8-K

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT
Pursuant to Section 13 OR 15(d) of The Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): July 21, 2011

Western Digital Corporation

(Exact name of registrant as specified in its charter)

Delaware	001-08703	33-0956711
(State or other jurisdiction of incorporation)	(Commission File Number)	(IRS Employer Identification No.)

3355 Michelson Drive, Suite 100 Irvine, California	92612
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: (949) 672-7000

Not applicable

(Former name or former address, if changed since last report.)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 2.02 Results of Operations and Financial Condition.

On July 21, 2011, Western Digital Corporation (“Western Digital”) announced financial results for the fourth fiscal quarter and fiscal year ended July 1, 2011. A copy of the press release making this announcement is attached hereto as Exhibit 99.1 and is incorporated herein by reference. A copy of Western Digital’s Investor Information Summary for the fourth fiscal quarter ended July 1, 2011 is attached hereto as Exhibit 99.2 and is incorporated herein by reference.

In Western Digital’s press release attached as Exhibit 99.1 hereto, Western Digital reports certain financial information, including net income and earnings per share on both a GAAP and a non-GAAP basis for the fourth fiscal quarter and fiscal year ended July 1, 2011. These non-GAAP measures exclude expenses related to Western Digital’s planned acquisition of Hitachi Global Storage Technologies and unrelated litigation accruals. Because management believes these expenses may not be indicative of ongoing operations, management believes that the non-GAAP measures presented in the press release are useful to investors as an alternative method for measuring Western Digital’s operating performance and comparing it against prior periods’ performance.

In accordance with General Instruction B.2 of Form 8-K, the information in this Item 2.02, including Exhibit 99.1 and Exhibit 99.2, shall not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities of that section, and shall not be incorporated by reference into any registration statement or other document filed under the Securities Act of 1933, as amended (the “Securities Act”), or the Exchange Act, except as shall be expressly set forth by specific reference in such filing.

Item 9.01 Financial Statements and Exhibits.

(d) Exhibits

99.1	Press Release issued by Western Digital Corporation on July 21, 2011 announcing financial results for the fourth fiscal quarter and fiscal year ended July 1, 2011.
99.2	Fourth Quarter Fiscal Year 2011 Western Digital Corporation Investor Information Summary.

2

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	Western Digital Corporation (Registrant)
	By:	/s/ Michael C. Ray
Date: July 21, 2011		Michael C. Ray
		Senior Vice President, General Counsel and Secretary

EX-99.1

Exhibit 99.1

Company contacts:
Bob Blair
Investor Relations
949.672.7834
robert.blair@wdc.com

Steve Shattuck
Public Relations
949.672.7817
steve.shattuck@wdc.com

FOR IMMEDIATE RELEASE:

WD^® ANNOUNCES Q4 REVENUE OF $2.4 BILLION AND
NET INCOME OF $158 MILLION, OR $0.67 PER SHARE

Full-Year Revenue Totals $9.53 Billion, Net Income of $3.09 Per Share

IRVINE, Calif.—Jul. 21, 2011—Western Digital Corp. (NYSE: WDC) today reported financial results for its fiscal year 2011 and fourth quarter ended Jul. 1, 2011.

For the quarter, revenue totaled $2.4 billion, net income was $158 million, or $0.67 per share, and hard-drive unit shipments were 54 million. The quarterly results included total expenses of $35 million associated with the planned acquisition of Hitachi Global Storage Technologies (Hitachi GST) announced Mar. 7, 2011, and for unrelated litigation accruals. Excluding these expenses, non-GAAP net income was $193 million or $0.81 per share.¹

In the year-ago quarter, the company reported revenue of $2.38 billion, net income of $265 million, or $1.13 per share, and shipped 50 million hard drives. The 2010 results included $27 million of expenses related to litigation accruals. Excluding these expenses, the year-ago quarter non-GAAP net income was $292 million, or $1.24 per share.²

WD Announces Q4 Revenue of $2.4 Billion and
Net Income of $158 Million, or $0.67 Per Share
Page 2

The company generated $447 million in cash from operations during the June quarter, ending with total cash and cash equivalents of $3.5 billion.

For fiscal year 2011, the company posted revenue of $9.53 billion and net income of $726 million, or $3.09 per share, compared to fiscal 2010 revenue of $9.85 billion and net income of $1.38 billion, or $5.93 per share. The 2011 net income included total expenses of $44 million associated with the planned acquisition of Hitachi GST and unrelated litigation accruals. Excluding these expenses, fiscal 2011 non-GAAP net income was $770 million or $3.28 per share.¹ The 2010 net income included $27 million of expenses related to litigation accruals. Excluding these expenses, fiscal 2010 non-GAAP net income was $1.41 billion, or $6.05 per share.²

“In the June quarter, we were able to meet stronger than anticipated demand, especially from our OEM customers,” said John Coyne, president and chief executive officer. “We believe the stronger demand was driven by increased use of sea freight in advance of the second half of the calendar year as well as supply continuity concerns in the aftermath of the Japan earthquake.

“In a challenging HDD market environment in fiscal 2011, the industry saw unit volume growth of four percent while WD achieved growth of six percent as customers demonstrated a continued preference for the WD value proposition.

“We remain focused on completing our strategic acquisition of Hitachi GST. We are continuing to engage in the approval process with all the appropriate regulatory agencies and thus far we have received clearance from Brazil, Taiwan and Turkey. We continue to work closely with the remaining agencies which are reviewing our transaction. As previously announced, we now expect that the transaction will close in the fourth calendar quarter of 2011, and our integration planning activities continue on schedule.”

WD Announces Q4 Revenue of $2.4 Billion and
Net Income of $158 Million, or $0.67 Per Share
Page 3

The investment community conference call to discuss these results will be broadcast live over the Internet today at 2 p.m. Pacific/5 p.m. Eastern. The live and archived conference call webcast can be accessed online at www.westerndigital.com/investor, click on “Conference Calls.” The telephone replay dial-in number is 866.501.8774 in the U.S. or +1.203.369.1854 for international callers.

About WD

WD, one of the storage industry’s pioneers and long-time leaders, provides products and services for people and organizations that collect, manage and use digital information. The company designs and produces reliable, high-performance hard drives and solid state drives that keep users’ data accessible and secure from loss. Its advanced technologies are configured into applications for client and enterprise computing, embedded systems and consumer electronics, as well as its own consumer storage and home entertainment products.

WD was founded in 1970. The company’s storage products are marketed to leading OEMs, systems manufacturers, selected resellers and retailers under the Western Digital^® and WD^® brand names. Visit the Investor section of the company’s website (www.westerndigital.com) to access a variety of financial and investor information.

WD Announces Q4 Revenue of $2.4 Billion and
Net Income of $158 Million, or $0.67 Per Share
Page 4

This press release contains forward-looking statements concerning the expected timing of the completion of the planned acquisition of Hitachi GST. The foregoing forward-looking statements are based on WD’s current expectations and are subject to risks and uncertainties that could cause actual results to differ materially from those expressed in the forward-looking statements, including: the impact of continued uncertainty and volatility in global economic conditions; supply and demand conditions in the hard drive industry; actions by competitors; unexpected advances in competing technologies; uncertainties related to the development and introduction of products based on new technologies and expansion into new data storage markets; business conditions and growth in the various hard drive markets; pricing trends and fluctuations in average selling prices; changes in the availability and cost of commodity materials and specialized product components that WD does not make internally; and other risks and uncertainties listed in WD’s recent Form 10-Q filed with the SEC May 2, 2011, to which your attention is directed. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof, and WD undertakes no obligation to update these forward-looking statements to reflect subsequent events or circumstances.

###

Western Digital, WD, and the WD logo are registered trademarks of Western Digital Technologies, Inc. All other trademarks mentioned herein belong to their respective owners.

1

Non-GAAP net income for the fourth quarter of fiscal 2011 consists of GAAP net income of $158 million plus $35 million of acquisition-related expenses and unrelated litigation accruals. Non-GAAP net income for fiscal year 2011 consists of GAAP net income of $726 million plus $44 million of acquisition-related expenses and unrelated litigation accruals. Non-GAAP earnings per share of $0.81 and $3.28 for the fourth quarter and fiscal year 2011, respectively, is calculated by using the same 237 and 235 million diluted shares as is used for GAAP earnings per share. The tax effect of the acquisition-related expenses and unrelated litigation accruals was not material.

2

Non-GAAP net income for the fourth quarter of fiscal 2010 consists of GAAP net income of $265 million plus $27 million of litigation accruals. Non-GAAP net income for fiscal year 2010 consists of GAAP net income of $1.38 billion plus $27 million of litigation accruals. Non-GAAP earnings per share of $1.24 and $6.05 for the fourth quarter and fiscal year 2010, respectively, is calculated by using the same 235 and 233 million diluted shares as is used for GAAP earnings per share. The tax effect of the litigation accruals was not material.

WESTERN DIGITAL CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(in millions; unaudited)

	Jul. 1,		Jul. 2,
	2011		2010
ASSETS
Current assets:
Cash and cash equivalents	$	3,490	$	2,734
Accounts receivable, net		1,206		1,256
Inventories		577		560
Other		214		170
Total current assets		5,487		4,720
Property, plant and equipment, net		2,224		2,159
Goodwill		151		146
Other intangible assets, net		71		88
Other assets		185		215
Total assets	$	8,118	$	7,328
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	1,545	$	1,507
Accrued expenses		349		281
Accrued warranty		132		129
Current portion of long-term debt		144		106
Total current liabilities		2,170		2,023
Long-term debt		150		294
Other liabilities		310		302
Total liabilities		2,630		2,619
Shareholders’ equity		5,488		4,709
Total liabilities and shareholders’ equity	$	8,118	$	7,328

WESTERN DIGITAL CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(in millions, except per share amounts)
(unaudited)

	Three Months Ended						Years Ended
	Jul. 1,			Jul. 2,			Jul. 1,			Jul. 2,
	2011			2010			2011			2010
Revenue, net	$	2,403		$	2,382		$	9,526		$	9,850
Cost of revenue		1,934			1,847			7,735			7,449
Gross margin		469			535			1,791			2,401
Operating expenses:
Research and development		188			154			703			611
Selling, general and administrative		109			88			307			265
Total operating expenses		297			242			1,010			876
Operating income		172			293			781			1,525
Net interest and other		(2	)		(1	)		(1	)		(5	)
Income before income taxes		170			292			780			1,520
Income tax provision		12			27			54			138
Net income	$	158		$	265		$	726		$	1,382
Income per common share:
Basic	$	0.68		$	1.15		$	3.14		$	6.06
Diluted	$	0.67		$	1.13		$	3.09		$	5.93
Weighted average shares outstanding:
Basic		233			230			231			228
Diluted		237			235			235			233

WESTERN DIGITAL CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in millions; unaudited)

	Three Months Ended						Years Ended
	Jul. 1,			Jul. 2,			Jul. 1,			Jul. 2,
	2011			2010			2011			2010
Cash flows from operating activities
Net income	$	158		$	265		$	726		$	1,382
Adjustments to reconcile net income to net cash provided by operations:
Depreciation and amortization		150			134			602			510
Stock-based compensation		15			17			69			60
Deferred income taxes		16			29			20			27
Changes in operating assets and liabilities		108			(82	)		238			(37	)
Net cash provided by operating activities		447			363			1,655			1,942
Cash flows from investing activities
Purchases of property, plant and equipment		(153	)		(185	)		(778	)		(737	)
Acquisitions		(15	)		(253	)		(15	)		(253	)
Sales and maturities of investments		—			—			—			4
Net cash used in investing activities		(168	)		(438	)		(793	)		(986	)
Cash flows from financing activities
Employee stock plans, net		12			8			50			66
Repurchases of common stock		—			—			(50	)		—
Repayment of long-term debt		(31	)		(25	)		(106	)		(82	)
Net cash used in financing activities		(19	)		(17	)		(106	)		(16	)
Net increase in cash and cash equivalents		260			(92	)		756			940
Cash and cash equivalents, beginning of period		3,230			2,826			2,734			1,794
Cash and cash equivalents, end of period	$	3,490		$	2,734		$	3,490		$	2,734

EX-99.2

Exhibit 99.2

Page ? 1 Volume and Market Share EPS Analysis Revenue and Gross Margin Note: Unless otherwise noted, information is presented on a GAAP basis Note: Q1'08 actual EPS reflects the acquisition of Komag, Inc. and a one-time net tax charge of $60M. Q2'09 includes restructuring charge of $113M (r) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 FY08 FY08 FY08 FY08 FY09 FY09 FY09 FY09 FY10 FY10 FY10 FY10 FY11 FY11 FY11 FY11 TAM 133.6 143.7 131.6 131.9 145.8 123.8 111.4 135.4 152.4 160.4 163.3 156.2 164.0 167.5 159.5 165.6 Share 22.0% 23.9% 26.3% 26.7% 27.0% 28.6% 28.3% 29.5% 28.9% 30.9% 31.3% 31.8% 30.9% 31.2% 31.2% 32.5% Units (HDD) 29.4 34.2 34.5 35.2 39.4 35.5 31.6 40.0 44.1 49.5 51.1 49.7 50.7 52.2 49.8 53.8 ASP $59 $61 $59 $56 $53 $51 $50 $48 $49 $52 $51 $47 $46 $47 $45 $44 Revenue $1,766 $2,204 $2,111 $1,993 $2,109 $1,823 $1,592 $1,928 $2,208 $2,619 $2,641 $2,382 $2,396 $2,475 $2,252 $2,403 Gross Margin $323 $513 $477 $425 $424 $290 $253 $370 $514 $687 $665 $535 $437 $475 $410 $469 Gross Margin % 18.3% 23.3% 22.6% 21.3% 20.1% 15.9% 15.9% 19.2% 23.3% 26.2% 25.2% 22.5% 18.2% 19.2% 18.2% 19.5% R&D $91 $122 $123 $128 $133 $119 $125 $132 $142 $154 $160 $154 $167 $169 $179 $188 SG&A $48 $59 $56 $56 $57 $42 $49 $52 $53 $60 $64 $61 $59 $66 $63 $76 Other $49 $ - $ - $ - $ - $113 $18 ($23) $ - $ - $ - $27 $ - $ - $10 $33 Total Operating Expenses $188 $181 $179 $184 $190 $274 $192 $161 $195 $214 $224 $242 $226 $235 $252 $297 Operating Income $135 $332 $298 $241 $234 $16 $61 $209 $319 $473 $441 $293 $211 $240 $158 $172 Net Income $69 $305 $280 $213 $211 $14 $50 $196 $288 $429 $400 $265 $197 $225 $146 $158 EPS $0.31 $1.35 $1.23 $0.94 $0.93 $0.06 $0.22 $0.86 $1.25 $1.85 $1.71 $1.13 $0.84 $0.96 $0.62 $0.67 Diluted Shares Outstanding 224 226 227 227 226 224 226 227 230 232 234 235 234 235 236 237 Top 10 Customers Revenue 46% 47% 48% 53% 51% 49% 47% 52% 56% 55% 51% 52% 50% 48% 49% 53% Revenue by Channel OEM 50% 48% 50% 57% 56% 57% 48% 54% 52% 48% 49% 54% 50% 45% 47% 55% Distributors 31% 34% 34% 24% 26% 21% 30% 29% 31% 30% 33% 29% 32% 33% 33% 29% Retail 19% 18% 16% 19% 18% 22% 22% 17% 17% 22% 18% 17% 18% 22% 20% 16% Revenue by Geography Americas 34% 32% 28% 29% 23% 23% 26% 24% 22% 25% 24% 25% 23% 22% 22% 20% Europe 33% 32% 31% 25% 29% 29% 28% 22% 22% 25% 24% 21% 23% 25% 24% 20% Asia 33% 36% 41% 46% 48% 48% 46% 54% 56% 50% 52% 54% 54% 53% 54% 60% Compute Units Notebook 4.785 7.134 8.819 9.878 12.411 11.187 7.932 14.670 16.528 17.735 17.072 16.802 16.582 17.385 16.227 16.867 Desktop 16.674 18.331 17.834 15.863 17.484 14.225 14.659 16.349 18.282 19.290 21.461 20.282 20.918 20.411 20.118 22.348 Non-Compute Units Consumer Electronics 3.707 4.077 3.109 4.097 3.913 4.128 3.487 3.666 3.064 4.083 4.643 5.306 5.239 4.709 4.765 6.459 Branded 2.910 3.390 3.456 4.081 4.396 4.918 4.512 3.994 4.539 6.219 5.565 5.005 5.678 7.427 6.404 5.672 Enterprise Units 1.281 1.280 1.324 1.266 1.203 1.005 0.973 1.308 1.669 2.170 2.356 2.346 2.319 2.284 2.318 2.463 Total HDD Units 29.357 34.212 34.542 35.185 39.407 35.463 31.563 39.987 44.082 49.497 51.097 49.741 50.736 52.216 49.832 53.809 Amounts in millions; except per share amounts,ASP, percentages. Revenue by Geography Rolling Four Quarters Ending Q4 FY08 Revenue by Geography Rolling Four Quarters Ending Q4 FY11 (CHART) (CHART) Asia 55% Europe 23% Americas 22% (CHART) Asia 39% Europe 30% Americas 31% (CHART) (CHART) (CHART)

Page ? 2 (r) Free Cash Flow Return on Assets R&D and Capital Expenditures Gross vs. Net Cash & Cash Equivalents Business Model Gross Margin 18%-23%Operating Expense 9%-10%Operating Income 8%-14%Tax 6%-9% of Income Before TaxCapital Expenditures 7%-8% Inventory Turns 12-16 TurnsConversion Cycle 4-8 Days Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 FY08 FY08 FY08 FY08 FY09 FY09 FY09 FY09 FY10 FY10 FY10 FY10 FY11 FY11 FY11 FY11 Cash and Cash Equivalents $651 $917 $917 $1,104 $1,213 $1,376 $1,579 $1,794 $2,056 $2,435 $2,826 $2,734 $2,858 $3,110 $3,230 $3,490 Debt $1,018 $775 $514 $509 $507 $504 $502 $482 $463 $444 $425 $400 $375 $350 $325 $294 Net Cash and Cash Equivalents ($367) $142 $403 $595 $706 $872 $1,077 $1,312 $1,593 $1,991 $2,401 $2,334 $2,483 $2,760 $2,905 $3,196 Cash Flow From Operations $219 $519 $431 $229 $301 $300 $355 $349 $434 $557 $588 $363 $390 $505 $313 $447 Free Cash Flow $56 $350 $294 $83 $139 $160 $249 $238 $258 $358 $411 $178 $190 $255 $138 $294 Capital Expenditures $163 $169 $137 $146 $162 $140 $106 $111 $176 $199 $177 $185 $200 $250 $175 $153 Depreciation and Amortization $78 $111 $111 $113 $117 $122 $119 $122 $121 $126 $128 $134 $150 $151 $151 $150 EBITDA $213 $443 $409 $354 $351 $138 $180 $331 $440 $599 $569 $427 $361 $391 $309 $322 Accounts Receivable, Net $985 $1,086 $1,014 $1,010 $1,082 $926 $824 $926 $1,131 $1,365 $1,257 $1,256 $1,325 $1,250 $1,171 $1,206 Inventory Raw Materials $165 $171 $153 $144 $129 $124 $104 $97 $96 $102 $115 $159 $155 $141 $151 $172 Work in Process $145 $131 $131 $145 $168 $159 $152 $154 $173 $212 $254 $255 $266 $274 $260 $263 Finished Goods $151 $157 $171 $167 $180 $163 $129 $125 $126 $139 $138 $146 $140 $153 $163 $142 Inventory, Net $461 $459 $455 $456 $477 $446 $385 $376 $395 $453 $507 $560 $561 $568 $574 $577 Property, Plant and Equipment, Net $1,516 $1,560 $1,529 $1,668 $1,674 $1,620 $1,570 $1,584 $1,625 $1,696 $1,756 $2,159 $2,245 $2,277 $2,249 $2,224 Accounts Payable $1,106 $1,216 $1,144 $1,181 $1,215 $1,075 $1,001 $1,101 $1,342 $1,507 $1,508 $1,507 $1,703 $1,628 $1,486 $1,545 Days Sales Outstanding 51 45 44 46 47 46 47 47 47 47 43 48 50 46 47 46 Days Inventory Outstanding 29 25 25 27 26 27 26 24 21 21 23 28 26 26 28 27 Days Payables Outstanding 70 66 64 69 66 64 68 69 72 71 69 74 79 74 73 73 Cash Conversion Cycle 10 4 5 4 7 9 5 2 (4) (3) (3) 2 (3) (2) 2 - Inventory Turns 13 15 14 14 14 14 14 15 17 17 16 13 14 14 13 13 Shares Repurchased 0.8 - 1.5 - 1.2 - - - - - - - 1.8 - - - Shares Repurchased $ $16 $ - $44 $ - $36 $ - $ - $ - $ - $ - $ - $ - $50 $ - $ - $ - Remaining Amount Authorized $46 $46 $502 $502 $466 $466 $466 $466 $466 $466 $466 $466 $416 $416 $416 $416 R4Q ROIC 27.3% 31.4% 33.8% 34.0% 33.5% 22.9% 14.9% 13.9% 15.3% 24.9% 31.2% 30.2% 26.4% 21.1% 15.6% 13.2% R4Q ROA 16.4% 19.0% 20.7% 21.2% 21.1% 14.7% 9.8% 9.2% 10.4% 17.0% 21.2% 20.7% 18.1% 14.6% 10.9% 9.2% Worldwide Headcount 41,263 42,534 41,876 50,072 51,409 50,838 43,898 45,991 52,208 55,128 61,803 62,500 62,817 62,991 61,349 65,431 Balance sheet, cash flows, earnings and share repurchase amounts in millions (CHART) (CHART) (CHART) (CHART) Note: Unless otherwise noted, information is presented on a GAAP basis

Page ? 3 FootnotesFY08 and Q1 FY11 ASP, Revenue by Channel and Revenue by Geography exclude external sales of media/substratesUnit volume excludes WD TV Media Players without hard drives, WD Livewire, SSD and mediaWorldwide Headcount excludes temporary employees (r) FormulasShare = Units / TAMASP = Revenue / UnitsFree Cash Flow = Cash Flow from Operations - Capital ExpendituresEBITDA = Net income + Interest Expense + Income Tax Expense + Depreciation and AmortizationDays Sales Outstanding (DSO) = Accounts Receivable / (Revenue / 91 days)Days Inventory Outstanding (DIO) = Inventory / (Cost of Revenue / 91 days)Days Payables Outstanding (DPO) = Accounts Payable / (Cost of Revenue / 91 days)Cash Conversion Cycle = DSO + DIO - DPOInventory Turns = 364 days / DIOR4Q ROIC = R4Q (Net Income from Continuing Operations + Interest Expense) / R4Q Average (Equity + Debt)R4Q ROA = R4Q Net Income from Continuing Operations / R4Q Average Total Assets

Page ? 4 (r) Non-GAAP Financial Measures Free Cash Flow: Free cash flow is a non-GAAP financial measure defined as cash flows from operations less capital expenditures. We consider free cash flow to be useful as an indicator of our overall liquidity, as the amount of free cash flow generated in any period is representative of cash that is available for strategic opportunities including, among others, investing in the Company's business, making strategic acquisitions, strengthening the balance sheet, repaying debt and repurchasing stock. We also believe that free cash flow is one of several benchmarks used by investors for comparison of our liquidity with other companies in our industry, although our measure of free cash flow may not be directly comparable to similar measures reported by other companies. Free cash flow should not be construed as an alternative to cash flows from operations or other cash flow measurements determined in accordance with GAAP. EBITDA: EBITDA is a non-GAAP financial measure defined as net income before interest, income tax expense, depreciation and amortization. We include information concerning EBITDA because we believe it is a useful measure to evaluate our operating performance. As a measure of our operating performance, we believe EBITDA provides a measure of operating results unaffected by differences in capital structures, capital investment cycles and ages of related assets among otherwise comparable companies. While EBITDA is a relevant and widely used measure of operating performance, it does not represent net income as defined by GAAP and it should not be considered as an alternative to that measure in evaluating operating performance. Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 FY08 FY08 FY08 FY08 FY09 FY09 FY09 FY09 FY10 FY10 FY10 FY10 FY11 FY11 FY11 FY11 Reconciliation of Cash Flows from Operations to Free Cash Flow Cash Flows from Operations $219 $519 $431 $229 $301 $300 $355 $349 $434 $557 $588 $363 $390 $505 $313 $447 Capital Expenditures (163) (169) (137) (146) (162) (140) (106) (111) (176) (199) (177) (185) (200) (250) (175) (153) Free Cash Flow $56 $350 $294 $83 $139 $160 $249 $238 $258 $358 $411 $178 $190 $255 $138 $294 Reconciliation of Net Income to EBITDA Net Income $69 $305 $280 $213 $211 $14 $50 $196 $288 $429 $400 $265 $197 $225 $146 $158 Interest Expense (3) 16 8 4 4 9 3 2 2 2 1 1 - 1 (1) 2 Income Tax Expense 69 11 10 24 19 (7) 8 11 29 42 40 27 14 14 13 12 Depreciation and Amortization 78 111 111 113 117 122 119 122 121 126 128 134 150 151 151 150 EBITDA $213 $443 $409 $354 $351 $138 $180 $331 $440 $599 $569 $427 $361 $391 $309 $322