Western Digital 2007 Annual Report Download - page 74

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various times from 2019 to 2021 and 2008 to 2026, respectively. Approximately $37 million of the credit carryforwards
available to offset future taxable income expire at various times from 2009 to 2027. The remaining amount is available
indefinitely.
Note 10. Planned Acquisition
The Company has a definitive agreement to acquire Komag, Incorporated, a media manufacturer and current
supplier to the Company, for $32.25 per share for a value of approximately $1.0 billion, which is expected to close during
the third calendar quarter of 2007. The planned acquisition of Komag is intended to strengthen production efficiencies
and enhance the Company’s hard drive manufacturing process by integrating media, one of the critical technology
components of hard drives.
The planned acquisition is structured as a cash tender offer for all the outstanding shares of Komag common stock
followed by a merger of an indirect wholly-owned subsidiary of the Company into Komag in which the remaining
shareholders of Komag will receive $32.24 in cash per share.
The Company intends to fund the planned acquisition, including the expected repurchase of Komag’s convertible
notes due 2014 and related fees and expenses, through a combination of the Company’s cash and proceeds from a senior
unsecured term bridge loan facility of up to $1.3 billion.
Note 11. Quarterly Results of Operations (unaudited)
First Second Third Fourth
2007(1)
Revenue, net .......................................... $1,264 $1,428 $1,410 $1,367
Gross margin ......................................... 218 255 222 205
Operating income ...................................... 99 122 115 79
Net income .......................................... 103 128 121 212
Basic earnings per share .................................. $ 0.47 $ 0.58 $ 0.55 $ 0.97
Diluted earnings per share ................................ $ 0.46 $ 0.57 $ 0.53 $ 0.94
2006(2)
Revenue, net .......................................... $1,010 $1,117 $1,129 $1,086
Gross margin ......................................... 178 228 218 204
Operating income ...................................... 68 104 100 94
Net income .......................................... 69 104 102 120
Basic earnings per share .................................. $ 0.32 $ 0.49 $ 0.47 $ .55
Diluted earnings per share ................................ $ 0.31 $ 0.47 $ 0.45 $ .53
(1) The fourth quarter of 2007 included a $126 million benefit to income taxes from an adjustment to the valuation
allowance for deferred income taxes. This benefit is net of an adjustment made in the fourth quarter to reduce the
deferred tax asset and the related valuation allowance by approximately $21 million to correct the amount of state
deferred tax asset recognized in prior periods. As both the deferred tax asset and the related valuation allowance were
overstated in prior periods, there was no net effect to the total assets or net income as reported in those prior periods,
or in the fourth quarter 2007.
(2) The fourth quarter of 2006 included a $13 million benefit to gross margin related to the resolution of certain items
that impacted amounts previously recorded as costs primarily in earlier quarters of 2006, and a $22 million benefit to
income taxes from an adjustment to the valuation allowance for deferred income taxes.
68
WESTERN DIGITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)