Western Digital 2008 Annual Report Download - page 73

requires the input of highly subjective assumptions such as the expected stock price volatility and the expected period
until options are exercised.
The fair values of all ESPP shares granted on or prior to June 27, 2008 have been estimated at the date of grant using
a Black-Scholes-Merton option-pricing model with the following weighted average assumptions:
2008 2007 2006
ESPP
Option life (in years) ................................................ 1.24 1.22 1.21
Risk-free interest rate ................................................ 3.40% 4.51% 4.45%
Stock price volatility ................................................ 0.38 0.40 0.42
Dividend yield..................................................... — — —
Fair value ........................................................ $6.47 $3.83 $3.85
Stock Repurchase Program
As announced on November 21, 2005, the Company’s Board of Directors previously authorized the repurchase of
$250 million of the Company’s common stock in open market transactions. During 2008, the Company repurchased
2.3 million shares of common stock at a total cost of $60 million. Since the inception of the program, the Company has
repurchased 16.6 million shares for a total cost of $248 million (including commissions). In April 2008, the Company’s
Board of Directors authorized a $500 million increase to repurchase the Company’s common stock in open market
transactions through March 31, 2013. Stock repurchases are expected to be funded principally from operating cash flows.
The Company may continue to repurchase its stock as it deems appropriate and market conditions allow.
Stock Purchase Rights
In 1989, the Company implemented a plan to protect shareholders’ rights in the event of a proposed takeover of the
Company. Under the plan, each share of the Company’s outstanding common stock carried one Right to Purchase
Series A Junior Participating Preferred Stock (the “Right”). The Right enabled the holder, under certain circumstances,
to purchase common stock of Western Digital or of an acquiring company at a substantially discounted price ten days
after a person or group publicly announces it has acquired or has tendered an offer for 15% or more of the Company’s
outstanding common stock. On September 10, 1998, the Company’s Board of Directors approved the adoption of a new
Rights plan to replace the previous plan, which expired in September 1998. The Rights under the 1998 plan were similar
to the rights under the 1989 plan except they were redeemable by the Company at $.01 per Right and expired in 2008. In
connection with the establishment of a holding company structure on April 6, 2001, the Company terminated the
Rights under the 1998 plan and adopted a new Rights plan. The 2001 plan is similar to the terminated 1998 plan, except
that the exercise price was reduced from $150.00 to $50.00 per share and the expiration date for the 2001 Rights plan
was extended to April 2011.
Note 9. Income Taxes
Pre-tax Income
The domestic and foreign components of income before income taxes were as follows for the three years ended
June 27, 2008 (in millions):
2008 2007 2006
Foreign .................................................... $812 $322 $272
Domestic................................................... 169 121 110
Income before income taxes .................................... $981 $443 $382
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WESTERN DIGITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)