Western Digital 2008 Annual Report Download - page 62

Income Taxes
The Company accounts for income taxes under the asset and liability method, which provides that deferred tax
assets and liabilities be recognized for temporary differences between the financial reporting basis and the tax basis of our
assets and liabilities and expected benefits of utilizing net operating loss (“NOL”) and tax credit carryforwards. The
Company records a valuation allowance where it is more likely than not that the deferred tax assets will not be realized.
Each period the Company evaluates the need for a valuation allowance for its deferred tax assets and adjusts the valuation
allowance so that the Company records net deferred tax assets only to the extent that it has concluded it is more likely
than not that these deferred tax assets will be realized.
As a result of the implementation of FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes —
an interpretation of FASB Statement No. 109” (“FIN 48”), the Company recognized liabilities for uncertain tax positions
based on the two-step process prescribed in FIN 48. To the extent a tax position does not meet a more-likely-than-not
level of certainty, no benefit is recognized in the financial statements. If a position meets the more-likely-than-not level of
certainty, it is recognized in the financial statements at the largest amount that has a greater than 50% likelihood of being
realized upon ultimate settlement. Interest and penalties related to unrecognized tax benefits are recognized on liabilities
recorded for uncertain tax positions and are recorded in the provision for income taxes. The actual liability for unrealized
tax benefit in any such contingency may be materially different from the Company’s estimates, which could result in the
need to record additional liabilities for unrecognized tax benefits or potentially adjust previously recorded liabilities for
unrealized tax benefits.
Per Share Information
The Company computes basic income per common share using net income and the weighted average number of
common shares outstanding during the period. Diluted income per share is computed using net income and the weighted
average number of common shares and potentially dilutive common shares outstanding during the period. Potentially
dilutive common shares include outstanding employee stock options, rights to purchase shares of common stock under
our employee stock purchase plan and restricted stock and stock unit awards.
The following table illustrates the computation of basic and diluted income per common share (in millions, except
per share data):
June 27,
2008
June 29,
2007
June 30,
2006
Years Ended
Net income ............................................ $867 $564 $395
Weighted average shares outstanding:
Basic ............................................... 221 219 215
Employee stock options and other ........................... 5 7 9
Diluted.............................................. 226 226 224
Income per common share:
Basic ............................................... $3.92 $2.57 $1.84
Diluted.............................................. $3.84 $2.50 $1.76
Antidilutive common share equivalents excluded* ................. 1 2 2
* For purposes of computing diluted income per common share, common share equivalents with an exercise price that
exceeded the average fair market value of common stock for the period are considered antidilutive and have been
excluded from the calculation.
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WESTERN DIGITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)