Western Digital 2006 Annual Report Download - page 73

Download and view the complete annual report

Please find page 73 of the 2006 Western Digital annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 116

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116

Stock Reserved for Issuance
The following table summarizes all shares of common stock reserved for issuance at June 30, 2006 (in millions):
Number
of Shares
Maximum shares issuable in connection with:
Outstanding awards and shares available for award grants. ......................... 26.7
ESPP ............................................................... 4.4
31.1
Fair Value Disclosure — Binomial Model
The fair value of stock options granted for the year ended June 30, 2006, was estimated using a binomial option
pricing model. For all options granted between January 1, 2005 and June 30, 2006, the pro forma income per share
information was estimated using a binomial model. The binomial model requires the input of highly subjective
assumptions including the expected stock price volatility, the expected price multiple at which employees are likely to
exercise stock options and the expected employee forfeiture rate. The Company uses historical data to estimate option
exercise, employee termination, and expected stock price volatility within the binomial model. The risk-free rate for
periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of grant.
The fair value of stock options granted during the year ended June 30, 2006 was estimated using the following
weighted average assumptions:
June 30, 2006
Suboptimal exercise factor ........................................... 1.58
Range of risk-free interest rates ....................................... 4.01% to 5.21%
Range of expected volatility .......................................... 0.38 to 0.82
Weighted average expected volatility .................................... .67
Post-vesting termination rate ......................................... 14.00%
Dividend yield ................................................... —
Fair value ....................................................... $7.11
The fair value of stock options granted during the six months ended July 1, 2005 was estimated using the following
weighted average assumptions:
July 1, 2005
Suboptimal exercise factor ........................................... 1.79
Range of risk-free interest rates ....................................... 3.34% to 4.46%
Range of expected volatility .......................................... 0.43 to 0.84
Weighted average expected volatility .................................... .70
Post-vesting termination rate ......................................... 13.54%
Dividend yield ................................................... —
Fair value ....................................................... $4.86
Fair Value Disclosure — Black-Scholes-Merton Model
Pro forma information regarding net income and earnings per share is required by SFAS No. 123. This information
is required to be determined as if the Company had accounted for its stock options (including shares issued under the
Stock Incentive Plans and the ESPP, collectively called “Options”) granted subsequent to July 1, 1995, under the fair
value method of that statement.
67
WESTERN DIGITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)