Western Digital 2010 Annual Report Download - page 66

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The following table illustrates the computation of basic and diluted income per common share (in millions, except
per share data):
July 2,
2010
July 3,
2009
June 27,
2008
Years Ended
Net income.............................................. $1,382 $ 470 $ 867
Weighted average shares outstanding:
Basic ................................................ 228 222 221
Employee stock options and other ............................ 5 4 5
Diluted ............................................... 233 226 226
Income per common share:
Basic ................................................ $ 6.06 $2.12 $3.92
Diluted ............................................... $ 5.93 $2.08 $3.84
Anti-dilutive potential common shares excluded* ................... 1 6 1
* For purposes of computing diluted income per common share, certain potentially dilutive securities have been
excluded from the calculation because their effect would have been anti-dilutive.
Stock-Based Compensation
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 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. The Company is
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 the results of operations
could be materially affected.
Other Comprehensive Income (Loss)
Other comprehensive income (loss) refers to revenue, expenses, gains and losses that are recorded as an element of
shareholders’ equity but are excluded from net income. The Company’s other comprehensive income (loss) is comprised
of unrealized gains and losses on foreign exchange contracts.
Foreign Exchange Contracts
Although the majority of the Company’s transactions are in U.S. dollars, some transactions are based in various
foreign currencies. The Company purchases short-term, foreign exchange contracts to hedge the impact of foreign
currency exchange fluctuations on certain underlying assets, revenue, liabilities and commitments for operating expenses
and product costs denominated in foreign currencies. The purpose of entering into these hedging transactions is to
minimize the impact of foreign currency fluctuations on the Company’s results of operations. These contract maturity
dates do not exceed 12 months. All forward exchange contracts are for risk management purposes only. The Company
does not purchase forward exchange contracts for trading purposes.
The Company had outstanding forward exchange contracts with commercial banks for Thai Baht, Malaysian
Ringgit, Euro and British Pound Sterling with aggregate notional amounts of $1.1 billion and $583 million at July 2,
2010 and July 3, 2009, respectively. Malaysian Ringgit contracts are designated as cash flow hedges. Euro and British
60
WESTERN DIGITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)