Western Digital 2008 Annual Report Download - page 72

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purposes of valuing these awards, the Company has assumed a forfeiture rate of zero based on a historical analysis
indicating minimal forfeitures for these types of awards. The Company charged to expense $19 million, $29 million and
$16 million related to restricted stock awards that were vested during 2008, 2007 and 2006, respectively. As of June 27,
2008, the aggregate unamortized fair value of all unvested restricted stock awards was $42 million, which will be
amortized on a straight-line basis over a weighted average vesting period of approximately 2.3 years.
During 2005, the Company also awarded certain executives and other key employees 0.5 million restricted stock
units with performance-based vesting (“Performance Shares”). However, during 2006, the Company canceled all
outstanding Performance Shares. The impact of these awards, and subsequent cancellation, were not material to the
consolidated financial statements.
Stock Reserved for Issuance
The following table summarizes all shares of common stock reserved for issuance at June 27, 2008 (in millions):
Number
of Shares
Maximum shares issuable in connection with:
Outstanding awards and shares available for award grants ......................... 19.1
ESPP .............................................................. 2.3
21.4
Fair Value Disclosure — Binomial Model
The fair value of stock options granted during 2008, 2007 and 2006 was estimated using a binomial option pricing
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
termination 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 three years ended June 27, 2008 was estimated using the
following weighted average assumptions:
2008 2007 2006
Suboptimal exercise factor .............. 1.61 1.62 1.58
Range of risk-free interest rates .......... 1.57% to 4.38% 4.48% to 5.12% 4.01% to 5.21%
Range of expected volatility ............ 0.33 to 0.67 0.34 to 0.79 0.38 to 0.82
Weighted average expected volatility ...... 0.48 0.59 0.67
Post-vesting termination rate ........... 5.26% 5.34% 14.00%
Dividend yield...................... — — —
Fair value ......................... $9.65 $8.18 $7.11
The weighted average expected term of the Company’s stock options for 2008, 2007 and 2006 was 5.29 years,
5.34 years and 4.32 years, respectively.
Fair Value Disclosure — Black-Scholes-Merton Model
The fair value of ESPP rights issued is estimated at the date of issue using the Black-Scholes-Merton option-pricing
model. The Black-Scholes-Merton option-pricing model was developed for use in estimating the fair value of traded
options that have no vesting restrictions and are fully transferable. The Black-Scholes-Merton option pricing model
66
WESTERN DIGITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)