WESTERN DIGITAL CORP - Quarter Report: 2024 December (Form 10-Q)

Item 5.

Other Information

Item 6.Exhibits

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

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

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

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FORWARD-LOOKING STATEMENTS

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

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

•volatility in global or regional economic conditions and our responsive actions thereto;

•operational, financial and legal challenges and difficulties inherent in implementing a separation of our HDD and Flash business units;

•dependence on a limited number of suppliers or disruptions in our supply chain;

•the outcome, timing and impact of the planned separation of our HDD and Flash business units, including with respect to customer and supplier relationships, contractual restrictions, stock price volatility and the diversion of management’s attention from ongoing business operations and opportunities;

•future responses to and effects of public health crises;

•the impact of business and market conditions;

•damage or disruption to our operations or to those of our suppliers;

•hiring and retention of key employees;

•compromise, damage or interruption from cybersecurity incidents or other data or system security risks;

•product defects;

•our reliance on strategic relationships with key partners, including Kioxia;

•the competitive environment, including actions by our competitors, and the impact of competitive products and pricing;

•our development and introduction of products based on new technologies and expansion into new data storage markets;

•risks associated with cost saving initiatives, restructurings, acquisitions, divestitures, mergers, joint ventures and our strategic relationships;

•changes to our relationships with key customers;

•our ability to respond to market and other changes in our distribution channel and retail market;

•our level of debt and other financial obligations;

•changes in tax laws or unanticipated tax liabilities;

•fluctuations in currency exchange rates in connection with our international operations;

•risks associated with compliance with changing legal and regulatory requirements and the outcome of legal proceedings;

•risks associated with our goals relating to environmental, social and governance matters, including our ability to meet our GHG emissions reduction and other ESG goals;

•our reliance on intellectual property and other proprietary information; and

•the other risks and uncertainties disclosed in Part I, Item 1A of our Annual Report on Form 10-K for the year ended June 28, 2024 (our “2024 Annual Report on Form 10-K”), as amended, supplemented or superseded in our other reports filed with the Securities and Exchange Commission, including under “Risk Factors” in Item 1A of our subsequent Quarterly Reports on Form 10-Q.

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

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements (unaudited)

WESTERN DIGITAL CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(in millions, except par value)

(Unaudited)

December 27,
2024

June 28,
2024

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, 12 and 16)

Convertible preferred stock, $ par value; authorized — shares; issued and outstanding — shares; aggregate liquidation preference of $ and $, respectively

Shareholders’ equity:

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

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WESTERN DIGITAL CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in millions)

(Unaudited)


	Six Months Ended
	December 27, 2024	December 29, 2023
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	()	()
Gain on business divestiture	()
Asset impairment
Gain on repurchase of debt		()
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




Net proceeds from business divestiture
Notes receivable issuances to Flash Ventures	()	()
Notes receivable proceeds from Flash Ventures
Distribution from Flash Ventures
Strategic investments and other, net
Net cash provided by investing activities
Cash flows from financing activities
Issuance of stock under employee stock plans
Taxes paid on vested stock awards under employee stock plans	()	()
Convertible preferred stock issuance costs		()



Purchase of capped calls		()
Repurchases of debt		()
Repayments of debt	()	()
Proceeds from debt
Debt issuance costs		()

Net cash provided by (used in) financing activities	()
Effect of exchange rate changes on cash

Net increase in cash and cash equivalents
Cash and cash equivalents, beginning of year
Cash and cash equivalents, end of period	$	$
Supplemental disclosure of cash flow information:
Cash paid for income taxes	$	$
Cash paid for interest	$	$

Accumulated Other Comprehensive Loss Retained EarningsTotal Shareholders’ EquitySharesAmountSharesAmount— ) — — — — — $()$ $

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

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WESTERN DIGITAL CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CONVERTIBLE PREFERRED STOCK AND SHAREHOLDERS’ EQUITY

(in millions)

(Unaudited)

) )

Accumulated Other Comprehensive Loss

Retained Earnings

Total Shareholders’ Equity

Amount

()

—

()

—

()

—

()

—

()

—

()

—

()

—

()

—

()

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

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WESTERN DIGITAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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.

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WESTERN DIGITAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 2.

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WESTERN DIGITAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 3.

$ $ $

Flash

Total net revenue$ $ $ $ Gross profit:

HDD

$ $ $ $

Flash

()Total gross profit for segments Unallocated corporate items:Stock-based compensation expense()()()()

Amortization of licenses related to a litigation matter

() () Amortization of acquired intangible assets ()()()Recovery from contamination incident Total unallocated corporate items() () Consolidated gross profit$ $ $ $ Gross margin:

HDD

% % % %

Flash

% % %()%Consolidated gross margin % % % %

Disaggregated Revenue

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

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WESTERN DIGITAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

$ $ $ Client Consumer

Total revenue

$ $ $ $

Revenue by geography

Asia$ $ $ $ Americas Europe, Middle East and Africa

Total revenue

$ $ $ $

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

Goodwill

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

$ $

The current portion of the warranty accrual was classified in Accrued expenses and the long-term portion was classified in Other liabilities as noted below:

December 27,
2024

June 28,
2024

(in millions)

Warranty accrual:

Current portion

Long-term portion

Total warranty accrual

Total Accumulated Comprehensive Loss(in millions)) ) ()$()

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

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

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WESTERN DIGITAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 5.

$ $ $ Foreign exchange contracts Total assets at fair value$ $ $ $ Liabilities:Foreign exchange contracts$ $ $ $ Total liabilities at fair value$ $ $ $

June 28, 2024

Level 1

Level 2

Level 3

Total

(in millions)

Assets:

Cash equivalents - Money market funds

Foreign exchange contracts

Total assets at fair value

Liabilities:

Foreign exchange contracts

(in millions)

Non-current liabilities (included in Other liabilities)

Net amount recognized$ $

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

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WESTERN DIGITAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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”.

$ 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$ $

The Company made net payments to Flash Ventures for purchased flash-based memory wafers and net loans of $ billion and $ billion during the three and six months ended December 27, 2024, respectively, and $ billion and $ billion during the three and six months ended December 29, 2023, respectively.

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 December 27, 2024 and June 28, 2024, 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$

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WESTERN DIGITAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

% of Flash Ventures’ output. In addition, the Company is obligated to pay for half of Flash Ventures’ fixed costs regardless of the output the Company chooses to purchase. The Company is not able to estimate its total wafer purchase commitment obligation beyond its rolling three-month purchase commitment because the price is determined by reference to the future cost of producing the semiconductor wafers. In addition, the Company is committed to fund % to % of each Flash Ventures entity’s capital investments to the extent that each Flash Ventures entity’s operating cash flow is insufficient to fund these investments.

Flash Ventures has historically operated near % of its manufacturing capacity. During the three and six months ended December 29, 2023, as a result of flash market conditions, the Company temporarily reduced its utilization of its share of Flash Ventures’ manufacturing capacity to an abnormally low level to more closely align the Company’s flash-based wafer supply with projected demand. During the three and six months ended December 29, 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. such charges were incurred during the three and six months ended December 27, 2024.

The Company has facility agreements with Kioxia related to the construction and operation of Kioxia’s “K1” 300-millimeter wafer fabrication facility in Kitakami, Japan, a wafer fabrication facility in Yokkaichi, Japan, referred to as “Y7”, and a wafer fabrication facility in Kitakami, Japan, referred to as “K2”. In connection with the start-up of these facilities, the Company has made prepayments toward future building depreciation. In connection with the start-up of the K1, K2 and Y7 facilities, the Company has made prepayments over time, and as of December 27, 2024, $ million remains to be credited against future building depreciation charges. As of December 27, 2024, the Company is also committed to make additional building depreciation prepayments of $ million, based on the Japanese yen to U.S. dollar exchange rate of as of such date, payable as follows: $ million for the remainder of 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 December 27, 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.

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

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

Off-Balance Sheet Liabilities

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

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WESTERN DIGITAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

$ $ 2026 2027 2028 2029 2030 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 December 27, 2024, no amounts have been accrued in the Condensed Consolidated Financial Statements with respect to these indemnification agreements.

Unis Venture

The Company has a venture with Unisplendour Corporation Limited and Unissoft (Wuxi) Group Co. Ltd. (“Unis”), referred to as the “Unis Venture”, to market and sell the Company’s products in China and to develop data storage systems for the Chinese market in the future. The Unis Venture is % 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 both the three and six months ended December 27, 2024, the Company recognized approximately % of its consolidated revenue on products distributed by the Unis Venture. For the three and six months ended December 29, 2023, the Company recognized approximately % and % of its consolidated revenue, respectively, on products distributed by the Unis Venture. The outstanding accounts receivable due from the Unis Venture were % and % of Accounts receivable, net as of both December 27, 2024 and June 28, 2024, respectively.

Sale of a Majority Interest in a Subsidiary

In connection with the Company’s strategic decision to outsource the manufacturing of certain components and assemblies in its flash-based products, on September 28, 2024, the Company’s wholly-owned subsidiary, SanDisk China Limited (“SanDisk China”) completed the sale of % of its equity interest in SanDisk Semiconductor (Shanghai) Co. Ltd. (“SDSS”), the Company’s indirect wholly-owned subsidiary in its Flash business that owned its Flash manufacturing facility, to JCET Management Co., Ltd. (“JCET”), a wholly-owned subsidiary of JCET Group Co., Ltd., a Chinese publicly listed company, thereby forming a venture between SanDisk China and JCET (the “Transaction”). The venture aims to provide independent semiconductor assembly, testing, and other related services in the People’s Republic of China for customers including, but not limited to, the Company and its affiliates.

Proceeds from the sale, including working capital adjustments, are $ million pre-tax. On October 1, 2024, the Company received an initial pre-tax installment of $ million. On January 6, 2025, the Company received a second pre-tax installment of $ million and expects to receive remaining pre-tax proceeds of $ million in installments of approximately $ million on September 28 of each year through September 28, 2029. As of December 27, 2024, the outstanding consideration receivable was recognized at its present value of $ million, with $ million within Other current assets and $ million within Other non-current assets in the Condensed Consolidated Balance Sheets. The present value discount of $ million as of December 27, 2024 will be accreted using the effective interest method to Interest income in the Condensed Consolidated Statements of Operations over the next .

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WESTERN DIGITAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

% retained interest in SDSS was determined to be valued at $ million based on the fair value of the total pre-tax consideration received and receivable from JCET for its purchase of its % interest in SDSS. The Company accounts for its % interest in SDSS as an equity method investment within Other non-current assets in the Condensed Consolidated Balance Sheets. The Company’s % interest in the earnings of SDSS will be recognized one quarter in arrears and will be reported in Other net income (expense), net in the Condensed Consolidated Statements of Operations.

The Transaction resulted in a pre-tax gain of $ million, calculated as the difference between the total consideration for the sale, including the outstanding consideration receivable and the fair value of the Company’s % retained interest, less the carrying value of the net assets divested, which included, among other items, $ million of cash and cash equivalents and $ million of goodwill allocated to SDSS.

Subsequent to and in connection with the SDSS sale, the Company entered into a Supply Agreement with SDSS to purchase certain flash-based products with a minimum annual commitment of $ million (“the minimum annual commitment”). The Supply Agreement contains specific penalties the Company must pay if SDSS’s revenue fails to meet the minimum annual commitment. The Supply Agreement also provides that if SDSS’s revenue is higher than the minimum annual commitment in any of the immediately succeeding any annual period where a shortfall penalty has been paid, SDSS shall reimburse the Company a true-up amount not exceeding the previously paid penalty amount. The Supply Agreement expires on September 28, 2029, and automatically renews for additional terms unless earlier terminated by any of the parties. The Company also entered into an agreement to grant SDSS certain intellectual property rights on a royalty-free basis for use in manufacturing products on the Company’s behalf for the term of and under the Supply Agreement. For the six months ended December 27, 2024, the Company made purchases of $ million under the Supply Agreement and had an account payable balance due to SDSS of $ million as of December 27, 2024.

The Company also entered into a Transaction Services Agreement (“TSA”) to provide certain transitional services for one year following the closing of the Transaction. Charges under the TSA were not material.

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WESTERN DIGITAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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$ $

$ $ $ Cash paid for operating leases Operating lease assets obtained in exchange for operating lease liabilities (in millions)

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

Compensation cost related to unvested RSUs, PSUs, and rights to purchase shares of common stock under the ESPP are generally amortized on a straight-line basis over the remaining average service period. ESPP Total unamortized compensation cost$

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WESTERN DIGITAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

$ Granted Vested() $ Forfeited() RSUs and PSUs outstanding at December 27, 2024 $

)

The following table presents an analysis of the components of these activities against the reserve (included in Accrued expenses) during the six months ended December 27, 2024:

Employee Termination Benefits

Contract Termination and Other

Total

(in millions)

Accrual balance at June 28, 2024

Charges

Cash payments

()

Recovery of non-cancellable PO

()

Accrual balance at December 27, 2024

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WESTERN DIGITAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 15.

to days. 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 December 27, 2024 and June 28, 2024, respectively, and are included within Accounts payable on the Company’s Condensed Consolidated Balance Sheets.

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WESTERN DIGITAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 16.

patents (together, the “MRT Patents”). The trial 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. In addition, MRT requested attorney’s fees and post-judgment interest.

In the fourth quarter of fiscal year 2024, the Company recognized an aggregate liability for this matter of $ million with $ million recognized as an Operating expense under Litigation matter for the year ended June 28, 2024 and $ million recognized as Other non-current assets for the patent licenses, to be amortized over their remaining lives. During the three and six months ended December 27, 2024, the Company recognized incremental charges of $ and $ million, respectively, related to plaintiff’s attorney’s fees in Operating expense under Litigation matter; $ million and $ million, respectively, of post-judgment interest in Other income (expense), net; and $ million and $ million, respectively, in Cost of revenue from the amortization of licenses related to this matter. The Company believes it has meritorious defenses, has filed 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 claim under U.S. Patent No. 6,088,802 asserted against certain HDD products that may include certain encryption capabilities. The trial commenced on October 8, 2024, and concluded on October 18, 2024, and the jury awarded SPEX damages of $ million for the use of claim related to U.S. Patent No. 6,088,802 in the past, prior to its expiration in 2017. On January 8, 2025, the Court entered judgment for SPEX in accordance with the verdict and also awarded SPEX prejudgment interest of $ million and legal costs. The Company intends to contest the verdict and, based on available arguments, the Company believes the jury verdict and the prejudgment interest and legal costs will be reversed, amended or vacated when the Company files motions for judgment as a matter of law in the district court or presents its appeal to the United States Court of Appeals for the Federal Circuit, if necessary. The Company therefore believes a loss is not probable and has not accrued a liability as a result of the jury verdict or the entry of judgment in its financial statements as of December 27, 2024.

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

Other Matters

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

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

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

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

Our Company

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

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

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

Key Developments

Separation of Business Units

On October 30, 2023, we announced that our Board of Directors had completed its strategic review of our business and, after evaluating a comprehensive range of alternatives, authorized us to pursue a plan to separate our HDD and Flash business units to create two independent, public companies, with Sandisk Corporation, currently a wholly owned subsidiary of the Company, holding our Flash business, and Western Digital focusing on our existing HDD business. We believe the separation will better position each business unit to execute innovative technology and product development, capitalize on unique growth opportunities, extend respective leadership positions, and operate more efficiently with distinct capital structures. At the beginning of our second quarter of fiscal year 2025, we entered the soft-spin phase of our separation plan. The soft-spin phase represents the period when we begin testing critical processes and systems for each future HDD and Flash company to ensure that both are ready to operate independently at legal separation. We continue to make progress on the work required to execute the separation. The separation will be effected through a pro rata distribution of 80.1% of the outstanding shares of Sandisk Corporation to holders of the Company’s common stock as of February 12, 2025, the record date for the distribution. We expect the distribution to occur on or about February 21, 2025. However, completion of the planned separation is subject to certain conditions, and no assurance can be provided as to the timing of the distribution or that all conditions to the distribution will be met.

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Operational Update

Macroeconomic factors such as inflation, changes in interest rates, and recession concerns softened demand for our products during the first half of 2024. As a result, we and our industry experienced a supply-demand imbalance, which resulted in reduced shipments and negatively impacted pricing during those periods. To adapt to these conditions, we implemented measures to reduce operating expenses and proactively manage supply and inventory to align with demand and improve our capital efficiency while continuing to deploy innovative products. These actions enabled us to scale back on capital expenditures, consolidate production lines, and reduce production, which resulted in incremental charges for employee termination, asset impairment, and charges for unabsorbed manufacturing overhead costs in HDD and Flash due to the underutilization of facilities as we temporarily scaled back production.

We have seen an improvement in the supply and demand dynamic in HDD, leading to improved revenues in the first half of fiscal 2025 from the comparable period in the prior year. However, in Flash, we are experiencing what we believe is a mid-cycle slowdown. We expect to incur charges for unabsorbed manufacturing overhead costs as a result of the reduced utilization of our manufacturing capacity in the remainder of fiscal 2025 as we moderate production levels to align with demand in Flash. We anticipate that digital transformation, including the artificial intelligence data-cycle, will drive improved market conditions in both HDD and Flash in the long term.

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

Sale of a Majority Interest in a Subsidiary

As discussed in Part I, Item 1, Note 9, Related Parties and Related Commitments and Contingencies, of the Notes to Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q, on September 28, 2024, our wholly-owned subsidiary, SanDisk China Limited (“SanDisk China”) completed the sale of 80% of its equity interest in SanDisk Semiconductor (Shanghai) Co. Ltd. (“SDSS”), our indirect wholly-owned subsidiary in our Flash business that owned our Flash manufacturing facility, to JCET Management Co., Ltd. (“JCET”), a wholly-owned subsidiary of JCET Group Co., Ltd., a Chinese publicly listed company, thereby forming a venture between SanDisk China and JCET. The transaction resulted in a pre-tax gain of $113 million.

Subsequent to and in connection with the SDSS sale, we entered into a five-year Supply Agreement with SDSS to purchase certain flash-based products with a minimum annual commitment of $550 million. As a result of this transaction, we expect to incur a modest reduction in annual operating expenses and a reduction in annual capital expenditures related to assembly and testing of flash-based products. We also anticipate that the transition to a contract manufacturing model through SDSS will result in a small increase in our annual cost of revenue for flash-based products.

Tax Resolution

As previously disclosed, we had previously reached a final agreement with the IRS and received notices of deficiency with respect to years 2008 through 2012 and in February 2024, also reached a final agreement for resolving the notices of proposed adjustments with respect to years 2013 through 2015. During the six months ended December 27, 2024, we made payments aggregating $162 million for tax and interest with respect to years 2008 through 2015 and have no remaining liability as of December 27, 2024 related to all years from 2008 through 2015. Additional information regarding these settlements and our assessment of the potential tax and interest payments we expect to pay in connection with the settlements is provided in our discussion of Income tax expense in our “Results of Operations” below, as well as in Part I, Item 1, Note 12, Income Tax Expense, of the Notes to Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q, and in the “Short- and Long-term Liquidity – Unrecognized Tax Benefits” section below.

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Results of Operations

Second Quarter and First Half Overview

The following table sets forth, for the periods presented, selected summary information from our Condensed Consolidated Statements of Operations by dollars and percentage of net revenue(1):


	December 27, 2024				December 29, 2023				$ Change		% Change
Revenue, net	$	4,285	100.0	%	$	3,032	100.0	%	$	1,253	41	%
Cost of revenue	2,769		64.6		2,540		83.8		229		9
Gross profit	1,516		35.4		492		16.2		1,024		208
Operating expenses:
Research and development	502		11.7		444		14.6		58		13
Selling, general and administrative	238		5.6		198		6.5		40		20
Gain on business divestiture	(113)		(2.6)		—		—		(113)		n/a
Business separation costs	44		1.0		36		1.2		8		22

Employee termination, asset impairment and other	(7)		(0.2)		24		0.8		(31)		(129)
Total operating expenses	664		15.5		702		23.2		(38)		(5)
Operating income (loss)	852		19.9		(210)		(6.9)		1,062		506
Interest and other expense:
Interest income	11		0.3		12		0.4		(1)		(8)
Interest expense	(95)		(2.2)		(108)		(3.6)		13		(12)
Other income (expense), net	(27)		(0.6)		47		1.6		(74)		(157)
Total interest and other expense, net	(111)		(2.6)		(49)		(1.6)		(62)		127
Income (loss) before taxes	741		17.3		(259)		(8.5)		1,000		386
Income tax expense	147		3.4		28		0.9		119		425
Net income (loss)	594		13.9		(287)		(9.5)		881		307
Less: dividends allocated to preferred shareholders	4		0.1		14		0.5		(10)		(71)
Less: income attributable to preferred shareholders	9		0.2		—		—		9		n/a
Net income (loss) attributable to common shareholders	$	581	13.6	%	$	(301)	(9.9)	%	$	882	293	%

(1) Percentages may not total due to rounding.

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	December 27, 2024				December 29, 2023				$ Change		% Change
Revenue, net	$	8,380	100.0	%	$	5,782	100.0	%	$	2,598	45	%
Cost of revenue	5,313		63.4		5,191		89.8		122		2
Gross profit	3,067		36.6		591		10.2		2,476		419
Operating expenses:
Research and development	1,021		12.2		875		15.1		146		17
Selling, general and administrative	480		5.7		405		7.0		75		19
Gain on business divestiture	(113)		(1.3)		—		—		(113)		n/a
Business separation costs	87		1.0		36		0.6		51		142
Litigation matter	3		—		—		—		3		n/a
Employee termination, asset impairment and other	(5)		(0.1)		81		1.4		(86)		(106)
Total operating expenses	1,473		17.6		1,397		24.2		76		5
Operating income (loss)	1,594		19.0		(806)		(13.9)		2,400		298
Interest and other expense:
Interest income	20		0.2		20		0.3		—		—
Interest expense	(194)		(2.3)		(206)		(3.6)		12		(6)
Other income (expense), net	(51)		(0.6)		51		0.9		(102)		(200)
Total interest and other expense, net	(225)		(2.7)		(135)		(2.3)		(90)		67
Income (loss) before taxes	1,369		16.3		(941)		(16.3)		2,310		245
Income tax expense	282		3.4		31		0.5		251		810
Net income (loss)	1,087		13.0		(972)		(16.8)		2,059		212
Less: dividends allocated to preferred shareholders	8		0.1		29		0.5		(21)		(72)
Less: income attributable to preferred shareholders	17		0.2		—		—		17		n/a
Net income (loss) attributable to common shareholders	$	1,062	12.7	%	$	(1,001)	(17.3)	%	$	2,063	206	%

(1) Percentages may not total due to rounding.

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The following table sets forth, for the periods presented, a summary of our segment information:


	Three Months Ended						Six Months Ended
	December 27, 2024			December 29, 2023			December 27, 2024			December 29, 2023
	$ in millions
Net revenue:
HDD	$	2,409		$	1,367		$	4,620		$	2,561
Flash	1,876			1,665			3,760			3,221
Total net revenue	$	4,285		$	3,032		$	8,380		$	5,782
Gross profit:
HDD	$	929		$	339		$	1,772		$	612
Flash	609			131			1,341			(30)
Unallocated corporate items:
Stock-based compensation expense	(12)			(13)			(26)			(26)
Amortization of licenses related to a litigation matter	(10)			—			(19)			—
Amortization of acquired intangible assets	—			(1)			(1)			(1)



Recovery from contamination incident	—			36			—			36

Total unallocated corporate items	(22)			22			(46)			9
Consolidated gross profit	$	1,516		$	492		$	3,067		$	591
Gross margin:
HDD	38.6		%	24.8		%	38.4		%	23.9		%
Flash	32.5		%	7.9		%	35.7		%	(0.9)		%
Consolidated gross margin	35.4		%	16.2		%	36.6		%	10.2		%

The following table sets forth for the periods presented, summary information regarding our disaggregated revenue:



	Three Months Ended				Six Months Ended
	December 27, 2024		December 29, 2023		December 27, 2024		December 29, 2023







	(in millions)
Revenue by end market
Cloud	$	2,346	$	1,071	$	4,554	$	1,943
Client	1,168		1,122		2,377		2,269
Consumer	771		839		1,449		1,570
Total revenue	$	4,285	$	3,032	$	8,380	$	5,782

Revenue by geography
Asia	$	1,995	$	1,699	$	3,832	$	3,250
Americas	1,428		804		3,118		1,466
Europe, Middle East and Africa	862		529		1,430		1,066
Total revenue	$	4,285	$	3,032	$	8,380	$	5,782

Six Months Ended December 27,
2024December 29,
2023(in millions)Net cash provided by (used in):Operating activities$437 $(718)Investing activities78 24 Financing activities(103)1,151 Effect of exchange rate changes on cash— 1

Net increase in cash and cash equivalents

$412 $458

We had previously reached a final agreement with the IRS and received notices of deficiency with respect to years 2008 through 2012 and in February 2024 also reached a final agreement for resolving the notices of proposed adjustments with respect to years 2013 through 2015. During the six months ended December 27, 2024, the Company made payments of $130 million for interest with respect to years 2008 through 2012 and $32 million for tax and interest with respect to years 2013 through 2015, resulting in no remaining liability as of December 27, 2024 related to all years from 2008 through 2015.

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 $166 million. Of this amount, $65 million of interest savings from the interest paid with respect to years 2008 through 2015 is classified as a deferred tax asset due to interest expense limitation rules. See Part I, Item 1, Note 12, Income Tax Expense, of the Notes to Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q for further details.

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

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

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

A total of $1.60 billion of our Cash and cash equivalents was held by our foreign subsidiaries as of December 27, 2024 and June 28, 2024, respectively. There are no material tax consequences that were not previously accrued for on the repatriation of this cash.

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

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Operating Activities

Net cash provided by or used in operating activities primarily consists of net income or loss, adjusted for non-cash charges, plus or minus changes in operating assets and liabilities. Net cash used for changes in operating assets and liabilities was $1.04 billion for the six months ended December 27, 2024, as compared to $102 million for the six months ended December 29, 2023, which largely reflects an increase in the volume of our business, as discussed above.

Changes in our operating assets and liabilities are largely affected by our working capital requirements, which are dependent on our volume of business and the effective management of our cash conversion cycle as well as the timing of payments for taxes. Our cash conversion cycle measures how quickly we can convert our products into cash through sales. The cash conversion cycles were as follows (in days):


	Three Months Ended
	December 27, 2024	December 29, 2023
Days sales outstanding	55	46
Days in inventory	112	115
Days payable outstanding	(66)	(63)
Cash conversion cycle	101	98

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

For the three months ended December 27, 2024, DSO increased by 9 days from the comparable period in the prior year, of which 3 days reflected an increase from lower trade accounts receivable factoring and the remainder reflected the timing of shipments and customer collections. DIO decreased by 3 days from the comparable period in the prior year, primarily reflecting higher consumption of inventory driven by strong demand in HDD, partially offset by weaker shipments in Flash, in the current period. DPO increased by 3 days from the comparable period in the prior year primarily due to more favorable payment terms and routine variations in the timing of purchases and payments during the period.

Investing Activities

Net cash provided by investing activities for the six months ended December 27, 2024 primarily consisted of $191 million in net proceeds from our sale of a majority interest in one of our subsidiaries and $92 million in net proceeds from activity related to Flash Ventures, partially offset by $208 million in capital expenditures, net of proceeds from disposals of assets. Net cash provided by investing activities for the six months ended December 29, 2023 primarily consisted of $79 million in proceeds from net activity related to Flash Ventures and $26 million of proceeds from net activity related to strategic investments, partially offset by $81 million in capital expenditures, net of proceeds from disposals of assets, which includes the proceeds from the sale-leaseback of our Milpitas, California facility.

Financing Activities

During the six months ended December 27, 2024, net cash used in financing activities primarily consisted of $225 million for repayment of amounts borrowed under the revolving credit facility and scheduled repayments on the Term Loan A-2 and $80 million for taxes paid on vested stock awards under employee stock plans, partially offset by $150 million of proceeds from drawing on the revolving credit facility and $52 million of proceeds from the issuance of stock under employee stock plans. During the six months ended December 29, 2023, net cash provided by financing activities primarily consisted of $2.20 billion in proceeds from the issuance of the 2028 Convertible Notes and the drawdown of our delayed draw term loan, partially offset by $505 million used to repurchase a portion of the 2024 Convertible Notes, $338 million in repayments of our delayed draw term loan and Term Loan A-2 maturing 2027, and $155 million for the purchase of capped calls to hedge the potential dilution impact of the conversion feature of the 2028 Convertible Notes.

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Off-Balance Sheet Arrangements

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

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Short- and Long-term Liquidity

Material Cash Requirements

The following is a summary of our known material cash requirements, including those for capital expenditures, as of December 27, 2024. In addition, see the discussions further below related to unrecognized tax benefits, litigation matters, dividend rights with respect to the Series A Preferred Stock, foreign exchange contracts and indemnifications.


	Total		1 Year (Remaining Six Months of 2025)		2-3 Years (2026-2027)		4-5 Years (2028-2029)		More than 5 Years (Beyond 2029)
	(in millions)

Long-term debt, including current portion(1)	$	7,413	$	1,675	$	4,738	$	500	$	500
Interest on debt	848		173		496		132		47
Flash Ventures related commitments(2)	4,442		1,318		2,196		715		213
Operating leases	485		31		118		81		255
Purchase obligations and other commitments	3,066		112		1,154		1,140		660
Mandatory deemed repatriation tax	331		—		331		—		—
Total	$	16,585	$	3,309	$	9,033	$	2,568	$	1,675

(1)Principal portion of debt, excluding issuance costs.

(2)Includes reimbursement for depreciation and lease payments on owned and committed equipment, funding commitments for loans and equity investments and payments for other committed expenses, including R&D and building depreciation. Funding commitments assume no additional operating lease guarantees. Additional operating lease guarantees can reduce funding commitments.

Unrecognized Tax Benefits

As of December 27, 2024, the liability for unrecognized tax benefits (excluding accrued interest and penalties) was $688 million. Accrued interest and penalties related to unrecognized tax benefits are recognized in liabilities for uncertain tax positions and are recorded in the provision for income taxes. Accrued interest and penalties included in our liability related to unrecognized tax benefits as of December 27, 2024 was $72 million. Of these amounts, approximately $594 million could result in potential cash payments. As of December 27, 2024, it was not possible to estimate the amount of change, if any, in the unrecognized tax benefits that is reasonably possible within the next twelve months. Any significant change in the amount of our liability for unrecognized tax benefits would most likely result from additional information or settlements relating to the examination of our tax returns.

As noted above, we had previously reached a final agreement with the IRS regarding notices of deficiency with respect to years 2008 through 2012 and in February 2024 also reached a final agreement for resolving the notices of proposed adjustments with respect to years 2013 through 2015. During the six months ended December 27, 2024, we made payments of $130 million for interest with respect to years 2008 through 2012 and $32 million for tax and interest with respect to years 2013 through 2015, resulting in no remaining liability as of December 27, 2024 related to all years from 2008 through 2015.

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 $166 million. Of this amount, $65 million of interest savings from the interest paid with respect to years 2008 through 2015 is classified as a deferred tax asset due to interest expense limitation rules.

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Litigation Matters

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

Dividend rights

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

Debt

As described in Part I, Item 1, Note 7, Debt, of the Notes to Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q, the Company issued $1.60 billion aggregate principal amount of convertible senior notes in November 2023, which bear interest at an annual rate of 3.00% and mature on November 15, 2028 (the “2028 Convertible 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.

The sale price conditional conversion feature of the 2028 Convertible Notes was not triggered during the calendar quarter ended December 31, 2024 and, accordingly, the holders of the 2028 Convertible Notes no longer have the right to convert the notes during the succeeding calendar quarter ending March 31, 2025. As a result, the 2028 Convertible Notes were classified as Long-term debt in the Condensed Consolidated Financial Statements as of December 27, 2024. The Company will continue to evaluate the conversion feature quarterly to determine if the 2028 Convertible Notes become convertible in future periods.

In addition to our outstanding debt, as of December 27, 2024, we had $2.25 billion available for borrowing under our revolving credit facility maturing in 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. The loan agreements governing our revolving credit facility and our Term Loan A-2 maturing 2027 require us to comply with a financial leverage ratio covenant. As of December 27, 2024, we were in compliance with the financial covenant. Additional information regarding our indebtedness, including information about availability under our revolving credit facility and the principal repayment terms, interest rates, covenants, collateral and other key terms of our outstanding indebtedness, is included in Part II, Item 8, Note 7, Debt, of the Notes to the Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended June 28, 2024 and Note 7, Debt, of the Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

In connection with the planned separation of our HDD and Flash business units, we expect to enter into an amendment with our existing lenders under the loan agreements governing our Term Loan A-2 and the revolving credit facility maturing in January 2027, which amendment would permit the separation and, upon the consummation of the separation, reduce the commitments under the revolving credit facility, facilitate a potential future debt for equity exchange with respect to the term loan facility and adjust certain exceptions set forth therein. No assurance can be given that we will be able to enter into the amendment on our anticipated timeline or that we will be able to do so on acceptable terms or at all.

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We may issue additional debt securities in the future that may be guaranteed by our 100% owned domestic subsidiary, Western Digital Technologies, Inc. (“Guarantor” and, together with Western Digital Corporation, the “Obligor Group”). Such guarantees may be full and unconditional, joint and several, on a secured or unsecured, subordinated or unsubordinated basis, and may be subject to certain customary guarantor release conditions. We conduct operations almost entirely through our subsidiaries. Accordingly, the Obligor Group’s cash flow and ability to service any guaranteed registered debt securities will depend on the earnings of our subsidiaries and the distribution of those earnings to the Obligor Group, including the earnings of the non-guarantor subsidiaries, whether by dividends, loans or otherwise. Holders of such guaranteed registered debt securities would have a direct claim only against the Obligor Group.

The following tables include summarized financial information for the Obligor Group. The financial information for the Obligor Group is presented on combined basis, excluding intercompany balances and transactions between the Company and the Guarantor, excluding net intercompany balances between the Obligor Group and non-guarantor subsidiaries, and excluding investments in and equity in the earnings of non-guarantor subsidiaries. The Obligor Group’s amounts due from, amounts due to, and transactions with non-guarantor subsidiaries have been presented in separate line items in the tables below.

The assets and liabilities of the Obligor Group include the following:


	December 27, 2024		June 28, 2024
	(in millions)
Current assets	$	1,962	$	2,149
Non-current assets	2,456		2,208
Net intercompany receivables from non-guarantor subsidiaries	623		2,473
Current liabilities	1,426		3,758
Non-current liabilities	7,878		6,626

The operating results of the Obligor Group include the following:


	Six Months Ended		Year Ended
	December 27, 2024		June 28, 2024
	(in millions)
Net sales	$	2,905	$	4,066
Gross profit	1,141		1,002
Operating income (loss)	255		(927)
Net income (loss)	52		(1,211)

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


	Six Months Ended		Year Ended
	December 27, 2024		June 28, 2024
	(in millions)
Intercompany revenue	$	597	$	1,416
Net intercompany interest (income) expense	(2)		8
Intercompany dividend income	539		567

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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 December 27, 2024, we were in compliance with all covenants under these Japanese lease facilities. See Part I, Item 1, Note 9, Related Parties and Related Commitments and Contingencies, of the Notes to Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q for information regarding Flash Ventures.

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

As of December 27, 2024, our estimated mandatory deemed repatriation tax obligation was $331 million and was expected to be paid within the next twelve months.

Mandatory Research and Development Expense Capitalization

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

Foreign Exchange Contracts

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

Indemnifications

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

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

Recent Accounting Pronouncements

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

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Critical Accounting Policies and Estimates

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

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

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

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

Foreign Currency Risk

We performed sensitivity analyses as of December 27, 2024, using a modeling technique that measures the change in the fair values arising from a hypothetical 10% adverse movement in the levels of foreign currency exchange rates relative to the U.S. dollar, with all other variables held constant. The analyses cover all of our foreign currency derivative contracts used to offset the underlying exposures. The foreign currency exchange rates used in performing the sensitivity analyses were based on market rates in effect at December 27, 2024. The sensitivity analyses indicated that a hypothetical 10% adverse movement in foreign currency exchange rates relative to the U.S. dollar would result in a foreign exchange fair value loss of $239 million at December 27, 2024.

Interest Rate Risk

We have generally held a balance of fixed and variable rate debt. As of December 27, 2024, our variable rate debt outstanding consisted of our Term Loan A-2, which is based on various index rates as discussed further in Note 7, Debt, of the Notes to Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q. As of December 27, 2024, the outstanding balance on our variable rate debt was $2.5 billion and a one percent increase in the variable rate of interest would increase our annual interest expense by $25 million.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

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

Changes in Internal Controls over Financial Reporting

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

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PART II. OTHER INFORMATION

Item 1. Legal Proceedings

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

Item 1A. Risk Factors

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

Item 5. Other Information

During the second quarter, the following officer (as defined in Rule 16a-1(f) of the Exchange Act) terminated a trading arrangement for the purchase or sale of securities of Western Digital that was intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) of the Exchange Act (“Rule 10b5-1 Plan”):

•, of the Company, a Rule 10b5-1 Plan on .

Item 6. Exhibits

The exhibits listed in the Exhibit Index below are filed with, or incorporated by reference in, this Quarterly Report on Form 10-Q, as specified in the Exhibit List, from exhibits previously filed with the Securities and Exchange Commission. Certain agreements listed in the Exhibit Index that we have filed or incorporated by reference may contain representations and warranties by us or our subsidiaries. These representations and warranties have been made solely for the benefit of the other party or parties to such agreements and (i) may have been qualified by disclosures made to such other party or parties, (ii) were made only as of the date of such agreements or such other date(s) as may be specified in such agreements and are subject to more recent developments, which may not be fully reflected in our public disclosures, (iii) may reflect the allocation of risk among the parties to such agreements and (iv) may apply materiality standards different from what may be viewed as material to investors. Accordingly, these representations and warranties may not describe the actual state of affairs at the date hereof and should not be relied upon.

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EXHIBIT INDEX


Exhibit Number						Description
3.1						Amended and Restated Certificate of Incorporation of Western Digital Corporation, as amended to date (Filed as Exhibit 3.1 to the Company’s Annual Report on Form 10-K (File No. 1-08703) with the Securities and Exchange Commission on August 20, 2024)
3.2						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)
3.3						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)
10.1						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. 1-08703) with the Securities and Exchange Commission on November 25, 2024)*
10.2						Amendment No. 1, effective December 1, 2024, to the Western Digital Corporation Deferred Compensation Plan, amended and restated effective January 1, 2013†*
1 0.3						Form of Sandisk Corporation Deferred Compensation Plan, effective January 1, 2025†*
3 1.1						Certification of Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002†
3 1.2						Certification of Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002†
3 2.1						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**
3 2.2						Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002**
101.INS						XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document
101.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.

* Management contract or compensatory plan or arrangement required to be filed as an exhibit pursuant to applicable rules of the Securities and Exchange Commission.

** Furnished with this report.

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Quarterly Report on Form 10-Q to be signed on its behalf by the undersigned thereunto duly authorized.


			WESTERN DIGITAL CORPORATION

			By:			/s/ Gene Zamiska
						Gene Zamiska
						Senior Vice President, Global Accounting and Chief Accounting Officer
						(Principal Accounting Officer and Duly Authorized Officer)

Dated: January 30, 2025

WESTERN DIGITAL CORP - Quarter Report: 2024 December (Form 10-Q)

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