Western Digital 2008 Annual Report Download - page 77

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Note 10. Investments
As of June 27, 2008, the Company had investments of $3 million in U.S. government securities and $28 million in
auction-rate securities primarily backed by insurance products. The auction-rate securities are expected to be held until
secondary markets become available and as a result have been reclassified to long-term investments as of June 27, 2008. These
investments are currently accounted for as available-for-sale securities and recorded at fair value within other non-current assets
in the consolidated balance sheet. The estimated fair values of these investments are subject to fluctuation. Unrealized holding
gains and losses are generally recorded in other comprehensive income. However, if a decline in fair value is determined to be
other-than-temporary, the cost basis is written down to fair value through earnings. During the year ended June 27, 2008, the
Company realized $3 million in losses on sales and recognized $10 million in other-than-temporary impairment losses on these
auction-rate securities.
Note 11. Komag Acquisition
The Company completed the Acquisition on September 5, 2007 through a cash tender offer by State M Corporation
(“State M”), an indirect wholly-owned subsidiary of the Company, for all outstanding shares of Komag’s common stock,
which was followed by a merger of State M and Komag whereby Komag became an indirect wholly-owned subsidiary of
the Company and changed its name to WD Media. WD Media’s results of operations since the date of the Acquisition are
included in the accompanying consolidated financial statements.
Purchase Price Allocation
The aggregate purchase price for Komag was $1.0 billion, consisting of cash paid for outstanding shares, transaction
fees, severance and other employee-related equity payments. The application of purchase accounting under SFAS No. 141,
“Business Combinations” (“SFAS 141”), requires that the total purchase price be allocated to the fair value of assets
acquired and liabilities assumed based on their fair values at the acquisition date, with amounts exceeding the fair values
being recorded as goodwill. The allocation process requires an analysis and valuation of acquired assets, including fixed
assets, deferred tax assets, technologies, customer contracts and relationships, trade names and liabilities assumed,
including contractual commitments and legal contingencies. The values assigned to certain acquired assets and liabilities
were finalized as of June 27, 2008.
The Company has identified and recorded the assets, including specifically identifiable intangible assets, and
liabilities assumed from Komag at their estimated fair values as of the date of the Acquisition, and has allocated the
residual value to goodwill.
71
WESTERN DIGITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)