Western Digital 2007 Annual Report Download - page 48

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The fair values of all stock options granted on and subsequent to January 1, 2005, were estimated using a binomial
model and the fair values of all options granted on and prior to December 31, 2004, and all ESPP shares were estimated
using the Black-Scholes-Merton option pricing model. Both the binomial and the Black-Scholes-Merton models require
the input of highly subjective assumptions.
New Accounting Standards
In July 2006, the Financial Accounting Standards Board (“FASB”) issued FASB Interpretation No. 48, “Accounting
for Uncertainty in Income Taxes, an interpretation of Statement of Financial Accounting Standards No. 109, Accounting
for Income Taxes” (“FIN 48”). FIN 48 clarifies the accounting for income taxes by prescribing the minimum recognition
threshold a tax position is required to meet before being recognized in the financial statements. FIN 48 also provides
guidance on derecognition, measurement, classification, interest and penalties, accounting in interim periods, disclosure
and transition. The interpretation applies to all tax positions related to income taxes subject to SFAS No. 109. FIN 48 is
effective for fiscal years beginning after December 15, 2006. Differences between the amounts recognized in the
statements of financial position prior to the adoption of FIN 48 and the amounts reported after adoption should be
accounted for as a cumulative-effect adjustment recorded to the beginning balance of retained earnings. We are currently
evaluating the impact the adoption of FIN 48 will have on our consolidated financial statements.
In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS 157”). SFAS 157 provides
guidance for using fair value to measure assets and liabilities. It also responds to investors’ requests for expanded
information about the extent to which companies measure assets and liabilities at fair value, the information used to
measure fair value, and the effect of fair value measurements on earnings. SFAS 157 applies whenever other standards
require (or permit) assets or liabilities to be measured at fair value. The standard does not expand the use of fair value in
any new circumstances, but provides clarification on acceptable fair valuation methods and applications. SFAS 157 is
effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within
those fiscal years. We are currently evaluating the impact the adoption of SFAS 157 will have on our consolidated
financial statements.
In February 2007, the FASB issued SFAS Statement No. 159, “The Fair Value Option for Financial Assets and
Financial Liabilities” (“SFAS 159”). SFAS 159 permits entities to choose to measure many financial assets and financial
liabilities at fair value. Unrealized gains and losses on items for which the fair value option has been elected are reported in
earnings. SFAS 159 is effective for fiscal years beginning after November 15, 2007. We are currently assessing the impact
SFAS 159 will have on our consolidated financial statements.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Disclosure About Foreign Currency Risk
Although the majority of our transactions are in U.S. Dollars, some transactions are based in various foreign
currencies. We purchase short-term, forward exchange contracts to hedge the impact of foreign currency fluctuations on
certain underlying assets, liabilities and commitments for operating expenses and product costs denominated in foreign
currencies. The purpose of entering into these hedge transactions is to minimize the impact of foreign currency
fluctuations on our results of operations. The contract maturity dates do not exceed six months. We do not purchase
short-term forward exchange contracts for trading purposes. Currently, we focus on hedging our foreign currency risk
related to Thai Baht, Malaysian Ringgit, Euro and British Pound Sterling. Thai Baht and Malaysian Ringgit contracts
are designated as cash flow hedges. All other contracts are designated as fair value hedges. See Part II, Item 8, Note 1 in
the Notes to Consolidated Financial Statements, included in this Annual Report on Form 10-K.
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