Western Digital 2007 Annual Report Download - page 68

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illustrates the effect on net income and income per share as if the Company had applied the fair value recognition
provisions of SFAS No. 123 to stock-based employee compensation (in millions, except per share data):
July 1,
2005
Net income
As reported .................................................... $196
Stock-based employee compensation included in reported earnings ............. 5
Stock-based employee compensation expense determined under fair-value based
methods for all awards .......................................... (30)
Pro forma net income ............................................. $171
Basic income per share:
As reported .................................................... $0.94
Pro forma ..................................................... $0.83
Diluted income per share:
As reported .................................................... $0.90
Pro forma ..................................................... $0.79
The 2005 pro forma income per share information is estimated using the Black-Scholes-Merton option-pricing
model for all stock options granted on or prior to December 31, 2004, as well as all ESPP shares granted on or prior to
July 1, 2005. The Black-Scholes-Merton option-pricing model was developed for use in estimating the fair value of
traded options that have no vesting restrictions and are fully transferable. For stock options granted January 1, 2005
through July 1, 2005, the 2005 pro forma income per share information is estimated using a binomial model. Both the
Black-Scholes-Merton and the binomial option pricing models require the input of highly subjective assumptions such
as the expected stock price volatility and expected employee exercise behavior. The resulting fair value of employee stock
options is amortized on a straight-line basis over the service period of the options.
Stock Options
The following table summarizes activity under the Stock Plans (in millions, except per share amounts):
Number
of Shares
Weighted Average
Exercise Price
Per Share
Remaining
Contractual Life
(in years)
Aggregate
Intrinsic
Value
Options outstanding at July 2, 2004 .... 25.1 $ 7.75
Granted ........................ 4.4 10.05
Exercised ....................... (9.2) 5.26
Canceled or expired ................ (0.8) 9.07
Options outstanding at July 1, 2005 .... 19.5 9.39
Granted ........................ 1.2 17.22
Exercised ....................... (7.6) 8.36
Canceled or expired ................ (0.7) 11.79
Options outstanding at June 30, 2006. . . 12.4 10.65
Granted ........................ 1.6 19.30
Exercised ....................... (2.7) 8.34
Canceled or expired ................ (0.5) 18.68
Options outstanding at June 29, 2007. . . 10.8 $12.15 5.6 $86
Exercisable at June 29, 2007 .......... 7.1 $10.35 4.3 $71
62
WESTERN DIGITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)