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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q

(Mark One)
☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 27, 2024
Or
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to                     
Commission file number: 1-8703

wdcolor logo.gif.gif
WESTERN DIGITAL CORPORATION
(Exact Name of Registrant as Specified in Its Charter)
Delaware33-0956711
(State or other jurisdiction of
incorporation or organization)		(I.R.S. Employer Identification No.)
5601 Great Oaks ParkwaySan Jose,California95119
(Address of principal executive offices)(Zip Code)
Registrant’s telephone number, including area code: (408) 717-6000
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading symbol(s)Name of each exchange on which registered
Common Stock, $0.01 Par Value Per ShareWDCThe Nasdaq Stock Market LLC
 (Nasdaq Global Select Market)
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    No  ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ☒    No  ¨


Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filerAccelerated filerNon-accelerated filerSmaller reporting companyEmerging growth company
☒☐☐☐☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.    ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ☐    No  ý
As of the close of business on October 22, 2024, 345,708,453 shares of common stock, par value $0.01 per share, were outstanding.


WESTERN DIGITAL CORPORATION
INDEX
PAGE NO.
PART I. FINANCIAL INFORMATION
Item 1.Financial Statements (unaudited)
Condensed Consolidated Balance Sheets — As of September 27, 2024 and June 28, 2024
Condensed Consolidated Statements of Operations — Three Months Ended September 27, 2024 and September 29, 2023
Condensed Consolidated Statements of Comprehensive Income (Loss) — Three Months Ended September 27, 2024 and September 29, 2023
Condensed Consolidated Statements of Cash Flows — Three Months Ended September 27, 2024 and September 29, 2023
Condensed Consolidated Statements of Convertible Preferred Stock and Shareholders' Equity — Three Months Ended September 27, 2024 and September 29, 2023
Notes to Condensed Consolidated Financial Statements
Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 3.Quantitative and Qualitative Disclosures About Market Risk
Item 4.Controls and Procedures
PART II. OTHER INFORMATION
Item 1.Legal Proceedings
Item 1A.Risk Factors
Item 5.
Other Information
Item 6.Exhibits

Unless otherwise indicated, references herein to specific years and quarters are to our fiscal years and fiscal quarters, and references to financial information are on a consolidated basis. As used herein, the terms “we,” “us,” “our,” the “Company,” “WDC,” and “Western Digital” refer to Western Digital Corporation and its subsidiaries, unless we state, or the context indicates, otherwise.

WDC, a Delaware corporation, is the parent company of our data storage business. Our principal executive offices are located at 5601 Great Oaks Parkway, San Jose, California 95119. Our telephone number is (408) 717-6000.

Western Digital, the Western Digital logo, SanDisk, and WD are registered trademarks or trademarks of Western Digital or its affiliates in the U.S. and/or other countries. All other trademarks, registered trademarks and/or service marks, indicated or otherwise, are the property of their respective owners.

3
FORWARD-LOOKING STATEMENTS

This document contains forward-looking statements within the meaning of the federal securities laws. Any statements that do not relate to historical or current facts or matters are forward-looking statements. You can identify some of the forward-looking statements by the use of forward-looking words, such as “may,” “will,” “could,” “would,” “project,” “believe,” “anticipate,” “expect,” “estimate,” “continue,” “potential,” “plan,” “forecast,” and the like, or the use of future tense. Statements concerning current conditions may also be forward-looking if they imply a continuation of current conditions. Examples of forward-looking statements include, but are not limited to, statements concerning: our expectations regarding our plan to separate our hard disk drives (“HDD”) and flash-based products (“Flash”) business units; the impact of the global macroeconomic environment; expectations regarding demand trends and market conditions for our products; expectations related to our sale of a portion of our equity interest in SanDisk Semiconductor (Shanghai) Co. Ltd.; expectations related to our joint ventures and partnerships including relating to our Flash Ventures joint venture with Kioxia Corporation (“Kioxia”); expectations regarding our tax resolutions, effective tax rate and our unrecognized tax benefits; expectations regarding the merits of our position and our plans with respect to certain litigation matters; and our beliefs regarding our capital allocation plans and the sufficiency of our available liquidity to meet our working capital, debt and capital expenditure needs.

These forward-looking statements are based on management’s current expectations, represent the most current information available to us as of the date of this Quarterly Report on Form 10-Q and are subject to a number of risks, uncertainties and other factors that could cause actual results or performance to differ materially from those expressed or implied in the forward-looking statements. These risks and uncertainties include, but are not limited to:

•volatility in global or regional economic conditions and our responsive actions thereto;
•operational, financial and legal challenges and difficulties inherent in implementing a separation of our HDD and Flash business units;
•the final approval of the separation by our board of directors;
•dependence on a limited number of suppliers or disruptions in our supply chain;
•the outcome, timing and impact of the planned separation of our HDD and Flash business units, including with respect to customer and supplier relationships, contractual restrictions, stock price volatility and the diversion of management’s attention from ongoing business operations and opportunities;
•future responses to and effects of public health crises;
•the impact of business and market conditions;
•damage or disruption to our operations or to those of our suppliers;
•hiring and retention of key employees;
•compromise, damage or interruption from cybersecurity incidents or other data or system security risks;
•product defects;
•our reliance on strategic relationships with key partners, including Kioxia;
•the competitive environment, including actions by our competitors, and the impact of competitive products and pricing;
•our development and introduction of products based on new technologies and expansion into new data storage markets;
•risks associated with cost saving initiatives, restructurings, acquisitions, divestitures, mergers, joint ventures and our strategic relationships;
•changes to our relationships with key customers;
•our ability to respond to market and other changes in our distribution channel and retail market;
•our level of debt and other financial obligations;
•changes in tax laws or unanticipated tax liabilities;
•fluctuations in currency exchange rates in connection with our international operations;
•risks associated with compliance with changing legal and regulatory requirements and the outcome of legal proceedings;
•risks associated with our goals relating to environmental, social and governance matters, including our ability to meet our GHG emissions reduction and other ESG goals;
•our reliance on intellectual property and other proprietary information; and
•the other risks and uncertainties disclosed in Part I, Item 1A of our Annual Report on Form 10-K for the year ended June 28, 2024 (our “2024 Annual Report on Form 10-K”), as amended, supplemented or superseded in our other reports filed with the Securities and Exchange Commission, including under “Risk Factors” in Item 1A of our subsequent Quarterly Reports on Form 10-Q.

4
You are urged to carefully review the disclosures we make concerning these risks and review the additional disclosures we make concerning material risks and other factors that may affect the outcome of our forward-looking statements and our business and operating results, including those made in Part I, Item 1A of our 2024 Annual Report on Form 10-K and any of those made in our other reports filed with the Securities and Exchange Commission, including under “Risk Factors” in Item 1A of subsequent Annual Reports on Form 10-K and Quarterly Reports on Form 10-Q that may from time to time amend, supplement or supersede the risks and uncertainties disclosed in the 2024 Annual Report on Form 10-K. You are cautioned not to place undue reliance on the forward-looking statements included in this Quarterly Report on Form 10-Q, which speak only as of the date of this document. We do not intend, and undertake no obligation, to update or revise these forward-looking statements to reflect new information or events after the date of this document or to reflect the occurrence of unanticipated events, except as required by law.
5
PART I. FINANCIAL INFORMATION

Item 1.    Financial Statements (unaudited)

WESTERN DIGITAL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(in millions, except par value)
(Unaudited)
September 27,
2024		June 28,
2024
ASSETS
Current assets:
Cash and cash equivalents$1,705 $1,879 
Accounts receivable, net2,458 2,166 
Inventories3,384 3,342 
Other current assets798 673 
Assets held for sale
597 — 
Total current assets8,942 8,060 
Property, plant and equipment, net2,917 3,167 
Notes receivable and investments in Flash Ventures1,051 991 
Goodwill9,812 10,032 
Other intangible assets, net77 78 
Other non-current assets1,972 1,860 
Total assets$24,771 $24,188 
LIABILITIES, CONVERTIBLE PREFERRED STOCK AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable$1,578 $1,411 
Accounts payable to related parties352 313 
Accrued expenses1,311 1,480 
Income taxes payable448 525 
Accrued compensation542 608 
Current portion of long-term debt1,750 1,750 
Liabilities held for sale
110 — 
Total current liabilities6,091 6,087 
Long-term debt5,650 5,684 
Other liabilities1,158 1,370 
Total liabilities12,899 13,141 
Commitments and contingencies (Notes 9, 10, 12 and 16)
Convertible preferred stock, $0.01 par value; authorized — 5 shares; issued and outstanding — 0.2 shares; aggregate liquidation preference of $261 and $257, respectively
229 229 
Shareholders’ equity:
Common stock, $0.01 par value; authorized — 750 shares; issued and outstanding — 346 shares and 343 shares, respectively
3 3 
Additional paid-in capital4,772 4,752 
Accumulated other comprehensive loss(400)(712)
Retained earnings7,268 6,775 
Total shareholders’ equity11,643 10,818 
Total liabilities, convertible preferred stock and shareholders’ equity$24,771 $24,188 

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
6
WESTERN DIGITAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in millions, except per share amounts)
(Unaudited)
Three Months Ended
September 27,
2024		September 29,
2023
Revenue, net$4,095 $2,750 
Cost of revenue2,544 2,651 
Gross profit1,551 99 
Operating expenses:
Research and development519 431 
Selling, general and administrative242 207 
Litigation matter3 — 
Employee termination, asset impairment and other2 57 
Business separation costs43 — 
Total operating expenses809 695 
Operating income (loss)742 (596)
Interest and other expense:
Interest income9 8 
Interest expense(99)(98)
Other income (expense), net(24)4 
Total interest and other expense, net(114)(86)
Income (loss) before taxes628 (682)
Income tax expense135 3 
Net income (loss)493 (685)
Less: dividends allocated to preferred shareholders4 15 
Less: income attributable to preferred shareholders8 — 
Net income (loss) attributable to common shareholders$481 $(700)
Net income (loss) per common share:
Basic$1.40 $(2.17)
Diluted$1.35 $(2.17)
Weighted average shares outstanding:
Basic344 323 
Diluted357 323 

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
7
WESTERN DIGITAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(in millions)
(Unaudited)
Three Months Ended
September 27,
2024		September 29,
2023
Net income (loss)$493 $(685)
Other comprehensive income (loss), before tax:
Foreign currency translation adjustment121 (38)
Net unrealized gain (loss) on derivative contracts243 (58)
Total other comprehensive income (loss), before tax364 (96)
Income tax benefit (expense) related to items of other comprehensive income (loss), before tax(52)13 
Other comprehensive income (loss), net of tax312 (83)
Total comprehensive income (loss)$805 $(768)

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
8
WESTERN DIGITAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
(Unaudited)
Three Months Ended
September 27,
2024		September 29,
2023
Cash flows from operating activities
Net income (loss)$493 $(685)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operations:
Depreciation and amortization135 147 
Stock-based compensation84 77 
Deferred income taxes54 (46)
Gain on disposal of assets(1)(87)
Non-cash asset impairment— 95 
Amortization of debt issuance costs and discounts5 4 
Other non-cash operating activities, net17 1 
Changes in:
Accounts receivable, net(292)147 
Inventories(76)201 
Accounts payable216 25 
Accounts payable to related parties39 (15)
Accrued expenses(153)63 
Income taxes payable(77)(325)
Accrued compensation(50)1 
Other assets and liabilities, net(360)(229)
Net cash provided by (used in) operating activities
34 (626)
Cash flows from investing activities
Purchases of property, plant and equipment(96)(124)
Proceeds from the sale of property, plant and equipment1 193 
Notes receivable issuances to Flash Ventures(14)(121)
Notes receivable proceeds from Flash Ventures61 134 
Strategic investments and other, net3 2 
Net cash provided by (used in) investing activities(45)84 
Cash flows from financing activities
Taxes paid on vested stock awards under employee stock plans(64)(43)
Proceeds from convertible preferred stock, net of issuance costs
— (3)
Repayments of debt(188)— 
Proceeds from debt
150 600 
Net cash provided by (used in) financing activities
(102)554 
Effect of exchange rate changes on cash10 (3)
Cash and cash equivalents reclassified to assets held for sale
(71)— 
Net increase (decrease) in cash and cash equivalents
(174)9 
Cash and cash equivalents, beginning of year1,879 2,023 
Cash and cash equivalents, end of period
$1,705 $2,032 
Supplemental disclosure of cash flow information:
Cash paid for income taxes$479 $545 
Cash paid for interest$115 $127 

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
9
WESTERN DIGITAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CONVERTIBLE PREFERRED STOCK AND SHAREHOLDERS’ EQUITY
(in millions)
(Unaudited)
Convertible Preferred StockCommon StockAdditional Paid-In CapitalAccumulated Other Comprehensive Loss Retained EarningsTotal Shareholders’ Equity
SharesAmountSharesAmount
Balance at June 28, 20240.2 $229 343 $3 $4,752 $(712)$6,775 $10,818 
Net income— — — — — — 493 493 
Employee stock plans— — 3 — (64)— — (64)
Stock-based compensation— — — — 84 — — 84 
Foreign currency translation adjustment— — — — — 121 — 121 
Net unrealized loss on derivative contracts, net of taxes— — — — — 191 — 191 
Balance at September 27, 20240.2$229 346$3 $4,772 $(400)$7,268 $11,643 

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

10
WESTERN DIGITAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CONVERTIBLE PREFERRED STOCK AND SHAREHOLDERS’ EQUITY
(in millions)
(Unaudited)
Convertible Preferred StockCommon StockAdditional Paid-In CapitalAccumulated Other Comprehensive LossRetained EarningsTotal Shareholders’ Equity
SharesAmountSharesAmount
Balance at June 30, 20230.9 $876 322 $3 $3,936 $(548)$7,573 $10,964 
Net loss— — — — — — (685)(685)
Employee stock plans— — 2 — (43)— — (43)
Stock-based compensation— — — — 77 — — 77 
Foreign currency translation adjustment— — — — — (38)— (38)
Net unrealized loss on derivative contracts, net of taxes— — — — — (45)— (45)
Balance at September 29, 20230.9 $876 324$3 $3,970 $(631)$6,888 $10,230 

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
11

WESTERN DIGITAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Note 1.    Organization and Basis of Presentation

Western Digital Corporation (“Western Digital” or the “Company”) is a leading developer, manufacturer, and provider of data storage devices and solutions based on both hard disk drive and NAND flash technologies.

The Company’s broad portfolio of technology and products addresses the following key end markets: Cloud, Client, and Consumer. The Company also generates immaterial license and royalty revenue from its extensive intellectual property portfolio, which is included in each of these three end market categories.

The accounting policies followed by the Company are set forth in Part II, Item 8, Note 1, Organization and Basis of Presentation, of the Notes to the Consolidated Financial Statements included in the Company’s Annual Report on Form 10‑K for the year ended June 28, 2024. In the opinion of management, all adjustments necessary to fairly state the Condensed Consolidated Financial Statements have been made. Such adjustments consist of items of a normal, recurring nature. Certain information and footnote disclosures normally included in the Consolidated Financial Statements prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). These Condensed Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and the notes thereto included in the Company’s Annual Report on Form 10‑K for the year ended June 28, 2024. The results of operations for interim periods are not necessarily indicative of results to be expected for the full year.

Fiscal Year

The Company’s fiscal year ends on the Friday nearest to June 30 and typically consists of 52 weeks. Approximately every five to six years, the Company reports a 53-week fiscal year to align the fiscal year with the foregoing policy. Fiscal year 2025, which will end on June 27, 2025, and fiscal year 2024, which ended on June 28, 2024, are each comprised of 52 weeks, with all quarters presented consisting of 13 weeks.

Segment Reporting

The Company manufactures, markets, and sells data storage devices and solutions in the United States (“U.S.”) and in foreign countries through its sales personnel, dealers, distributors, retailers, and subsidiaries. The Company manages and reports under two reportable segments: hard disk drives (“HDD”) and Flash-based products (“Flash”).

The Chief Executive Officer, who is the Company’s Chief Operating Decision Maker (“CODM”), evaluates the performance of the Company and makes decisions regarding the allocation of resources based on each operating segment’s net revenue and gross margin. Because of the integrated nature of the Company’s production and distribution activities, separate segment asset measures are either not available or not used as a basis for the CODM to evaluate the performance of or to allocate resources to the segments.

Business Separation Costs

On October 30, 2023, the Company announced that its Board of Directors had completed its strategic review of the business and, after evaluating a comprehensive range of alternatives, authorized the Company to pursue a plan to separate its HDD and Flash business units to create two independent, public companies. As a result of the plan, the Company has incurred separation and transition costs and expects to incur such costs through the completion of the separation of the businesses. The separation and transition costs are recorded within Business separation costs in the Condensed Consolidated Statements of Operations.

Use of Estimates

Company management has made estimates and assumptions relating to the reporting of certain assets and liabilities in conformity with U.S. GAAP. These estimates and assumptions have been applied using methodologies that are consistent throughout the periods presented. However, actual results could differ materially from these estimates.
12

WESTERN DIGITAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 2.    Recent Accounting Pronouncements

Accounting Pronouncements Recently Adopted

In September 2022, the Financial Accounting Standards Board (“FASB”) issued an accounting standards update (“ASU”) No. 2022-04, “Liabilities-Supplier Finance Programs (Subtopic 405-50): Disclosure of Supplier Finance Program Obligations”, which requires annual and interim disclosures for entities that use supplier finance programs in connection with the purchase of goods and services. As required by the ASU, the Company began to provide disclosure of outstanding obligations to such suppliers for all balance sheet dates presented beginning with the Company’s first quarter of 2024. The ASU also requires the Company to provide certain annual rollforward information related to those obligations, which will be required beginning with the Company’s financial statements for the year ending June 27, 2025. The Company will provide this disclosure in its Annual Report on Form 10-K for the year ended June 27, 2025. The ASU does not affect the recognition, measurement, or financial statement presentation of supplier finance program obligations. See Note 15, Supplier Finance Program, of the Notes to the Condensed Consolidated Financial Statements for information regarding the supplier finance program.

Recently Issued Accounting Pronouncements Not Yet Adopted

In November 2023, the FASB issued ASU No. 2023-07, “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures”, which expands on segment reporting requirements primarily through enhanced disclosures surrounding significant segment expenses. The ASU expands on existing segment reporting requirements to require that a public entity disclose, on an annual and interim basis, significant segment expenses that are regularly provided to an entity's CODM, a description of other segment items by reportable segment, and any additional measures of a segment's profit or loss used by the CODM when deciding how to allocate resources. These incremental disclosures will be required beginning with the Company’s financial statements for the year ending June 27, 2025. The Company expects to provide any required disclosures at that time.

In December 2023, the FASB issued ASU 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures”. The ASU calls for enhanced income tax disclosure requirements surrounding the tabular rate reconciliation and income taxes paid. The Company is currently compiling the information required for these disclosures. These incremental disclosures will be required beginning with the Company’s financial statements for the year ending June 26, 2026, with early adoption permitted. The Company expects to provide any required disclosures at that time.
13

WESTERN DIGITAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 3.    Business Segments, Geographic Information, and Concentrations of Risk

The following table summarizes the operating performance of the Company’s reportable segments for the periods presented:
Three Months Ended
September 27,
2024		September 29,
2023
(in millions, except percentages)
Net revenue:
HDD
$2,211 $1,194 
Flash
1,884 1,556 
Total net revenue$4,095 $2,750 
Gross profit:
HDD
$843 $273 
Flash
732 (161)
Total gross profit for segments1,575 112 
Unallocated corporate items:
Stock-based compensation expense(14)(13)
Amortization of acquired intangible assets(1)— 
Amortization of licenses related to a litigation matter
(9)— 
Total unallocated corporate items(24)(13)
Consolidated gross profit$1,551 $99 
Gross margin:
HDD
38.1 %22.9 %
Flash
38.9 %(10.3)%
Consolidated gross margin37.9 %3.6 %

Disaggregated Revenue

The Company’s broad portfolio of technology and products addresses multiple end markets. Cloud is comprised primarily of products for public or private cloud environments and end customers. Through the Client end market, the Company provides its original equipment manufacturer (“OEM”) and channel customers a broad array of high-performance HDD and Flash solutions across personal computer, mobile, gaming, automotive, virtual reality headsets, at-home entertainment and industrial spaces. The Consumer end market is highlighted by the Company’s broad range of retail and other end-user products, which capitalize on the strength of the Company’s product brand recognition and vast points of presence around the world.

14

WESTERN DIGITAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The Company’s disaggregated revenue information was as follows:
Three Months Ended
September 27,
2024		September 29,
2023
(in millions)
Revenue by end market
Cloud$2,208 $872 
Client1,209 1,147 
Consumer678 731 
Total revenue
$4,095 $2,750 
Revenue by geography
Asia$1,837 $1,551 
Americas1,690 662 
Europe, Middle East and Africa568 537 
Total revenue
$4,095 $2,750 

The Company’s top 10 customers accounted for 51% and 44% of its net revenue for the three months ended September 27, 2024 and September 29, 2023, respectively. For the three months ended September 27, 2024, one customer accounted for 14% of the Company’s net revenue. No customer accounted for 10% or more of the Company’s net revenue for the three months ended September 29, 2023.

Goodwill

Goodwill is not amortized. Instead, it is tested for impairment annually as of the beginning of the Company’s fourth quarter, or more frequently if events or changes in circumstances indicate that goodwill may be impaired. Management performed goodwill impairment assessments for each segment and concluded that there were no indications of impairment for the periods presented. The following table provides a summary of goodwill activity for the period:

HDDFlashTotal
(in millions)
Balance at June 28, 2024$4,319 $5,713 $10,032 
Foreign currency translation adjustment2 3 5 
Goodwill reclassified to assets held for sale (1)
— (225)(225)
Balance at September 27, 2024$4,321 $5,491 $9,812 
(1)     As of September 27, 2024, $225 million of Goodwill was reclassified to assets held for sale due to the sale of a majority interest in a subsidiary. See further discussion in Note 4, Supplemental Financial Statement Data.
15

WESTERN DIGITAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 4.    Supplemental Financial Statement Data

Accounts receivable, net

From time to time, in connection with factoring agreements, the Company sells trade accounts receivable without recourse to third-party purchasers in exchange for cash. There were no trade accounts receivable sold during the three months ended September 27, 2024. During the three months ended September 29, 2023, the Company sold trade accounts receivable aggregating $150 million. The discounts on the trade accounts receivable sold were not material and were recorded within Other income (expense), net in the Condensed Consolidated Statements of Operations. There were no factored receivables outstanding as of September 27, 2024 and June 28, 2024.

Inventories
September 27,
2024		June 28,
2024
(in millions)
Inventories:
Raw materials and component parts$1,897 $1,727 
Work-in-process979 1,066 
Finished goods508 549 
Total inventories$3,384 $3,342 

Property, plant and equipment, net
September 27,
2024		June 28,
2024
(in millions)
Property, plant and equipment:
Land and improvements
$235 $235 
Buildings and improvements1,706 1,820 
Machinery and equipment7,783 8,646 
Computer equipment and software452 471 
Furniture and fixtures51 54 
Construction-in-process798 797 
Property, plant and equipment, gross11,025 12,023 
Accumulated depreciation(8,108)(8,856)
Property, plant and equipment, net$2,917 $3,167 

Other intangible assets, net

As part of prior acquisitions, the Company recorded at the time of the acquisition acquired in-process research and development (“IPR&D”) for projects in progress that had not yet reached technological feasibility. IPR&D is initially accounted for as an indefinite-lived intangible asset. Once a project reaches technological feasibility, the Company reclassifies the balance to existing technology and begins to amortize the intangible asset over its estimated useful life. As of September 27, 2024 and June 28, 2024, IPR&D included in intangible assets, net was $72 million. During the three months ended September 27, 2024 and September 29, 2023, the Company did not record any impairment charges related to IPR&D.
16

WESTERN DIGITAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Product warranty liability

Changes in the warranty accrual were as follows:
Three Months Ended
September 27,
2024		September 29,
2023
(in millions)
Warranty accrual, beginning of period$189 $244 
Charges to operations25 22 
Utilization(37)(43)
Changes in estimate related to pre-existing warranties(17)(5)
Warranty accrual, end of period$160 $218 

The current portion of the warranty accrual was classified in Accrued expenses and the long-term portion was classified in Other liabilities as noted below:
September 27,
2024		June 28,
2024
(in millions)
Warranty accrual:
Current portion
$58 $36 
Long-term portion
102 153 
Total warranty accrual$160 $189 

Other liabilities
September 27,
2024		June 28,
2024
(in millions)
Other liabilities:
Non-current net tax payable$— $201 
Non-current portion of unrecognized tax benefits595 565 
Other non-current liabilities563 604 
Total other liabilities$1,158 $1,370 

17

WESTERN DIGITAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Accumulated other comprehensive loss

Accumulated other comprehensive loss (“AOCL”), net of tax, refers to expenses, gains, and losses that are recorded as an element of shareholders’ equity but are excluded from net income. The components of AOCL were as follows:
Actuarial Pension GainsForeign Currency Translation AdjustmentUnrealized Losses on Derivative ContractsTotal Accumulated Comprehensive Loss
(in millions)
Balance at June 28, 2024$14 $(505)$(221)$(712)
Other comprehensive income before reclassifications— 121 182 303 
Amounts reclassified from accumulated other comprehensive loss— — 61 61 
Income tax expense related to items of other comprehensive income— — (52)(52)
Net current-period other comprehensive income— 121 191 312 
Balance at September 27, 2024$14 $(384)$(30)$(400)

During the three months ended September 27, 2024, the amounts reclassified out of AOCL were losses related to foreign exchange contracts that were substantially charged to Cost of revenue in the Condensed Consolidated Statements of Operations.

As of September 27, 2024, substantially all existing net losses related to cash flow hedges recorded in AOCL are expected to be reclassified to earnings within the next twelve months.

Sale of a Majority Interest in a Subsidiary

In March 2024, the Company’s wholly-owned subsidiary, SanDisk China Limited (“SanDisk China”) entered into an equity purchase agreement to sell 80% of its equity interest in SanDisk Semiconductor (Shanghai) Co. Ltd. (“SDSS”), the Company’s indirect wholly-owned subsidiary in its Flash business, to JCET Management Co., Ltd. (“JCET”), a wholly-owned subsidiary of JCET Group Co., Ltd., a Chinese publicly listed company, thereby forming a venture between SanDisk China and JCET (the “Transaction”). Subsequent to the first quarter of fiscal 2025, on September 28, 2024, the Transaction closed. Proceeds from the sale, subject to certain working capital adjustments and payment of withholding taxes, are expected to be approximately $624 million. Following the closing of the Transaction, SanDisk China’s remaining 20% ownership interest in the venture will be reported as an equity method investment.

18

WESTERN DIGITAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Because the divestiture of SDSS does not represent a strategic shift that would have a major effect on the Company’s operations or financial results, it is not reported as discontinued operations. Instead, the assets and liabilities of SDSS subject to the Transaction as listed below have been reclassified to held for sale as of September 27, 2024, and will be derecognized in the second quarter of fiscal 2025 in connection with the closing of the Transaction.

September 27,
2024
(in millions)
Cash and cash equivalents$71 
Inventories35 
Other current assets6 
Property, plant and equipment, net236 
Goodwill (1)
225 
Other non-current assets24 
Total assets held for sale (2)
$597 
Accounts payable$73 
Accrued expenses17 
Accrued compensation15 
Other liabilities5 
Total liabilities held for sale
$110 
(1)     Goodwill was preliminarily allocated to SDSS based on the indicated fair value of the SDSS business relative to the total estimated fair value of the Flash business unit. This preliminary allocation of goodwill may be revised based on finalization of working capital adjustments and valuations of SDSS and the Flash business unit in connection with the derecognition of SDSS during the second quarter of fiscal 2025.

(2)     An intercompany account receivable and intercompany account payable totaling $110 million between SDSS and another subsidiary of the Company are eliminated in the Company’s Condensed Consolidated Financial Statements and have been excluded from the assets reclassified to held for sale. The intercompany account receivable was sold as part of the Transaction, and thus will be considered when determining the expected gain to be recognized upon the derecognition of SDSS. As a result, during the second quarter of fiscal 2025, the Company will reclassify this intercompany account payable to the applicable liability line item in the Condensed Consolidated Balance Sheets as it will represent a liability to an external third party.



19

WESTERN DIGITAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 5.    Fair Value Measurements and Investments

Financial Instruments Carried at Fair Value

Financial assets and liabilities that are remeasured and reported at fair value at each reporting period are classified and disclosed in one of the following three levels:

Level 1.    Quoted prices in active markets for identical assets or liabilities.

Level 2.    Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3.    Inputs that are unobservable for the asset or liability and that are significant to the fair value of the assets or liabilities.

The following tables present information about the Company’s financial instruments that were measured at fair value on a recurring basis for the periods presented, and indicate the fair value hierarchy of the valuation techniques utilized to determine such values:
September 27, 2024
 Level 1Level 2Level 3Total
(in millions)
Assets:
Cash equivalents - Money market funds$269 $— $— $269 
Foreign exchange contracts— 106 — 106 
Total assets at fair value$269 $106 $— $375 
Liabilities:
Foreign exchange contracts$— $22 $— $22 
Total liabilities at fair value$— $22 $— $22 

June 28, 2024
 Level 1Level 2Level 3Total
(in millions)
Assets:
Cash equivalents - Money market funds$416 $— $— $416 
Foreign exchange contracts— 8 — 8 
Total assets at fair value$416 $8 $— $424 
Liabilities:
Foreign exchange contracts$— $197 $— $197 
Total liabilities at fair value$— $197 $— $197 

During the periods presented, the Company had no transfers of financial instruments between levels and there were no changes in valuation techniques or the inputs used in the fair value measurement.
20

WESTERN DIGITAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Financial Instruments Not Carried at Fair Value

For financial instruments where the carrying value (which includes principal adjusted for any unamortized issuance costs, and discounts or premiums) differs from fair value (which is based on quoted market prices), the following table represents the related carrying value and fair value for each of the Company’s outstanding financial instruments. Each of the financial instruments presented below was categorized as Level 2 for all periods presented, based on the frequency of trading immediately prior to the end of the first quarter of 2025 and the fourth quarter of 2024, respectively.

September 27, 2024June 28, 2024
Carrying
Value		Fair
Value		Carrying
Value		Fair
Value
(in millions)
3.00% convertible notes due 2028
$1,569 $2,402 $1,568 $2,556 
4.75% senior unsecured notes due 2026
2,296 2,285 2,296 2,253 
Variable interest rate Term Loan A-2 maturing 20272,542 2,505 2,578 2,539 
2.85% senior notes due 2029
497 456 496 434 
3.10% senior notes due 2032
496 430 496 407 
     Total$7,400 $8,078 $7,434 $8,189 
21

WESTERN DIGITAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 6.    Derivative Instruments and Hedging Activities

As of September 27, 2024, the Company had outstanding foreign exchange forward contracts that were designated as either cash flow hedges or non-designated hedges. Substantially all of the contract maturity dates of these foreign exchange forward contracts do not exceed 12 months. As of September 27, 2024, the Company did not have any derivative contracts with credit-risk-related contingent features.

Changes in fair values of the non-designated foreign exchange contracts were recognized in Other income (expense), net and were largely offset by corresponding changes in the fair values of the foreign currency-denominated monetary assets and liabilities. For each of the three months ended September 27, 2024 and September 29, 2023, total net realized and unrealized transaction and foreign exchange contract currency gains and losses were not material to the Company’s Condensed Consolidated Financial Statements.

Unrealized gains or losses on designated cash flow hedges were recognized in AOCL. For more information regarding cash flow hedges, see Note 4, Supplemental Financial Statement Data – Accumulated other comprehensive loss.

Netting Arrangements

Under certain provisions and conditions within agreements with counterparties to the Company’s foreign exchange forward contracts, subject to applicable requirements, the Company has the right of offset associated with the Company’s foreign exchange forward contracts and is allowed to net settle transactions of the same currency with a single net amount payable by one party to the other. As of September 27, 2024 and June 28, 2024, the effect of rights of offset was not material and the Company did not offset or net the fair value amounts of derivative instruments in its Condensed Consolidated Balance Sheets.
22

WESTERN DIGITAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 7.    Debt

Debt consisted of the following:
September 27,
2024		June 28,
2024
(in millions)
3.00% convertible notes due 2028
$1,600 $1,600 
4.75% senior unsecured notes due 2026
2,300 2,300 
Variable interest rate Term Loan A-2 maturing 20272,550 2,588 
2.85% senior notes due 2029
500 500 
3.10% senior notes due 2032
500 500 
Total debt7,450 7,488 
Issuance costs(50)(54)
Subtotal7,400 7,434 
Less: current portion of long-term debt(1,750)(1,750)
Long-term debt$5,650 $5,684 

During the three months ended September 27, 2024, the Company made scheduled repayments of the Term Loan A-2 maturing in January 2027 (the “Term Loan A-2”) of $38 million. The Term Loan A-2 Loan bears interest, at the Company’s option, at a per annum rate equal to either (x) the Adjusted Term SOFR (as defined in the loan agreement governing the Term Loan A-2) plus an applicable margin varying from 1.125% to 2.000% or (y) a base rate plus an applicable margin varying from 0.125% to 1.000%, in each case depending on the corporate family ratings of the Company from at least two of the Credit Rating Agencies, with an initial interest rate of Adjusted Term SOFR plus 1.500%. The all-in interest rate for Term Loan A-2 as of September 27, 2024 was 6.696%.

During the three months ended September 27, 2024, the Company drew and repaid $150 million principal amount under its $2.25 billion revolving credit facility maturing in January 2027 (the “2027 Revolving Credit Facility”).

The Company had issued an outstanding standby letters of credit of $52 million as of September 27, 2024, which reduced the Company’s 2027 Revolving Credit Facility’s capacity by the same amount to $2.20 billion as of that date.

The loan agreements governing the Company’s 2027 Revolving Credit Facility and Term Loan A-2 require the Company to comply with certain financial covenants, consisting of a leverage ratio and a minimum liquidity requirement. As of September 27, 2024, the Company was in compliance with these financial covenants.

On November 3, 2023, the Company issued $1.60 billion aggregate principal amount of convertible senior notes which bear interest at an annual rate of 3.00% and mature on November 15, 2028, unless earlier repurchased, redeemed or converted (the “2028 Convertible Notes”).

The 2028 Convertible Notes are convertible at the option of any holder at an initial conversion price of approximately $52.20 per share of common stock beginning August 15, 2028. Prior to that date, if the trading price of the Company’s common stock remains above 130% of the conversion price for at least 20 trading days (whether or not consecutive) during the 30 consecutive trading-day period prior to the end of a quarter, holders of the 2028 Convertible Notes would have the right to convert the 2028 Convertible Notes during the next succeeding calendar quarter. The 2028 Convertible Notes are also convertible prior to that date upon the occurrence of certain corporate events. Upon any conversion of the 2028 Convertible Notes, the Company will pay cash for the aggregate principal amount of the notes to be converted and pay or deliver, as the case may be, cash, shares of the Company’s common stock or a combination thereof, at the Company’s election, in respect of the remainder, if any, of its conversion obligation in excess of the aggregate principal amount of the notes being converted.

23

WESTERN DIGITAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
During the calendar quarter ended June 30, 2024, the sale price conditional conversion feature of the notes mentioned above was triggered. As a result, the holder of the 2028 Convertible Notes had the right to convert the 2028 Convertible Notes during the calendar quarter ended September 30, 2024. Consequently, the Company classified the 2028 Convertible Notes in the Current portion of long-term debt in the Condensed Consolidated Financial Statements as of September 27, 2024. During the calendar quarter ended September 30, 2024, the sale price conditional conversion feature of the notes mentioned above was not triggered. As a result, the 2028 Convertible Notes are not convertible from October 1, 2024 through December 31, 2024. The Company will re-evaluate in each subsequent calendar quarter to determine if the 2028 Convertible Notes have become convertible.

In connection with the issuance of the 2028 Convertible Notes, the Company also entered into privately negotiated capped call transactions with certain counterparties (the “Capped Calls”). The Capped Calls each have a strike price of approximately $52.20 per share, subject to certain adjustments, which correspond to the initial conversion price of the 2028 Convertible Notes. The Capped Calls have initial cap prices of $70.26 per share, subject to certain adjustments. The Capped Calls cover, subject to anti-dilution adjustments, approximately 8 million shares of the Company’s common stock. The Capped Calls are generally intended to reduce or offset the potential dilution to the Company’s common stock upon any conversion of the 2028 Convertible Notes with such reduction or offset, as the case may be, subject to a cap based on the cap price. However, if the market price per share of the Company’s common stock, as measured under the terms of the Capped Calls, exceeds the cap prices of the Capped Calls, there would not be an offset for the excess. The Capped Calls are separate transactions, and not part of the terms of the 2028 Convertible Notes. As these transactions meet certain accounting criteria, the Capped Calls are recorded in stockholders’ equity and are not accounted for as derivatives.

24

WESTERN DIGITAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 8.    Pension and Other Post-Retirement Benefit Plans

The Company has pension and other post-retirement benefit plans in various countries. The Company’s principal pension plans are in Japan, Thailand, and the Philippines. All pension and other post-retirement benefit plans outside of the Company’s Japan, Thailand, and the Philippines defined benefit pension plans (the “Pension Plans”) are immaterial to the Condensed Consolidated Financial Statements. The expected long-term rate of return on the Pension Plans’ assets is 2.5%.

Obligations and Funded Status

The following table presents the unfunded status of the benefit obligations for the Pension Plans:
September 27,
2024		June 28,
2024
(in millions)
Benefit obligation at end of period$267 $244 
Fair value of plan assets at end of period198 184 
Unfunded status$69 $60 

The following table presents the unfunded amounts related to the Pension Plans as recognized on the Company’s Condensed Consolidated Balance Sheets:
September 27,
2024		June 28,
2024
(in millions)
Current liabilities (included in Accrued expenses)
$1 $1 
Non-current liabilities (included in Other liabilities)
68 59 
Net amount recognized$69 $60 

Net periodic benefit costs were immaterial for the three months ended September 27, 2024 and September 29, 2023.

25

WESTERN DIGITAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 9.    Related Parties and Related Commitments and Contingencies

Flash Ventures

The Company’s business ventures with Kioxia Corporation (“Kioxia”) consist of three separate legal entities: Flash Partners Ltd. (“Flash Partners”), Flash Alliance Ltd. (“Flash Alliance”), and Flash Forward Ltd. (“Flash Forward”), collectively referred to as “Flash Ventures”.

The following table presents the notes receivable from, and equity investments in, Flash Ventures:
September 27,
2024		June 28,
2024
(in millions)
Notes receivable, Flash Partners$— $1 
Notes receivable, Flash Alliance5 5 
Notes receivable, Flash Forward498 485 
Investment in Flash Partners169 149 
Investment in Flash Alliance236 216 
Investment in Flash Forward143 135 
Total notes receivable and investments in Flash Ventures$1,051 $991 

During the three months ended September 27, 2024 and September 29, 2023, the Company made net payments to Flash Ventures of $889 million and $939 million, respectively, for purchased flash-based memory wafers and net loans.

The Company makes, or will make, loans to Flash Ventures to fund equipment investments for new process technologies and additional wafer capacity. The Company aggregates its Flash Ventures’ notes receivable into one class of financing receivables due to the similar ownership interest and common structure in each Flash Venture entity. For all reporting periods presented, no loans were past due and no loan impairments were recorded. The Company’s notes receivable from each Flash Ventures entity, denominated in Japanese yen, are secured by equipment owned by that Flash Ventures entity.

As of September 27, 2024 and June 28, 2024, the Company had accounts payable balances due to Flash Ventures of $352 million and $313 million, respectively.

The Company’s maximum reasonably estimable loss exposure (excluding lost profits) as a result of its involvement with Flash Ventures, based upon the Japanese yen to U.S. dollar exchange rate at September 27, 2024, is presented below. Investments in Flash Ventures are denominated in Japanese yen, and the maximum estimable loss exposure excludes any cumulative translation adjustment due to revaluation from the Japanese yen to the U.S. dollar.
September 27,
2024
(in millions)
Notes receivable$503 
Equity investments548 
Operating lease guarantees1,558 
Inventory and prepayments1,166 
Maximum estimable loss exposure$3,775 
26

WESTERN DIGITAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The Company is obligated to pay for variable costs incurred in producing its share of Flash Ventures’ flash-based memory wafer supply, based on its three-month forecast, which generally equals 50% of Flash Ventures’ output. In addition, the Company is obligated to pay for half of Flash Ventures’ fixed costs regardless of the output the Company chooses to purchase. The Company is not able to estimate its total wafer purchase commitment obligation beyond its rolling three-month purchase commitment because the price is determined by reference to the future cost of producing the semiconductor wafers. In addition, the Company is committed to fund 49.9% to 50.0% of each Flash Ventures entity’s capital investments to the extent that each Flash Ventures entity’s operating cash flow is insufficient to fund these investments.

Flash Ventures has historically operated near 100% of its manufacturing capacity. During the three months ended September 29, 2023, as a result of flash market conditions, the Company temporarily reduced its utilization of its share of Flash Ventures’ manufacturing capacity to an abnormally low level to more closely align the Company’s flash-based wafer supply with projected demand. During the three months ended September 29, 2023, the Company incurred costs of $141 million associated with the reduction in utilization related to Flash Ventures, which was recorded as a charge to Cost of revenue. No such charges were incurred during the three months ended September 27, 2024.

The Company has facility agreements with Kioxia related to the construction and operation of Kioxia’s “K1” 300-millimeter wafer fabrication facility in Kitakami, Japan, a wafer fabrication facility in Yokkaichi, Japan, referred to as “Y7”, and a wafer fabrication facility in Kitakami, Japan, referred to as “K2”. In connection with the start-up of these facilities, the Company has made prepayments toward future building depreciation. In connection with the start-up of the K1, K2 and Y7 facilities, the Company has made prepayments over time, and as of September 27, 2024, $722 million remains to be credited against future building depreciation charges. As of September 27, 2024, the Company is also committed to make additional building depreciation prepayments of $605 million, based on the Japanese yen to U.S. dollars exchange rate of 142.56 as of such date, payable as follows: $337 million for the remainder of fiscal year 2025, $33 million in fiscal year 2026, $123 million in fiscal year 2027, $98 million in fiscal year 2028 and $14 million in fiscal year 2029. As of September 27, 2024, in addition to the requirements to make building depreciation prepayments, the Company will also make payments for building depreciation of approximately $315 million at varying dates through fiscal year 2035.

Inventory Purchase Commitments with Flash Ventures. Purchase orders placed under Flash Ventures for up to three months are binding and cannot be canceled.

Research and Development Activities. The Company participates in common research and development (“R&D”) activities with Kioxia and is contractually committed to a minimum funding level. R&D commitments are immaterial to the Condensed Consolidated Financial Statements.

Off-Balance Sheet Liabilities

Flash Ventures sells to and leases back from a consortium of financial institutions a portion of its tools and has entered into equipment lease agreements of which the Company guarantees half or all of the outstanding obligations under each lease agreement. The lease agreements are subject to customary covenants and cancellation events related to Flash Ventures and each of the guarantors. The occurrence of a cancellation event could result in an acceleration of Flash Ventures’ obligations and a call on the Company’s guarantees.

The following table presents the Company’s portion of the remaining guarantee obligations under the Flash Ventures’ lease facilities in both Japanese yen and U.S. dollar-equivalent, based upon the Japanese yen to U.S. dollar exchange rate as of September 27, 2024.
Lease Amounts
(Japanese yen, in billions)(U.S. dollar, in millions)
Total guarantee obligations¥222 $1,558 

27

WESTERN DIGITAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The following table details the breakdown of the Company’s remaining guarantee obligations between the principal amortization and the purchase option exercise price at the end of the term of the Flash Ventures lease agreements, in annual installments as of September 27, 2024 in U.S. dollars, based upon the Japanese yen to U.S. dollar exchange rate as of September 27, 2024:
Annual InstallmentsPayment of Principal AmortizationPurchase Option Exercise Price at Final Lease TermsGuarantee Amount
(in millions)
Remaining nine months of 2025
$331 $83 $414 
2026428 126 554 
2027203 107 310 
202881 103 184 
202922 56 78 
20302 16 18 
Total guarantee obligations$1,067 $491 $1,558 

The Company and Kioxia have agreed to mutually contribute to, and indemnify each other and Flash Ventures for, environmental remediation costs or liability resulting from Flash Ventures’ manufacturing operations in certain circumstances. The Company has not made any indemnification payments, nor recorded any indemnification receivables, under any such agreements. As of September 27, 2024, no amounts have been accrued in the Condensed Consolidated Financial Statements with respect to these indemnification agreements.

Unis Venture

The Company has a venture with Unisplendour Corporation Limited and Unissoft (Wuxi) Group Co. Ltd. (“Unis”), referred to as the “Unis Venture”, to market and sell the Company’s products in China and to develop data storage systems for the Chinese market in the future. The Unis Venture is 49% owned by the Company and 51% owned by Unis. The Company accounts for its investment in the Unis Venture under the equity method of accounting. Revenue on products distributed by the Unis Venture is recognized upon sell through to third-party customers. For the three months ended September 27, 2024 and September 29, 2023, the Company recognized approximately 2% and 6% of its consolidated revenue on products distributed by the Unis Venture, respectively. The outstanding accounts receivable due from the Unis Venture were 6% and 7% of Accounts receivable, net as of both September 27, 2024 and June 28, 2024, respectively.
28

WESTERN DIGITAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 10.    Leases and Other Commitments

Leases

The Company leases certain domestic and international facilities and data center space under long-term, non-cancelable operating leases that expire at various dates through 2039. These leases include no material variable or contingent lease payments. Operating lease assets and liabilities are recognized based on the present value of the remaining lease payments discounted using the Company’s incremental borrowing rate. Operating lease assets also include prepaid lease payments minus any lease incentives. Extension or termination options present in the Company’s lease agreements are included in determining the right-of-use asset and lease liability when it is reasonably certain the Company will exercise those options. Lease expense is recognized on a straight-line basis over the lease term.

The following table presents right-of-use lease assets and lease liabilities included in the Company’s Condensed Consolidated Balance Sheets:
September 27,
2024		June 28,
2024
(in millions)
Operating lease right-of-use assets (included in Other non-current assets)
$327 $326 
Operating lease liabilities:
Current portion of long-term operating lease liabilities (included in Accrued expenses)
44 42 
Long-term operating lease liabilities (included in Other liabilities)
305 307 
Total operating lease liabilities$349 $349 

The following table summarizes supplemental disclosures of operating cost and cash flow information related to operating leases:
Three Months Ended
September 27,
2024		September 29,
2023
(in millions)
Cost of operating leases$16 $14 
Cash paid for operating leases17 15 
Operating lease assets obtained in exchange for operating lease liabilities11 168 

The weighted average remaining lease term and discount rate for the Company’s operating leases were as follows:
September 27,
2024		June 28,
2024
Weighted average remaining lease term in years
10.210.4
Weighted average discount rate
6.6 %6.6 %

29

WESTERN DIGITAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
As of September 27, 2024, minimum lease payments were as follows:
Lease Amounts
(in millions)
Remaining nine months of 2025
$45 
202661 
202753 
202844 
202938 
Thereafter254 
Total future minimum lease payments495 
Less: imputed interest146 
Present value of lease liabilities$349 

Sale-Leaseback

In September 2023, the Company completed a sale and leaseback of its facility in Milpitas, California. The Company received net proceeds of $191 million in cash and recorded a gain of $85 million on the sale. In connection with the sale, the Company agreed to lease back the facility at an annual lease rate of $16 million for the first year, increasing by 3% per year thereafter through January 1, 2039. The lease includes three 5-year renewal options and one 4-year renewal option for the ability to extend through December 2057. The supplemental balance sheet information and supplemental disclosures of operating cost and cash flow information related to the lease are included in the tables above.

Purchase Agreements and Other Commitments

In the normal course of business, the Company enters into purchase orders with suppliers for the purchase of components used to manufacture its products. These purchase orders generally cover forecasted component supplies needed for production during the next quarter, are recorded as a liability upon receipt of the components, and generally may be changed or canceled at any time prior to shipment of the components. The Company also enters into long-term agreements with suppliers that contain fixed future commitments, which are contingent on certain conditions such as performance, quality and technology of the vendor’s components. As of September 27, 2024, the Company had the following minimum long-term commitments:
Long-Term Commitments
(in millions)
Remaining nine months of 2025
$140 
2026102 
202763 
202820 
202920 
Thereafter110 
Total$455 

30

WESTERN DIGITAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 11.     Shareholders’ Equity and Convertible Preferred Stock

Stock-based Compensation Expense

The following tables present the Company’s stock-based compensation for equity-settled awards by type (i.e., restricted stock units (“RSUs”), restricted stock unit awards with performance conditions or market conditions (“PSUs”), and rights to purchase shares of common stock under the Company’s Employee Stock Purchase Plan (“ESPP”)) and financial statement line as well as the related tax benefit included in the Company’s Condensed Consolidated Statements of Operations:
Three Months Ended
September 27,
2024		September 29,
2023
(in millions)
RSUs and PSUs$72 $65 
ESPP12 12 
Total$84 $77 

Three Months Ended
September 27,
2024		September 29,
2023
(in millions)
Cost of revenue$14 $13 
Research and development39 34 
Selling, general and administrative31 30 
Subtotal84 77 
Tax benefit(10)(10)
Total$74 $67 

Any shortfalls or excess windfall tax benefits and tax deficiencies for shortfalls related to the vesting and exercise of stock-based awards, which are recognized as a component of the Company’s Income tax expense, were immaterial for the periods presented.

Compensation cost related to unvested RSUs, PSUs, and rights to purchase shares of common stock under the ESPP are generally amortized on a straight-line basis over the remaining average service period. The following table presents the unamortized compensation cost and weighted average service period of all unvested outstanding awards as of September 27, 2024:
Unamortized Compensation CostsWeighted Average Service Period
(in millions)(years)
RSUs and PSUs (1)
$635 2.6
ESPP11 0.3
Total unamortized compensation cost$646 
(1)    Weighted average service period assumes the performance conditions are met for the PSUs.

31

WESTERN DIGITAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Plan Activities

RSUs and PSUs

The following table summarizes RSU and PSU activity under the Company’s incentive plans:
Number of SharesWeighted Average Grant Date Fair ValueAggregate Intrinsic Value at Vest Date
(in millions)(in millions)
RSUs and PSUs outstanding at June 28, 202413.0 $44.42 
Granted3.9 62.58 
Vested(3.3)44.31 $209 
Forfeited(0.1)51.36 
RSUs and PSUs outstanding at September 27, 202413.5 $51.20 

RSUs and PSUs are generally settled in an equal number of shares of the Company’s common stock at the time of vesting of the units.

Convertible Preferred Stock

On January 31, 2023, the Board of Directors of the Company authorized the designation of 900,000 shares of Series A Convertible Perpetual Preferred Stock, par value $0.01 per share (the “Preferred Shares”), from the Company’s existing five million authorized but unissued shares of preferred stock and issued the Preferred Shares through a private placement. As of September 27, 2024 and June 28, 2024, 235,000 of the Preferred Shares were outstanding.

The Preferred Shares have a stated value of $1,000 per share and accrue a cumulative preferred dividend at an annual rate of 6.25% per annum (increasing to 7.25% per annum on January 31, 2030 and to 8.25% per annum on January 31, 2033) compounded on a quarterly basis. The Preferred Shares also participate in any dividends declared for common shareholders on an as-converted equivalent basis. No dividends have been declared or paid since the issuance of the Preferred Shares. As of September 27, 2024 and June 28, 2024, unpaid and cumulative dividends payable with respect to the Preferred Shares were $26 million and $22 million, respectively.

The Preferred Shares are convertible into shares of the Company’s common stock at an initial conversion rate of $47.75 per share (the “Conversion Price”) (subject to anti-dilution adjustments and certain other one-time adjustments upon the occurrence of various specified spin-off transactions) applied to the aggregate sum of the stated value of the Preferred Shares plus any cumulative accrued but unpaid dividends (the “Accumulated Stated Value”). In the event of a standalone spin-off transaction, the holders of the Preferred Shares may have one third of their Preferred Shares converted to a similar class of preferred shares of the spin-off entity. The Preferred Shares will be convertible at the option of the Company after January 31, 2026 if the closing price per share of the Company’s common stock exceeds 150% of the Conversion Price for at least 20 out of 30 consecutive trading days immediately prior to the Company’s conversion notice.

As of September 27, 2024 and June 28, 2024, the Preferred Shares outstanding had an aggregate liquidation preference of $261 million and $257 million, respectively, and would have been convertible, if otherwise permitted, into approximately 5 million shares of common stock on each such date.
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WESTERN DIGITAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 12.    Income Tax Expense

Beginning in fiscal year 2023, the Tax Cuts and Jobs Act (the “2017 Act”) requires the Company to capitalize and amortize R&D expenses rather than expensing them in the year incurred. The tax effects related to the capitalization of R&D expenses are included in the effective tax rate for the three months ended September 27, 2024 and September 29, 2023.

On August 16, 2022, President Biden signed into law the Inflation Reduction Act of 2022, which contained significant law changes related to tax, climate, energy, and health care. The tax measures include, among other things, a corporate alternative minimum tax (“CAMT”) of 15% on corporations with three-year average annual adjusted financial statement income (“AFSI”) exceeding $1.0 billion. The CAMT was effective for the Company beginning with fiscal year 2024. The Company does not expect to be subject to CAMT for fiscal year 2025 as its average annual AFSI did not exceed $1.0 billion for the preceding three-year period.

On December 20, 2021, the Organization for Economic Co-operation and Development G20 (“OECD/G20”) Inclusive Framework on Base Erosion and Profit Shifting released Model Global Anti-Base Erosion rules under Pillar Two (“Pillar Two Model Rules”). Several non-US jurisdictions have either enacted legislation or announced their intention to enact future legislation to adopt certain or all components of the Pillar Two, some which are effective for the Company in fiscal year 2025. For fiscal year 2025, the Company currently expects to be able to meet certain transitional safe harbors and does not expect any material Pillar Two taxes. As more jurisdictions adopt this legislation in fiscal year 2026, there may be material increases in the Company’s future tax obligations in certain jurisdictions.

The following table presents the Company’s Income tax expense and the effective tax rate:
Three Months Ended
September 27,
2024		September 29,
2023
($ in millions)
Income (loss) before taxes$628$(682)
Income tax expense1353
Effective tax rate21 %— %

The relative mix of earnings and losses by jurisdi