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WESTERN DIGITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
amount that has a greater than 50% likelihood of being realized upon ultimate settlement. Interest and penalties
related to unrecognized tax benefits are recognized on 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 peri-
od. Potentially dilutive common shares include certain dilutive outstanding employee stock options, rights to pur-
chase 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
June 28,
2013
June 29,
2012
July 1,
2011
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 980
$1,612
$ 726
Weighted average shares outstanding:
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
241
241
231
Employee stock options and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5
4
4
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
246
245
235
Income per common share:
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$4.07
$ 6.69
$3.14
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$3.98
$ 6.58
$3.09
Anti-dilutive potential common shares excluded* . . . . . . . . . . . . . . . . . . . . .
3
5
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.
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 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 oper-
ations could be materially affected.
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