Western Digital still cleaning up from the flood…

August 20, 2012

Last fall’s floods in Thailand destroyed lives and property in the Southeast Asian country, but it also hobbled several prominent companies that have manufacturing plants there. And it looks like the impact continues, if a recent filing by Western Digital Corporation (WDC) is any guide.

Indeed, the impact was so great that even shortly after the floods occurred, the forecast for Thailand’s GDP was lowered from 4.1% to 2.6%, according to this Bloomberg Businessweek article from last November. When the World Bank made its “rapid needs assessment” in early December, it estimated that as of December 1, 2011, the total economic damages and losses were $45.7 billion — approximately $32 billion of which had occurred in the manufacturing sector.

The flood waters may have finally dried up, but the 10-K that Western Digital filed this morning shows that the repercussions are still being felt. In its filing, the company advised investors that it still doesn’t have a final number for its flood-related losses.

In the annual report, the company stated that while production has resumed in Thailand, “material risks and uncertainties as a result of flooding remain,” including risk factors such as insurance, noting:

“…The claim process is in its early stages and we are unable to predict how much of our losses will be covered by insurance. It is reasonably possible that the final losses that we incur in connection with the flood damage and our business interruption will exceed the limits of our insurance policies. We also cannot estimate the timing of the proceeds we will ultimately receive under our insurance policies, and there may be a substantial delay between our incurrence of losses and our recovery under our insurance policies.”

Elsewhere in the filing, Western Digital stated that in 2012, it incurred flood-related losses of $235 million, offset by $21 million of insurance recoveries and other cost reimbursements (resulting in a recorded charge of $214 million). We dug into past filings and found that $21 million is the same amount of insurance proceeds that Western Digital disclosed having received when it filed a 10-Q filed this past May, which prompted a couple of thoughts: First, the amount hasn’t increased any in the past quarter; and second, the filing offers no indication of when the company (and its investors) will find out how much more — if any — its insurance carrier(s) will pay.

But with the company still dealing with the losses from last year, we bet that within Western Digital’s executive ranks, Thailand’s weather forecasts remain a topic of regular discussion.

Image source: Flood waters in Ayutthaya, Thailand, via Shutterstock

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