Western Digital 2008 Annual Report Download - page 80

obligation is greater than the present value of the market rental obligation, and conversely for a favorable leasehold
interest. The Company recorded a favorable leasehold interest aggregating $4 million, which has been classified within
Other Non-current Assets in the purchase price allocation table. The $4 million is being amortized to Cost of Revenue
and Operating Expenses over the remaining duration of the lease, which ends December 31, 2014.
Recognition of Liabilities in Connection with Komag Acquisition
Under EITF 95-3, “Recognition of Liabilities in Connection with a Business Combination”, the Company accrued
certain exit costs aggregating $40 million, which relate to employee severance and the cash payment for equity related
liabilities payable to Komag employees. The following table summarizes the Company’s exit activities in connection
with the Acquisition (in millions):
Severance
and
Related
Accrued exit costs, September 5, 2007 ........................................ $40
Cash payments ......................................................... (32)
Accrued exit costs, June 27, 2008 ........................................... $ 8
As of June 27, 2008, the accrued exit costs of $8 million are expected to be paid out through April 2010.
Stock-Based Compensation
In connection with the Acquisition, each outstanding option to purchase shares of Komag’s common stock with an
exercise price below $32.25 as of the date of the Acquisition was converted into a right to receive $32.25 in cash less the
exercise price of the option. In addition, each share of Komag restricted common stock granted on or before September 5,
2007 was converted into $32.25 in cash. These converted option and restricted stock awards are payable in cash according
to their original vesting schedules. All shares of restricted stock and options remain subject to their original terms,
including the terms and conditions of Komag’s Amended and Restated 2002 Qualified Stock Plan, the applicable
restricted stock and option agreement and the Merger Agreement. As of June 27, 2008, the future expense for the
converted Komag unvested options and restricted stock awards is $4 million to be paid in cash, which will be expensed
based on individual award vesting terms through April 2010.
Pro Forma Financial Information
The unaudited financial information in the table below summarizes the combined results of operations of the
Company and Komag prior to the Acquisition, on a pro forma basis, as though the companies had been combined as of
July 1, 2006 for each period presented. The pro forma financial information presented includes adjustments to certain
periods related to the fair value of acquired inventory and fixed assets, amortization charges from acquired intangible
assets, stock-based compensation charges for unvested options and unvested restricted stock awards exchanged and to be
paid in cash and the related tax effects of those adjustments. The pro forma financial information is presented for
informational purposes only and is not indicative of the results of operations that would have been achieved if the
acquisition had taken place at the beginning of the earliest period presented, nor does it intend to be a projection of future
results.
The following unaudited pro forma financial information is for the years ended June 27, 2008 and June 29, 2007. It
combines the Company’s financial results for the year ended June 27, 2008 with Komag’s financial results from July 2,
2007 through the date of Acquisition and the year ended June 29, 2007 with Komag’s historical financial results for the
twelve months ended July 1, 2007 (in millions, except per share amounts).
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WESTERN DIGITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)