Western Digital 2010 Annual Report Download - page 53

more-likely-than-not level of certainty, it is recognized in the financial statements at the largest amount that has a greater
than 50% likelihood of being realized upon ultimate settlement. Interest and penalties related to unrecognized tax
benefits are recognized on liabilities recorded for uncertain tax positions and are recorded in our provision for income
taxes. The actual liability for unrealized tax benefit in any such contingency may be materially different from our
estimates, which could result in the need to record additional liabilities for unrecognized tax benefits or potentially adjust
previously-recorded liabilities for unrealized tax benefits and materially affect our operating results.
Stock-Based Compensation
We account for all stock-based compensation at fair value. Stock-based compensation cost is measured at the grant
date based on the value of the award and is recognized as expense over the vesting period. The fair values of all stock
options granted are estimated using a binomial model, and the fair values of all Employee Stock Purchase Plan (“ESPP”)
purchase rights are 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. We are required to use judgment in
estimating the amount of stock-based awards that are expected to be forfeited. If actual forfeitures differ significantly
from the original estimate, stock-based compensation expense and our results of operations could be materially affected.
Recent Accounting Pronouncements
In September 2006, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Codification
(“ASC”) 820, “Fair Value Measurements and Disclosures” (“ASC 820”), which establishes a framework for measuring fair
value under U.S. GAAP and expands disclosures about fair value measurement. In February 2008, FASB issued
ASC 820-10-65-1, “Fair Value Measurements and Disclosures — Transition and Open Effective Date Information,”
which delayed the effective date of ASC 820 for all non-financial assets and non-financial liabilities, except those that are
recognized or disclosed at fair value in the financial statements on a recurring basis, until fiscal years beginning after
November 15, 2008 and interim periods within those years, which for us was the first quarter of fiscal 2010. Our
adoption of the provisions of ASC 820 for non-financial assets and non-financial liabilities in the first quarter of fiscal
2010 had no impact on our consolidated financial statements.
In December 2007, the FASB issued ASC 805, “Business Combinations” (“ASC 805”). ASC 805 establishes
principles and requirements for how the acquirer of a business recognizes and measures in its financial statements the
identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree. ASC 805 also
provides guidance for recognizing and measuring the goodwill acquired in the business combination or a gain from a
bargain purchase and determines what information to disclose to enable users of financial statements to evaluate the
nature and financial effects of the business combination. ASC 805 applies prospectively to business combinations for
which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after
December 15, 2008, which for us was the first quarter of fiscal 2010. ASC 805 impacted our consolidated financial
statements for business combinations with an acquisition date on or after adoption in the first quarter of fiscal 2010. For
business combinations in which the acquisition date was before the adoption date, the provision of ASC 805 requires
changes in the amount of income tax uncertainties to be recognized in earnings rather than as an adjustment to the
accounting for prior business combinations. Our adoption of ASC 805 in the first quarter of fiscal 2010 did not have a
material impact on our consolidated financial statements.
In April 2008, the FASB issued ASC 350-30-65-1, “General Intangibles Other than Goodwill — Transition and
Open Effective Date Information” (“ASC 350-30-65-1”), which amends the factors that should be considered in
developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under
ASC 350, “Intangibles — Goodwill and Other.” ASC 350-30-65-1 is effective for fiscal years beginning on or after
December 15, 2008, which for us was the first quarter of fiscal 2010. Our adoption of ASC 350-30-65-1 in the first
quarter of fiscal 2010 had no impact on our consolidated financial statements.
In September 2009, the FASB issued Accounting Standards Update (“ASU”) 2009-13, “Multiple-Deliverable
Revenue Arrangements” (“ASU 2009-13”), and ASU 2009-14, “Certain Revenue Arrangements That Include Software
Elements” (“ASU 2009-14”). ASU 2009-13 amends the revenue guidance under Subtopic 605-25, “Multiple Element
Arrangements,” and addresses how to determine whether an arrangement involving multiple deliverables contains more
than one unit of accounting and how arrangement consideration shall be measured and allocated to the separate units of
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