Western Digital 2015 Annual Report Download - page 69

WESTERN DIGITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Income Taxes
The Company accounts for income taxes under the asset and liability method, which provides that deferred tax
assets and liabilities be recognized for temporary differences between the financial reporting basis and the tax basis of
assets and liabilities and expected benefits of utilizing net operating loss (“NOL”) and tax credit carryforwards. The
Company records a valuation allowance when it is more likely than not that the deferred tax assets will not be realized.
Each period, the Company evaluates the need for a valuation allowance for its deferred tax assets and adjusts the valu-
ation allowance so that the Company records net deferred tax assets only to the extent that it has concluded it is more
likely than not that these deferred tax assets will be realized.
The Company recognizes liabilities for uncertain tax positions based on a two-step process. To the extent a tax
position does not meet a more-likely-than-not level of certainty, no benefit is recognized in the financial statements. If
a position meets the 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 in liabilities recorded for uncertain tax positions and are recorded
in the provision for income taxes. The actual liability for unrealized tax benefits in any such contingency may be
materially different from the Company’s 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 may
materially affect the Company’s operating results.
Income per Common Share
The Company computes basic income per common share using net income and the weighted average number of
common shares outstanding during the period. Diluted income per common share is computed using net income and
the weighted average number of common shares and potentially dilutive common shares outstanding during the
period. Potentially dilutive common shares include certain dilutive outstanding employee stock options, rights to
purchase shares of common stock under the Company’s Employee Stock Purchase Plan (“ESPP”) and restricted stock
unit awards (“RSUs”).
The following table illustrates the computation of basic and diluted income per common share (in millions,
except per share data):
Years Ended
July 3,
2015
June 27,
2014
June 28,
2013
Net income ................................................. $1,465 $1,617 $ 980
Weighted average shares outstanding:
Basic .................................................... 232 235 241
Employee stock options and other .............................. 5 7 5
Diluted .................................................. 237 242 246
Income per common share:
Basic .................................................... $ 6.31 $ 6.88 $4.07
Diluted .................................................. $ 6.18 $ 6.68 $3.98
Anti-dilutive potential common shares excluded* .................... 1 2 3
* 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.
63