had signed a definitive agreement with Fujitsu (Thailand) Company Ltd. to purchase a 155,000-square foot hard drive and head stack assembly facility near Bangkok, Thailand.
	On January 28, 2002, the Company filed a current report on Form 8-K to file its press release dated January 24, 2002, announcing its financial results for its second quarter of the 2002 fiscal year and the completion of its purchase of the assembly facility in Thailand.
	On February 26, 2002, the Company filed a current report on Form 8-K dated February 22, 2001, to file investor conference information presented by Matthew Massengill, Chairman of the Board and Chief Executive Officer of the Company.

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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
Senior Vice President and Chief Financial Officer
(Principal Financial Officer)

/s/ Joseph R. Carrillo

Joseph R. Carrillo
Vice President and Corporate Controller
(Principal Accounting Officer)

Date: May 3, 2002

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EXHIBIT INDEX

Exhibit
Number	Description
3.1	Amended and Restated By-laws of the Company, adopted as of March 28, 2002.
10.2	Amended and Restated 401(K) Plan, adopted as of March 28, 2002.
10.47.6	Sixth Amendment to Credit Agreement among Western Digital Technologies, Inc., the lenders identified therein and General Electric Capital Corporation and Bank of America, N.A., dated as of January 11, 2002.