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Fair Value Disclosure — Binomial Model
The fair value of stock options granted during 2010, 2009 and 2008 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 July 2, 2010 was estimated using the following weighted average assumptions:
2010 2009 2008
Suboptimal exercise factor .............. 1.73 1.73 1.61
Range of risk-free interest rates .......... 0.31% to 3.40% 0.38% to 3.44% 1.57% to 4.38%
Range of expected stock price volatility .... 0.40 to 0.72 0.43 to 0.77 0.33 to 0.67
Weighted average expected volatility ...... 0.57 0.55 0.48
Post-vesting termination rate ........... 3.57% 4.02% 5.26%
Dividend yield...................... — — —
Fair value ......................... $17.09 $9.05 $9.65
The weighted average expected term of the Company’s stock options for 2010, 2009 and 2008 was 4.6 years,
4.9 years and 5.3 years, respectively.
Stock Option Activity
The following table summarizes activity under the Stock Plans (in millions, except per share amounts and
remaining contractual lives):
Number
of Shares
Weighted Average
Exercise Price
Per Share
Remaining
Contractual Life
(in years)
Aggregate
Intrinsic
Value
Options outstanding at June 29, 2007. . . 10.8 $12.15
Granted ........................ 2.1 25.22
Exercised ....................... (4.2) 10.59
Canceled or expired ................ (0.7) 29.34
Options outstanding at June 27, 2008. . . 8.0 $14.92
Granted ........................ 4.2 20.02
Exercised ....................... (0.6) 9.59
Canceled or expired ................ (0.3) 20.10
Options outstanding at July 3, 2009 .... 11.3 $17.00
Granted ........................ 1.4 36.06
Exercised ....................... (3.1) 14.67
Canceled or expired ................ (0.2) 22.78
Options outstanding at July 2, 2010 .... 9.4 $20.61 4.9 $98
Exercisable at July 2, 2010 ........... 4.6 $15.71 4.2 $67
Vested and expected to vest after July 2,
2010 .......................... 9.3 $20.52 4.9 $98
The aggregate intrinsic value is calculated based on the difference between the exercise price of the underlying
options and the quoted price of the Company’s common stock for those awards that have an exercise price below the
quoted price on the date the intrinsic value is determined. As of July 2, 2010, the Company had options outstanding to
purchase an aggregate of 7.9 million shares with an exercise price below the quoted price of the Company’s stock on that
68
WESTERN DIGITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)