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美国
证券交易委员会
华盛顿特区20549
表格 10-Q

（标记一）
☒根据1934年证券交易法第13或15(d)节的季度报告
截至季度结束日期的财务报告2024年9月27日
或者
☐根据1934年证券交易法第13或15(d)节的转型报告书
过渡期从                    至                    
委托文件号码：1-8703

wdcolor logo.gif.gif
西部数据公司
（按其章程规定的确切注册人名称）
特拉华州33-0956711
（国家或其他管辖区的
公司成立或组织）		（纳税人识别号码）
5601 Great Oaks Parkway圣何塞加利福尼亚州95119
，（主要行政办公地址）(邮政编码)
公司电话号码，包括区号：（408) 717-6000
每个交易所的名称
每一类的名称交易标的在其上注册的交易所的名称
普通股，每股0.01美元的票面价值WDC纳斯达克证券交易所 LLC
 (纳斯达克全球精选市场)
请勾选标记，以表明该注册公司：（1）在过去12个月内（或该公司被要求提交该类报告的较短时间内），已经按照证券交易法案第13条或15（d）条的规定提交了所有所需提交的报告；且（2）在过去90天内一直受到该项提交要求的约束。是  ☒    否  ¨
请勾选以下内容。申报人是否已在过去12个月内（或申报人需要提交此类文件的时间较短的期间内）逐个以电子方式提交了根据规则405提交的互动数据文件。这章的交易中规定。    是  ☒    否  ¨


用复选标记指明注册人是大型加速申报人、加速申报人、非加速申报人、小型申报公司还是新兴成长型公司。参见《交易法》第12b-2条中 “大型加速申报人”、“加速申报公司”、“小型申报公司” 和 “新兴成长型公司” 的定义。
大型加速文件管理器加速过滤器非加速过滤器规模较小的申报公司新兴成长型公司
☒☐☐☐☐
如果是新兴成长型公司，请通过勾选表示公司选择放弃使用依据《证券交易法》第13(a)节规定提供的任何新的或修改后的财务会计准则的延长过渡期来符合该规定的计划。☐
请勾选以下内容。申报人是否是外壳公司（根据证券交易法规则12b-2定义）。    是  ☐    否  ý
截至2024年10月22日营业结束时公司普通股股份的每股面值为0.01美元。 345,708,453 s普通股股份共计。


西部数据公司
指数
页码。
第一部分 财务信息
项目1。基本报表（未经审计）
基本报表 - 截至2024年9月27日和2024年6月28日
基本报表 - 截至2024年9月27日和2023年9月29日的三个月
基本报表 - 截至2024年9月27日和2023年9月29日的三个月的综合收益（损失）表
基本报表 - 截至2024年9月27日和2023年9月29日的三个月的现金流量表
控件合并转换优先股和股东权益报表 —— 2024年9月27日及2023年9月29日三个月结束
简明合并财务报表注释
事项二分销计划
第3项。有关市场风险的定量和定性披露
事项4。控制和程序
第二部分.其他信息
项目1。法律诉讼
项目1A。风险因素
项目5。
其他信息
项目6。展示资料

除非另有说明，本文中对特定年度和季度的参考均为我们的财政年度和财政季度，对财务信息的参考均以合并基础进行。在本文中，"我们"，"我们"，"我们的"，"公司"，"WDC"和"西部数据"等术语指的是西部数据公司及其子公司，除非我们另有说明或上下文表明其他。

WDC，一家位于德拉华州的公司，是我们数据存储-脑机业务的母公司。我们的主要行政办公室位于加利福尼亚州圣何塞市Great Oaks Parkway 5601号，邮编95119。我们的电话号码是(408) 717-6000。

西部数据，西部数据商标，SanDisk和WD是西部数据或其关联公司在美国和/或其他国家的注册商标或商标。所有其他商标，注册商标和/或服务商标，明示或其他方式，均为其各自所有者的财产。

3
目录
前瞻性声明

本文件包含根据联邦证券法的前瞻性声明。任何不涉及历史或当前事实或事项的声明都属于前瞻性声明。您可以通过使用前瞻性词语来识别一些前瞻性声明，例如“可能”，“将”，“可能”，“会，”“项目”，“相信”，“预计”，“预计”，“预估”，“持续”，“潜力”，“计划”，“预测”等，或使用将来时态。如果涉及当前情况的声明暗示将继续当前情况，则也可能属于前瞻性声明。前瞻性声明的示例包括但不限于有关以下内容的声明：我们关于计划分开我们硬盘驱动器（“HDD”）和基于闪存的产品（“Flash”）业务部门的期望；全球宏观经济环境的影响；关于我们产品的需求趋势和市场状况的期望；关于我们出售部分在SanDisk Semiconductor（上海）有限公司的股权的期望；关于我们合资企业和伙伴关系的期望，包括关于我们与Kioxia Corporation（“Kioxia”）的Flash Ventures合资企业的期望；关于我们税务解决方案、有效税率和未确认税务资产的期望；关于我们在某些诉讼事项中的立场以及相关计划的期望；以及我们对资本分配计划和我们可用流动性的充分性以满足我们的营运资金、债务和资本支出需求的信念。 硬盘驱动器（“HDD”）和基于闪存的产品（“Flash”）业务部门的分开计划；全球宏观经济环境的影响；产品需求趋势和市场状况对我们的影响预期；关于我们出售SanDisk Semiconductor（上海）有限公司股权部分的期望；关于我们与Kioxia Corporation（“Kioxia”）的Flash Ventures合资企业以及其他合资企业和伙伴关系的期望；关于税务解决方案、有效税率和未确认税务资产的预期；关于诉讼事宜的立场和计划的期望；以及关于我们的资本分配计划和可用流动性足以满足营运资金、债务和资本支出需求的信念。

这些展望性声明基于管理层目前的预期，代表本季度10-Q表格日期之当时我们可获得的最新信息，并可能受到多种风险、不确定因素和其他因素的影响，这些因素可能导致实际结果或业绩与展望性陈述中所表达或暗示的不同。这些风险和不确定因素包括，但不限于：

•全球或区域经济状况的波动及我们做出的应对措施；
•在实施硬盘驱动器和闪存业务部门分离过程中，存在着操作、财务和法律挑战以及困难。
•董事会最终批准了分离事宜；
•对供应商数量有限或供应链中断的依赖；
•关于计划分拆我们的硬盘驱动器和闪存业务单元的结果、时间和影响，包括与客户和供应商关系、合同限制、股价波动以及管理关注从业务运营和机遇转移；
•公共卫生危机的未来回应和影响；
•业务和市场条件的影响；
•对我们或我们的供应商的业务造成损害或中断；
•关键员工的招聘和留任;
•网络安全概念事件或其他数据或系统安防-半导体风险的妥协，损害或中断;
•产品存在缺陷;
•我们依赖与关键合作伙伴的战略关系，包括Kioxia；
•竞争环境，包括竞争对手的行动，以及竞争产品和定价的影响；
•我们基于新技术开发和推出产品，并扩展到新的数据存储市场；
•涉及成本节约举措、重组、收购、剥离、合并、合资以及我们的战略关系风险;
•与重要客户关系的变化；
•我们对市场和其他方面的变化以及分销渠道和零售市场的反应能力。
•我们的债务水平和其他财务责任；
•税法变化或未预期的税务责任；
•与我们的国际业务相关的货币兑换汇率波动;
•与遵守不断变化的法律和监管要求以及法律诉讼结果相关的风险；
•与我们的环保、社会和治理事项相关的目标存在风险，包括我们达成减少温室气体排放和其他esg目标的能力；
•我们对知识产权和其他专有信息的依赖；以及
•本公司于2024年6月28日结束的年度报告（我们的“2024年度10-K表格年度报告”）中披露的其他风险和不确定性，在我们向证券交易委员会提交的其他报告中进行了修订、补充或取代，包括在我们随后的季度报告10-Q表格的1A项“风险因素”中。

4
目录
您被敦促仔细审查我们对这些风险的披露，并审查我们针对实质性风险以及可能影响我们前瞻性声明、业务和经营结果的额外披露，包括我们在2024年度10-k表格的第一部分第1A项及我们提交给证券交易委员会的其他报告中所作的披露，包括《风险因素》中的第1A项，这可能会不时修改、补充或取代在2024年度10-k表格中披露的风险和不确定性。请注意，您不应过分依赖本季度10-Q表格中包含的前瞻性声明，该声明仅反映本文件日期。我们无意并且不承诺更新或修订这些前瞻性声明，以反映本文件日期之后的新信息或事件或反映意外事件发生之情形，除非法律要求。
5
目录
第一部分 财务信息

项目1。基本报表（未经审计）

西部数据公司
简明合并资产负债表
(以百万为单位，除票面价值外)
（未经审计）
9月27日,
2024		6月28日
2024
资产
流动资产：
现金及现金等价物$1,705 $1,879 
2,687,823 2,458 2,166 
存货3,384 3,342 
其他资产798 673 
待售资产
597 — 
总流动资产8,942 8,060 
物业、厂房和设备，净值2,917 3,167 
10,037 1,051 991 
商誉9,812 10,032 
其他无形资产，净额77 78 
其他非流动资产1,972 1,860 
总资产$24,771 $24,188 
12,757
流动负债:
应付账款$1,578 $1,411 
应支付给关联方的账款352 313 
应计费用1,311 1,480 
应付所得税448 525 
应计的薪资542 608 
开多次数1,750 1,750 
待售负债
110 — 
流动负债合计6,091 6,087 
长期债务5,650 5,684 
其他负债1,158 1,370 
负债合计12,899 13,141 
承诺和或有事项（附注9、10、12和16）
可转换优先股，每股面值$0.01 par value; authorized — 5 170914834 0.2 shares; aggregate liquidation preference of $261 和 $257 的坏账准备
229 229 
股东权益：
普通股，每股面值为 $0.0001；0.01 par value; authorized — 750 170914834 346持续经营活动中普通股股东的收益343 股份分别为
3 3 
额外实收资本4,772 4,752 
累计其他综合损失(400)(712)
保留盈余7,268 6,775 
股东权益合计11,643 10,818 
24,546 $24,771 $24,188 

附注是本简明合并财务报表的组成部分。
6
目录
西部数据公司
简明合并利润表
(单位：百万美元，每股金额为美元)
（未经审计）
三个月已结束
九月 27,
2024		9月29日，
2023
收入，净额$4,095 $2,750 
收入成本2,544 2,651 
毛利润1,551 99 
运营费用：
研究和开发519 431 
销售、一般和管理242 207 
诉讼事项3 — 
员工解雇、资产减值等2 57 
业务分离成本43 — 
运营费用总额809 695 
营业收入（亏损）742 (596)
利息和其他费用：
利息收入9 8 
利息支出(99)(98)
其他收入（支出），净额(24)4 
利息和其他支出总额，净额(114)(86)
税前收入（亏损）628 (682)
所得税支出135 3 
净收益（亏损）493 (685)
减去：分配给优先股股东的股息4 15 
减去：归属于优先股股东的收益8 — 
归属于普通股股东的净收益（亏损）$481 $(700)
普通股每股净收益（亏损）：
基本$1.40 $(2.17)
稀释$1.35 $(2.17)
已发行股票的加权平均值：
基本344 323 
稀释357 323 

附注是本简明合并财务报表的组成部分。
7
目录
西部数据公司
综合损益简明综合报表 (以千为单位，除每股和股数外)
（单位百万）
（未经审计）
三个月之内结束
9月27日,
2024		2023年9月29日
2023
$493 $(685)
税前其他全面收益(亏损):
外币翻译调整121 (38)
衍生合约的净未实现收益（损失）243 (58)
税前其他全面收益(亏损)总额364 (96)
与其他综合收益（损失）相关的税前所得税收益（费用）(52)13 
其他综合收益（亏损），净额312 (83)
总综合收益（损失）$805 $(768)

附注是本简明合并财务报表的组成部分。
8
目录
西部数据公司
现金流量表简明综合报表
（单位百万）
（未经审计）
三个月之内结束
9月27日,
2024		2023年9月29日
2023
经营活动现金流
$493 $(685)
净利润（亏损）与经营活动提供的现金（使用的现金）之间的调整：
折旧和摊销135 147 
以股票为基础的报酬计划84 77 
延迟所得税54 (46)
资产处置收益(1)(87)
非现金资产减值— 95 
债务发行成本和折扣摊销5 4 
其他非现金经营活动，净额17 1 
变动情况：
2,687,823 (292)147 
存货(76)201 
应付账款216 25 
应支付给关联方的账款39 (15)
应计费用(153)63 
应付所得税(77)(325)
应计的薪资(50)1 
其他资产和负债，净额(360)(229)
经营活动产生的净现金流量
34 (626)
投资活动现金流量
购买固定资产(96)(124)
出售固定资产的收益1 193 
向Flash Ventures发行应收票据(14)(121)
从Flash Ventures收到应收票据款项61 134 
战略性投资及其他，净额3 2 
投资活动产生的净现金流量(45)84 
筹资活动现金流量
在员工股票计划下获得的已投放股票奖励上支付的税款(64)(43)
可转换的优先股票收益，发行费用净额
— (3)
还款债务(188)— 
债务收益
150 600 
筹集资金的净现金流量
(102)554 
汇率变动对现金的影响10 (3)
现金及现金等价物已重新分类为可供出售的资产
(71)— 
现金及现金等价物的净增加（减少）
(174)9 
年初现金及现金等价物余额1,879 2,023 
现金及现金等价物期末余额
$1,705 $2,032 
现金流量补充披露：
支付的所得税费用$479 $545 
支付的利息现金$115 $127 

附注是本简明合并财务报表的组成部分。
9
目录
西部数据公司
可转换优先股和股东权益的压缩合并财务报表
（单位百万）
（未经审计）
可转换优先股票普通股资本公积金累积其他综合损失未分配利润股东权益合计
股份数量股份数量
截至2024年6月28日的结余0.2 $229 343 $3 $4,752 $(712)$6,775 $10,818 
净收入— — — — — — 493 493 
员工股票计划— — 3 — (64)— — (64)
以股票为基础的报酬计划— — — — 84 — — 84 
外币翻译调整— — — — — 121 — 121 
衍生合约净未实现损失，税后净额— — — — — 191 — 191 
2024年9月27日余额0.2$229 346$3 $4,772 $(400)$7,268 $11,643 

附注是本简明合并财务报表的组成部分。

10
目录
西部数据公司
可转换优先股和股东权益的简明综合财务报表
（单位百万）
（未经审计）
可转换优先股票普通股资本公积金累计其他综合损失未分配利润股东权益合计
股份数量股份数量
2023年6月30日的余额0.9 $876 322 $3 $3,936 $(548)$7,573 $10,964 
净亏损— — — — — — (685)(685)
员工股票计划— — 2 — (43)— — (43)
以股票为基础的报酬计划— — — — 77 — — 77 
外币翻译调整— — — — — (38)— (38)
衍生合同的净未实现损失，税后净额— — — — — (45)— (45)
2023年9月29日的余额0.9 $876 324$3 $3,970 $(631)$6,888 $10,230 

附注是本简明合并财务报表的组成部分。
11
目录

西部数据公司
压缩合并财务报表注释
（未经审计）

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.
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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.
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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.

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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.
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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.
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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 

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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.

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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.



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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.
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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 
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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.
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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.

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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.

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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.

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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 
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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 

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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.
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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 %

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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 

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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.

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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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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 jurisdiction, the deduction for foreign-derived intangible income, credits, and tax holidays in Malaysia, the Philippines, and Thailand that have or will expire at various dates during years 2025 through 2031 resulted in decreases to the effective tax rate below the U.S. statutory rate for the three months ended September 27, 2024. However, the tax effects of the mandatory capitalization of R&D expenses offset these decreases, resulting in the effective tax rate being closer to the U.S. Federal statutory rate for the three months ended September 27, 2024.

The primary drivers of the difference between the effective tax rate for the three months ended September 29, 2023 and the U.S. Federal statutory rate of 21% are the relative mix of earnings and losses by jurisdiction, the deduction for foreign-derived intangible income, credits, and tax holidays in Malaysia, the Philippines, and Thailand that will expire at various dates during years 2024 through 2031. In addition, the effective tax rate for the three months ended September 29, 2023 includes the discrete effect of a net decrease of $30 million to the liability for unrecognized tax benefits, which includes interest and offsetting tax benefits, as a result of adjustments to align with IRS calculations.

Uncertain Tax Positions

With the exception of certain unrecognized tax benefits that are directly associated with the tax position taken, unrecognized tax benefits are presented gross in the Condensed Consolidated Balance Sheets.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The following is a tabular reconciliation of the total amounts of unrecognized tax benefits excluding accrued interest and penalties for the three months ended September 27, 2024 (in millions):

Accrual balance at June 28, 2024
$721 
Gross increases related to current year tax positions4 
Gross increases related to prior year tax positions9 
Gross decreases related to prior year tax positions(2)
Settlements(39)
Lapse of statute of limitations(1)
Accrual balance at September 27, 2024
$692 

In addition to the amounts noted above, interest and penalties related to unrecognized tax benefits are recognized in liabilities recorded for uncertain tax positions and are recorded in the provision for income taxes. Accrued interest and penalties included in the Company’s liability related to unrecognized tax benefits as of September 27, 2024 were $70 million. Of the aggregate unrecognized tax benefits, including interest and penalties, as of September 27, 2024, approximately $597 million could result in potential cash payments. The Company is not able to provide a reasonable estimate of the timing of future tax payments related to these obligations.

The Company had previously reached a final agreement with the IRS regarding notices of deficiency with respect to years 2008 through 2012 and in February 2024, also reached a final agreement for resolving the notices of proposed adjustments with respect to years 2013 through 2015. During the three months ended September 27, 2024, the Company made a payment of $130 million for interest with respect to years 2008 through 2012 and $23 million for tax and interest with respects to years 2013 through 2015, resulting in a remaining liability of $10 million as of September 27, 2024 related to all years from 2008 through 2015. The Company expects to pay any remaining balance with respect to this matter within the next twelve months.

In connection with settlements for the years 2008 through 2015, the Company expects to realize reductions to its mandatory deemed repatriation tax obligations and tax savings from interest deductions in future years aggregating to approximately $162 million. Of this amount, $31 million of the interest savings from the interest paid with respect to years 2008 through 2012 is classified as a deferred tax asset due to interest expense limitation rules.

The Company believes that adequate provision has been made for any adjustments that may result from any other tax examinations. However, the outcome of such tax examinations cannot be predicted with certainty. If any issues addressed in the Company’s tax examinations are resolved in a manner not consistent with management’s expectations, the Company could be required to adjust its provision for income taxes in the period such resolution occurs. As of September 27, 2024, with the exception of the IRS matter discussed above, it was not possible to estimate the amount of change, if any, in the unrecognized tax benefits that is reasonably possible within the next twelve months. Any significant change in the amount of the Company’s liability for unrecognized tax benefits would most likely result from additional information or settlements relating to the examination of the Company’s tax returns.
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WESTERN DIGITAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 13.    Net Income (Loss) Per Common Share

The following table presents the computation of basic and diluted income (loss) per common share:
Three Months Ended
 September 27,
2024		September 29,
2023
(in millions, except per share data)
Net income (loss)$493 $(685)
Less: dividends allocated to preferred shareholders4 15 
Less: income attributable to participating securities(1)
8 — 
Net income (loss) attributable to common stockholders$481 $(700)
Weighted average shares outstanding:
Basic344 323 
RSUs, PSUs, ESPP, and the convertible notes13 — 
Diluted357 323 
Net income (loss) per common share
Basic$1.40 $(2.17)
Diluted$1.35 $(2.17)
Anti-dilutive potential common shares excluded— 15 
(1)     Preferred stock represents participating securities because they participate in any dividends on shares of common stock on a pari passu, pro rata basis. Preferred stock does not participate in undistributed net losses.

Basic net income (loss) per share attributable to common shareholders is computed using (i) net income (loss) less (ii) dividends allocated to preferred shareholders less (iii) net income (loss) attributable to participating securities divided by (iv) weighted average basic shares outstanding. Diluted net income or loss per share attributable to common shareholders is computed as (i) basic net income (loss) attributable to common shareholders plus (ii) diluted adjustments to income allocable to participating securities divided by (iii) weighted average diluted shares outstanding. The "if-converted" method is used to determine the dilutive impact for the convertible notes and the preferred shares. The treasury stock method is used to determine the dilutive impact of unvested equity awards.

Potentially dilutive common shares include dilutive outstanding employee stock options, RSUs and PSUs, rights to purchase shares of common stock under the Company’s ESPP, shares issuable in connection with the Company’s convertible notes, and the preferred shares. For the three months ended September 27, 2024, all common shares subject to outstanding equity awards are included in the calculation of diluted shares based on the Company’s average stock price during the period. For the three months ended September 29, 2023, the Company recorded a net loss, and all shares subject to outstanding equity awards were excluded from the calculation of diluted shares for those periods because their impact would have been anti-dilutive.
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WESTERN DIGITAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 14.    Employee Termination, Asset Impairment, and Other

Business Realignment

The Company periodically incurs charges to realign its operations with anticipated market demand, primarily consisting of organization rationalization designed to streamline its business, reduce its cost structure, and focus its resources. The Company may also record credits related to gains upon sale of property in connection with these activities. In this regard, for the three months ended September 29, 2023, the Company reassessed existing capacity development plans and made a decision to cancel certain projects, including projects to expand capacity in its Penang, Malaysia facility, resulting in the impairment of existing construction in progress, other assets and the recognition of a liability for certain contract termination costs. The Company also took actions to reduce the amount of capital invested in facilities, including the sale-leaseback of its facility in Milpitas, California in September 2023.

The Company recorded the following net charges related to these actions for the periods presented:
Three Months Ended
September 27,
2024		September 29,
2023
(in millions)
Employee termination benefits$— $19 
Asset impairments— 94 
Other charges (gains):
Contract termination and other2 29 
Gain on sale-leaseback of facility— (85)
Total employee termination, asset impairment, and other$2 $57 

The following table presents an analysis of the components of these activities against the reserve (included in Accrued expenses) during the three months ended September 27, 2024:
Contract Termination and Other
(in millions)
Accrual balance at June 28, 2024$28 
Charges2 
Cash payments(3)
Accrual balance at September 27, 2024$27 

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 15.    Supplier Finance Program

The Company maintains a voluntary supplier finance program that provides participating suppliers with enhanced receivable options. The program allows participating suppliers of the Company, at their sole discretion and cost, to sell their receivables due from the Company to a third-party financial institution and receive early payment at terms negotiated between the supplier and the third-party financial institution. The Company’s vendor payment terms and amounts are not impacted by a supplier’s decision to participate in this program.

The Company’s current payment terms with its suppliers under these programs generally range from 60 to 90 days and payment terms that the Company negotiates with its suppliers are not impacted by whether a supplier participates in the program. The Company does not provide any guarantees to any third parties and no assets are pledged in connection with the arrangements.

The Company’s outstanding payment obligations to vendors eligible to participate under its supplier finance program were $41 million and $37 million as of September 27, 2024 and June 28, 2024, respectively, and are included within Accounts payable on the Company’s Condensed Consolidated Balance Sheets.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 16.    Legal Proceedings

Tax

For disclosures regarding the status of statutory notices of deficiency issued by the IRS with regard to tax years 2008 through 2015, see Note 12, Income Tax Expense.

Intellectual Property Litigation

On August 26, 2022, MR Technologies, GmbH (“MRT”) filed an action in the United States District Court for the Central District of California (the “Central District Court”) against the Company’s wholly-owned subsidiary, Western Digital Technologies, Inc., alleging infringement of U.S. Patent Nos. 9,978,413, 9,928,864, 11,133,031 and 11,138,997, each of which relate to hard disk drive media. As the case progressed, MRT dropped its claims with respect to U.S Patent Nos. 9,978,413 and 11,133,031, and the case proceeded to trial in July 2024 on the remaining two patents (together, the “MRT Patents”). The trial concluded on July 26, 2024, and the jury awarded MRT a lump sum of $262 million for use of the MRT Patents in the past and through their remaining lives. MRT also requested and was awarded prejudgment interest totaling $117 million in a judgment entered on August 15, 2024. In addition, MRT requested attorney’s fees and post-judgment interest.

In the fourth quarter of fiscal 2024, the Company recognized an aggregate liability for this matter of $384 million with $291 million recognized as an Operating expense under Litigation matter for the year ended June 28, 2024 and $93 million recognized as Other non-current assets for the patent licenses, to be amortized over their remaining lives. During the first quarter of fiscal 2025, the Company recognized incremental charges of $3 million related to plaintiff’s attorney’s fees in Operating expense under Litigation matter, $2 million of post-judgment interest in Other income (expense), net, and $9 million in Cost of revenue from the subsequent amortization of licenses related to this matter. The Company believes it has meritorious defenses, plans to file post-trial motions, and if not successful, plans to appeal the judgment and continue to defend itself vigorously.

On September 28, 2016, SPEX Technologies, Inc. (“SPEX”) filed a lawsuit in the Central District Court against the Company and two of the Company’s current or former wholly-owned subsidiaries, Western Digital Technologies, Inc. and HGST Inc., alleging infringement of U.S. Patent Nos. 6,088,802 and 6,003,135, both of which allegedly relate to moving a security mechanism (e.g., the encrypting/decrypting mechanism) from a host computer or a separate device to a peripheral device that provides data storage. As the case progressed, SPEX dismissed its allegations relating to U.S. Patent No. 6,003,135 and narrowed its case to one claim under U.S. Patent No. 6,088,802 asserted against certain HDD products that may include certain encryption capabilities. The trial commenced on October 8, 2024, concluded on October 18, 2024, and the jury awarded SPEX damages of $316 million for the use of one claim of U.S. Patent No. 6,088,802 in the past, prior to its expiration in 2017. SPEX has also requested the court to award it prejudgment interest of $233 million and legal costs. The Company intends to contest the verdict and, based on available arguments, the Company believes the jury verdict and any prejudgment interest and legal costs will be reversed, amended or vacated when the Company files motions for judgment as a matter of law in the district court or presents its appeal to the United States Court of Appeals for the Federal Circuit, if necessary. The Company therefore, believes a loss is not probable and has not accrued a liability as a result of the jury verdict or the request for prejudgment interest and legal costs in its financial statements as of September 27, 2024.

The ability to predict the ultimate outcome of these matters involves judgments, estimates and inherent uncertainties. The actual outcome of these matters could differ materially from management’s estimates.

Other Matters

In the normal course of business, the Company is subject to legal proceedings, lawsuits and other claims. Although the ultimate aggregate amount of probable monetary liability or financial impact with respect to these other matters is subject to many uncertainties, management believes that any monetary liability or financial impact to the Company from these matters, individually and in the aggregate, would not be material to the Company’s financial condition, results of operations or cash flows. However, any monetary liability and financial impact to the Company from these matters could differ materially from management’s expectations.

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Item 2.    Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis contains forward-looking statements within the meaning of the federal securities laws, and should be read in conjunction with the disclosures we make concerning risks and other factors that may affect our business and operating results. You should read this information in conjunction with the unaudited Condensed Consolidated Financial Statements and the notes thereto included in this Quarterly Report on Form 10-Q, and the audited Consolidated Financial Statements and notes thereto included in Part II, Item 8 of our Annual Report on Form 10‑K for the fiscal year ended June 28, 2024. See also “Forward-Looking Statements” immediately prior to Part I, Item 1 in this Quarterly Report on Form 10-Q.

Unless otherwise indicated, references herein to specific years and quarters are to our fiscal years and fiscal quarters. As used herein, the terms “we,” “us,” “our,” and the “Company” refer to Western Digital Corporation and its subsidiaries.

Our Company

We are a leading developer, manufacturer, and provider of data storage devices based on both hard disk drive and NAND flash technologies. With a differentiated innovation engine driving advancements in storage and semiconductor technologies, our broad and ever-expanding portfolio delivers powerful HDD and Flash storage solutions for everyone from students, gamers, and home offices to the largest enterprises and public clouds to capture, preserve, access, and transform an ever-increasing diversity of data.

Our broad portfolio of technology and products addresses our multiple end markets: “Cloud,” “Client,” and “Consumer”. Cloud is comprised primarily of products for public or private cloud environments and enterprise customers. Through the Client end market, we provide our 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 our broad range of retail and other end-user products, which capitalize on the strength of our product brand recognition and vast points of presence around the world.

Our fiscal year ends on the Friday nearest to June 30 and typically consists of 52 weeks. Approximately every five to six years, we report 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.

Key Developments

Separation of Business Units

On October 30, 2023, we announced that our Board of Directors had completed its strategic review of our business and, after evaluating a comprehensive range of alternatives, authorized us to pursue a plan to separate our HDD and Flash business units to create two independent, public companies. We believe the separation will better position each business unit to execute innovative technology and product development, capitalize on unique growth opportunities, extend respective leadership positions, and operate more efficiently with distinct capital structures. The completion of the planned separation is subject to certain conditions, including final approval by our Board of Directors. At the beginning of our second quarter of fiscal 2025, we entered the soft-spin phase of our separation plan. The soft-spin phase represents the period when we begin testing critical processes and systems for each future HDD and Flash company to ensure that both are ready to operate independently at legal separation. We continue to make progress on the work required to execute the separation, which we expect will occur after we close the second quarter of fiscal 2025.

Operational Update

Macroeconomic factors such as inflation, changes in interest rates, and recession concerns softened demand for our products during 2023 and the first half of 2024. As a result, we and our industry experienced a supply-demand imbalance, which resulted in reduced shipments and negatively impacted pricing during those periods. To adapt to these conditions, since the beginning of 2023, we implemented measures to reduce operating expenses and proactively manage supply and inventory to align with demand and improve our capital efficiency while continuing to deploy innovative products. These actions enabled us to scale back on capital expenditures, consolidate production lines, and reduce production. During the first quarter of 2024, these actions resulted in incremental charges for employee termination, asset impairment, and charges for unabsorbed manufacturing overhead costs in HDD and Flash due to the underutilization of facilities as we temporarily scaled back production.
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We are now seeing an improvement in the supply and demand dynamic, leading to improved revenues. The increase in demand resulted in increased revenue and gross margin across our segments in the first quarter of 2025 from the comparable period in the prior year. We anticipate that digital transformation, including the AI data-cycle, will continue to drive improved market conditions in the near- and long-term for data storage, encompassing HDD and Flash technologies. Leveraging our expertise and innovation in both areas, we believe we are well-positioned to capitalize on this improved market condition.

We will continue to actively monitor developments impacting our business and may take additional responsive actions that we determine to be in the best interest of our business and stakeholders.

Sale of a Majority Interest in a Subsidiary

As discussed in Part I, Item 1, Note 4, Supplemental Financial Statement Data, of the Notes to Condensed Consolidated Financial Statements, in March 2024, we entered into an agreement to sell 80% of the equity interest in one of our Flash manufacturing subsidiaries to JCET, a third-party contract manufacturing company. Subsequent to the first quarter of fiscal 2025, on September 28, 2024, the transaction closed. In connection with this transaction, we entered into a 5-year supply agreement with JCET to purchase wafers with a minimum annual commitment of $550 million.

As a result of this transaction, we expect to incur a modest reduction in annual operating expenses and a reduction in annual capital expenditures related to assembly and testing of Flash-based products. We also anticipate that the transition to a contract manufacturing model through SDSS will result in a small increase in our annual cost of revenue for Flash-based products.

Tax Resolution

As previously disclosed, we had previously reached a final agreement with the IRS and received notices of deficiency with respect to years 2008 through 2012 and in February 2024, also reached a final agreement for resolving the notices of proposed adjustments with respect to years 2013 through 2015. During the three months ended September 27, 2024, we made payments aggregating $153 million for tax and interest with respect to all years 2008 through 2015 and have a remaining liability of $10 million as of September 27, 2024 related to all years from 2008 through 2015. We expect to pay any remaining balance with respect to this matter within the next twelve months. Additional information regarding these settlements and our assessment of the potential tax and interest payments we expect to pay in connection with the settlements is provided in our discussion of Income tax expense in our “Results of Operations” below, as well as in Part I, Item 1, Note 12, Income Tax Expense, of the Notes to Condensed Consolidated Financial Statements, and in the “Short- and Long-term Liquidity – Unrecognized Tax Benefits” section below.
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Results of Operations

First Quarter Overview

The following table sets forth, for the periods presented, selected summary information from our Condensed Consolidated Statements of Operations by dollars and percentage of net revenue(1):
Three Months Ended
September 27,
2024		September 29,
2023		$ Change% Change
$ in millions
Revenue, net$4,095 100.0 %$2,750 100.0 %$1,345 49 %
Cost of revenue2,544 62.1 2,651 96.4 (107)(4)
Gross profit1,551 37.9 99 3.6 1,452 1,467 
Operating expenses:

Research and development519 12.7 431 15.7 88 20 
Selling, general and administrative242 5.9 207 7.5 35 17 
Litigation matter3 0.1 — — 3 n/a
Employee termination, asset impairment and other2 — 57 2.1 (55)(96)
Business separation costs43 1.1 — — 43 n/a
Total operating expenses809 19.8 695 25.3 114 16 
Operating income (loss)
742 18.1 (596)(21.7)1,338 224 
Interest and other expense:

Interest income9 0.2 8 0.3 1 13 
Interest expense(99)(2.4)(98)(3.6)(1)1 
Other income (expense), net(24)(0.6)4 0.1 (28)(700)
Total interest and other expense, net(114)(2.8)(86)(3.1)(28)33 
Income (loss) before taxes628 15.3 (682)(24.8)1,310 192 
Income tax expense135 3.3 3 0.1 132 4,400 
Net income (loss)493 12.0 (685)(24.9)1,178 172 
Less: dividends allocated to preferred shareholders4 0.1 15 0.5 (11)(73)
Less: income attributable to preferred shareholders8 0.2 — — 8 n/a
Net income (loss) attributable to common shareholders$481 11.7 %$(700)(25.5)%$1,181 169 %
(1)    Percentages may not total due to rounding.
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The following table sets forth, for the periods presented, a summary of our segment information:
Three Months Ended
September 27,
2024		September 29,
2023
$ in millions
Net revenue:
HDD$2,211 $1,194 
Flash1,884 1,556 
Total net revenue$4,095 $2,750 
Gross profit:
HDD$843 $273 
Flash732 (161)
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:
HDD38.1 %22.9 %
Flash38.9 %(10.3)%
Consolidated gross margin37.9 %3.6 %

The following table sets forth for the periods presented, summary information regarding our disaggregated revenue:
Three Months Ended
September 27,
2024		September 29,
2023
(in millions)
Revenue by end market
Cloud$2,208 $872 
Client 1,209 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 

Net Revenue

Comparison of Three Months Ended September 27, 2024 to Three Months Ended September 29, 2023

The increase in consolidated net revenue for the three months ended September 27, 2024 from the comparable period in the prior year reflected increases in both HDD and Flash revenue as discussed in more detail below.

HDD revenue increased by 85% for the three months ended September 27, 2024 from the comparable period in the prior year, as a result of a 107% increase in exabytes sold, primarily from higher shipments of our high capacity enterprise drives, partially offset by a 10% decline in average selling prices per gigabyte primarily due to a shift in the product mix to larger capacity drives.
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Flash revenue increased by 21% for the three months ended September 27, 2024 from the comparable period in the prior year, reflecting a 39% increase in average selling prices per gigabyte primarily due to improved pricing as the supply-demand balance improved, partially offset by a 12% decrease in exabytes sold. The decrease in exabytes sold was primarily due to the near-term drop in demand in the Client and Consumer end markets, partially offset by increased demand in the Cloud end market.

Cloud revenue increased by 153% for the three months ended September 27, 2024 from the comparable period in the prior year, reflecting a 140% increase in exabytes sold and a 7% increase in average selling prices per gigabyte. The increase in exabytes sold was driven by higher shipments of our high capacity enterprise HDD products stemming from new data center builds. The increase in average selling prices per gigabyte was primarily due to improved pricing in Flash as the supply-demand balance improved.

Client revenue increased by 5% for the three months ended September 27, 2024 from the comparable period in the prior year, reflecting a 33% increase in average selling prices per gigabyte, partially offset by a 20% decrease in exabytes sold. The increase in average selling prices per gigabyte over the prior year period was primarily due to improved pricing in Flash. The decline in exabytes sold reflected the near-term drop in demand for Flash products.

Consumer revenue declined 7% for the three months ended September 27, 2024 from the comparable period in the prior year, reflecting a 15% decrease in exabytes sold, partially offset by a 10% increase in average selling prices per gigabyte. The decrease in exabytes sold was due to lower shipments of both HDD and Flash products. The increase in average selling prices per gigabyte was driven by improved pricing in both HDD and Flash .

The changes in net revenue by geography for the three months ended September 27, 2024 from the comparable period in the prior year reflected higher revenue in the Americas region from Cloud customers as noted above.

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

Consistent with standard industry practice, we have sales incentive and marketing programs that provide customers with price protection and other incentives or reimbursements that are recorded as a reduction to gross revenue. These programs represented 13% and 20% of gross revenue for the three months ended September 27, 2024 and September 29, 2023, respectively. The amounts attributed to our sales incentive and marketing programs generally vary according to several factors, including industry conditions, list pricing strategies, seasonal demand, competitor actions, channel mix, and overall availability of products. The decrease in program amounts in the current period reflects the improved demand and pricing environment. Changes in future customer demand and market conditions may require us to adjust our incentive programs as a percentage of gross revenue.

Gross Profit and Gross Margin

Consolidated gross profit increased by $1.45 billion for the three months ended September 27, 2024 from the comparable period in the prior year, primarily due to higher product shipments, improved pricing, and favorable product mix. In addition, the prior year period included charges for unabsorbed manufacturing overhead costs as a result of the reduced utilization of our manufacturing capacity of $225 million ($83 million in HDD and $142 million in Flash), which were not incurred in the current period. Consolidated gross margin increased by 34 percentage points year over year, mainly due to improved pricing and favorable product mix with approximately 8 percentage points of the increase due to the underutilization charges incurred in the prior year period but not incurred in the current period.

HDD gross margin increased by 15 percentage points year over year, primarily due to higher product shipments with approximately 7 percentage points of the increase due to the manufacturing underutilization charges incurred in the prior year period but not incurred in the current period.

Flash gross margin increased by 49 percentage points year over year, primarily due to improved pricing and favorable product mix with approximately 9 percentage points of the increase due to the underutilization charges incurred in the prior year period but not incurred in the current period.

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Operating Expenses

Research and development (“R&D”) expense increased by $88 million for the three months ended September 27, 2024 from the comparable period in the prior year. The increase was driven by a $56 million increase in compensation and benefits due to higher variable compensation and increased headcount, a $10 million increase in material purchases, and modest increases in spending for R&D projects as we continue to invest in innovation.

Selling, general and administrative (“SG&A”) expense increased by $35 million for the three months ended September 27, 2024 from the comparable period in the prior year. The increase was primarily driven by a $26 million increase in compensation and benefits due to higher variable compensation and increased headcount, a $10 million increase in legal fees, and an $8 million increase in dis-synergy costs as we prepare for the business separation, partially offset by a $17 million decrease in strategic review costs.

Employee termination, asset impairment and other charges decreased by $55 million for the three months ended September 27, 2024 from the comparable period in the prior year, reflecting fewer restructuring actions taken in the current period. For information regarding Employee termination, asset impairment and other, see Part I, Item 1, Note 14, Employee Termination, Asset Impairment, and Other of the Notes to Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q.

Business separation costs were $43 million for the three months ended September 27, 2024, primarily reflecting outside service fees to support the planned separation of our HDD and Flash businesses.

Interest and Other Expense

Total interest and other expense, net increased by $28 million for the three months ended September 27, 2024 from the comparable period in the prior year, reflecting an increase in other expense, net of $28 million, driven by a loss on our equity investments.

Income Tax Expense

Beginning in 2023, the 2017 Act has required us 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 our effective tax rate for the three months ended September 27, 2024 and September 29, 2023. The tax effects related to the capitalization of R&D expenses had a material impact on our effective tax rate for the three months ended September 27, 2024 but did not have a material impact on the effective tax rate for the three months ended September 29, 2023.

On August 16, 2022, President Biden signed into law the Inflation Reduction Act of 2022, which contained significant legal 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 is effective for us beginning with fiscal year 2024. We do not expect to be subject to the CAMT of 15% for fiscal year 2025 as our annual average 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. 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 us in fiscal year 2025. For fiscal year 2025, we currently expect to be able to meet certain transitional safe harbors and do not expect any material Pillar Two taxes. As more jurisdictions adopt this legislation in fiscal year 2026, there may be material increases in our future tax obligations in certain jurisdictions.
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The following table sets forth Income tax information from our Condensed Consolidated Statements of Operations by dollar and 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 jurisdiction, the deduction for foreign-derived intangible income, credits, and tax holidays in Malaysia, the Philippines and Thailand that have or will expire at various dates during years 2025 through 2031 resulted in decreases to our effective tax rate below the U.S. Federal statutory rate three months ended September 27, 2024. However, the tax effects of the mandatory capitalization of R&D expenses offset these decreases, resulting in our effective tax rate being closer to the U.S. Federal statutory rate for the three months ended September 27, 2024.

The primary drivers of the difference between the effective tax rate for the three months ended September 29, 2023 and the U.S. Federal statutory rate of 21% were the relative mix of earnings and losses by jurisdiction, the deduction for foreign-derived intangible income, credits, and tax holidays in Malaysia, the Philippines and Thailand that will expire at various dates during years 2024 through 2031. In addition, the effective tax rate for the three months ended September 29, 2023 includes the discrete effect of a net decrease of $30 million to the liability for unrecognized tax benefits, which includes interest and offsetting tax benefits, as a result of adjustments to align with IRS calculations.

For additional information regarding Income tax expense, see Part I, Item 1, Note 12, Income Tax Expense, of the Notes to Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q.
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Liquidity and Capital Resources

The following table summarizes our statements of cash flows:
Three Months Ended
 September 27,
2024		September 29,
2023
(in millions)
Net cash provided by (used in):
Operating activities$34 $(626)
Investing activities(45)84 
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 

We had previously reached a final agreement with the IRS and received notices of deficiency with respect to years 2008 through 2012 and in February 2024, also reached a final agreement for resolving the notices of proposed adjustments with respect to years 2013 through 2015. During the three months ended September 27, 2024, the Company made payments of $130 million for interest with respect to years 2008 through 2012 and $23 million for tax and interest with respect to years 2013 through 2015, resulting in a remaining liability of $10 million as of September 27, 2024, related to all years from 2008 through 2015. The Company expects to pay any remaining balance with respect to this matter within the next twelve months.

In connection with settlements for the years 2008 through 2015, we expect to realize reductions to our mandatory deemed repatriation tax obligations and tax savings from interest deductions in future years aggregating to $162 million. Of this amount, $31 million of interest savings from the interest paid with respect to years 2008 through 2012 is classified as a deferred tax asset due to interest expense limitation rules. See Part I, Item 1, Note 12, Income Tax Expense, of the Notes to Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q for further details.

In August 2024, we filed a shelf registration statement (the “Shelf Registration Statement”) with the Securities and Exchange Commission that expires in August 2027. The Shelf Registration Statement allows us to offer and sell shares of common stock, preferred stock, warrants, and debt securities. We may use the Shelf Registration Statement or other capital sources, including other offerings of equity or debt securities or the credit markets, to satisfy future financing needs, including planned or unanticipated capital expenditures, investments, debt repayments or other expenses. Any such additional financing will be subject to market conditions and may not be available on terms acceptable to us or at all.

In 2024, we reduced our expenditures for property, plant and equipment and our portion of the Flash Ventures’ capital expenditures for its operations to approximately $825 million from approximately $2.22 billion in 2023. After consideration of the Flash Ventures’ lease financing of its capital expenditures and net operating cash flow, we reduced our net cash used for our purchases of property, plant and equipment and net activity in notes receivable relating to Flash Ventures to $53 million in 2024 from $794 million in 2023. We continue to be disciplined with our capital investments and expect our cash capital expenditures in 2025 to be higher than in 2024, but remain below 2023 expenditures.

We believe our cash and cash equivalents and our available revolving credit facility will be sufficient to meet our working capital, debt and capital expenditure needs for at least the next twelve months and for the foreseeable future thereafter. We believe we can also access the various debt capital markets to further supplement our liquidity position if necessary. Our ability to sustain our working capital position is subject to a number of risks that we discuss in Part II, Item 1A, Risk Factors, in this Quarterly Report on Form 10-Q and in Part I, Item 1A, Risk Factors, in our Annual Report on Form 10-K for the year ended June 28, 2024.

A total of $1.43 billion of our Cash and cash equivalents was held by our foreign subsidiaries as of September 27, 2024 and June 28, 2024, respectively. There are no material tax consequences that were not previously accrued for on the repatriation of this cash.

Our cash equivalents are primarily invested in money market funds that invest in U.S. Treasury securities and U.S. Government agency securities. In addition, from time to time, we also invest directly in certificates of deposit, asset-backed securities and corporate and municipal notes and bonds.
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Operating Activities

Net cash provided by or used in operating activities primarily consists of net income or loss, adjusted for non-cash charges, plus or minus changes in operating assets and liabilities. Net cash used for changes in operating assets and liabilities was $753 million for the three months ended September 27, 2024, as compared to $132 million for the three months ended September 29, 2023, which largely reflects an increase in the volume of our business, as discussed above.

Changes in our operating assets and liabilities are largely affected by our working capital requirements, which are dependent on our volume of business and the effective management of our cash conversion cycle as well as the timing of payments for taxes. Our cash conversion cycle measures how quickly we can convert our products into cash through sales. The cash conversion cycles were as follows (in days):
Three Months Ended
September 27,
2024		September 29,
2023
Days sales outstanding55 48 
Days in inventory121 120 
Days payable outstanding
(69)(54)
Cash conversion cycle107 114 

Changes in days sales outstanding (“DSO”) are generally due to the timing of shipments to and collections from customers. Changes in days in inventory (“DIO”) are generally related to the timing of inventory builds and shipments to customers. Changes in days payables outstanding (“DPO”) are generally related to production volume and the timing of purchases during the period. From time to time, we make payment term modifications with vendors through negotiations with them or by granting to, or receiving from, our vendors payment term accommodations. We make modifications primarily to manage our vendor relationships and to manage our cash flows, including our cash balances.

For the three months ended September 27, 2024, DSO increased by 7 days from the comparable period in the prior year, of which 5 days reflected an increase from lower trade accounts receivable factoring and the remainder reflected the timing of shipments and customer collections. DIO increased by 1 day from the comparable period in the prior year, primarily reflecting higher production volume in the current period. DPO increased by 15 days from the comparable period in the prior year primarily due to more favorable payment terms and routine variations in the timing of purchases and payments during the period.

Investing Activities

Net cash used in investing activities for the three months ended September 27, 2024 primarily consisted of $96 million in capital expenditures, partially offset by $47 million in net proceeds from activity related to Flash Ventures. Net cash provided by investing activities for the three months ended September 29, 2023 primarily consisted of $193 million in proceeds from disposals of assets, which includes the proceeds from our sale-leaseback of our Milpitas, California facility and $13 million in net proceeds from activity related to Flash Ventures, partially offset by $124 million in capital expenditures.

Financing Activities

During the three months ended September 27, 2024, net cash used in financing activities primarily consisted of $188 million for repayment of amounts borrowed under the revolving credit facility and scheduled repayments on the Term Loan A-2, and $64 million for taxes paid on vested stock awards under employee stock plans, partially offset by $150 million of proceeds from drawing on the revolving credit facility. During the three months ended September 29, 2023, net cash provided by financing activities primarily consisted of $600 million of proceeds from the drawdown of our delayed draw term loan, partially offset by $43 million used for taxes paid on vested stock awards under employee stock plans.

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Off-Balance Sheet Arrangements

Other than the Flash Ventures related commitments incurred in the normal course of business and certain indemnification provisions (see “Short- and Long-term Liquidity – Purchase Obligations and Other Commitments” below), we do not have any other material off-balance sheet financing arrangements or liabilities, guarantee contracts, retained or contingent interests in transferred assets, or any other obligation arising out of a material variable interest in an unconsolidated entity. We do not have any majority-owned subsidiaries that are not included in the Condensed Consolidated Financial Statements. Additionally, with the exception of Flash Ventures and our venture with Unisplendour Corporation Limited and Unissoft (Wuxi) Group Co. Ltd., we do not have an interest in, or relationships with, any variable interest entities. For additional information regarding our off-balance sheet arrangements, see Part I, Item 1, Note 9, Related Parties and Related Commitments and Contingencies, of the Notes to Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q.
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Short- and Long-term Liquidity

Material Cash Requirements

The following is a summary of our known material cash requirements, including those for capital expenditures, as of September 27, 2024. In addition, see the discussions further below related to unrecognized tax benefits, litigation matters, dividend rights with respect to the Series A Preferred Stock, foreign exchange contracts and indemnifications.
Total1 Year (Remaining Nine Months of 2025)2-3 Years (2026-2027)4-5 Years (2028-2029)More than 5 Years (Beyond 2029)
(in millions)
Long-term debt, including current portion(1)
$7,450 $1,713 $4,737 $500 $500 
Interest on debt947 250 519 132 46 
Flash Ventures related commitments(2)
5,643 2,281 2,378 790 194 
Operating leases495 45 114 82 254 
Purchase obligations and other commitments455 140 165 40 110 
Mandatory deemed repatriation tax331 — 331 — — 
Total$15,321 $4,429 $8,244 $1,544 $1,104 
(1)Principal portion of debt, excluding issuance costs.
(2)Includes reimbursement for depreciation and lease payments on owned and committed equipment, funding commitments for loans and equity investments and payments for other committed expenses, including R&D and building depreciation. Funding commitments assume no additional operating lease guarantees. Additional operating lease guarantees can reduce funding commitments.

Unrecognized Tax Benefits

As of September 27, 2024, the liability for unrecognized tax benefits (excluding accrued interest and penalties) was $692 million. Accrued interest and penalties related to unrecognized tax benefits are recognized in liabilities for uncertain tax positions and are recorded in the provision for income taxes. Accrued interest and penalties included in our liability related to unrecognized tax benefits as of September 27, 2024 was $70 million. Of these amounts, approximately $597 million could result in potential cash payments. As of September 27, 2024, with the exception of the IRS matter discussed above, it was not possible to estimate the amount of change, if any, in the unrecognized tax benefits that is reasonably possible within the next twelve months. Any significant change in the amount of our liability for unrecognized tax benefits would most likely result from additional information or settlements relating to the examination of our tax returns.

As noted above, we had previously reached a final agreement with the IRS regarding notices of deficiency with respect to years 2008 through 2012 and in February 2024, also reached a final agreement for resolving the notices of proposed adjustments with respect to years 2013 through 2015. During the three months ended September 27, 2024, we made payments of $130 million for interest with respect to years 2008 through 2012 and $23 million for tax and interest with respect to years 2013 through 2015, resulting in a remaining liability of $10 million as of September 27, 2024 related to all years from 2008 through 2015. We expect to pay any remaining balance with respect to this matter within the next twelve months.

In connection with settlements for the years 2008 through 2015, we expect to realize reductions to our mandatory deemed repatriation tax obligations and tax savings from interest deductions in future years aggregating to approximately $162 million. Of this amount, $31 million of interest savings from the interest paid with respect to years 2008 through 2012 is classified as a deferred tax asset due to interest expense limitation rules.

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Litigation Matters

For additional information on the litigation matters, see Part I, Item 1, Note 16, Legal Proceedings, of the Notes to Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q.

Dividend rights

As of September 27, 2024, 235,000 shares of our Series A Preferred Stock remained outstanding. These shares are entitled to cumulative preferred dividends and will also participate in any dividends declared for common shareholders on an as-converted equivalent basis. See Part II, Item 8, Note 12, Shareholders’ Equity and Convertible Preferred Stock, of the Notes to the Consolidated Financial Statements in our Annual Report on Form 10-K for the year ended June 28, 2024 and Part I, Item 1, Note 11, Shareholders’ Equity and Convertible Preferred Stock, of the Notes to Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q for more information regarding the dividend provisions.

Debt

As described in Part I, Item 1, Note 7, Debt, of the Notes to Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q, the Company issued $1.60 billion aggregate principal amount of convertible senior notes in November 2023, which bear interest at an annual rate of 3.00% and mature on November 15, 2028 (the “2028 Convertible Note”). 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 our 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 calendar 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, we 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 our common stock or a combination thereof, at our election, in respect of the remainder, if any, of our conversion obligation in excess of the aggregate principal amount of the notes being converted.

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, we 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. We will re-evaluate in each subsequent calendar quarter to determine if the 2028 Convertible Notes have become convertible.

In addition to our existing debt, as of September 27, 2024, we had $2.20 billion available for borrowing under our revolving credit facility until January 2027, subject to customary conditions under the loan agreement. The agreements governing our credit facilities each include limits on secured indebtedness and certain types of unsecured subsidiary indebtedness and require us and certain of our subsidiaries to provide guarantees and collateral to the extent the conditions providing for such guarantees and collateral are met. Additional information regarding our indebtedness, including information about availability under our revolving credit facility and the principal repayment terms, interest rates, covenants, collateral and other key terms of our outstanding indebtedness, is included in Part II, Item 8, Note 7, Debt, of the Notes to the Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended June 28, 2024 and Note 7, Debt, of the Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

The loan agreements governing our revolving credit facility and our Term Loan A-2 maturing 2027 require us to comply with certain financial covenants, consisting of a leverage ratio, and a minimum liquidity requirement. As of September 27, 2024, we were in compliance with these financial covenants.

We may issue additional debt securities in the future that may be guaranteed by our 100% owned domestic subsidiary, Western Digital Technologies, Inc. (“Guarantor” and, together with Western Digital Corporation, the “Obligor Group”). Such guarantees may be full and unconditional, joint and several, on a secured or unsecured, subordinated or unsubordinated basis, and may be subject to certain customary guarantor release conditions. We conduct operations almost entirely through our subsidiaries. Accordingly, the Obligor Group’s cash flow and ability to service any guaranteed registered debt securities will depend on the earnings of our subsidiaries and the distribution of those earnings to the Obligor Group, including the earnings of the non-guarantor subsidiaries, whether by dividends, loans or otherwise. Holders of such guaranteed registered debt securities would have a direct claim only against the Obligor Group.
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The following tables include summarized financial information for the Obligor Group. The financial information for the Obligor Group is presented on combined basis, excluding intercompany balances and transactions between the Company and the Guarantor, excluding net intercompany balances between the Obligor Group and non-guarantor subsidiaries, and excluding investments in and equity in the earnings of non-guarantor subsidiaries. The Obligor Group’s amounts due from, amounts due to, and transactions with non-guarantor subsidiaries have been presented in separate line items in the tables below.

The assets and liabilities of the Obligor Group include the following:
September 27,
2024		June 28,
2024
(in millions)
Current assets
$2,143 $2,149 
Non-current assets2,285 2,208 
Net intercompany receivables to non-guarantor subsidiaries
2,098 2,473 
Current liabilities3,501 3,758 
Non-current liabilities6,416 6,626 

The operating results of the Obligor Group include the following:
Three Months Ended
Year Ended
September 27,
2024		June 28,
2024
(in millions)
Net sales$1,722 $4,066 
Gross profit660 1,002 
Operating income (loss)
100 (927)
Net loss
(33)(1,211)

Results for the Obligor Group include the following transactions with non-guarantor subsidiaries:

Three Months Ended
Year Ended
September 27,
2024		June 28,
2024
(in millions)
Intercompany revenue$580 $1,416 
Net intercompany interest expense
1 8 
Intercompany dividend income
44 567 

Flash Ventures

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 we guarantee half or all of the outstanding obligations under each lease agreement. The leases are subject to customary covenants and cancellation events that relate to Flash Ventures and each of the guarantors. The occurrence of a cancellation event could result in an acceleration of the lease obligations and a call on our guarantees. As of September 27, 2024, we were in compliance with all covenants under these Japanese lease facilities. See Part I, Item 1, Note 9, Related Parties and Related Commitments and Contingencies, of the Notes to Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q for information regarding Flash Ventures.

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Purchase Obligations and Other Commitments

In the normal course of business, we enter into purchase orders with suppliers for the purchase of components used to manufacture our 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. We also enter 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. These arrangements are included under “Purchase obligations and other commitments” in the table above.

Mandatory Deemed Repatriation Tax

The following is a summary of our estimated mandatory deemed repatriation tax obligations that are payable in the following year:
September 27,
2024
(in millions)
2026$331 

Mandatory Research and Development Expense Capitalization

Since the beginning of 2023, the 2017 Act has required us to capitalize and amortize R&D expenses rather than expensing them in the year incurred, which is expected to result in higher cash tax payments in future profitable periods, if not repealed or otherwise modified.

Foreign Exchange Contracts

We purchase foreign exchange contracts to hedge the impact of foreign currency fluctuations on certain underlying assets, liabilities and commitments for Operating expenses and product costs denominated in foreign currencies. See Part I, Item 3, Quantitative and Qualitative Disclosures About Market Risk included in this Quarterly Report on Form 10-Q for additional information.

Indemnifications

In the ordinary course of business, we may provide indemnifications of varying scope and terms to customers, vendors, lessors, business partners and other parties with respect to certain matters, including, but not limited to, losses arising out of our breach of agreements, products or services to be provided by us, environmental compliance or from intellectual property infringement claims made by third parties. In addition, we have entered into indemnification agreements with our directors and certain of our officers that require us, among other things, to indemnify them against certain liabilities that may arise by reason of their status or service as directors or officers. We maintain director and officer insurance, which may cover certain liabilities arising from our obligation to indemnify our directors and officers in certain circumstances.

It is not possible to determine the maximum potential amount under these indemnification agreements due to the limited history of prior indemnification claims and the unique facts and circumstances involved in each particular agreement. Such indemnification agreements may not be subject to maximum loss clauses. Historically, we have not incurred material costs as a result of obligations under these agreements.

Recent Accounting Pronouncements

For a description of recently issued and adopted accounting pronouncements, including the respective dates of adoption and expected effects on our results of operations and financial condition, see Part I, Item 1, Note 2, Recent Accounting Pronouncements, of the Notes to Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q.

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Critical Accounting Policies and Estimates

We have prepared the accompanying unaudited Condensed Consolidated Financial Statements in accordance with accounting principles generally accepted in the United States (U.S. GAAP). The preparation of the financial statements requires the use of judgments and estimates that affect the reported amounts of revenues, expenses, assets, liabilities and shareholders’ equity. We have adopted accounting policies and practices that are generally accepted in the industry in which we operate. If these estimates differ significantly from actual results, the impact to the Condensed Consolidated Financial Statements may be material.

There have been no material changes in our critical accounting policies and estimates from those disclosed in our Annual Report on Form 10‑K for the year ended June 28, 2024. Please refer to Part II, Item 7 of our Annual Report on Form 10‑K for the year ended June 28, 2024 for a discussion of our critical accounting policies and estimates.
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Item 3.    Quantitative and Qualitative Disclosures About Market Risk

Except as disclosed below, there have been no material changes to our market risk during the three months ended September 27, 2024. See Part II, Item 7A, Quantitative and Qualitative Disclosures About Market Risk in our Annual Report on Form 10-K for the year ended June 28, 2024 for further information about our exposure to market risk.

Foreign Currency Risk

We performed sensitivity analyses as of September 27, 2024, using a modeling technique that measures the change in the fair values arising from a hypothetical 10% adverse movement in the levels of foreign currency exchange rates relative to the U.S. dollar, with all other variables held constant. The analyses cover all of our foreign currency derivative contracts used to offset the underlying exposures. The foreign currency exchange rates used in performing the sensitivity analyses were based on market rates in effect at September 27, 2024. The sensitivity analyses indicated that a hypothetical 10% adverse movement in foreign currency exchange rates relative to the U.S. dollar would result in a foreign exchange fair value loss of $294 million at September 27, 2024.

Interest Rate Risk

We have generally held a balance of fixed and variable rate debt. As of September 27, 2024, our variable rate debt outstanding consisted of our Term Loan A-2, which is based on various index rates as discussed further in Note 7, Debt, of the Notes to Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q. As of September 27, 2024, the outstanding balance on our variable rate debt was $2.6 billion and a one percent increase in the variable rate of interest would increase annual interest expense by $26 million.

Item 4.    Controls and Procedures

Evaluation of Disclosure Controls and Procedures

As required by Rule 13a-15(b) promulgated by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as such term is defined in Rule 13a-15(e) under the Exchange Act) as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered by this Quarterly Report on Form 10-Q, our disclosure controls and procedures were effective.

Changes in Internal Controls over Financial Reporting

There has been no change in our internal control over financial reporting during the first quarter of fiscal year 2025 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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PART II. OTHER INFORMATION

Item 1.    Legal Proceedings

See Note 16, Legal Proceedings and Note 12, Income Tax Expense of the Notes to Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q for disclosures regarding certain legal proceedings and the status of statutory notices of deficiency issued by the IRS with regards to tax years 2008 through 2015, respectively, which are incorporated by reference herein.


Item 1A.    Risk Factors

We have described under the heading “Risk Factors” in Part I, Item 1A of our Annual Report on Form 10-K for the year ended June 28, 2024 a number of risks and uncertainties that could cause our actual results of operations and financial condition to vary materially from past, or from anticipated future, results of operations and financial condition. There have been no material changes from these risk factors previously described in Part I, Item 1A of our Annual Report on Form 10-K for the year ended June 28, 2024. These risks and uncertainties are not the only risks facing us. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also adversely affect our business, financial condition, results of operations or the market price of our common stock.

Item 5.    Other Information

Insider Trading Arrangements

None.

Item 6.    Exhibits

The exhibits listed in the Exhibit Index below are filed with, or incorporated by reference in, this Quarterly Report on Form 10-Q, as specified in the Exhibit List, from exhibits previously filed with the Securities and Exchange Commission. Certain agreements listed in the Exhibit Index that we have filed or incorporated by reference may contain representations and warranties by us or our subsidiaries. These representations and warranties have been made solely for the benefit of the other party or parties to such agreements and (i) may have been qualified by disclosures made to such other party or parties, (ii) were made only as of the date of such agreements or such other date(s) as may be specified in such agreements and are subject to more recent developments, which may not be fully reflected in our public disclosures, (iii) may reflect the allocation of risk among the parties to such agreements and (iv) may apply materiality standards different from what may be viewed as material to investors. Accordingly, these representations and warranties may not describe the actual state of affairs at the date hereof and should not be relied upon.
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EXHIBIT INDEX
Exhibit
Number		Description
Amended and Restated Certificate of Incorporation of Western Digital Corporation, as amended to date (Filed as Exhibit 3.1 to the Company’s Annual Report on Form 10-K (File No. 1-08703) with the Securities and Exchange Commission on August 20, 2024)
Certificate of Designations, Preferences and Rights of Series A Convertible Perpetual Preferred Stock (Filed as Exhibit 3.1 to the Company’s Current Report on Form 8-K (File No. 1-08703) with the Securities and Exchange Commission on February 1, 2023)
Amended and Restated By-Laws of Western Digital Corporation, as amended effective as of February 10, 2021 (Filed as Exhibit 3.1 to the Company’s Current Report on Form 8-K (File No. 1-08703) with the Securities and Exchange Commission on February 12, 2021)
Form of Grant Notice for Restricted Stock Unit Award – Vice President and Above, under the Western Digital Corporation Amended and Restated 2021 Long-Term Incentive Plan†*
Amended and Restated Equity Purchase Agreement, dated as of September 12, 2024, by and among, SanDisk China Limited and JCET Management Co., Ltd.†#
Certification of Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002†
Certification of Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002†
Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002**
Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002**
101.INS
XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document
101.SCHXBRL Taxonomy Extension Schema Document†
101.CALXBRL Taxonomy Extension Calculation Linkbase Document†
101.LABXBRL Taxonomy Extension Label Linkbase Document†
101.PREXBRL Taxonomy Extension Presentation Linkbase Document†
101.DEFXBRL Taxonomy Extension Definition Linkbase Document†
104Cover Page Interactive Data File - formatted in Inline XBRL and contained in Exhibit 101
†    Filed with this report.
* Management contract or compensatory plan or arrangement required to be filed as an exhibit pursuant to applicable rules of the Securities and Exchange Commission.
**    Furnished with this report.
# As permitted by Regulation S-K, Item 601(b)(10)(iv) of the Securities Exchange Act of 1934, as amended, certain confidential portions of this exhibit have been redacted from the publicly filed document.

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Quarterly Report on Form 10-Q to be signed on its behalf by the undersigned thereunto duly authorized.
WESTERN DIGITAL CORPORATION
By:/s/ Gene Zamiska
Gene Zamiska
Senior Vice President, Global Accounting and Chief Accounting Officer
(Principal Accounting Officer and Duly Authorized Officer)
Dated: October 30, 2024
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