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| 1,546 | | | 8.2 | % |
(1)Percentage may not total due to rounding.
The following table sets forth, for the periods presented, a summary of our segment information:
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| 2024 | | 2023 | | 2022 |
| (in millions, except percentages) |
| Net revenue: | | | | | |
| Flash | $ | 6,687 | | $ | 6,063 | | $ | 9,753 |
| HDD | 6,316 | | 6,255 | | 9,040 |
| Total net revenue | $ | 13,003 | | $ | 12,318 | | $ | 18,793 |
| Gross profit: | | | | | |
| Flash | $ | 1,079 | | $ | 433 | | $ | 3,527 |
| HDD | 1,881 | | 1,505 | | 2,661 |
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| | 2024 | | 2023 | | 2022 |
| (in millions) |
| Net cash provided by (used in): | | | | | |
| Operating activities | $ | (294) | | | $ | (408) | | | $ | 1,880 | |
| Investing activities | (27) | | | (762) | | | (1,192) | |
| Financing activities | 187 | | | 875 | | | (1,718) | |
| Effect of exchange rate changes on cash | (10) | | | (9) | | | (13) | |
Net decrease in cash and cash equivalents | $ | (144) | | | $ | (304) | | | $ | (1,043) | |
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, we also reached a final agreement for resolving the notices of proposed adjustments with respect to years 2013 through 2015. During the twelve months ended June 28, 2024, we made payments of $363 million for tax and $161 million for interest with respect to years 2008 through 2012 and recorded adjustments to align with IRS calculations, resulting in a remaining liability of $185 million as of June 28, 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 $165 million. Of this amount, $34 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 II, Item 8, Note 13, Income Tax Expense, of the Notes to the Consolidated Financial Statements in this Annual Report on Form 10-K.
We have an existing shelf registration statement (the “Shelf Registration Statement”) filed with the SEC, which allows us to offer and sell shares of common stock, preferred stock, warrants, and debt securities. The Shelf Registration Statement expires in late August 2024, and we plan to renew the Shelf Registration Statement at that time. 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.
As noted previously, in 2024, we had scaled back on capital expenditures, consolidating production lines and reducing bit growth to align with market demand. 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 in 2024 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 cautious in our capital investment and expect our cash capital expenditures in 2025 to remain below 2023 expenditures.
We believe our cash and cash equivalents as well as 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 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 I, Item 1A, Risk Factors, in this Annual Report on Form 10-K.
A total of $1.43 billion and $1.28 billion of our cash and cash equivalents were held outside of the U.S. as of June 28, 2024 and June 30, 2023, 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.
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 $307 million for 2024, as compared to $92 million of net cash provided by such changes for 2023, which largely reflects payments made on the IRS matter and an increase in net operating assets and liabilities resulting from the increase in the volume of our business. 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 timing of payments for taxes. Our cash conversion cycle measures how quickly we can convert our products into cash through sales. At the end of the respective fourth quarters, the cash conversion cycles were as follows (in days):
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| 2024 | | 2023 | | 2022 |
| (in days) |
| Days sales outstanding | 52 | | | 54 | | | 56 | |
| Days in inventory | 126 | | | 130 | | | 107 | |
| Days payables outstanding | (65) | | | (56) | | | (66) | |
| Cash conversion cycle | 113 | | | 128 | | | 97 | |
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.
In 2024, DSO decreased by 2 days over the prior year, reflecting timing of shipments and customer collections, partially offset by a 5-day increase from lower accounts receivable factoring. DIO decreased by 4 days over the prior year, primarily reflecting an increase in products shipped. DPO increased 9 days over 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 in 2024 primarily consisted of $487 million in capital expenditures, partially offset by $239 million in net notes receivable proceeds from (issuances to) Flash Ventures and $195 million in proceeds from the sale of property, plant and equipment. Net cash used in investing activities in 2023 primarily consisted of $821 million of capital expenditures, partially offset by $14 million in net notes receivable proceeds from (issuances to) Flash Ventures.
Financing Activities
During 2024, net cash provided by financing activities primarily consisted of $3.00 billion in proceeds from the issuance of the 2028 Convertible Notes, the drawdown of the Delayed Draw Term Loan and draws on the revolving credit facility. These sources were partially offset by $2.10 billion used for the repayment of draws on the revolving credit facility, repayments of the Delayed Draw Term Loan, scheduled payments on the Term Loan A-2, and settlement of the remaining 2024 Convertible Notes; $505 million used to repurchase a portion of the 2024 Convertible Notes and $155 million for the purchase of capped calls to hedge the potential dilution impact of the conversion feature of the 2028 Convertible Notes. Net cash provided by financing activities in 2023 primarily consisted of $881 million from the issuance of Series A Preferred Stock and $93 million from issuance of stock under employee stock plans, partially offset by $80 million used for taxes paid on vested stock awards under employee stock plans. In addition, we drew and repaid $1.18 billion under our revolving credit facility within the period.
A discussion of our cash flows for 2022, including a comparison of such cash flows to 2023, is included in Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources, included in our Annual Report on Form 10-K for the year ended June 30, 2023 filed with the SEC on August 22, 2023.
Off-Balance Sheet Arrangements
Other than the commitments related to Flash Ventures incurred in the normal course of business and certain indemnification provisions (see “Short- and Long-term Liquidity – Indemnifications” 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 Consolidated Financial Statements. Additionally, with the exception of Flash Ventures and our joint venture with Unisplendour Corporation Limited and Unissoft (Wuxi) Group Co. Ltd. (“Unis”), referred to as the “Unis Venture”, 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 II, Item 8, Note 9, Related Parties and Related Commitments and Contingencies, of the Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K.
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 June 28, 2024. In addition, see the discussions further below related to unrecognized tax benefits, the intellectual property litigation, dividend rights with respect to the Series A Preferred Stock, foreign exchange contracts and indemnifications. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Total | | 1 Year (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) | $ | 7,488 | | | $ | 1,750 | | | $ | 4,738 | | | $ | 500 | | | $ | 500 | |
| Interest on debt | 1,076 | | | 371 | | | 527 | | | 132 | | | 46 | |
Flash Ventures related commitments(2) | 4,168 | | | 2,021 | | | 1,526 | | | 522 | | | 99 | |
| Operating leases | 499 | | | 60 | | | 107 | | | 78 | | | 254 | |
| Purchase obligations and other commitments | 477 | | | 172 | | | 155 | | | 40 | | | 110 | |
| Mandatory deemed repatriation tax | 466 | | | 265 | | | 201 | | | — | | | — | |
| Total | $ | 14,174 | | | $ | 4,639 | | | $ | 7,254 | | | $ | 1,272 | | | $ | 1,009 | |
(1)Principal portion of debt, excluding discounts and issuance costs based on contractual maturity. As of June 28, 2024, $1.60 billion of our 2028 Convertible Notes are currently convertible at the option of the holders through September 30, 2024, at which point the trading price of our common stock price will be re-evaluated to determine if the 2028 Convertible Notes will continue to be convertible in the subsequent calendar quarter.
(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 June 28, 2024, the liability for unrecognized tax benefits (excluding accrued interest and penalties) was approximately $721 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 related to unrecognized tax benefits as of June 28, 2024, were approximately $181 million. Of these amounts, approximately $736 million could result in potential cash payments.
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, we also reached a final agreement for resolving the notices of proposed adjustments with respect to years 2013 through 2015. During the twelve months ended June 28, 2024, we made payments of $363 million for tax and $161 million for interest with respect to years 2008 through 2012 and recorded adjustments to align with IRS calculations, resulting in a remaining liability of $185 million as of June 28, 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 $165 million. Of this amount, $34 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 II, Item 8, Note 13, Income Tax Expense of the Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K.
Intellectual Property Litigation
As of June 28, 2024, we have recognized an aggregate liability of $384 million within Accrued expenses on our Consolidated Balance Sheets as of June 28, 2024, for the potential loss from a litigation matter, as discussed in Part II, Item 8, Note 17, Legal Proceedings, of the Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K. Of that amount, $291 million was recognized as Litigation matter under Operating expenses on our Consolidated Statements of Operations for the year ended June 28, 2024 and $93 million recognized within Other non-current assets on the our Consolidated Balance Sheets as June 28, 2024, to be amortized over the remaining lives of the MRT Patents. See Part II, Item 8, Note 17, Legal Proceedings, of the Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K for more information.
Dividends
As of June 28, 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 Consolidated Financial Statements included in this Annual Report on Form 10-K for more information regarding these dividend provisions.
In April 2020, we suspended the payment of dividends to common shareholders and intend to utilize cash from operations to reinvest in the business and to support our ongoing deleveraging efforts.
Debt
As described in “Key Developments – Financing Activities” above, we undertook several financing actions during 2024, including the issuance of the 2028 Convertible Notes and the repurchase and/or settlement of our 2024 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 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 30 trading-day period ended June 28, 2024, the last trading day of the applicable calendar quarter, the trading price of our common stock was greater than or equal to 130% of the then-applicable conversion price for the 2028 Convertible Notes for at least 20 trading days. As such, the conditional conversion feature of the 2028 Convertible Notes was triggered and the 2028 Convertible Notes are convertible through September 30, 2024, at which point the trading price of our common stock price will be re-evaluated to determine if the 2028 Convertible Notes will continue to be convertible in the subsequent calendar quarter.
In addition to our existing debt, as of June 28, 2024, we had $2.22 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 and other key terms of our outstanding indebtedness, is included in Part II, Item 8, Note 7, Debt, of the Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K. The loan agreement governing our revolving credit facility and our Term Loan A-2 due 2027 require us to comply with certain financial covenants, consisting of a minimum leverage ratio covenant and a minimum liquidity covenant. As of June 28, 2024, we were in compliance with these financial covenants.
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 June 28, 2024, we were in compliance with all covenants under these Japanese lease facilities. See Part II, Item 8, Note 9, Related Parties and Related Commitments and Contingencies, of the Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K for information regarding Flash Ventures.
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 years (in millions): | | | | | | | | |
| | June 28,
2024 |
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| 2025 | | $ | 265 | |
| 2026 | | 201 | |
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| Total | | $ | 466 | |
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 materially 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. For a description of our current foreign exchange contract commitments, see Part II, Item 8, Note 6, Derivative Instruments and Hedging Activities, of the Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K.
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 will 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 II, Item 8, Note 2, Recent Accounting Pronouncements, of the Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K.
Critical Accounting Policies and Estimates
We have prepared the accompanying 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 Consolidated Financial Statements may be material.
Revenue
We provide distributors and retailers (collectively referred to as “resellers”) with limited price protection for inventories held by resellers at the time of published list price reductions. We also provide resellers and OEMs with other sales incentive programs. We record estimated variable consideration related to these items as a reduction to revenue at the time of revenue recognition. We use judgment in our assessment of variable consideration in contracts to be included in the transaction price. We use the expected value method to arrive at the amount of variable consideration. We constrain variable consideration until the likelihood of a significant revenue reversal is not probable and believes that the expected value method is the appropriate estimate of the amount of variable consideration based on the fact that we have a large number of contracts with similar characteristics.
For sales to OEMs, our methodology for estimating variable consideration is based on the amount of consideration expected to be earned based on the OEMs’ volume of purchases from us or other agreed-upon sales incentive programs. For sales to resellers, the methodology for estimating variable consideration is based on several factors including historical pricing information, current pricing trends and channel inventory levels. Estimating the impact of these factors requires significant judgement and the estimated amount of variable consideration can differ from the actual amount.
Inventories
We value inventories at the lower of cost or net realizable value (“NRV”), with cost determined on a first-in, first-out basis. We record inventory write-downs of our inventory to lower of cost or net realizable value or for obsolete or excess inventory based on assumptions, which requires significant judgement. The determination of NRV involves estimating the ASPs less any selling expenses of inventory based on market conditions and customer demand. To estimate the ASPs and selling expenses of inventory, we review historical sales, future demand, economic conditions, contract prices and other information.
We periodically perform an excess and obsolete analysis of our inventory based on assumptions, which includes changes in business and economic conditions, changes in technology and projected demand of our products. If in any period we anticipate a change in those assumptions to be less favorable than our previous estimates, additional inventory write-downs may be required and could materially and negatively impact our gross margin. If in any period, we can sell inventories that had been written down to a level below the realized selling price in previous period, higher gross profit would be recognized in that period. While adjustments to these reserves have generally not been material to the years presented, in 2023, we recorded a charge to Cost of revenue of approximately $130 million, primarily to reduce component inventory to net realizable value as a result of a sudden change in demand for certain products.
Income Taxes
We account for income taxes under the asset and liability method, which provides that deferred tax assets and liabilities be recognized for temporary differences between the financial reporting basis and the tax basis of our assets and liabilities and expected benefits of utilizing net operating loss and tax credit carryforwards. We record a valuation allowance when it is more likely than not that the deferred tax assets will not be realized. Each quarter, we evaluate the need for a valuation allowance for our deferred tax assets and we adjust the valuation allowance so that we record net deferred tax assets only to the extent that we conclude it is more likely than not that these deferred tax assets will be realized. The assessment of valuation allowances against our deferred tax assets requires estimations and significant judgment. We continue to assess and adjust our valuation allowance based on operating results and market conditions. We account for interest and penalties related to income taxes as a component of the provision for income taxes.
We recognize liabilities for uncertain tax positions based on a two-step process. To the extent a tax position does not meet a more-likely-than-not level of certainty, no benefit is recognized in the Consolidated Financial Statements. If a position meets the more-likely-than-not level of certainty, it is recognized in the Consolidated Financial Statements at the largest amount that has a greater than 50% likelihood of being realized upon ultimate settlement. Interest and penalties related to unrecognized tax benefits are recognized on liabilities recorded for uncertain tax positions and are recorded in our provision for income taxes. The actual liability for unrealized tax benefits in any such contingency may be materially different from our estimates, which could result in the need to record additional liabilities for unrecognized tax benefits or potentially adjust previously-recorded liabilities for unrealized tax benefits and materially affect our operating results.
Goodwill
Goodwill is not amortized. Instead, it is tested for impairment on an annual basis or more frequently whenever events or changes in circumstances indicate that goodwill may be impaired. We perform our annual impairment test as of the first day of our fourth quarter for each reporting unit. We use qualitative factors to determine whether goodwill is more likely than not impaired and whether a quantitative test for impairment is considered necessary. If we conclude from the qualitative assessment that goodwill is more likely than not impaired, we are required to perform a quantitative assessment to determine the amount of impairment. We are required to use judgment when applying the goodwill impairment test, including in the identification of our reporting units. We also make judgments and assumptions in the assignment of assets and liabilities to our reporting units, assignment of goodwill to reporting units and determination of the fair value of each reporting unit. In addition, the estimates used to determine the fair value of each of our reporting units may change based on results of operations, macroeconomic conditions or other factors. Changes in these estimates could materially affect our assessment of the fair value and goodwill impairment for each reporting unit. If our stock price decreases significantly, goodwill could become impaired, which could result in a material charge and adversely affect our results of operations. We have not identified any impairment indicators for our reporting units as of June 28, 2024. We also did not incur any impairment charges for 2023 or 2022.
Litigation and Contingencies
We disclose information regarding claims and contingencies where the likelihood of a material loss is probable or reasonably possible. If a loss contingency is probable and the amount of the loss can be reasonably estimated, we record an accrual for the loss. In such cases, there may be an exposure to potential loss in excess of the amount accrued. Where a loss is not probable but is reasonably possible or where a loss in excess of the amount accrued is reasonably possible, we disclose the matter and an estimate of the amount of the loss or range of possible losses for the claim if a reasonable estimate can be made, unless the amount of such reasonably possible losses is not material to our financial position, results of operations or cash flows. The ability to predict the ultimate outcome of such matters involves significant judgments about the merits of the claim, applicable law, potential outcomes, estimates and inherent uncertainties. We engage relevant subject matter experts to assist us with our assessment of available information to reach conclusions on the likelihood and amount, or range, of potential loss. The actual outcome of such matters could differ materially from our estimates.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Disclosure About Foreign Currency Risk
Although the majority of our transactions are in U.S. dollars, some transactions are based in various foreign currencies. We purchase short-term foreign exchange contracts to hedge the impact of foreign currency exchange fluctuations on certain underlying assets, liabilities and commitments for product costs and Operating expenses denominated in foreign currencies. The purpose of entering into these hedge transactions is to minimize the impact of foreign currency fluctuations on our results of operations. Substantially all of the contract maturity dates do not exceed 12 months. We do not purchase foreign exchange contracts for speculative or trading purposes. For additional information, see Part II, Item 8, Note 5, Fair Value Measurements and Investments, and Note 6, Derivative Instruments and Hedging Activities, of the Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K.
We have performed sensitivity analyses for 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 June 28, 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 $248 million at June 28, 2024.
During 2024, 2023 and 2022, total net realized and unrealized transaction and foreign exchange contract currency gains and losses were not material to our Consolidated Financial Statements.
Notwithstanding our efforts to mitigate some foreign exchange risks, we do not hedge all of our foreign currency exposures, and there can be no assurance that our mitigating activities related to the exposures that we hedge will adequately protect us against risks associated with foreign currency fluctuations.
Disclosure About Interest Rate Risk
Variable Interest Rate Risk
We have generally held a balance of fixed and variable rate debt. As of June 28, 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 Consolidated Financial Statements included in this Annual Report on Form 10-K. As of June 28, 2024, the outstanding balance on our Term Loan A-2 was $2.59 billion and a 1% increase in the variable rate of interest would increase annual interest expense by $26 million.
Item 8. Financial Statements and Supplementary Data
Index to Financial Statements | | | | | |
| PAGE NO. |
Consolidated Financial Statements: | |
Report of Independent Registered Public Accounting Firm (Auditor Firm ID: ) | |
| Consolidated Balance Sheets — As of June 28, 2024 and June 30, 2023 | |
| Consolidated Statements of Operations — Three Years Ended June 28, 2024 | |
| Consolidated Statements of Comprehensive Loss — Three Years Ended June 28, 2024 | |
| Consolidated Statements of Cash Flows — Three Years Ended June 28, 2024 | |
| Consolidated Statements of Convertible Preferred Stock and Shareholders' Equity — Three Years Ended June 28, 2024 | |
Notes to Consolidated Financial Statements | |
|
|
|
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors
Western Digital Corporation:
Opinions on the Consolidated Financial Statements and Internal Control Over Financial Reporting
We have audited the accompanying consolidated balance sheets of Western Digital Corporation and subsidiaries (the Company) as of June 28, 2024 and June 30, 2023, the related consolidated statements of operations, comprehensive income (loss), cash flows, convertible preferred stock and shareholders’ equity for each of the years in the three-year period ended June 28, 2024, and the related notes (collectively, the consolidated financial statements). We also have audited the Company’s internal control over financial reporting as of June 28, 2024, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of June 28, 2024 and June 30, 2023, and the results of its operations and its cash flows for each of the years in the three-year period ended June 28, 2024, in conformity with U.S. generally accepted accounting principles. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of June 28, 2024 based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
Basis for Opinions
The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Item 9A Controls and Procedures – Management's Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s consolidated financial statements and an opinion on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Assessment of variable consideration for sales to resellers
As discussed in Note 1 to the consolidated financial statements, the Company provides resellers with price protection and other sales incentive programs. The Company uses judgment in its assessment of variable consideration related to these items in contracts to be included in the transaction price. The Company’s estimate of variable consideration for sales to resellers is based on several factors, including historical pricing information, current pricing trends, and channel inventory levels.
We identified the assessment of variable consideration for sales to resellers as a critical audit matter. A high degree of subjective auditor judgment was required to evaluate the Company’s historical pricing information and the level of channel inventory used to determine variable consideration for sales to resellers.
The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal controls related to the Company’s process for determining the variable consideration, including certain controls related to historical pricing information and the level of channel inventory. We evaluated historical pricing by inspecting a sample of customer contracts with resellers and comparing the sales incentives earned during the year to the sales incentive program terms and conditions and recalculating amounts paid to the resellers. We tested the channel inventory levels by comparing the on-hand inventory amounts for a sample of resellers to information obtained from the resellers and evaluated the reasonableness of reconciling items.
/s/
We have served as the Company’s auditor since 1970.
August 19, 2024
WESTERN DIGITAL CORPORATION
CONSOLIDATED BALANCE SHEETS
(in millions, except par value)
| | | | | | | | | | | |
| June 28,
2024 | | June 30,
2023 |
| | | |
| ASSETS |
| Current assets: | | | |
| Cash and cash equivalents | $ | | | | $ | | |
| Accounts receivable, net | | | | | |
| Inventories | | | | | |
| Other current assets | | | | | |
| Total current assets | | | | | |
| Property, plant and equipment, net | | | | | |
| Notes receivable and investments in Flash Ventures | | | | | |
| Goodwill | | | | | |
| Other intangible assets, net | | | | | |
| Other non-current assets | | | | | |
| Total assets | $ | | | | $ | | |
| LIABILITIES, CONVERTIBLE PREFERRED STOCK AND SHAREHOLDERS’ EQUITY |
| Current liabilities: | | | |
| Accounts payable | $ | | | | $ | | |
| Accounts payable to related parties | | | | | |
| Accrued expenses | | | | | |
| Income taxes payable | | | | | |
| Accrued compensation | | | | | |
| Current portion of long-term debt | | | | | |
| Total current liabilities | | | | | |
| Long-term debt | | | | | |
| Other liabilities | | | | | |
| Total liabilities | | | | | |
Commitments and contingencies (Notes 9, 10, 13 and 17) | par value; authorized — shares; issued and outstanding — shares in 2024 and shares in 2023; aggregate liquidation preference of $ and $ as of June 28, 2024 and June 30, 2023, respectively | | | | | |
| Shareholders’ equity: | | | |
|
Common stock, $ par value; authorized — shares in 2024 and shares in 2023; issued and outstanding — shares in 2024 and shares in 2023 | | | | | |
| Additional paid-in capital | | | | | |
| Accumulated other comprehensive loss | () | | | () | |
| Retained earnings | | | | | |
|
|
|
)
) )) )
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| | | | | |
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) | | () | | | () | |
| | | | | |
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)) )| () | | | $ | () | | | $ | | |
The accompanying notes are an integral part of these Consolidated Financial Statements.
WESTERN DIGITAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
| | | | | | | | | | | | | | | | | |
| Year Ended |
| June 28,
2024 | | June 30,
2023 | | July 1,
2022 |
| Cash flows from operating activities | | | | | |
| Net income (loss) | $ | () | | | $ | () | | | $ | | |
Adjustments to reconcile net income (loss) to net cash provided by (used in) operations: | | | | | |
| Depreciation and amortization | | | | | | | | |
| Stock-based compensation | | | | | | | | |
| Deferred income taxes | () | | | () | | | | |
| Gain on disposal of assets | () | | | () | | | () | |
Non-cash asset impairment | | | | | | | | |
| Gain on business divestiture | | | | | | | () | |
| Amortization of debt issuance costs and discounts | | | | | | | | |
| |
| Other non-cash operating activities, net | | | | | | | | |
| Changes in: | | | | | |
| Accounts receivable, net | () | | | | | | () | |
| Inventories | | | | () | | | () | |
| Accounts payable | | | | () | | | () | |
| Accounts payable to related parties | | | | () | | | () | |
| Accrued expenses | | | | () | | | | |
| Income taxes payable | () | | | | | | () | |
| Accrued compensation | | | | () | | | () | |
| Other assets and liabilities, net | () | | | () | | | () | |
| Net cash provided by (used in) operating activities | () | | | () | | | | |
| Cash flows from investing activities | | | | | |
| Purchases of property, plant and equipment | () | | | () | | | () | |
| Proceeds from the sale of property, plant and equipment | | | | | | | | |
| |
| |
| |
| |
| Proceeds from dispositions of business | | | | | | | | |
| Notes receivable issuances to Flash Ventures | () | | | () | | | () | |
| Notes receivable proceeds from Flash Ventures | | | | | | | | |
| Strategic investments and other, net | | | | | | | () | |
| Net cash used in investing activities | () | | | () | | | () | |
| Cash flows from financing activities | | | | | |
| Issuance of stock under employee stock plans | | | | | | | | |
| Taxes paid on vested stock awards under employee stock plans | () | | | () | | | () | |
Purchase of capped calls | () | | | | | | | |
Proceeds from convertible preferred stock, net of issuance costs | () | | | | | | | |
| |
| |
| |
| |
Repurchases of debt | () | | | | | | | |
| Repayment of debt | () | | | () | | | () | |
| Proceeds from debt issuance | | | | | | | | |
| Debt issuance costs | () | | | () | | | () | |
| Net cash provided by (used in) financing activities | | | | | | | () | |
| Effect of exchange rate changes on cash | () | | | () | | | () | |
Net decrease in cash and cash equivalents | () | | | () | | | () | |
| Cash and cash equivalents, beginning of year | | | | | | | | |
| Cash and cash equivalents, end of year | $ | | | | $ | | | | $ | | |
| Supplemental disclosure of cash flow information: | | | | | |
| Cash paid for income taxes | $ | | | | $ | | | | $ | | |
| Cash paid for interest | $ | | | | $ | | | | $ | | |
| |
| |
| Noncash exchange of Term Loan A-1 for Term Loan A-2 | $ | | | | $ | | | | $ | | |
The accompanying notes are an integral part of these Consolidated Financial Statements.
WESTERN DIGITAL CORPORATION
CONSOLIDATED STATEMENTS OF CONVERTIBLE PREFERRED STOCK AND SHAREHOLDERS’ EQUITY
(in millions) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Convertible Preferred Stock | | | Common Stock | | Treasury Stock | | Additional Paid-In Capital | | Accumulated Other Comprehensive Loss | | Retained Earnings | | Total Shareholders’ Equity |
| Shares | | Amount | | | Shares | | Amount | | Shares | | Amount | | | | |
| Balance at July 2, 2021 | | | | $ | | | | | | | | $ | | | | () | | | $ | () | | | $ | | | | $ | () | | | $ | | | | $ | | |
| Net income | — | | | — | | | | — | | | — | | | — | | | — | | | — | | | — | | | | | | | |
| | | | | | | | | | | | | | | | |
| Employee stock plans | — | | | — | | | | | | | — | | | | | | | | | () | | | — | | | — | | | | |
| Stock-based compensation | — | | | — | | | | — | | | — | | | — | | | — | | | | | | — | | | — | | | | |
| | | | | | | | | | | | | | | | |
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| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| Actuarial pension gain | — | | | — | | | | — | | | — | | | — | | | — | | | — | | | | | | — | | | | |
| Foreign currency translation adjustment | — | | | — | | | | — | | | — | | | — | | | — | | | — | | | () | | | — | | | () | |
| Net unrealized loss on derivative contracts | — | | | — | | | | — | | | — | | | — | | | — | | | — | | | () | | | — | | | () | |
| Balance at July 1, 2022 | | | | | | | | | | | | | | | | | | | | | | | () | | | | | | | |
| Net loss | — | | | — | | | | — | | | — | | | — | | | — | | | — | | | — | | | () | | | () | |
| Adoption of new accounting standard | — | | | — | | | | — | | | — | | | — | | | — | | | () | | | — | | | | | | () | |
| Employee stock plans | — | | | — | | | | | | | — | | | — | | | — | | | | | | — | | | — | | | | |
| Stock-based compensation | — | | | — | | | | — | | | — | | | — | | | — | | | | | | — | | | — | | | | |
| Issuance of convertible preferred stock, net of issuance costs | | | | | | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| | | | | | | | | | | | | | | | |
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| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| Actuarial pension gain | — | | | — | | | | — | | | — | | | — | | | — | | | — | | | | | | — | | | | |
| Foreign currency translation adjustment | — | | | — | | | | — | | | — | | | — | | | — | | | — | | | () | | | — | | | () | |
| Net unrealized gain on derivative contracts | — | | | — | | | | — | | | — | | | — | | | — | | | — | | | | | | — | | | | |
| Balance at June 30, 2023 | | | | | | | | | | | | | | | | | | | | | | | () | | | | | | | |
| Net loss | — | | | — | | | | — | | | — | | | — | | | — | | | — | | | — | | | () | | | () | |
| | | | | | | | | | | | | | | | |
| Purchase of capped calls related to the issuance of convertible notes, net of tax | — | | | — | | | | — | | | — | | | — | | | — | | | () | | | — | | | — | | | () | |
| Conversion of convertible preferred stock | () | | | () | | | | | | | — | | | — | | | — | | | | | | — | | | — | | | | |
| Employee stock plans | — | | | — | | | | | | | — | | | — | | | — | | | () | | | — | | | — | | | () | |
| Stock-based compensation | — | | | — | | | | — | | | — | | | — | | | — | | | | | | — | | | — | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| Actuarial pension gain | — | | | — | | | | — | | | — | | | — | | | — | | | — | | | | | | — | | | | |
| Foreign currency translation adjustment | — | | | — | | | | — | | | — | | | — | | | — | | | — | | | () | | | — | | | () | |
| Net unrealized loss on derivative contracts | — | | | — | | | | — | | | — | | | — | | | — | | | — | | | () | | | — | | | () | |
| Balance at June 28, 2024 | | | | $ | | | | | | | | $ | | | | | | | $ | | | | $ | | | | $ | () | | | $ | | | | $ | | |
The accompanying notes are an integral part of these Consolidated Financial Statements.
WESTERN DIGITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1.
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.
WESTERN DIGITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
WESTERN DIGITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
. The majority of the Company’s machinery and equipment, software, and furniture and fixtures, are depreciated on a straight-line basis over a period of two to . Leasehold improvements are amortized over the lesser of the estimated useful lives of the assets or the related lease terms.
impairment of goodwill in 2024, 2023 or 2022.
The Company is required to use judgment when applying the goodwill impairment test, including the identification of reporting units, assignment of assets, liabilities and goodwill to reporting units, and determination of the fair value of each reporting unit. In addition, the estimates used to determine the fair value of reporting units may change based on the results of operations, macroeconomic conditions or other factors. Changes in these estimates could materially affect the Company’s assessment of the fair value and goodwill impairment. If the Company’s stock price decreases significantly, goodwill could become impaired, which could result in a material charge and adversely affect the Company’s results of operations.
IPR&D is an intangible asset accounted as an indefinite-lived asset until the completion or abandonment of the associated research and development effort. During the development period, the Company conducts an IPR&D impairment test at least annually or whenever events or changes in facts and circumstances indicate that it is more likely than not that the IPR&D is impaired. Events which might indicate impairment include, but are not limited to, adverse cost factors, strategic decisions made in response to economic, market, and competitive conditions, and the impact of the economic environment on the Company and on its customer base. If impairment is indicated, the impairment is measured as the amount by which the carrying amount of the assets exceeds the fair value of the assets. The Company’s assessment resulted in impairment of IPR&D in 2024, 2023 or 2022.
WESTERN DIGITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
WESTERN DIGITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
, with a small number of products having a warranty ranging up to or more. The warranty provision considers estimated product failure rates and trends, estimated replacement costs, estimated repair costs which include scrap costs and estimated costs for customer compensatory claims related to product quality issues, if any. For warranties ten years or greater, including lifetime warranties, the Company uses the estimated useful life of the product to calculate the warranty exposure. A statistical warranty tracking model is used to help prepare estimates and assist the Company in exercising judgment in determining the underlying estimates. The statistical tracking model captures specific detail on product reliability, such as factory test data, historical field return rates and costs to repair by product type. Management’s judgment is subject to a greater degree of subjectivity with respect to newly introduced products because of limited field experience with those products upon which to base warranty estimates. Management reviews the warranty accrual quarterly for products shipped in prior periods and which are still under warranty. Any changes in the estimates underlying the accrual may result in adjustments that impact current period gross profit and income. Such changes are generally a result of differences between forecasted and actual return rate experience and costs to repair and could differ significantly from the estimates.
See Note 17, Legal Proceedings, for additional disclosures related to the Company’s litigation.
WESTERN DIGITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
and amounted to $ million, $ million and $ million in 2024, 2023 and 2022, respectively. These expenses are included in Selling, general and administrative in the Consolidated Statements of Operations.
WESTERN DIGITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
billion and $ billion at June 28, 2024 and June 30, 2023, respectively.
If the derivative is designated as a cash flow hedge and is determined to be highly effective, the change in fair value of the derivative is initially deferred in Other comprehensive income (loss), net of tax. These amounts are subsequently recognized into earnings when the underlying cash flow being hedged is recognized into earnings. Recognized gains and losses on foreign exchange contracts are reported in Cost of revenue and Operating expenses, and presented within cash flows from operating activities. The Company previously had interest rate swaps which were accounted for as designated cash flow hedges to mitigate variations in interest payments under a portion of its variable rate term loans. The Company paid interest monthly at a fixed rate and received interest monthly at the applicable index rate on the notional amount of the contract with realized gains or losses recognized in Interest expense. Hedge effectiveness is measured by comparing the hedging instrument’s cumulative change in fair value from inception to maturity to the underlying exposure’s terminal value. The Company determined the ineffectiveness associated with its cash flow hedges to be immaterial to the Consolidated Financial Statements for all years presented.
WESTERN DIGITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
WESTERN DIGITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Note 2.
WESTERN DIGITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Note 3.
| | $ | | | | $ | | | | HDD | | | | | | | | |
| Total net revenue | $ | | | | $ | | | | $ | | |
| Gross profit: | | | | | |
| Flash | $ | | | | $ | | | | $ | | |
| HDD | | | | | | | | |
| Total gross profit for segments | | | | | | | | |
| Unallocated corporate items: | | | | | |
| Stock-based compensation expense | () | | | () | | | () | |
| Amortization of acquired intangible assets | () | | | | | | () | |
Recovery from contamination incident | | | | | | | | |
| Contamination related charges | | | | | | | () | |
| Recoveries from a power outage incident | | | | | | | | |
| Other | | | | () | | | | |
| Total unallocated corporate items | () | | | () | | | () | |
| Consolidated gross profit | $ | | | | $ | | | | $ | | |
| Gross margin: | | | | | |
| Flash | | % | | | % | | | % |
| HDD | | % | | | % | | | % |
| Consolidated gross margin | | % | | | % | | | % |
Disaggregated Revenue
The Company’s broad portfolio of technology and products address 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.
| | $ | | | | $ | | |
| Client | | | | | | | | |
| Consumer | | | | | | | | |
Total revenue | $ | | | | $ | | | | $ | | |
WESTERN DIGITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
| | $ | | | | $ | | | | China | | | | | | | | |
| Hong Kong | | | | | | | | |
| Rest of Asia | | | | | | | | |
| Europe, Middle East and Africa | | | | | | | | |
| Other | | | | | | | | |
| Total | $ | | | | $ | | | | $ | | |
(1) Net revenue is attributed to geographic regions based on the ship-to location of the customer. License and royalty revenue is attributed to countries based upon the location of the headquarters of the licensee.
| | $ | | | | Malaysia | | | | | |
| China | | | | | |
| Thailand | | | | | |
| Rest of Asia | | | | | |
| Europe, Middle East and Africa | | | | | |
| Total | $ | | | | $ | | |
(1) Long-lived assets include property, plant and equipment and are attributed to the geographic location in which they are located.
Customer Concentration and Credit Risk
The Company sells its products to computer manufacturers and OEMs, cloud service providers, resellers, distributors and retailers throughout the world. For 2024, 2023 and 2022, no customer accounted for 10% or more of the Company’s net revenue. For 2024, 2023 and 2022, the Company’s top 10 customers accounted for %, % and %, respectively, of the Company’s net revenue.
The Company performs ongoing credit evaluations of its customers’ financial condition to manage collection risk, in some cases supplemented by collateral. The Company maintains allowances for potential credit losses, and such losses have historically been within management’s expectations. At any given point in time, the total amount outstanding from any one of a number of its customers may be individually significant to the Company’s financial condition. As of June 28, 2024 and June 30, 2023, net accounts receivable were $ billion and $ billion, respectively, and reserves for potential credit losses were not material. As of June 28, 2024, one customer accounted for % of the Company’s net accounts receivable and as of June 30, 2023, two customers accounted for % and % of the Company’s net accounts receivable.
WESTERN DIGITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
| | $ | | | | $ | | | | |
| Foreign currency translation adjustment | () | | | () | | | () | |
| |
|
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|
| | | | $ | | | | $ | | |
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))| | | | $ | | | | $ | | |
The current portion of the warranty accrual is classified in Accrued expenses and the long-term portion is classified in Other liabilities as noted below: | | | | | | | | | | | | | |
| 2024 | | 2023 | | |
| (in millions) |
Warranty accrual: | | | | | |
| Current portion (included in Accrued expenses) | $ | | | | $ | | | | |
| Long-term portion (included in Other liabilities) | | | | | | | |
| Total warranty accrual | $ | | | | $ | | | | |
| Total Accumulated Comprehensive Loss |
| (in millions) |
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) ) )) )| () | | | $ | () | |
During 2024, the amounts reclassified out of AOCL included losses of $ million related to foreign exchange contracts.
During 2023, the amounts reclassified out of AOCL included losses of $ million related to foreign exchange contracts, and gains of $ million related to interest rate swaps.
The gains and losses related to interest rate swaps were charged to Interest expense and losses related to foreign contracts were substantially all charged to Cost of revenue in the Consolidated Statements of Operations.
WESTERN DIGITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Note 5.
| | $ | | | | $ | | | | $ | | | | | | |
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| Foreign exchange contracts | | | | | | | | | | | |
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| Total assets at fair value | $ | | | | $ | | | | $ | | | | $ | | |
| Liabilities: | | | | | | | |
| Foreign exchange contracts | $ | | | | $ | | | | $ | | | | $ | | |
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| Total liabilities at fair value | $ | | | | $ | | | | $ | | | | $ | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| June 30, 2023 |
| | Level 1 | | Level 2 | | Level 3 | | Total |
| (in millions) |
| Assets: | | | | | | | |
| | | |
| Cash equivalents – Money market funds | $ | | | | $ | | | | $ | | | | $ | | |
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| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| Foreign exchange contracts | | | | | | | | | | | |
| | | |
| | | |
| Total assets at fair value | $ | | | | $ | | | | $ | | | | $ | | |
| Liabilities: | | | | | | | |
| Foreign exchange contracts | $ | | | | $ | | | | $ | | | | $ | | |
| | | |
| | | |
| Total liabilities at fair value | $ | | | | $ | | | | $ | | | | $ | | |
WESTERN DIGITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
$ | | | | $ | | | | $ | | | | $ | | | % convertible notes due 2028 | | | | | | | | | | | |
| | | |
% senior unsecured notes due 2026 | | | | | | | | | | | |
| Variable interest rate Term Loan A-2 maturing 2027 | | | | | | | | | | | |
% senior notes due 2029 | | | | | | | | | | | |
% senior notes due 2032 | | | | | | | | | | | |
| Total | $ | | | | $ | | | | $ | | | | $ | | |
WESTERN DIGITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Note 6.
. As of June 28, 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 are recognized in Other income, net and are largely offset by corresponding changes in the fair values of the foreign-currency denominated monetary assets and liabilities. For each of 2024, 2023 and 2022, total net realized and unrealized transaction and foreign exchange contract currency gains and losses were not material to the Company’s Consolidated Financial Statements.
Unrealized gains or losses on designated cash flow hedges are 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 June 28, 2024 and June 30, 2023, 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 Consolidated Balance Sheets.
WESTERN DIGITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Note 7.
% convertible notes due 2024$ | | | | $ | | | % convertible notes due 2028 | | | | | |
% senior unsecured notes due 2026 | | | | | |
| Variable interest rate Term Loan A-2 maturing 2027 | | | | | |
% senior notes due 2029 | | | | | |
% senior notes due 2032 | | | | | |
| Total debt | | | | | |
| Issuance costs | () | | | () | |
| Subtotal | | | | | |
| Less: current portion of long-term debt | () | | | () | |
| Long-term debt | $ | | | | $ | | |
On November 3, 2023, the Company issued $ billion aggregate principal amount of convertible senior notes which bear interest at an annual rate of % and mature on November 15, 2028, unless earlier repurchased, redeemed or converted (the “2028 Convertible Notes”). The Company is not required to make principal payments on the 2028 Convertible Notes prior to the maturity date. The 2028 Convertible Notes are jointly and severally guaranteed by each of the Company’s wholly-owned subsidiaries that guarantees the % senior unsecured notes due 2026 (currently, Western Digital Technologies, Inc., Sandisk Technologies, Inc. and Sandisk Corporation).
The 2028 Convertible Notes are convertible at the option of any holder beginning on August 15, 2028 at an initial conversion price of approximately $ per share of common stock. Prior to that date, if the trading price of the Company’s common stock remains above % of the conversion price for at least trading days (whether or not consecutive) during the 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, 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.
During the three months ended June 28, 2024, the conditional conversion feature above of the 2028 Convertible Notes was triggered, based on the price of the Company’s common stock, as the last reported sale price of the Company’s common stock was greater than or equal to % of the then-applicable conversion price for the 2028 Convertible Notes for at least trading days during the period of consecutive trading days ending on June 28, 2024, the last trading day of the applicable calendar quarter. Accordingly, the 2028 Convertible Notes are convertible through September 30, 2024, at which point the common stock price will be re-evaluated to determine if the 2028 Convertible Notes will continue to be convertible in the subsequent calendar quarter. The Company has classified the 2028 Convertible Notes as current liabilities in the Company’s Consolidated Financial Statements as of June 28, 2024.
Net proceeds from the 2028 Convertible Notes were approximately $ billion after deducting issuance costs of approximately $ million. Debt issuance costs are amortized to interest expense over the term of the 2028 Convertible Notes. As of June 28, 2024, issuance costs of $ million remained unamortized.
For the year ended June 28, 2024, the total interest expense was $ million with coupon interest expense of $ million and the amortization of debt discount and issuance costs of $ million, respectively.
WESTERN DIGITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
In February 2018, the Company issued $ billion aggregate principal amount of convertible senior notes due February 1, 2024 (the “2024 Convertible Notes”). The 2024 Convertible Notes bore interest at an annual rate of % with interest payable on February 1 and August 1 of each year. Contemporaneously with the issuance of the 2028 Convertible Notes as noted above, the Company entered into individually negotiated transactions with certain holders of the Company’s 2024 Convertible Notes to repurchase approximately $ million aggregate principal amount of such notes at an immaterial discount. On February 1, 2024, the Company settled all remaining 2024 Convertible Notes in accordance with their original terms for an aggregate cash principal payment of $ million plus interest.
During the year ended June 28, 2024, the Company entered into a third amendment (“Amendment No. 3”) to the Company’s Amended and Restated Loan Agreement, dated as of January 7, 2022 which governs the Term-Loan A-2 and the revolving credit facility maturing in January 2027 (as amended, the “Credit Agreement”). Amendment No. 3 extended the time period during which certain real property is excluded from the collateral package supporting the obligations under the Credit Agreement.
to 1.00| September 27, 2024 | to 1.00 |
| December 27, 2024 | to 1.00 |
| March 28, 2025 | to 1.00 |
| June 25, 2025 | to 1.00 |
| Thereafter | to 1.00 |
For the purpose of the Leverage Ratio, Consolidated Adjusted EBITDA is calculated on a trailing twelve-month basis, except that for the quarters ended June 28, 2024 and September 27, 2024, Consolidated Adjusted EBITDA shall be (i) for the quarter ending June 28, 2024, Consolidated Adjusted EBITDA for such quarter and the immediately preceding quarter multiplied by two and (ii) for the quarter ending September 27, 2024, Consolidated Adjusted EBITDA for such quarter and the two immediately preceding quarters multiplied by four-thirds.
In addition, as of June 28, 2024, the Credit Agreement requires the Company and its subsidiaries to maintain minimum liquidity (defined as the sum of cash and cash equivalents plus available unused capacity under its 2027 Revolving Facility less the aggregate principal amount of indebtedness that matures within 12 months of such date) of $ billion at the end of each quarter through September 27, 2024. As of June 28, 2024, the Company was in compliance with all financial covenants under the Credit Agreement.
WESTERN DIGITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
During the year ended June 28, 2024, the Company drew and repaid $ million principal amount under its $ billion revolving credit facility maturing in January 2027 (the “2027 Revolving Facility”).
The Company has issued standby letters of credit of $ million as of June 28, 2024, which reduced the Company’s 2027 Revolving Facility’s capacity by the same amount to $ billion as of that date.
Loans under the 2027 Revolving Facility bear interest at a per annum rate, at the Company’s option, equal to either (x) the Adjusted Term SOFR Rate (as defined in the Loan Agreement) plus an applicable margin varying from % to % or (y) a base rate plus an applicable margin varying from % to %, in each case depending on the corporate family ratings of the Company from at least two of S&P, Moody’s and Fitch, with an interest rate of Adjusted Term SOFR plus %. The Company is also required to pay an unused commitment fee on the 2027 Revolving Facility ranging from % to % based on the corporate family ratings of the Company from at least two of S&P, Moody’s and Fitch, with an initial unused commitment fee of %.
Under the term of the Credit Agreement, the 2027 Revolving Facility and Term Loan A-2 (the “Credit Facilities”) are unconditionally guaranteed by Western Digital Technologies, Inc., Sandisk Technologies, Inc. and Sandisk Corporation (the “Guarantors”) and are secured on a first-priority basis (subject to permitted liens) by a lien on substantially all assets and properties of the Company and the Guarantors (the “Collateral”), subject to certain exceptions. Furthermore, the obligations under the Company’s % Senior Notes due 2029 and % Senior Notes due 2032 have been secured by the Collateral on an equal and ratable basis to the obligations under the Credit Facilities for so long as and to the extent required under the terms of the Indenture, and the obligations under the Company’s 2026 Senior Unsecured Notes have been guaranteed by the Guarantors pursuant to the First Supplemental Indenture dated as of June 20, 2023 and the Second Supplemental Indenture dated as of April 26, 2024 (the “2026 Senior Notes Supplemental Indentures”) for so long as and to the extent required under the terms of the indenture governing such notes and the 2026 Senior Notes Supplemental Indentures.
In August 2023, the Company drew $ million under a delayed draw term loan agreement, which was repaid in full in June 2024. That delayed draw term loan agreement is now terminated. Borrowings under that delayed draw term loan agreement bore interest, at a rate based on SOFR Rate plus an applicable margin.
In December 2021, the Company issued $ million aggregate principal amount of % senior notes due February 1, 2029 (the “2029 Senior Notes”) and issued $ million aggregate principal amount of % senior notes due February 1, 2032 (the “2032 Senior Notes”) pursuant to the terms of an indenture, dated as of December 10, 2021 (the “Base Indenture”) between the Company and U.S. Bank National Association, as trustee (the “Senior Notes Trustee”), as supplemented by the first supplemental indenture dated as of December 10, 2021 (the “Senior Notes First Supplemental Indenture”) between the Company and the Senior Notes Trustee. As used herein, “Indenture” means the Base Indenture, as supplemented by the Senior Notes First Supplemental Indenture. Interest for both the 2029 Senior Notes and 2032 Senior Notes is payable on February 1 and August 1 of each year. The Company is not required to make principal payments on either the 2029 Senior Notes or 2032 Senior Notes prior to their maturity dates.
WESTERN DIGITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
billion aggregate principal amount of senior unsecured notes due February 15, 2026 (the “2026 Senior Unsecured Notes”). The 2026 Senior Unsecured Notes bear interest at an annual rate of % with interest payable on February 15 and August 15 of each year. The Company is not required to make principal payments on the 2026 Senior Unsecured Notes prior to the maturity date. Issuance costs for the 2026 Senior Unsecured Notes are amortized to interest expense over the term of the 2026 Senior Unsecured Notes and as of June 28, 2024, issuance costs of $ million remained unamortized.
The indentures and supplemental indentures, as applicable, governing the Company’s 2029 Senior Notes, 2032 Senior Notes, 2026 Senior Unsecured Notes and the 2028 Convertible Notes each contain various restrictive covenants, which can include limitations on the Company’s and its subsidiaries’ ability to, among other things, consolidate, merge or sell all or substantially all of their assets; create liens; and incur, assume or guarantee additional indebtedness, and are subject to a number of limitations and exceptions.
Maturity of Debt
| | 2026 | | | |
| 2027 | | | |
| 2028 | | | |
| 2029 | | | |
| 2030 and thereafter | | | |
| Total debt maturities | | | |
Issuance costs | | () | |
| Net carrying value | | $ | | |
(1) As of June 28, 2024, the holders of the 2028 Convertible Notes have the option to convert the notes through September 30, 2024. As such, the principal portion of these notes is reflected as current in the table above.
WESTERN DIGITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Note 8.
%.
Obligations and Funded Status
| | $ | | | | $ | | | | Service cost | | | | | | | | |
| Interest cost | | | | | | | | |
| Plan amendments | | | | | | | | |
Actuarial gain | () | | | () | | | () | |
| Benefits paid | () | | | () | | | () | |
| Settlement/curtailment | | | | () | | | | |
| |
| Non-U.S. currency movement | () | | | () | | | () | |
| Projected benefit obligation at end of period | | | | | | | | |
| Change in plan assets: | | | | | |
| Fair value of plan assets at beginning of period | | | | | | | | |
| Actual return on plan assets | | | | | | | | |
| Employer contributions | | | | | | | | |
| Benefits paid | () | | | () | | | () | |
| |
| Non-U.S. currency movement | () | | | () | | | () | |
| Fair value of plan assets at end of period | | | | | | | | |
| Unfunded status | $ | | | | $ | | | | $ | | |
| | $ | | | | Non-current liabilities | | | | | |
| Net amount recognized | $ | | | | $ | | |
The accumulated benefit obligation for the Pension Plans was $ million at June 28, 2024. As of June 28, 2024, the accumulated other income pension balance was $ million. There were material prior service credits for the Pension Plans recognized in Accumulated other comprehensive income (loss) in the Consolidated Balance Sheet as of June 28, 2024.
Net periodic benefit costs were not material for 2024, 2023 and 2022.
WESTERN DIGITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
% | | | % | | | % | | Rate of compensation increase | | % | | | % | | | % |
The weighted-average actuarial assumptions used to determine benefit costs for the Pension Plans were as follows: | | | | | | | | | | | | | | | | | |
|
| 2024 | | 2023 | | 2022 |
| Discount rate | | % | | | % | | | % |
| Expected long-term rate of return on plan assets | | % | | | % | | | % |
| Rate of compensation increase | | % | | | % | | | % |
The Company develops a discount rate by calculating when the estimated benefit payments will be due. Management then matches the benefit payments to high quality bonds which match the timing of the expected benefit payments to determine the appropriate discount rate.
The Company develops the expected long-term rate of return on plan assets by analyzing rates of return in each plan as well as the investment portfolio applicable to the plan depending on each plan’s economic environment. The Company’s estimates of future rates of return on assets is based in large part on the projected rate of return from the respective investment managers using a long-term view of historical returns, as well as actuarial recommendations using the most current generational and mortality tables and rates. As of June 28, 2024, the Pension Plans’ assets materially consisted of plan assets related to the Japan pension plan and as such the assumption used herein is primarily related to the Japan pension plan.
The Company develops the rate of compensation increase assumptions using local compensation practices and historical rates of increases.
Plan Assets
Investment Policies and Strategies
The investment policy in the Pension Plans is to generate a stable return on investments over a long-term horizon in order to have adequate pension funds to meet the Company’s future obligations. In order to achieve this investment goal, a diversified portfolio with target asset allocation and expected rate of return is established by considering factors such as composition of participants, level of funded status, capacity to absorb risks and the current economic environment. The target asset allocation is % in debt securities, % in equity securities, and the remaining % in other assets. Risk management is accomplished through diversification, periodic review of plan asset performance and appropriate realignment of asset allocation. Assumptions regarding the expected long-term rate of return on plan assets are periodically reviewed and are based on the historical trend of returns, the risk and correlation of each asset and the latest economic environment.
The expected long-term rate of return is estimated based on many factors, including expected forecast for inflation, risk premiums for each asset class, expected asset allocation, current and future financial market conditions and diversification and rebalancing strategies. Historical return patterns and correlations, consensus return forecasts and other relevant financial factors are analyzed periodically by the investment advisor so as to ensure that the expected long-term rate of return is reasonable and appropriate.
WESTERN DIGITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
| | $ | | | | $ | | | | $ | | | | Fixed income: | | | | | | | |
| | | |
Fixed income commingled/mutual funds(1)(3) | | | | | | | | | | | |
| | | |
| | | |
| | | |
| Net plan assets subject to leveling | | | | | | | | | | | |
| | | |
| Real estate investment trust at net asset value | | | | | | | | |
| Total investments at fair value | $ | | | | $ | | | | $ | | | | $ | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| June 30, 2023 |
| Level 1 | | Level 2 | | Level 3 | | Total |
| (in millions) |
| Plan assets measured at fair value: | | | |
| Equity: | | | | | |
| | | |
Equity commingled/mutual funds(1)(2) | $ | | | | $ | | | | $ | | | | $ | | |
| Fixed income: | | | | | | | |
| | | |
Fixed income commingled/mutual funds(1)(3) | | | | | | | | | | | |
| | | |
| | | |
| | | |
| Net plan assets subject to leveling | | | | | | | | | | | |
| | | |
| Real estate investment trust at net asset value | | | | | | | | |
| Total investments at fair value | $ | | | | $ | | | | $ | | | | $ | | |
(1) Commingled funds represent pooled institutional investments.
(2) Equity mutual funds invest primarily in equity securities.
(3) Fixed income mutual funds invest primarily in fixed income securities.
There were no significant movements of assets between any level categories in 2024 or 2023.
Fair Value Valuation Techniques
Equity securities are valued at the closing price reported on the stock exchange on which the individual securities are traded. Equity commingled/mutual funds are typically valued using the net asset value (“NAV”) provided by the investment manager or administrator of the fund. The NAV is based on the value of the underlying assets owned by the fund, minus liabilities and divided by the number of shares or units outstanding. These assets are classified as either Level 1 or Level 2, depending on availability of quoted market prices for identical or similar assets.
If available, fixed income securities are valued using the close price reported on the major market on which the individual securities are traded and are classified as Level 1. The fair value of other fixed income securities is typically estimated using pricing models and quoted prices of securities with similar characteristics and is generally classified as Level 2.
Cash equivalents includes money market accounts that are valued at their cost plus interest on a daily basis, which approximates fair value. Short-term investments represent securities with original maturities of one year or less. These assets are classified as either Level 1 or Level 2.
WESTERN DIGITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
WESTERN DIGITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Note 9.
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 Company has a % ownership interest and Kioxia has a % ownership interest in each of these entities. Through Flash Ventures, the Company and Kioxia collaborate in the development and manufacture of flash-based memory wafers, which are manufactured by Kioxia at its wafer fabrication facilities located in Japan using semiconductor manufacturing equipment individually owned or leased by each Flash Ventures entity. Each Flash Ventures entity purchases wafers from Kioxia at cost and then resells those wafers to the Company and Kioxia at cost plus a markup.
Flash Partners. Flash Partners was formed in 2004 in connection with the construction of Kioxia’s “Y3” 300-millimeter wafer fabrication facility located in Yokkaichi, Japan.
Flash Alliance. Flash Alliance was formed in 2006 in connection with the construction of Kioxia’s “Y4” 300-millimeter wafer fabrication facility located in Yokkaichi, Japan.
Flash Forward. Flash Forward was formed in 2010 in connection with the construction of Kioxia’s “Y5” 300-millimeter wafer fabrication facility located in Yokkaichi, Japan. Y5 was built in two phases of approximately equal size.
New Y2. The Company has a facility agreement with Kioxia related to the construction and operation of Kioxia’s “New Y2” 300-millimeter wafer fabrication facility located in Yokkaichi, Japan. New Y2 primarily provided additional clean room space to convert a portion of 2-dimensional (“2D”) flash-based wafer production capacity to 3-dimensional (“3D”) flash-based wafer production capacity. Production of flash-based wafers in New Y2 started in 2016.
Y6. The Company also has a facility agreement with Kioxia related to the construction and operation of Kioxia’s “Y6” 300-millimeter wafer fabrication facility in Yokkaichi, Japan. Y6 is primarily intended to provide clean room space to continue the transition of existing 2D flash-based wafer capacity to 3D flash-based wafer production capacity. Production of flash-based wafers in Y6 started in 2018.
K1. The Company also has a facility agreement with Kioxia related to the construction and operation of Kioxia’s “K1” 300-millimeter wafer fabrication facility in Kitakami, Japan. The primary purpose of K1 is to provide clean room space to continue the transition of existing flash-based wafer capacity to newer technology nodes. Production of flash-based wafers in K1 started in 2019.
Y7. In January 2022, the Company entered into additional agreements regarding Flash Ventures’ investment in a new wafer fabrication facility in Yokkaichi, Japan, referred to as “Y7”. The primary purpose of Y7 is to provide clean room space to continue the transition of existing flash-based wafer capacity to newer flash technology nodes. Production of flash-based wafers in Y7 started in 2022.
K2. In June 2024, the Company entered into additional agreements regarding Flash Ventures’ investment in a new wafer fabrication facility in Kitakami, Japan, referred to as “K2”. The primary purpose of K2 is to provide clean room space to continue the transition of existing flash-based wafer capacity to newer flash technology nodes. Output from K2 is expected to begin in the first half of fiscal year 2026.
In connection with the start-up of the K1, K2 and Y7 facilities, the Company has made prepayments over time, and as of June 28, 2024, $ million remain to be credited against future building depreciation charges. As of June 28, 2024, the Company is also committed to make additional building depreciation prepayments of $ million, based on Japanese yen to U.S. dollars exchange rate of as of such date, payable as follows: $ million in fiscal year 2025, $ million in fiscal year 2026, $ million in fiscal year 2027, $ million in fiscal year 2028 and $ million in fiscal year 2029. As of June 28, 2024, in addition to the requirements to make building depreciation prepayments, the Company will also make payments for building depreciation of approximately $ million at varying dates through fiscal year 2035.
WESTERN DIGITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
% ownership, the voting structure and the manner in which the day-to-day operations are conducted for each entity within Flash Ventures, that the Company lacked the power to direct most of the activities that most significantly impact the economic performance of each entity within Flash Ventures.
| | $ | | | | Notes receivable, Flash Alliance | | | | | |
| Notes receivable, Flash Forward | | | | | |
| Investment in Flash Partners | | | | | |
| Investment in Flash Alliance | | | | | |
| Investment in Flash Forward | | | | | |
| Total notes receivable and investments in Flash Ventures | $ | | | | $ | | |
During 2024, 2023 and 2022, the Company made net payments to Flash Ventures of $ billion, $ billion and $ billion, 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 June 28, 2024 and June 30, 2023, the Company had Accounts payable balances due to Flash Ventures of $ million and $ million, respectively.
| | Equity investments | | |
| Operating lease guarantees | | |
| Inventory and prepayments | | |
| Maximum estimable loss exposure | $ | | |
WESTERN DIGITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
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 % of Flash Ventures’ output. 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 obligated to pay for half of Flash Ventures’ fixed costs regardless of the output the Company chooses to purchase. The Company is also committed to fund % to % of each Flash Ventures entity’s capital investments to the extent that Flash Ventures entity’s operating cash flow is insufficient to fund these investments.
Flash Ventures has historically operated near % of its manufacturing capacity. During 2024 and 2023, as a result of flash business 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. In 2024 and 2023, the Company incurred costs of $ million and $ million, respectively, associated with the reduction in utilization related to Flash Ventures, which was recorded as a charge to Cost of revenue.
In February 2022, contamination of certain material used in manufacturing processes occurred at Flash Ventures’ fabrication facilities in both Yokkaichi and Kitakami, Japan which resulted in damage to inventory units in production, a temporary disruption to production operations and a reduction in the Company’s flash wafer availability. During 2022, the Company incurred charges of $ million related to this contamination incident that were recorded in Cost of revenue and primarily consisted of scrapped inventory and rework costs, decontamination and other costs needed to restore the facilities to normal capacity, as well as charges for under absorption of overhead costs. During 2024, the Company received a recovery of $ million related to this incident from its insurance carriers, which was recorded in Cost of revenue. The Company continues to pursue recovery of its remaining losses associated with this event; however, the total amount of recovery cannot be estimated at this time.
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 R&D activities with Kioxia and is contractually committed to a minimum funding level. R&D commitments are immaterial to the 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.
| | $ | | |
WESTERN DIGITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
| | $ | | | | $ | | | | 2026 | | | | | | | | | |
| 2027 | | | | | | | | | |
| 2028 | | | | | | | | | |
| 2029 | | | | | | | | | |
| Total guarantee obligations | | $ | | | | $ | | | | $ | | |
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 June 28, 2024, no amounts have been accrued in the Consolidated Financial Statements with respect to these indemnification agreements.
Unis Venture
The Company has a joint 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 % owned by the Company and % 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 years ended June 28, 2024, June 30, 2023 and July 1, 2022, the Company recognized approximately %, % and % of its consolidated revenue on products distributed by the Unis Venture, respectively. The outstanding accounts receivable due from the Unis Venture were % and % of Accounts receivable, net as of June 28, 2024 and June 30, 2023, respectively.
WESTERN DIGITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Note 10.
| | $ | | | | | | |
Operating lease liabilities: | | | |
Current portion of long-term operating lease liabilities (included in Accrued expenses) | | | | | |
Long-term operating lease liabilities (included in Other liabilities ) | | | | | |
Total operating lease liabilities | $ | | | | $ | | |
|
The weighted average remaining lease term and discount rate for the Company’s operating leases were as follows: | | | | | | | | | | | |
| 2024 | | 2023 |
Weighted average remaining lease term in years | | | |
Weighted average discount rate | | % | | | % |
WESTERN DIGITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
| | | | | | 2026 | | | | | | |
| 2027 | | | | | | |
| 2028 | | | | | | |
| 2029 | | | | | | |
| Thereafter | | | | | | |
| Total future minimum lease payments | | | | | | |
Less: imputed interest | | | | | | |
| Present value of lease liabilities | $ | | | | | | |
| |
|
| | | | | |
| | | | $ | | | | $ | | |
| | | | | |
| | | | | |
| |
|
| | | | | | |
| | | | | |
)| | | | $ | | | | $ | | |
Any shortfalls or excess windfall tax benefits related to the vesting and exercise of stock-based awards, which are recognized as a component of the Company’s Income tax expense, were not material for the periods presented.
Compensation cost related to unvested RSUs, PSUs and rights to purchase shares of common stock under the ESPP will generally be amortized on a straight-line basis over the remaining average service period.
| | | | ESPP | | | | |
| Total unamortized compensation cost | $ | | | | |
WESTERN DIGITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
| | $ | | | | | | | | Exercised | () | | | | | | | | $ | | |
| Canceled or expired | () | | | | | | | | |
| Options outstanding at July 1, 2022 | | | | | | | | | |
| | | |
| Canceled or expired | () | | | | | | | | |
| Options outstanding at June 30, 2023 | | | | | | | | | |
| Canceled or expired | () | | | | | | | | |
| Options outstanding at June 28, 2024 | | | | $ | | | | | | |
options were granted in 2024, 2023 or 2022. As of June 28, 2024, there were no remaining outstanding options.
RSUs and PSUs
| | $ | | | | | | Granted | | | | | | | |
| Vested | () | | | | | | $ | | |
| Forfeited | () | | | | | | |
| RSUs and PSUs outstanding at July 1, 2022 | | | | | | | |
| Granted | | | | | | | |
| |
| Vested | () | | | | | | $ | | |
| Forfeited | () | | | | | | |
| RSUs and PSUs outstanding at June 30, 2023 | | | | | | | |
| Granted | | | | | | | |
| |
| Vested | () | | | | | | $ | | |
| Forfeited | () | | | | | | |
| RSUs and PSUs outstanding at June 28, 2024 | | | | $ | | | | |
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.
WESTERN DIGITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
| $ |
Convertible Preferred Stock
On January 31, 2023, the Board of Directors of the Company authorized the designation of shares of Series A Convertible Perpetual Preferred Stock, par value $ per share (the “Preferred Shares”), from the Company’s existing authorized but unissued shares of preferred stock and issued the Preferred Shares through a private placement for an aggregate purchase price of $ million, less issuance costs of $ million. During the year ended June 28, 2024, of the Preferred Shares were converted into approximately million shares of common stock in accordance with the original term of the agreement. As of June 28, 2024 and June 30, 2023, and of the Preferred Shares were outstanding, respectively.
Dividend provisions
The Preferred Shares have a stated value of $ per share and accrue a cumulative preferred dividend at an annual rate of % per annum (increasing to % per annum on January 31, 2030 and to % 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 June 28, 2024 and June 30, 2023, unpaid and undeclared cumulative dividends payable with respect to the Preferred Shares were $ million and $ million, respectively.
During the year ended June 28, 2024, $ million in unpaid and undeclared cumulative dividends payable were included in the aggregate liquidation preference of the of the Preferred Shares that were converted into approximately million shares of common stock, as noted above.
WESTERN DIGITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
As of June 28, 2024 and June 30, 2023, the Preferred Shares outstanding would have been convertible, if otherwise permitted, into million and million shares of common stock, respectively.
Redemption
After January 31, 2030, the Company will have the right, but not the obligation, to redeem the Preferred Shares for an amount in cash equal to % of the Accumulated Stated Value. Redemption is contingently mandatory in the event of a fundamental change in the business as defined in the designation of the Preferred Shares.
The Preferred Shares has been classified as mezzanine equity in the Company’s Consolidated Balance Sheets because, in the event of certain fundamental change in the business that are not solely within the control of the Company, the Preferred Shares would become redeemable at the option of the holders. The Company did not adjust the carrying values of the Preferred Shares to the current redemption value of such shares since a liquidation event was not probable at any of the balance sheet dates. Subsequent adjustments to increase or decrease the carrying values to the ultimate redemption value will be made only if and when it becomes probable that such a fundamental change in the business will occur.
Voting right
The Preferred Shares will vote, to the extent permitted under the Nasdaq listing rules, on an as-converted equivalent basis along with holders of the Company’s common stock.
Liquidation preference
In the event of any voluntary or involuntary liquidation, holders of the Preferred Shares will be senior to the holders of the Company’s common stock and the liquidation preference is the greater of (i) the sum of an amount in cash equal to % of the Accumulated Stated Value plus accrued and unpaid dividends and (ii) the payment that the holders of the Preferred Shares would have received had all the Preferred Shares been converted into common stock immediately prior to such liquidation, before any distributions are made to common shareholders and all other classes of junior capital stock of the Company. As of June 28, 2024 and June 30, 2023, the total aggregate liquidation preference was $ million and $ million, respectively.
Stock Reserved for Issuance
| | Outstanding awards and shares available for award grants | | |
Convertible preferred stock | | |
| ESPP | | |
| Total | | |
WESTERN DIGITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
.
WESTERN DIGITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Note 13.
) | | $ | () | | | $ | | | | Domestic | () | | | | | | | |
| Income (loss) before taxes | $ | () | | | $ | () | | | $ | | |
Income Tax Expense
| | $ | | | | $ | | | | Domestic - Federal | | | | | | | | |
| Domestic - State | | | | () | | | | |
| | | | | | | | |
| Deferred: | | | | | |
| Foreign | | | | () | | | | |
| Domestic - Federal | () | | | () | | | | |
| Domestic - State | () | | | () | | | | |
| () | | | () | | | | |
| Income tax expense | $ | | | | $ | | | | $ | | |
The Tax Cuts and Jobs Act (the “2017 Act”), enacted on December 22, 2017, includes a broad range of tax reform proposals affecting businesses. The Company completed its accounting for the tax effects of the enactment of the 2017 Act during the second quarter of 2019. However, the U.S. Treasury and the Internal Revenue Services (“IRS”) have issued tax guidance on certain provisions of the 2017 Act since the enactment date, and the Company anticipates the issuance of additional regulatory and interpretive guidance. The Company applied a reasonable interpretation of the 2017 Act along with the then-available guidance in finalizing its accounting for the tax effects of the 2017 Act. Any additional regulatory or interpretive guidance would constitute new information, which may require further refinements to the Company’s estimates in future periods.
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 $1.00 billion. The corporate alternative minimum tax is effective for the Company beginning with 2024. The Company is not subject to the CAMT of 15% for fiscal year 2024 as its average annual AFSI did not exceed $1.00 billion for the preceding three-year period.
WESTERN DIGITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
| | $ | | | | Accrued compensation and benefits not currently deductible | | | | | |
|
| Net operating loss carryforward | | | | | |
| Business credit carryforward | | | | | |
| Long-lived assets | | | | | |
| Interest and hedging costs not currently deductible | | | | | |
| Other | | | | | |
| Total deferred tax assets | | | | | |
| Deferred tax liabilities: | | | |
| Long-lived assets | () | | | () | |
| Unremitted earnings of certain non-U.S. entities | () | | | () | |
| Other | () | | | () | |
| Total deferred tax liabilities | () | | | () | |
| Valuation allowances | () | | | () | |
| Deferred tax assets, net | $ | | | | $ | | |
The increase in the deferred tax assets is attributable primarily to the IRS interest payments made in connection with the notice of deficiency received for years 2008 through 2011 that are not currently deductible under §163(j) of the Internal Revenue Code of 1986, as amended, and the unamortized original issue discount (“OID”) related to the premium paid to purchase Capped Calls in connection with the offering of the 2028 Convertible Notes. As described in Note 7, Debt, the deferred tax asset related to the unamortized OID was recorded as a decrease to Additional paid-in capital. The assessment of valuation allowances against deferred tax assets requires estimations and significant judgment. The Company continues to assess and adjust its valuation allowance based on operating results and market conditions. After weighing both the positive and negative evidence available, including, but not limited to, earnings history, projected future outcomes, industry and market trends and the nature of each of the deferred tax assets, the Company determined that it is able to realize its deferred tax assets except for certain loss and credit carryforwards.
The Company is permanently reinvested with respect to certain foreign earnings. There is no unrecognized deferred tax liability associated with the repatriation of these foreign undistributed earnings as it can be achieved without additional federal tax consequences.
WESTERN DIGITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
% | | | % | | | % | | Tax rate differential on international income | () | | | () | | | () | |
| |
| |
| Tax effect of U.S. foreign income inclusion | () | | | () | | | | |
| Tax effect of U.S. foreign minimum tax | | | | | | | | |
| Tax effect of U.S. foreign derived intangible income | | | | | | | () | |
| Tax effect of U.S. non-deductible stock-based compensation | () | | | () | | | | |
| Tax effect of U.S. permanent differences | | | | | | | | |
| |
| |
| |
| |
| IRS Settlement | () | | | | | | | |
| Change in valuation allowance | () | | | | | | | |
| Unremitted earnings of certain non-U.S. entities | () | | | | | | | |
| |
| |
| Foreign income tax credits | | | | | | | () | |
| R&D tax credits | | | | | | | () | |
| U.S. return to provision | | | | () | | | | |
| Tax reserves | | | | () | | | | |
| Other | | | | () | | | | |
| Effective tax rate | () | % | | () | % | | | % |
Tax Holidays and Carryforwards
A substantial portion of the Company’s manufacturing operations in Malaysia, the Philippines and Thailand operate under various tax holidays and tax incentive programs, which will expire in whole or in part at various dates during 2025 through 2031. Certain tax holidays and tax incentive programs may be extended if specific conditions are met. On November 1, 2023, one of the Company’s tax holidays in Malaysia expired. The Company has applied for an extension and anticipates this extension, if granted, will be applied retroactively and begin on November 2, 2023. Because the exact terms of the extension are not currently known, the Company is applying the Malaysia corporate statutory tax rate on the expired tax holiday income. If a retroactive extension is granted, the Company will make an adjustment to its effective tax rate in that period.
The net impact of these tax holidays and tax incentives was an increase to the Company’s net earnings by $ million, or $ per diluted share, $ million, or $ per diluted share, and $ million, or $ per diluted share, in 2024, 2023 and 2022, respectively.
As of June 28, 2024, the Company had varying amounts of federal and state NOL/tax credit carryforwards that do not expire or, if not used, expire in various years. | | 2026 to 2038 | |
| State NOL | | | | 2037 to 2045 |
| Federal tax credits | | | | 2025 to 2044 |
| State tax credits | | | | No expiration |
WESTERN DIGITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
As of June 28, 2024, the Company had varying amounts of foreign NOL carryforwards that do not expire or, if not used, expire in various years, depending on the country.
| | No expiration | | Malaysia | | | | 2028 to 2030 |
| Japan | | | | 2025 to 2026 |
| Spain | | | | No expiration |
| Netherlands | | | | 2026 |
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 Consolidated Balance Sheets.
| | $ | | | | $ | | | | Gross increases related to current year tax positions | | | | | | | | |
| Gross increases related to prior year tax positions | | | | | | | | |
| Gross decreases related to prior year tax positions | () | | | () | | | () | |
| Settlements | () | | | () | | | () | |
| Lapse of statute of limitations | () | | | () | | | () | |
| |
| Unrecognized tax benefit, ending balance | $ | | | | $ | | | | $ | | |
As of June 28, 2024, June 30, 2023 and July 1, 2022, the portion of the gross unrecognized tax benefits, if recognized, that would affect the effective tax rate is $ million, $ million and $ million, respectively. 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 June 28, 2024, June 30, 2023 and July 1, 2022 was $ million, $ million and $ million, respectively. As of June 28, 2024, June 30, 2023 and July 1, 2022, the Company’s payables related to unrecognized tax benefits, including accrued interest and penalties, were $ million, $ billion and $ billion, respectively. Of these amounts, the Company believes it is reasonably likely that payments of $ million may be made within the next twelve months and have classified that portion of these unrecognized tax benefits, including interest, in Income taxes payable on the Consolidated Balance Sheets as of June 28, 2024. The remaining payables related to unrecognized tax benefits are included in Other liabilities on the Consolidated Balance Sheets as of June 28, 2024, June 30, 2023 and July 1, 2022.
WESTERN DIGITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
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, reached a final agreement for resolving the notices of proposed adjustments with respect to years 2013 through 2015. During 2024, the Company made payments of $ million for tax and $ million for interest with respect to years 2008 through 2012 and recognized adjustments to align with IRS calculations, resulting in a remaining liability of $ million 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 $ million. Of this amount, $ 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 June 28, 2024, with the exception of the final agreement with the IRS, 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 relating to the examination of the Company’s tax returns.
WESTERN DIGITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Note 14.
| | | | | | | | | |
|
| | | | | | |
Basic income (loss) per share attributable to common shareholders is computed using (i) net income (loss) less (ii) dividends paid to holders of Preferred Shares less (iii) net income (loss) attributable to participating securities divided by (iv) weighted average basic shares outstanding. Diluted net income (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.
For 2024 and 2023, the Company recorded a net loss and all shares subject to outstanding equity awards were excluded from the calculation of diluted shares for the period because their impact would have been anti-dilutive. For 2022, the Company excluded common shares subject to certain outstanding equity awards from the calculation of diluted shares because their impact would have been anti-dilutive based on the Company’s average stock price during those periods.
WESTERN DIGITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Note 15.
| | $ | | | | $ | | |
The following table presents an analysis of the components of these activities against the reserve during the year ended June 28, 2024:
| | | | | | | | | | | | | | | | | |
| Employee Termination Benefits | | Contract Termination and Other | | Total |
| (in millions) |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| Accrual balance at June 30, 2023 | $ | | | | $ | | | | $ | | |
| Charges | | | | | | | | |
| Cash payments | () | | | () | | | () | |
| |
| Accrual balance at June 28, 2024 | $ | | | | $ | | | | $ | | |
WESTERN DIGITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Note 16.
to 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 $ million and $ million as of June 28, 2024 and June 30, 2023, respectively, and are included within Accounts payable on the Company’s Consolidated Balance Sheets.
WESTERN DIGITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Note 17.
patents (together, the “MRT Patents”). The trial commenced on July 16, 2024 and concluded on July 26, 2024, and the jury awarded MRT a lump sum of $ million for use of the MRT Patents in the past and through their remaining lives. MRT also requested and was awarded prejudgment interest totaling $ million in a judgment entered on August 15, 2024. We anticipate that MRT will also request costs, attorney’s fees and post-judgment interest. The Company has recognized an aggregate liability for this matter of $ million within Accrued expenses on the Company’s Consolidated Balance Sheets as of June 28, 2024. Of this amount, $ million was recognized as Litigation matter under Operating expenses on the Company’s Consolidated Statements of Operations for the year ended June 28, 2024 and $ million recognized within Other non-current assets on the Company’s Consolidated Balance Sheets as of June 28, 2024, to be amortized over the remaining lives of the MRT Patents. 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 three claims under U.S. Patent No. 6,088,802 asserted against certain HDD products that may include certain encryption capabilities. Trial is scheduled to commence on October 8, 2024, and the Company intends to defend itself vigorously.
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.
WESTERN DIGITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Note 18.
| | $ | | | | $ | | | Interest and other income: | | | | | | |
| Interest income | | | | | | | | | |
| Interest expense | | () | | | | | | () | |
| Other income, net | | | | | | | | | |
Total interest and other income, net | | () | | | | | | () | |
Income before taxes | | | | | | | | | |
| Income tax expense | | | | | | | | | |
Net income | | $ | | | | $ | | | | $ | | |
| | |
| | |
| | | | | | |
Net income per common share: | | | | | | |
| Basic | | $ | | | | $ | | | | $ | | |
| Diluted | | $ | | | | $ | | | | $ | | |
| | |
| | |
| | |
| | |
| | | | | | | | | | | | | | | | | | | | |
| | Year Ended June 30, 2023 |
Condensed Consolidated Statement of Operations | | As Previously Reported | | Adjustment | | As Revised |
| | (in millions, except per share amounts) |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| Operating loss | | $ | () | | | $ | | | | $ | () | |
Interest and other income: | | | | | | |
| Interest income | | | | | | | | | |
| Interest expense | | () | | | | | | () | |
| Other income, net | | | | | | | | | |
Total interest and other income, net | | () | | | | | | () | |
| Loss before taxes | | () | | | | | | () | |
| Income tax expense | | | | | () | | | | |
| Net loss | | () | | | | | | () | |
| Less: cumulative dividends allocated to preferred shareholders | | | | | | | | | |
| Net loss attributable to common shareholders | | $ | () | | | $ | | | | $ | () | |
| | | | | | |
| Net loss per common share: | | | | | | |
| Basic | | $ | () | | | $ | | | | $ | () | |
| Diluted | | $ | () | | | $ | | | | $ | () | |
| | |
| | |
| | |
| | |
WESTERN DIGITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
| | $ | | | | $ | | |
Other comprehensive loss, before tax: | | | | | | |
Actuarial pension gain | | | | | | | | | |
| Foreign currency translation adjustment | | () | | | () | | | () | |
Net unrealized loss on derivative contracts | | () | | | | | | () | |
Total other comprehensive loss, before tax | | () | | | () | | | () | |
Income tax benefit related to items of other comprehensive loss, before tax | | | | | | | | | |
Other comprehensive loss, net of tax | | () | | | () | | | () | |
Total comprehensive income | | $ | | | | $ | | | | $ | | |
| | | | | | | | | | | | | | | | | | | | |
| | Year Ended June 30, 2023 |
Condensed Consolidated Statement of Comprehensive Loss | | As Previously Reported | | Adjustment | | As Revised |
| | (in millions) |
| Net loss | | $ | () | | | $ | | | | $ | () | |
Other comprehensive income, before tax: | | | | | | |
Actuarial pension gain | | | | | | | | | |
| Foreign currency translation adjustment | | () | | | () | | | () | |
Net unrealized gain on derivative contracts | | | | | | | | | |
| Total other comprehensive income, before tax | | | | | () | | | | |
| Income tax expense related to items of other comprehensive income, before tax | | () | | | | | | () | |
| Other comprehensive income, net of tax | | | | | () | | | | |
| Total comprehensive loss | | $ | () | | | $ | | | | $ | () | |
| | | | | | | | | | | | | | | | | | | | |
| | Year Ended July 1, 2022 |
Condensed Consolidated Statement of Cash Flows | | As Previously Reported | | Adjustment | | As Revised |
| | (in millions) |
| Cash flows from operating activities | | | | | | |
Net income | | $ | | | | $ | | | | $ | | |
| Deferred income taxes | | | | | | | | | |
| Other non-cash operating activities, net | | | | | () | | | | |
| Other assets and liabilities, net | | () | | | | | | () | |
Net cash provided by operating activities | | | | | | | | | |
WESTERN DIGITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
| | $ | | | | $ | () | | | Deferred income taxes | | () | | | () | | | () | |
| Other non-cash operating activities, net | | | | | () | | | | |
| Other assets and liabilities, net | | () | | | | | | () | |
Net cash used in operating activities | | () | | | | | | () | |
| | | | | | | | | | | | | | | | | | | | |
Condensed Consolidated Statement of Shareholders’ Equity | | As Previously Reported | | Adjustment | | As Revised |
| | (in millions) |
Retained earnings as of: | | | | | | |
July 2, 2021 | | $ | | | | $ | | | | $ | | |
| | |
Accumulated other comprehensive loss as of: | | | | | | |
July 2, 2021 | | () | | | () | | | () | |
| | |
Foreign currency translation adjustment for the year ended June 30, 2023 | | () | | | () | | | () | |
| | |
| | |
| | |
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
As required by Rule 13a‑15(b) of 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 Annual Report on Form 10‑K.
Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered by this Annual Report on Form 10‑K, our disclosure controls and procedures were effective.
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rules 13a‑15(f) and 15d‑15(f) of the Exchange Act) to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets; (ii) provide reasonable assurance that the transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and our directors; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.
Our management evaluated the effectiveness of our internal control over financial reporting using the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control – Integrated Framework (2013). Based on this evaluation, our management concluded that our internal control over financial reporting was effective as of the end of the period covered by this Annual Report on Form 10‑K. KPMG LLP, our independent registered public accounting firm, which audited the Consolidated Financial Statements included in this Annual Report on Form 10-K, has issued an audit report on our internal control over financial reporting. See Report of Independent Registered Public Accounting Firm herein.
Changes in Internal Control over Financial Reporting
There has been no change in our internal control over financial reporting during the quarter ended June 28, 2024, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Inherent Limitations of Effectiveness of Controls
Our management, including our Chief Executive Officer and our Chief Financial Officer, does not expect our internal controls over financial reporting will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the benefits of controls must be considered relative to their costs. Because of the inherent limitations in a system of internal control over financial reporting, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system of controls is also based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
Item 9B. Other Information
During the quarter ended June 28, 2024, the following directors or officers (as defined in Rule 16a-1(f) of the Exchange Act) adopted trading arrangements for the purchase or sale of securities that are intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) of the Exchange Act (“Rule 10b5-1 Plan”):
•, a of the Company, a Rule 10b5-1 Plan on . Under this plan, beginning on August 23, 2024, up to an aggregate of shares of the Company’s common stock may be sold before the plan expires on .
•, a of the Company, a Rule 10b5-1 Plan on . Under this plan, beginning on August 29, 2024, up to an aggregate of shares of the Company’s common stock may be sold before the plan expires on .
•, of the Company a Rule 10b5-1 Plan on . Under this plan, beginning on September 5, 2024, up to an aggregate of shares of the Company’s common stock may be sold before the plan expires on .
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Not applicable.
PART III
Item 10. Directors, Executive Officers and Corporate Governance
There is incorporated herein by reference to the information required by this Item included in the Company’s Proxy Statement for the 2024 Annual Meeting of Stockholders, which will be filed with the SEC no later than 120 days after the close of the year ended June 28, 2024. In addition, our Board of Directors has adopted a Code of Business Ethics that applies to all of our directors, employees and officers, including our Chief Executive Officer and Chief Financial Officer. The current version of the Code of Business Ethics is available on our website under the Corporate Governance section at www.westerndigital.com. To the extent required by rules adopted by the SEC and The Nasdaq Stock Market LLC, we intend to promptly disclose future amendments to certain provisions of the Code of Business Ethics, or waivers of such provisions granted to executive officers and directors, on our website under the Corporate Governance section at www.westerndigital.com.
Item 11. Executive Compensation
There is incorporated herein by reference to the information required by this Item included in the Company’s Proxy Statement for the 2024 Annual Meeting of Stockholders, which will be filed with the SEC no later than 120 days after the close of the year ended June 28, 2024.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
There is incorporated herein by reference to the information required by this Item included in the Company’s Proxy Statement for the 2024 Annual Meeting of Stockholders, which will be filed with the SEC no later than 120 days after the close of the year ended June 28, 2024.
Item 13. Certain Relationships and Related Transactions, and Director Independence
There is incorporated herein by reference to the information required by this Item included in the Company’s Proxy Statement for the 2024 Annual Meeting of Stockholders, which will be filed with the SEC no later than 120 days after the close of the year ended June 28, 2024.
Item 14. Principal Accountant Fees and Services
There is incorporated herein by reference to the information required by this Item included in the Company’s Proxy Statement for the 2024 Annual Meeting of Stockholders, which will be filed with the SEC no later than 120 days after the close of the year ended June 28, 2024.
PART IV
Item 15. Exhibits and Financial Statement Schedules
The following documents are filed as a part of this Annual Report on Form 10‑K:
(1)Financial Statements. The financial statements included in Part II, Item 8 of this document are filed as part of this Annual Report on Form 10‑K.
(2)Financial Statement Schedules.
All schedules are omitted as the required information is immaterial, inapplicable or the information is presented in the Consolidated Financial Statements or related Notes.
(3)Exhibits. The exhibits listed in the Exhibit Index below are filed with, or incorporated by reference in, this Annual Report on Form 10‑K, as specified in the Exhibit List, from exhibits previously filed with the SEC. Certain agreements listed in the Exhibit List 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.
EXHIBIT INDEX | | | | | | | | |
Exhibit
Number | | Description |
| | Amended and Restated Certificate of Incorporation of Western Digital Corporation, as amended to date† |
| | 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) |
| | Description of Western Digital Corporation’s Capital Stock† |
| | Indenture (including Form of 4.750% Senior Notes due 2026), dated as of February 13, 2018, among Western Digital Corporation; HGST, Inc., WD Media, LLC, Western Digital (Fremont), LLC and Western Digital Technologies, Inc., as guarantors; and U.S. Bank National Association, as trustee (Filed as Exhibit 4.1 to the Company’s Current Report on Form 8-K (File No. 333-222762) with the Securities and Exchange Commission on February 13, 2018) |
| | First Supplemental Indenture, dated as of June 20, 2023, by and among Western Digital Technologies, Inc. and U.S. Bank Trust Company, National Association, as Trustee (Filed as Exhibit 10.8 to the Company’s Current Report on Form 8-K (File No. 1-08703) with the Securities and Exchange Commission on June 21, 2023) |
| | Second Supplemental Indenture, dated as of April 26, 2024, between Western Digital Corporation, SanDisk Corporation, a subsidiary of the Company, SanDisk Technologies, Inc., a subsidiary of Western Digital Technologies, Inc. and U.S. Bank Trust Company, National Association, as successor in interest to U.S. Bank National Association, as trustee† |
| | Indenture, dated as of December 10, 2021, between Western Digital Corporation and U.S. Bank National Association, as trustee (Filed as Exhibit 4.1 to the Company’s Current Report on Form 8-K (File No. 1-08703) with the Securities and Exchange Commission on December 10, 2021) |
| | First Supplemental Indenture (including Form of 2.850% Senior Notes due 2029 and Form of 3.100% Senior Notes due 2032), dated as of December 10, 2021, between Western Digital Corporation and U.S. Bank National Association, as trustee (Filed as Exhibit 4.2 to the Company’s Current Report on Form 8-K (File No. 1-08703) with the Securities and Exchange Commission on December 10, 2021) |
| | Indenture (including Form of 3.00% Convertible Senior Notes due 2028), dated as of November 3, 2023 (the “Indenture”), among (i) Western Digital Corporation, (ii) Western Digital Technologies, Inc., as guarantor, and (iii) U.S. Bank Trust Company, National Association, as trustee (Filed as Exhibit 4.1 to the Company’s Current Report on Form 8-K (File No. 1-08703) with the Securities and Exchange Commission on November 3, 2023) |
| | First Supplemental Indenture, dated as of April 26, 2024, between (i) Western Digital Corporation, (ii) SanDisk Corporation, (iii) SanDisk Technologies, Inc., a subsidiary of Western Digital Technologies, Inc. and (iv) U.S. Bank Trust Company, National Association, as trustee† |
| | Western Digital Corporation Amended and Restated 2017 Performance Incentive Plan, amended and restated as of August 11, 2020 (Filed as Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q (File No. 1-08703) with the Securities and Exchange Commission on February 9, 2021)* |
| | Form of Notice and Grant of Performance Stock Units and Performance Stock Unit Award Agreement- Financial Measure, under the Amended and Restated Western Digital Corporation 2017 Performance Incentive Plan (Filed as Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q (File No. 1-08703) with the Securities and Exchange Commission on November 4, 2021)* |
| | Form of Notice and Grant of Performance Stock Units and Performance Stock Unit Award Agreement- TSR Measure, under the Amended and Restated Western Digital Corporation 2017 Performance Incentive Plan (Filed as Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q (File No. 1-08703) with the Securities and Exchange Commission on November 4, 2021)* |
| | Form of Notice of Grant of Restricted Stock Units and Restricted Stock Unit Award Agreement – Vice President and Above, under the Amended and Restated Western Digital Corporation 2017 Performance Incentive Plan (Filed as Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q (Filed No. 1-08703) with the Securities and Exchange Commission on February 9, 2021)* |
| | Form of Notice of Grant of Restricted Stock Units and Restricted Stock Unit Award Agreement - Vice President and Above, under the Amended and Restated Western Digital Corporation 2017 Performance Incentive Plan (Filed as Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q (File No. 1-08703) with the Securities and Exchange Commission on November 4, 2021)* |
| | Western Digital Corporation Amended and Restated 2021 Long-Term Incentive Plan (Filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K (File No. 001-08703) with the Securities and Exchange Commission on November 17, 2023)* |
| | Form of Notice of Grant of Performance Stock Units and Performance Stock Unit Award Agreement under the Western Digital Corporation 2021 Long-Term Incentive Plan (Filed as Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q (File No. 1-08703) with the Securities and Exchange Commission on November 2, 2022)* |
| | Form of Grant Notice for Performance Stock Unit Award under the Western Digital Corporation 2021 Long-Term Incentive Plan (Filed as Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q (File No. 1-08703) with the Securities and Exchange Commission on November 7, 2023)* |
| | | | | | | | |
Exhibit
Number | | Description |
| | Form of Grant Notice for Restricted Stock Unit Award – Vice President and Above, under the Western Digital Corporation 2021 Long-Term Incentive Plan (Filed as Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q (File No. 1-08703) with the Securities and Exchange Commission on February 3, 2022)* |
| | 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 (Filed as Exhibit 10.2(3) to the Company’s Annual Report on Form 10-K (File No. 1-08703) with the Securities and Exchange Commission on August 22, 2023)* |
| | Western Digital Corporation Amended and Restated 2021 Long-Term Incentive Plan Non-Employee Director Restricted Stock Unit Grant Program, amended and restated as of May 23, 2023 (Filed as Exhibit 10.2(4) to the Company’s Annual Report on Form 10-K (File No. 1-08703) with the Securities and Exchange Commission on August 22, 2023)* |
| | Western Digital Corporation Executive Short-Term Incentive Plan (supersedes the Western Digital Corporation Executive Short-Term Incentive Plan dated August 7, 2019), dated February 9, 2021 (Filed as Exhibit 10.1 to the Company’s Quarterly Report on Form 10‑Q (File No. 1-08703) with the Securities and Exchange Commission on May 6, 2021)* |
| | Western Digital Corporation Amended and Restated 2005 Employee Stock Purchase Plan, amended and restated as of August 25, 2022 (Filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K (File No. 1-08703) with the Securities and Exchange Commission on November 18, 2022)* |
| | Amended and Restated Deferred Compensation Plan, amended and restated effective January 1, 2013 (Filed as Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q (File No. 1-08703) with the Securities and Exchange Commission on November 2, 2012)* |
| | Western Digital Corporation Amended and Restated Change in Control Severance Plan, amended and restated as of May 24, 2021 (Filed as Exhibit 10.6 to the Company’s Annual Report on Form 10-K (File No. 1-08703) with the Securities and Exchange Commission on August 27, 2021)* |
| | Western Digital Corporation Amended and Restated Executive Severance Plan, amended and restated as of May 24, 2021 (Filed as Exhibit 10.7 to the Company’s Annual Report on Form 10-K (File No. 1-08703) with the Securities and Exchange Commission on August 27, 2021)* |
| | Form of Indemnity Agreement for Directors of Western Digital Corporation (Filed as Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q (File No. 1-08703) with the Securities and Exchange Commission on November 8, 2002)* |
| | Form of Indemnity Agreement for Officers of Western Digital Corporation (Filed as Exhibit 10.5 to the Company’s Quarterly Report on Form 10-Q (File No. 1-08703) with the Securities and Exchange Commission on November 8, 2002)* |
| | Offer Letter, dated as of February 18, 2020, to David Goeckeler (Filed as Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q (File No. 1-08703) with the Securities and Exchange Commission on May 8, 2020)* |
| | Offer Letter, dated as of December 14, 2021, to Wissam Jabre (Filed as Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q (File No. 1-08703) with the Securities and Exchange Commission on May 4, 2022)* |
| | Amended and Restated Letter Agreement, dated January 31, 2023, by and between Western Digital Corporation and Elliott Investment Management L.P. (Filed as Exhibit 10.4 to the Company’s Current Report on Form 8-K (File No. 1-08703) with the Securities and Exchange Commission on February 1, 2023) |
| | Investment Agreement, dated January 31, 2023, by and between Western Digital Corporation and AP WD Holdings, L.P. (Filed as Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q (File No. 1-08703) with the Securities and Exchange Commission on May 10, 2023) |
| | Investment Agreement, dated January 31, 2023, by and among Western Digital Corporation, Elliott Associates, L.P. and Elliott International, L.P. (Filed as Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q (File No. 1-08703) with the Securities and Exchange Commission on May 10, 2023) |
| | Registration Rights Agreement, dated January 31, 2023, by and among Western Digital Corporation, AP WD Holdings, L.P., Elliott Associates, L.P. and Elliott International, L.P. (Filed as Exhibit 10.3 to the Company’s Current Report on Form 8-K (File No. 1-08703) with the Securities and Exchange Commission on February 1, 2023) |
| | Restatement Agreement, dated January 7, 2022, by and among Western Digital Corporation, JPMorgan Chase Bank, N.A., as administrative agent, and the lenders party thereto (Filed as Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q (File No. 1-08703) with the Securities and Exchange Commission on May 4, 2022) |
| | Amendment No. 1, dated as of December 23, 2022, to the Amended and Restated Loan Agreement, dated as of January 7, 2022, by and among Western Digital Corporation, each lender party thereto, J.P. Morgan Chase Bank, N.A. as Administrative Agent and the other parties thereto (Filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K (File No. 1-08703) with the Securities and Exchange Commission on December 23, 2022) |
| | Amendment No. 2, dated as of June 20, 2023, to the Amended and Restated Loan Agreement, dated as of January 7, 2022, by and among Western Digital Corporation, each lender party thereto, J.P. Morgan Chase Bank, N.A. as Administrative Agent and the other parties thereto (Filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K (File No. 1-08703) with the Securities and Exchange Commission on June 21, 2023) |
| | Amendment No. 3, dated as of June 11, 2024, to the Amended and Restated Loan Agreement dated as of January 7, 2022 by and among Western Digital Corporation, each lender party thereto, J.P. Morgan Chase Bank, N.A. as Administrative Agent and the other parties thereto† |
|
|
|
| | | | | | | | |
Exhibit
Number | | Description |
| | Guaranty, dated as of June 20, 2023, by and among Western Digital Corporation, Western Digital Technologies, Inc. and JPMorgan Chase Bank, N.A. as Administrative Agent (Filed as Exhibit 10.4 to the Company’s Current Report on Form 8-K (File No. 1-08703) with the Securities and Exchange Commission on June 21, 2023) |
| | Assumption and Supplement to Guaranty Agreement, dated as of April 26, 2024, made by each of (i) SanDisk Technologies, Inc. and (ii) SanDisk Corporation† |
|
| | Security Agreement, dated as of June 20, 2023, by and among Western Digital Corporation, Western Digital Technologies, Inc and JPMorgan Chase Bank, N.A. as Collateral Agent (Filed as Exhibit 10.6 to the Company’s Current Report on Form 8-K (File No. 1-08703) with the Securities and Exchange Commission on June 21, 2023) |
| | Assumption and Supplemental Security Agreement, dated as of April 26, 2024, from SanDisk Corporation and SanDisk Technologies, Inc. to JPMorgan Chase Bank, N.A., as collateral agent for the Secured Parties† |
| | Flash Alliance, Master Agreement dated as of July 7, 2006, by and among SanDisk Corporation, Toshiba Corporation and SanDisk (Ireland) Limited (Filed as Exhibit 10.6 to the Company’s Quarterly Report on Form 10-Q (File No. 1-08703) with the Securities and Exchange Commission on February 3, 2022)## |
| | Operating Agreement of Flash Alliance, Ltd., dated as of July 7, 2006, by and between Toshiba Corporation and SanDisk (Ireland) Limited (Filed as Exhibit 10.7 to the Company’s Quarterly Report on Form 10-Q (File No. 1-08703) with the Securities and Exchange Commission on February 3, 2022)## |
| | Joint Venture Restructure Agreement, dated as of January 29, 2009, by and among SanDisk Corporation, SanDisk (Ireland) Limited, SanDisk (Cayman) Limited, Toshiba Corporation, Flash Partners Limited and Flash Alliance Limited (Filed as Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q (File No. 1-08703) with the Securities and Exchange Commission on April 30, 2024)## |
| | New Y2 Facility Agreement, dated October 20, 2015, by and among SanDisk Corporation, SanDisk (Ireland) Limited, SanDisk (Cayman) Limited, SanDisk Flash B.V., Toshiba Corporation, Flash Partners Limited, Flash Alliance Limited and Flash Forward Limited (Filed as Exhibit 10.37 to SanDisk Corporation’s Annual Report on Form 10-K (File No. 000-26734) with the Securities and Exchange Commission on February 12, 2016)# |
| | FAL Commitment and Extension Agreement, dated as of December 12, 2017, by and among Western Digital Corporation, SanDisk LLC, SanDisk (Ireland) Limited and Toshiba Memory Corporation (Filed as Exhibit 10.6 to the Company’s Quarterly Report on Form 10-Q (File No. 1-08703) with the Securities and Exchange Commission on February 6, 2018)# |
| | Y6 Facility Agreement, dated as of December 12, 2017, by and among Western Digital Corporation, SanDisk LLC, SanDisk (Cayman) Limited, SanDisk (Ireland) Limited, SanDisk Flash B.V., Flash Partners, Ltd., Flash Alliance, Ltd., Flash Forward, Ltd. and Toshiba Memory Corporation (Filed as Exhibit 10.7 to the Company’s Quarterly Report on Form 10-Q (File No. 1-08703) with the Securities and Exchange Commission on February 6, 2018)# |
| | K1 Facility Agreement, dated as of May 15, 2019, by and among Western Digital, SanDisk LLC, SanDisk (Cayman) Limited, SanDisk (Ireland) Limited, SanDisk Flash B.V., Flash Partners, Ltd., Flash Alliance, Ltd., Flash Forward Ltd., Toshiba Memory Corporation and Toshiba Memory Corporation Iwate (Filed as Exhibit 10.21 to the Company’s Annual Report on Form 10-K (File No. 1-08703) with the Securities and Exchange Commission on August 27, 2019)## |
| | Confidential Settlement and Mutual Release Agreement, dated as of December 12, 2017, by and among Western Digital Corporation, SanDisk LLC, SanDisk (Cayman) Limited, SanDisk (Ireland) Limited, SanDisk Flash B.V., Toshiba Corporation and Toshiba Memory Corporation (Filed as Exhibit 10.8 to the Company’s Quarterly Report on Form 10-Q (File No. 1-08703) with the Securities and Exchange Commission on February 6, 2018)# |
| | Confidential Settlement and Mutual Release Agreement, dated as of December 12, 2017, by and among Western Digital Corporation, SanDisk LLC, SanDisk (Cayman) Limited, SanDisk (Ireland) Limited, SanDisk Flash B.V., Bain Capital Private Equity, L.P., BCPE Pangea Cayman, L.P., BCPE Pangea Cayman2, Ltd., Bain Capital Fund XII, L.P., Bain Capital Asia Fund III, L.P. and K.K. Pangea (Filed as Exhibit 10.9 to the Company’s Quarterly Report on Form 10-Q (File No. 1-08703) with the Securities and Exchange Commission on February 6, 2018)# |
| | Flash Forward Master Agreement, dated as of July 13, 2010, entered into by and among, on one side, Toshiba Corporation and, on the other side, SanDisk Corporation, and SanDisk Flash B.V. (Filed as Exhibit 10.26 to the Company’s Annual Report on Form 10-K (File No. 1-08703) with the Securities and Exchange Commission on August 25, 2022)## |
| | Operating Agreement of Flash Forward, Ltd, dated as of March 1, 2011, between Toshiba Corporation and SanDisk Flash B.V. (Filed as Exhibit 10.27 to the Company’s Annual Report on Form 10-K (File No. 1-08703) with the Securities and Exchange Commission on August 25, 2022)## |
| | FFL Commitment and Extension Agreement, dated as of December 12, 2017, by and among Toshiba Memory Corporation, Western Digital Corporation, SanDisk LLC and SanDisk Flash B.V. (Filed as Exhibit 10.28 to the Company’s Annual Report on Form 10-K (File No. 1-08703) with the Securities and Exchange Commission on August 25, 2022)## |
| | FFL Second Commitment and Extension Agreement, dated as of May 15, 2019, by and among Toshiba Memory Corporation, Toshiba Memory Iwate Corporation, Western Digital Corporation, SanDisk LLC, SanDisk (Cayman) Limited, SanDisk (Ireland) Limited, SanDisk Flash B.V., Flash Partners, Ltd., Flash Alliance, Ltd., and Flash Forward, Ltd. (Filed as Exhibit 10.29 to the Company’s Annual Report on Form 10-K (File No. 1-08703) with the Securities and Exchange Commission on August 25, 2022)## |
| | Equity Purchase Agreement, dated as of March 4, 2024, by and among SanDisk China Limited and JCET Management Co., Ltd. (Filed as Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q (File No. 1-08703) with the Securities and Exchange Commission on April 30, 2024)## |
| | | | | | | | |
Exhibit
Number | | Description |
| | Form of Confirmation for Capped Call Transactions (Filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K (File No. 1-08703) with the Securities and Exchange Commission on November 3, 2023) |
| | |
| | Subsidiaries of Western Digital Corporation† |
| | Consent of Independent Registered Public Accounting Firm† |
| | 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** |
| | Western Digital Corporation Compensation Recovery (Clawback) Policy† |
| 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.SCH | | XBRL Taxonomy Extension Schema Document† |
| 101.CAL | | XBRL Taxonomy Extension Calculation Linkbase Document† |
| 101.LAB | | XBRL Taxonomy Extension Label Linkbase Document† |
| 101.PRE | | XBRL Taxonomy Extension Presentation Linkbase Document† |
| 101.DEF | | XBRL Taxonomy Extension Definition Linkbase Document† |
| 104 | | Cover Page Interactive Data File - formatted in Inline XBRL and contained in Exhibit 101 |
† Filed with this report.
** Furnished 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.
# Pursuant to a request for confidential treatment, certain portions of this exhibit have been redacted from the publicly filed document and have been furnished separately to the Securities and Exchange Commission as required by Rule 24b-2 under the Securities Exchange Act of 1934, as amended.
## 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.
Item 16. Form 10-K Summary
None.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Annual Report on Form 10‑K 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: August 19, 2024
Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report on Form 10‑K has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. | | | | | | | | | | | | | | |
| Signature | | Title | | Date |
| | | | |
| /s/ David V. Goeckeler | | Chief Executive Officer, Director
(Principal Executive Officer) | | August 19, 2024 |
| David V. Goeckeler | | | |
| | | | |
| /s/ Wissam Jabre | | Executive Vice President and Chief Financial Officer
(Principal Financial Officer) | | August 19, 2024 |
| Wissam Jabre | | | |
| | | | |
| /s/ Gene Zamiska | | Senior Vice President, Global Accounting and Chief Accounting Officer
(Principal Accounting Officer) | | August 19, 2024 |
| Gene Zamiska | | | |
| | | | |
| /s/ Matthew E. Massengill | | Chairman of the Board | | August 19, 2024 |
| Matthew E. Massengill | | | | |
| | | | |
| /s/ Kimberly E. Alexy | | Director | | August 19, 2024 |
| Kimberly E. Alexy | | | | |
| | | | |
| /s/ Thomas Caulfield | | Director | | August 19, 2024 |
| Thomas Caulfield | | | | |
| | | | |
| /s/ Martin I. Cole | | Director | | August 19, 2024 |
| Martin I. Cole | | | | |
| | | | |
| /s/ Tunҫ Doluca | | Director | | August 19, 2024 |
| Tunҫ Doluca | | | | |
| | | | |
|
|
|
| /s/ Reed B. Rayman | | Director | | August 19, 2024 |
| Reed B. Rayman | | | | |
| | | | |
| /s/ Stephanie A. Streeter | | Director | | August 19, 2024 |
| Stephanie A. Streeter | | | | |
| | | | |
| /s/ Miyuki Suzuki | | Director | | August 19, 2024 |
| Miyuki Suzuki | | | | |
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