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WESTERN DIGITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
the weighted average number of common shares and potentially dilutive common shares outstanding during the peri-
od. Potentially dilutive common shares include certain dilutive outstanding employee stock options, rights to pur-
chase shares of common stock under the Company’s Employee Stock Purchase Plan (“ESPP”) and restricted stock unit
awards.
The following table illustrates the computation of basic and diluted income per common share (in millions,
except per share data):
Years Ended
June 29,
2012
July 1,
2011
July 2,
2010
Net income .................................................. $1,612 $ 726 $1,382
Weighted average shares outstanding:
Basic ..................................................... 241 231 228
Employee stock options and other ............................... 4 4 5
Diluted ................................................... 245 235 233
Income per common share:
Basic ..................................................... $ 6.69 $3.14 $ 6.06
Diluted ................................................... $ 6.58 $3.09 $ 5.93
Anti-dilutive potential common shares excluded* ..................... 5 3 1
* For purposes of computing diluted income per common share, certain potentially dilutive securities have been
excluded from the calculation because their effect would have been anti-dilutive.
Stock-based Compensation
The Company accounts for all stock-based compensation at fair value. Stock-based compensation cost is measured
at the grant date based on the value of the award and is recognized as expense over the vesting period. The fair values
of all stock options and cash-settled stock appreciation rights (“SARs”) granted are estimated using a binomial model,
and the fair values of all ESPP purchase rights are estimated using the Black-Scholes-Merton option-pricing model.
The Company accounts for SARs as liability awards based upon management’s intention to settle such awards in cash.
The SARs liability is recognized for that portion of fair value for the service period rendered at the reporting date. The
share-based liability is remeasured at each reporting date through the requisite service period. Both the binomial and
the Black-Scholes-Merton option-pricing models require the input of highly subjective assumptions. The Company is
required to use judgment in estimating the amount of stock-based awards that are expected to be forfeited. If actual
forfeitures differ significantly from the original estimate, stock-based compensation expense and the results of oper-
ations could be materially affected.
Other Comprehensive Income (Loss)
Other comprehensive income (loss) refers to revenue, expenses, gains and losses that are recorded as an element of
shareholders’ equity but are excluded from net income. The Company’s other comprehensive income (loss) is com-
prised of unrealized gains and losses on foreign exchange contracts, actuarial gains and losses related to pensions and
gains and losses on foreign currency translation adjustments.
Foreign Exchange Contracts
Although the majority of the Company’s transactions are in U.S. dollars, some transactions are based in various
foreign currencies. The Company purchases short-term, foreign exchange contracts to hedge the impact of foreign
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