Western Digital 2007 Annual Report Download - page 71

The fair values of all stock options granted on or prior to December 31, 2004 and all ESPP shares granted on or prior
to June 29, 2007 have been estimated at the date of grant using a Black-Scholes-Merton option-pricing model with the
following weighted average assumptions:
2005 2007 2006 2005
Stock Option
Plan ESPP
Option life (in years) ..................................... 4.51 1.22 1.21 1.25
Risk-free interest rate ..................................... 3.23% 4.51% 4.45% 2.25%
Stock price volatility ...................................... 0.74 0.40 0.42 0.55
Dividend yield .......................................... — — — —
Fair value ............................................. $5.33 $3.83 $3.85 $3.00
Stock Repurchase Program
The Company’s Board of Directors has authorized the repurchase of up to $250 million of the Company’s common
stock in open market transactions. Stock repurchases are expected to be funded principally from operating cash flows.
During 2007, the Company repurchased 4.0 million shares of common stock at a total cost of $73 million. Subsequent to
the end of 2007, the Company purchased 0.8 million shares for approximately $16 million. Since the inception of the
program, the Company has repurchased 15.1 million shares for a total cost of $204 million. Subject to any limitations
that may be set forth in the proposed bridge loan facility to be entered into for the planned acquisition of Komag, 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 (loss) before income taxes were as follows for the three years ended
June 29, 2007 (in millions):
2007 2006 2005
Foreign .................................................... $322 $272 $236
Domestic................................................... 121 110 (36)
Income before income taxes .................................... $443 $382 $200
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WESTERN DIGITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)