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These excerpts taken from the WDC 10-K filed Aug 20, 2008. Fiscal
Year 2007 Compared to Fiscal Year 2006
Net Revenue. Net revenue was $5.5 billion
for 2007, an increase of 26% from 2006. Total unit shipments
increased to 97 million as compared to 73 million for
the prior year. This unit increase resulted from an increase in
our desktop PC market share, stronger overall demand for hard
drives in the desktop PC market and our increasing focus on the
non-desktop market, including mobile, CE, enterprise and branded
products. For example, we shipped 12 million drives to the
mobile market in 2007 as compared to 5 million units in
2006. Additionally, we shipped 10 million units to the DVR
market in 2007 as compared to 7 million units in 2006. ASPs
declined to $57 due to normal technology price declines and a
more competitive pricing environment in the notebook, desktop,
and consumer electronics markets. Changes in revenue by
geography generally reflect overall market demand fluctuations
for hard drives. Changes in revenue by channel are a result of
increases in sales of branded products due to the growing
worldwide acceptance of our My
Passport®
and My
Book®
external digital storage appliances.
Gross Margin. Gross margin for 2007 was
$900 million, an increase of $71 million, or 9% over
the prior year. Gross margin percentage decreased to 16.5% in
2007 from 19.1% in 2006. The factors contributing to this
decrease include normal technology price declines and a more
competitive pricing environment in the notebook, desktop, and
consumer electronics markets. In addition, gross margin in 2006
benefited from a more favorable supply/demand balance.
Operating Expenses. Total operating expenses,
consisting of research and development (“R&D”)
and selling, general and administrative (“SG&A”)
expenses, decreased to 8.9% of net revenue in 2007 compared to
10.7% in 2006. R&D expense was $306 million in 2007,
an increase of $9 million, or 3% over the prior year. The
increase in R&D expense was primarily related to the
development of new product platforms in support of our entry
into new markets and expenditures for advanced head
technologies, partially offset by a decrease of $2 million
in variable incentive compensation programs. SG&A expense
was $179 million in 2007, an increase of $13 million,
or 8% as compared to 2006. The increase in SG&A expense was
primarily due to an increase of $19 million in stock based
compensation expense and other long-term employee incentive
programs, offset by a $5 million decrease in software
write-offs that occurred in 2006.
Interest and Other Income. Net interest and
other income was $28 million and $16 million in 2007
and 2006, respectively. This increase in net interest income was
primarily due to higher average invested cash and short-term
investment balances.
Income Tax Benefit. Income tax benefit was
$121 million and $13 million in 2007 and 2006,
respectively. Tax benefit as a percentage of income before taxes
was 27% and 3% for 2007 and 2006, respectively. Differences
between the effective tax rates and the U.S. Federal
statutory rate are primarily due to tax holidays and incentive
programs and reductions to our valuation allowance for deferred
tax assets. We have tax holidays in Malaysia and Thailand that
expire at various times through 2022. In addition to the tax
holidays, the tax provision was impacted by favorable
adjustments to the company’s valuation allowance for
deferred tax assets of $126 and $22 million in 2007 and
2006, respectively. These adjustments were based upon a
determination that it was more likely than not that all or a
portion of our deferred tax assets will be realized. In the
fourth quarter of 2007, we reversed the remaining valuation
allowance for our deferred tax assets based on the weight of
available evidence including our history of cumulative pretax
income and the increased likelihood of our ability to generate
profits in the future. In 2006, we released a portion of the
valuation allowance on deferred tax assets due to the difficulty
at the time in accurately projecting income for periods of
longer than two years given the cyclical nature of our industry.
The realization of the deferred tax assets is primarily
dependent on our ability to generate sufficient earnings in
certain jurisdictions in future years. The amount of deferred
tax assets considered realizable may increase or decrease in
subsequent periods based on fluctuating industry or company
conditions.
Fiscal Year 2007 Compared to Fiscal Year 2006 Net Revenue. Net revenue was $5.5 billion for 2007, an increase of 26% from 2006. Total unit shipments increased to 97 million as compared to 73 million for the prior year. This unit increase resulted from an increase in our desktop PC market share, stronger overall demand for hard drives in the desktop PC market and our increasing focus on the non-desktop market, including mobile, CE, enterprise and branded products. For example, we shipped 12 million drives to the mobile market in 2007 as compared to 5 million units in 2006. Additionally, we shipped 10 million units to the DVR market in 2007 as compared to 7 million units in 2006. ASPs declined to $57 due to normal technology price declines and a more competitive pricing environment in the notebook, desktop, and consumer electronics markets. Changes in revenue by geography generally reflect overall market demand fluctuations for hard drives. Changes in revenue by channel are a result of increases in sales of branded products due to the growing worldwide acceptance of our My Passport® and My Book® external digital storage appliances. Gross Margin. Gross margin for 2007 was $900 million, an increase of $71 million, or 9% over the prior year. Gross margin percentage decreased to 16.5% in 2007 from 19.1% in 2006. The factors contributing to this decrease include normal technology price declines and a more competitive pricing environment in the notebook, desktop, and consumer electronics markets. In addition, gross margin in 2006 benefited from a more favorable supply/demand balance. Operating Expenses. Total operating expenses, consisting of research and development (“R&D”) and selling, general and administrative (“SG&A”) expenses, decreased to 8.9% of net revenue in 2007 compared to 10.7% in 2006. R&D expense was $306 million in 2007, an increase of $9 million, or 3% over the prior year. The increase in R&D expense was primarily related to the development of new product platforms in support of our entry into new markets and expenditures for advanced head technologies, partially offset by a decrease of $2 million in variable incentive compensation programs. SG&A expense was $179 million in 2007, an increase of $13 million, or 8% as compared to 2006. The increase in SG&A expense was primarily due to an increase of $19 million in stock based compensation expense and other long-term employee incentive programs, offset by a $5 million decrease in software write-offs that occurred in 2006. Interest and Other Income. Net interest and other income was $28 million and $16 million in 2007 and 2006, respectively. This increase in net interest income was primarily due to higher average invested cash and short-term investment balances. Income Tax Benefit. Income tax benefit was $121 million and $13 million in 2007 and 2006, respectively. Tax benefit as a percentage of income before taxes was 27% and 3% for 2007 and 2006, respectively. Differences between the effective tax rates and the U.S. Federal statutory rate are primarily due to tax holidays and incentive programs and reductions to our valuation allowance for deferred tax assets. We have tax holidays in Malaysia and Thailand that expire at various times through 2022. In addition to the tax holidays, the tax provision was impacted by favorable adjustments to the company’s valuation allowance for deferred tax assets of $126 and $22 million in 2007 and 2006, respectively. These adjustments were based upon a determination that it was more likely than not that all or a portion of our deferred tax assets will be realized. In the fourth quarter of 2007, we reversed the remaining valuation allowance for our deferred tax assets based on the weight of available evidence including our history of cumulative pretax income and the increased likelihood of our ability to generate profits in the future. In 2006, we released a portion of the valuation allowance on deferred tax assets due to the difficulty at the time in accurately projecting income for periods of longer than two years given the cyclical nature of our industry. The realization of the deferred tax assets is primarily dependent on our ability to generate sufficient earnings in certain jurisdictions in future years. The amount of deferred tax assets considered realizable may increase or decrease in subsequent periods based on fluctuating industry or company conditions. This excerpt taken from the WDC 10-K filed Aug 28, 2007. Fiscal
Year 2007 Compared to Fiscal Year 2006
Net Revenue. Net revenue was $5.5 billion
for 2007, an increase of 26% from 2006. Total unit shipments
increased to 97 million as compared to 73 million for
the prior year. This unit increase resulted from an increase in
our desktop market share, stronger overall demand for hard
drives in the desktop market and our increasing focus on the
non-desktop market, including mobile, CE, enterprise and branded
products. For example, we shipped 12 million drives to the
mobile market in 2007 as compared to 5 million units in
2006. Additionally, we shipped 10 million units to the DVR
market in 2007 as compared to 7 million units in 2006. ASPs
declined to $57 due to normal technology price declines and a
more competitive pricing environment in the notebook, desktop,
and consumer electronics markets. Changes in revenue by
geography generally reflect overall market demand fluctuations
for hard drives. Changes in revenue by channel are a result of
increases in sales of branded products due to the growing
worldwide acceptance of our WD My
Booktm
and WD
Passport®
external digital storage appliances.
Gross Margin. Gross margin for 2007 was
$900 million, an increase of $71 million, or 9% over
the prior year. Gross margin percentage decreased to 16.5% in
2007 from 19.1% in 2006. The factors contributing to this
decrease include normal technology price declines and a more
competitive pricing environment in the notebook, desktop, and
consumer electronics markets. In addition, gross margin in 2006
benefited from a more favorable supply/demand balance.
Operating Expenses. Total operating expenses,
consisting of research and development (“R&D”)
and selling, general and administrative (“SG&A”)
expenses decreased to 8.9% of net revenue in 2007 compared to
10.7% in 2006. R&D expense was $306 million in 2007,
an increase of $9 million, or 3% over the prior year. The
increase in R&D expense was primarily related to the
development of new product platforms in support of our entry
into new markets and expenditures for advanced head
technologies, partially offset by a decrease of $2 million
in variable incentive compensation programs. SG&A expense
was $179 million in 2007, an increase of $13 million,
or 8% as compared to 2006. The increase in SG&A expense was
primarily due to an increase of $19 million in stock based
compensation expense and other long-term employee incentive
programs, offset by a $5 million decrease in software
write-offs that occurred in 2006.
Interest and Other Income. Net interest and
other income was $28 million and $16 million in 2007
and 2006, respectively. This increase in net interest income was
primarily due to higher average invested cash and short-term
investment balances.
Table of Contents
Income Tax Benefit. Income tax benefit was
$121 million and $13 million in 2007 and 2006,
respectively. Tax benefit as a percentage of income before taxes
was 27% and 3% for 2007 and 2006, respectively. Differences
between the effective tax rates and the U.S. Federal
statutory rate are primarily due to tax holidays and incentive
programs and reductions to our valuation allowance for deferred
tax assets. We have tax holidays in Malaysia and Thailand that
expire at various times ranging from 2008 to 2022. In addition
to the tax holidays, the tax provision was impacted by favorable
adjustments to the company’s valuation allowance for
deferred tax assets of $126 and $22 million in 2007 and
2006, respectively. These adjustments were based upon
determination that it was more likely than not that all or a
portion of our deferred tax assets will be realized. In the
fourth quarter of 2007, we reversed the remaining valuation
allowance for our deferred tax assets based on the weight of
available evidence including our history of cumulative pretax
income and the increased likelihood of our ability to generate
profits in the future. In 2006, we released a portion of the
valuation allowance on deferred tax assets due to the difficulty
at the time in accurately projecting income for periods of
longer than two years given the cyclical nature of our industry.
The realization of the deferred tax assets is primarily
dependent on our ability to generate sufficient earnings in
certain jurisdictions in future years. The amount of deferred
tax assets considered realizable may increase or decrease in
subsequent periods based on fluctuating industry or company
conditions.
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