Western Digital 2009 Annual Report Download - page 77

The fair values of all ESPP purchase rights granted on or prior to July 3, 2009 have been estimated at the date of
grant using a Black-Scholes-Merton option-pricing model with the following weighted average assumptions:
2009 2008 2007
ESPP
Option life (in years) ................................................ 1.30 1.24 1.22
Risk-free interest rate ................................................ 0.65% 3.40% 4.51%
Stock price volatility ................................................ 0.63 0.38 0.40
Dividend yield..................................................... — — —
Fair value ........................................................ $3.61 $6.47 $3.83
Stock Repurchase Program
The Company’s Board of Directors authorized the repurchase of $750 million of the Company’s common stock in
open market transactions through March 31, 2013. During 2009, the Company repurchased 1.2 million shares of
common stock at a total cost of $36 million. Since the inception of this stock repurchase program in 2005, the Company
has repurchased 18 million shares for a total cost of $284 million (including commissions). Stock repurchases are to be
funded principally by operating cash flows. The Company may continue to repurchase common 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 before income taxes were as follows for the three years ended
July 3, 2009 (in millions):
2009 2008 2007
Foreign .................................................... $459 $812 $322
Domestic................................................... 42 169 121
Income before income taxes .................................... $501 $981 $443
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WESTERN DIGITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)