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WESTERN DIGITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The fair values of the identifiable intangible assets acquired from HGST were estimated using an income
approach. The fair value of the intangible assets will be amortized to cost of revenue over their weighted average useful
lives, with the exception of intangible assets related to customer relationships and acquired in-process research and
development projects. Customer relationship intangible assets will be amortized to operating expense over their
weighted average useful lives. HGST had in-process research and development projects associated with areal density
improvements that had not yet reached technological feasibility as of the Closing Date. These projects are expected to
incorporate significant changes in the magnetic structure of the media to achieve higher recording density for the
Company. Accordingly, the Company recorded indefinite-lived intangible assets of $143 million for the fair value of
these projects, which will not initially be amortized. Instead, the projects will be tested on an annual basis or more
frequently whenever events or changes in circumstances indicate that the projects may be impaired or may have
reached technological feasibility. Once a project reaches technological feasibility, the Company will begin to amortize
the intangible asset over its estimated useful life.
Adverse/Favorable Leasehold Interests
The Company analyzed the contractual facility leases assumed as part of the Acquisition to determine the fair
value of the leasehold interests. An adverse leasehold position exists when the present value of the contractual rental
obligation is greater than the present value of the market rental obligation, and conversely for a favorable leasehold
interest. The Company recorded a net favorable leasehold interest of $43 million, which is classified within intangible
assets in the preliminary purchase price allocation table above in this Note 14. The $43 million will be amortized to
cost of revenue over the average lease term of 28 years.
Goodwill
The $1.8 billion of goodwill recognized is primarily attributable to the benefits, subject to compliance with
applicable regulatory conditions imposed on the Acquisition, the Company expects to derive from a more efficient and
innovative customer-focused storage company with significant operating scale, strong global talent and a broad prod-
uct lineup backed by a rich technology portfolio. None of the goodwill is expected to be deductible for tax purposes.
The changes in the carrying amount of goodwill for the year ended June 29, 2012 are as follows (in millions):
Balance at July 1, 2011 ......................................................... $ 151
Goodwill acquired from the Acquisition ............................................ 1,824
Balance at June 29, 2012 ........................................................ $1,975
HGST Revenue and Net Income
The amount of revenue and earnings attributable to HGST in the Company’s consolidated statement of income
during the three months ended and the year ended June 29, 2012 from the Closing Date were as follows:
Three Months
Ended
Year
Ended
June 29, 2012 June 29, 2012
(in millions)
Revenue ..................................................... $2,442 $3,056
Net income .................................................. $ 461 $ 501
Toshiba Transactions
In connection with the regulatory approval process, the Company announced on May 15, 2012 that it had com-
pleted a transaction with Toshiba to divest certain 3.5-inch hard drive assets and to purchase Toshiba Storage Device
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