Western Digital 2014 Annual Report Download - page 71

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WESTERN DIGITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Stock-based Compensation
The Company accounts 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 and cash-settled stock appreciation rights (“SARs”) granted are estimated using a binomial option-
pricing model, and the fair values of all ESPP purchase rights are estimated using the Black-Scholes-Merton option-
pricing model. The Company accounts for SARs as liability awards based upon management’s intention to settle such
awards in cash. The SARs liability is recognized for that portion of fair value for the service period rendered at the
reporting date. The share-based liability is remeasured at each reporting date through the requisite service period.
Both the binomial and the Black-Scholes-Merton option-pricing 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 com-
prised of unrealized gains and losses on foreign exchange contracts, unrealized gains and losses on the Company’s
available-for-sale securities, foreign currency translation gains and losses and actuarial gains and losses related to pen-
sions. The income tax impact on components of other comprehensive income is immaterial for all periods presented.
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