What changed in this filing

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Item 1. Financial Statements

2023-05-10 compared with 2023-02-03 · 208 added, 173 removed, 660 unchanged (37% of the section changed)

15 unchanged sentences

Total assets $ 25,151 $ 26,259

LIABILITIES AND SHAREHOLDERS’ EQUITY

LIABILITIES, CONVERTIBLE PREFERRED STOCK AND SHAREHOLDERS’ EQUITY

Current liabilities:

10 unchanged sentences

Commitments and contingencies (Notes 10, 11, 13 and 16)

Convertible preferred stock, $ 0.01 par value;

authorized — 5 shares;

issued and outstanding — 0.9 shares and 0 shares, respectively

Shareholders’ equity:

1 unchanged sentence

authorized — 450 shares;

issued — 319 shares and 315 shares, respectively;

outstanding — 319 shares and 315 shares, respectively

issued and outstanding — 320 shares and 315 shares, respectively

Additional paid-in capital 3,831 3,733

2 unchanged sentences

Total shareholders’ equity 11,611 12,221

Total liabilities and shareholders’ equity $ 25,047 $ 26,259

Total liabilities, convertible preferred stock and shareholders’ equity $ 25,151 $ 26,259

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

2 unchanged sentences

(in millions, except per share amounts)

Three Months Ended Six Months Ended

2022 December 31,

2021 December 30,

2022 December 31,

Three Months Ended Nine Months Ended

2023 April 1,

2022 March 31,

2023 April 1,

Revenue, net $ 2,803 $ 4,381 $ 9,646 $ 14,265

10 unchanged sentences

Interest expense ( 80 ) ( 75 ) ( 223 ) ( 229 )

Other income (expense), net 6 ( 6 ) — ( 4 )

Other income, net 13 12 13 8

Total interest and other expense, net ( 57 ) ( 62 ) ( 195 ) ( 217 )

2 unchanged sentences

Net income (loss) ( 572 ) 25 ( 991 ) 1,199

cumulative dividends allocated to preferred shareholders 9 — 9 —

Net income (loss) attributable to common shareholders $ ( 581 ) $ 25 $ ( 1,000 ) $ 1,199

Income (loss) per common share:

8 unchanged sentences

(in millions)

Three Months Ended Six Months Ended

2022 December 31,

2021 December 30,

2022 December 31,

Three Months Ended Nine Months Ended

2023 April 1,

2022 March 31,

2023 April 1,

Net income (loss) $ ( 572 ) $ 25 $ ( 991 ) $ 1,199

Other comprehensive income (loss), before tax:

Actuarial pension gain — — — 1

Actuarial pension gain (loss) ( 1 ) 1 ( 1 ) 2

Foreign currency translation adjustment ( 7 ) ( 82 ) 8 ( 123 )

8 unchanged sentences

(in millions)

Six Months Ended

2022 December 31,

Nine Months Ended

2023 April 1,

Cash flows from operating activities

Net income (loss) $ ( 991 ) $ 1,199

Adjustments to reconcile net income to net cash provided by operations:

Adjustments to reconcile net income (loss) to net cash provided by operations:

Depreciation and amortization 643 708

1 unchanged sentence

Deferred income taxes 34 41

Loss on disposal of assets 1 1

Gain on disposal of assets ( 7 ) ( 14 )

Non-cash portion of asset impairment 18 —

9 unchanged sentences

Other assets and liabilities, net ( 165 ) ( 234 )

Net cash provided by operating activities 41 1,187

Net cash (used in) provided by operating activities ( 340 ) 1,585

Cash flows from investing activities

1 unchanged sentence

Proceeds from the sale of property, plant and equipment 14 13

Proceeds from dispositions of business 7 —

Notes receivable issuances to Flash Ventures ( 496 ) ( 496 )

5 unchanged sentences

Taxes paid on vested stock awards under employee stock plans ( 69 ) ( 85 )

Repayment of debt — ( 2,425 )

Net proceeds from convertible preferred stock 882 —

Repayments of debt ( 1,180 ) ( 3,471 )

Proceeds from debt 1,180 1,894

Repayments of revolving credit facility ( 1,180 ) —

Proceeds from revolving credit facility 1,180 —

Debt issuance costs ( 6 ) ( 23 )

Net cash used in financing activities ( 12 ) ( 1,456 )

Net cash provided by (used in) financing activities 856 ( 1,623 )

Effect of exchange rate changes on cash ( 3 ) ( 5 )

5 unchanged sentences

Cash paid for interest $ 252 $ 221

Noncash exchange of TLA-1 notes for TLA-2 notes $ — $ 2,104

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

WESTERN DIGITAL CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

CONDENSED CONSOLIDATED STATEMENTS OF CONVERTIBLE PREFERRED STOCK AND SHAREHOLDERS’ EQUITY

(in millions)

Common Stock Treasury Stock Additional Paid-In Capital Accumulated Other Comprehensive Loss Retained Earnings Total Shareholders’ Equity

Convertible Preferred Stock Common Stock Additional Paid-In Capital Accumulated Other Comprehensive Loss Retained Earnings Total Shareholders’ Equity

Shares Amount Shares Amount

13 unchanged sentences

Balance at December 30, 2022 — — 319 3 3,770 ( 369 ) 8,711 12,115

Net loss — — — — — — ( 572 ) ( 572 )

Issuance of convertible preferred stock, net of issuance costs 1 876 — — — — — —

Employee stock plans — — 1 — ( 13 ) — — ( 13 )

Stock-based compensation — — — — 74 — — 74

Actuarial pension gain — — — — — ( 1 ) — ( 1 )

Foreign currency translation adjustment — — — — — ( 8 ) — ( 8 )

Net unrealized gain on derivative contracts — — — — — 16 — 16

Balance at March 31, 2023 1 $ 876 320 $ 3 $ 3,831 $ ( 362 ) $ 8,139 $ 11,611

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

WESTERN DIGITAL CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

CONDENSED CONSOLIDATED STATEMENTS OF CONVERTIBLE PREFERRED STOCK AND SHAREHOLDERS’ EQUITY

(in millions)

15 unchanged sentences

Balance at December 31, 2021 313 3 — — 3,519 ( 217 ) 8,713 12,018

Net income — — — — — — 25 25

Employee stock plans — — — — ( 5 ) — — ( 5 )

Stock-based compensation — — — — 86 — — 86

Actuarial pension gain — — — — — 1 — 1

Foreign currency translation adjustment — — — — — ( 82 ) — ( 82 )

Net unrealized gain on derivative contracts — — — — — ( 59 ) — ( 59 )

Balance at April 1, 2022 313 $ 3 — $ — $ 3,600 $ ( 357 ) $ 8,738 $ 11,984

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

3 unchanged sentences

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

With dedicated Flash and HDD business units driving advancements in memory technologies, the Company creates and drives innovations needed to help customers capture, preserve, access, and transform an ever-increasing diversity of data.

With dedicated Flash and HDD business units driving advancements in storage technologies, the Company creates and drives innovations needed to help customers capture, preserve, access, and transform an ever-increasing diversity of data.

The accounting policies followed by the Company are set forth in Part II, Item 8, Note 1, Organization and Basis of Presentation, of the Notes to Consolidated Financial Statements included in the Company’s Annual Report on Form 10‑K for the year ended July 1, 2022.

9 unchanged sentences

Segment Reporting

The Company manufactures, markets, and sells data storage devices and solutions in the U.S.

and in foreign countries through its sales personnel, dealers, distributors, retailers, and subsidiaries.

The Company manufactures, markets, and sells data storage devices and solutions in the United States (“U.S.”) and in foreign countries through its sales personnel, dealers, distributors, retailers, and subsidiaries.

The Company manages and reports under two reportable segments:

6 unchanged sentences

However, actual results could differ materially from these estimates.

Income (Loss) per Common Share

The Company computes net income (loss) per common share using a two-class method when shares are issued that meet the definition of participating securities.

The two-class method determines net income (loss) per common share for each class of common stock and participating securities according to dividends declared or accumulated and participation rights in undistributed earnings.

The two-class method requires undistributed earnings for the period to be allocated between common stock and participating securities based upon their respective rights to receive dividends as if all income for the period had been distributed.

The Company’s convertible preferred stock contractually entitles the holders of such shares to participate in dividends but does not contractually require the holders of such shares to participate in the Company’s losses.

WESTERN DIGITAL CORPORATION

21 unchanged sentences

This guidance requires annual and interim disclosures for entities that use supplier finance programs in connection with the purchase of goods and services.

The ASU is effective for fiscal years beginning after December 15, 2022, with early adoption permitted, except for the amendment on rollforward information, which is effective for fiscal years beginning after December 15, 2023.

The ASU is effective for fiscal years beginning after December 15, 2022, which for the Company is the first quarter of 2024, with early adoption permitted, except for the amendment on rollforward information, which is effective for fiscal years beginning after December 15, 2023.

The Company is currently evaluating the extent of the impact of this ASU on its Condensed Consolidated Financial Statements.

3 unchanged sentences

The following table summarizes the operating performance of the Company’s reportable segments:

Three Months Ended Six Months Ended

2022 December 31,

2021 December 30,

2022 December 31,

Three Months Ended Nine Months Ended

2023 April 1,

2022 March 31,

2023 April 1,

$ in millions

9 unchanged sentences

Amortization of acquired intangible assets — — ( 1 ) ( 65 )

Contamination related charges — ( 203 ) — ( 203 )

Recoveries from a power outage incident — 7 — 7

Total unallocated corporate items ( 12 ) ( 209 ) ( 39 ) ( 297 )

6 unchanged sentences

The Company’s broad portfolio of technology and products address multiple end markets.

Cloud represents a large and growing end market comprised primarily of products for public or private cloud environments and end customers, which the Company believes it is uniquely positioned to address as the only provider of both Flash and HDD.

Cloud is comprised primarily of products for public or private cloud environments and end customers, which the Company believes it is uniquely positioned to address as the only provider of both Flash and HDD.

Through the Client end market, the Company provides its original equipment manufacturer (“OEM”) and channel customers a broad array of high-performance flash and hard drive solutions across personal computer, mobile, gaming, automotive, virtual reality headsets, at-home entertainment, and industrial spaces.

3 unchanged sentences

The Company’s disaggregated revenue information is as follows:

Three Months Ended Six Months Ended

2022 December 31,

2021 December 30,

2022 December 31,

Three Months Ended Nine Months Ended

2023 April 1,

2022 March 31,

2023 April 1,

(in millions)

9 unchanged sentences

Total Revenue $ 2,803 $ 4,381 $ 9,646 $ 14,265

The Company’s top 10 customers accounted for 47 % and 48 % of its net revenue for the three and six months ended December 30, 2022, respectively, and 46 % and 44 % of its net revenue for the three and six months ended December 31, 2021, respectively.

For the three and six months ended December 30, 2022 and December 31, 2021, no single customer accounted for 10% or more of the Company’s net revenue.

The Company’s top 10 customers accounted for 49 % and 45 % of its net revenue for the three and nine months ended March 31, 2023, respectively, and 44 % and 43 % of its net revenue for the three and nine months ended April 1, 2022, respectively.

For the three and nine months ended March 31, 2023 and April 1, 2022, no single customer accounted for 10% or more of the Company’s net revenue.

The following table provides a summary of goodwill activity for the period:

3 unchanged sentences

Foreign currency translation adjustment — — —

Balance at December 30, 2022 $ 5,718 $ 4,323 $ 10,041

Balance at March 31, 2023 $ 5,718 $ 4,323 $ 10,041

Goodwill is not amortized.

13 unchanged sentences

As of December 30, 2022, the fair value derived from those valuation methodologies exceeded the carrying value by 9 % and 28 % for Flash and HDD, respectively.

There were no impairment charges recorded for the three and six months ended December 30, 2022.

The Company is required to use judgment when applying the goodwill impairment test, including the assignment of assets and liabilities to reporting units, and determination of the fair value of each reporting unit.

Management performed a goodwill impairment assessment for both reporting units as of the third quarter ended March 31, 2023.

The assessment considered the continuing macroeconomic environment, industry conditions, reporting unit performance and revised forecasts, and determined there were no events or circumstances from prior quarter’s quantitative assessment that rise to a level that would more-likely-than-not reduce the fair value of the reporting units below their carrying value;

therefore, no quantitative goodwill impairment analysis was performed.

There were no impairment charges recorded for the three and nine months ended March 31, 2023.

The Company is required to use judgment when assessing goodwill for impairment, including evaluating the impact of industry and macroeconomic conditions, the determination of the fair value of each reporting unit and the assignment of assets and liabilities to reporting units.

In addition, the estimates used to determine the fair value of reporting units as well as their actual carrying value may change based on future changes in the Company’s 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.

In addition, if negative macroeconomic conditions continue or worsen or the Company’s stock price decreases further for a sustained period of time, goodwill could become impaired, which could result in an impairment charge and materially adversely affect the Company’s financial condition results of operations.

In addition, if negative macroeconomic conditions continue or worsen or the Company’s stock price decreases for a sustained period of time, goodwill could become impaired, which could result in an impairment charge and materially adversely affect the Company’s financial condition and results of operations.

WESTERN DIGITAL CORPORATION

1 unchanged sentence

Contract assets represent the Company’s rights to consideration where performance obligations are completed but the customer payments are not due until another performance obligation is satisfied.

The Company did not have any contract assets as of either December 30, 2022 or July 1, 2022.

The Company did not have any contract assets as of either March 31, 2023 or July 1, 2022 .

Contract liabilities relate to customers’ payments in advance of performance under the contract and primarily relate to remaining performance obligations under professional service and support and maintenance contracts.

Contract liabilities as of December 30, 2022 and July 1, 2022 and changes in contract liabilities for the six months ended December 30, 2022 and December 31, 2021 were not material.

Contract liabilities as of March 31, 2023 and July 1, 2022 and changes in contract liabilities for the nine months ended March 31, 2023 and April 1, 2022 were not material.

The Company incurs sales commissions and other direct incremental costs to obtain sales contracts.

1 unchanged sentence

The Company had no direct incremental costs to obtain contracts that have an expected benefit of greater than one year.

The Company applies the practical expedients and does not disclose transaction price allocated to the remaining performance obligations for (i) arrangements that have an original expected duration of one year or less, which mainly consist of the support and maintenance contracts, and (ii) variable consideration amounts for sale-based or usage-based royalties for intellectual property (“IP”) license arrangements, which typically have a duration of longer than one year.

The Company applies the practical expedients and does not disclose transaction price allocated to the remaining performance obligations for (i) arrangements that have an original expected duration of one year or less, which mainly consist of the support and maintenance contracts, and (ii) variable consideration amounts for sale-based or usage-based royalties for intellectual property license arrangements, which typically range longer than one year.

Remaining performance obligations are mainly attributed to right-to-access patent license arrangements, professional service arrangements and customer support and service contracts which will be recognized over the remaining contract period.

The transaction price allocated to the remaining performance obligations as of December 30, 2022 was $ 17 million, which is mainly attributable to the functional IP license and professional service arrangements.

The Company expects to recognize this amount as revenue as follows:

$ 14 million during the remainder of 2023, and $ 3 million in 2024 and thereafter.

The transaction price allocated to the remaining performance obligations as of March 31, 2023 was not material.

WESTERN DIGITAL CORPORATION

3 unchanged sentences

From time to time, in connection with factoring agreements, the Company sells trade accounts receivable without recourse to third party purchasers in exchange for cash.

During the six months ended December 30, 2022, the Company sold trade accounts receivable aggregating $ 391 million.

The Company did no t sell any trade accounts receivable during the six months ended December 31, 2021.

The discounts on the trade accounts receivable sold were not material and were recorded within Other income (expense), net in the Condensed Consolidated Statements of Operations.

As of December 30, 2022 and July 1, 2022, the amount of factored receivables that remained outstanding was $ 100 million and $ 300 million, respectively.

During the nine months ended March 31, 2023 and April 1, 2022, the Company sold trade accounts receivable aggregating $ 626 million and $ 100 million, respectively.

The discounts on the trade accounts receivable sold were not material and were recorded within Other income, net in the Condensed Consolidated Statements of Operations.

As of March 31, 2023 and July 1, 2022, the amount of factored receivables that remained outstanding was $ 235 million and $ 300 million, respectively.

(in millions)

29 unchanged sentences

Changes in the warranty accrual were as follows:

Three Months Ended Six Months Ended

2022 December 31,

2021 December 30,

2022 December 31,

Three Months Ended Nine Months Ended

2023 April 1,

2022 March 31,

2023 April 1,

(in millions)

29 unchanged sentences

Net current-period other comprehensive income ( 1 ) 9 184 192

Balance at December 30, 2022 $ ( 11 ) $ ( 260 ) $ ( 98 ) $ ( 369 )

During the three and six months ended December 30, 2022, the amounts reclassified out of AOCI were losses related to foreign exchange contracts and gains related to interest rate swap contracts.

Losses reclassified out of AOCI related to foreign exchange contracts were $ 119 million and $ 181 million for the three and six months ended December 30, 2022, respectively, that were substantially charged to Cost of revenue in the Condensed Consolidated Statements of Operations.

Gains reclassified out of AOCI related to interest rate swap contracts were $ 6 million and $ 4 million for the three and six months ended December 30, 2022, respectively, that were charged to Interest expense in the Condensed Consolidated Statements of Operations.

As of December 30, 2022, substantially all existing net losses related to cash flow hedges recorded in AOCI are expected to be reclassified to earnings within the next twelve months.

In addition, as of December 30, 2022, the Company did not have any foreign exchange forward contracts with credit-risk-related contingent features.

Balance at March 31, 2023 $ ( 12 ) $ ( 268 ) $ ( 82 ) $ ( 362 )

During the three and nine months ended March 31, 2023, the amounts reclassified out of AOCI were losses related to foreign exchange contracts and gains related to interest rate swap contracts.

Losses reclassified out of AOCI related to foreign exchange contracts were $ 79 million and $ 260 million for the three and nine months ended March 31, 2023, respectively, that were substantially charged to Cost of revenue in the Condensed Consolidated Statements of Operations.

Gains reclassified out of AOCI related to interest rate swap contracts were $ 6 million and $ 10 million for the three and nine months ended March 31, 2023, respectively, that were charged to Interest expense in the Condensed Consolidated Statements of Operations.

As of March 31, 2023, substantially all existing net losses related to cash flow hedges recorded in AOCI are expected to be reclassified to earnings within the next twelve months.

In addition, as of March 31, 2023, the Company did not have any foreign exchange forward contracts with credit-risk-related contingent features.

WESTERN DIGITAL CORPORATION

8 unchanged sentences

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

The following tables present information about the Company’s financial assets and liabilities that are measured at fair value on a recurring basis as of December 30, 2022 and July 1, 2022, and indicate the fair value hierarchy of the valuation techniques utilized to determine such values:

December 30, 2022

The following tables present information about the Company’s financial assets and liabilities that are measured at fair value on a recurring basis as of March 31, 2023 and July 1, 2022, and indicate the fair value hierarchy of the valuation techniques utilized to determine such values:

March 31, 2023

Level 1 Level 2 Level 3 Total

2 unchanged sentences

Foreign exchange contracts — 72 — 72

Interest rate swap contracts — 6 — 6

Total assets at fair value $ 146 $ 72 $ — $ 218

14 unchanged sentences

For financial instruments where the carrying value (which includes principal adjusted for any unamortized issuance costs, and discounts or premiums) differs from fair value (which is based on quoted market prices), the following table represents the related carrying value and fair value for each of the Company’s outstanding financial instruments.

Each of the financial instruments presented below was categorized as Level 2 for all periods presented, based on the frequency of trading immediately prior to the end of the second quarter of 2023 and the fourth quarter of 2022, respectively.

December 30, 2022 July 1, 2022

Each of the financial instruments presented below was categorized as Level 2 for all periods presented, based on the frequency of trading immediately prior to the end of the third quarter of 2023 and the fourth quarter of 2022, respectively.

March 31, 2023 July 1, 2022

Value Carrying

13 unchanged sentences

Derivative Instruments and Hedging Activities

As of December 30, 2022, the Company had outstanding foreign exchange forward contracts that were designated as either cash flow hedges or non-designated hedges.

As of March 31, 2023, the Company had outstanding foreign exchange forward contracts that were designated as either cash flow hedges or non-designated hedges.

Substantially all of the contract maturity dates of these foreign exchange forward contracts do not exceed 12 months.

In addition, the Company had outstanding pay-fixed interest rate swaps that were designated as cash flow hedges of variable rate interest payments through February 2023, on a portion of its term loans.

Changes in fair values of the non-designated foreign exchange contracts are recognized in Other income (expense), net and are largely offset by corresponding changes in the fair values of the foreign currency denominated monetary assets and liabilities.

For each of the three and six months ended December 30, 2022 and December 31, 2021, total net realized and unrealized transaction and foreign exchange contract currency gains and losses were not material to the Company’s Condensed Consolidated Financial Statements.

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 the three and nine months ended March 31, 2023 and April 1, 2022, total net realized and unrealized transaction and foreign exchange contract currency gains and losses were not material to the Company’s Condensed Consolidated Financial Statements.

Unrealized gains or losses on designated cash flow hedges are recognized in AOCI.

2 unchanged sentences

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 December 30, 2022 and July 1, 2022, the effect of rights of offset was not material and the Company did not offset or net the fair value amounts of derivative instruments in its Condensed Consolidated Balance Sheets.

As of March 31, 2023 and July 1, 2022, the effect of rights of offset was not material and the Company did not offset or net the fair value amounts of derivative instruments in its Condensed Consolidated Balance Sheets.

WESTERN DIGITAL CORPORATION

13 unchanged sentences

Long-term debt $ 5,898 $ 7,022

During the six months ended December 30, 2022, the Company drew and repaid $ 1.18 billion principal amount under its $ 2.25 billion revolving credit facility maturing in January 2027 (the “2027 Revolving Credit Facility”).

During the nine months ended March 31, 2023, the Company drew and repaid $ 1.18 billion principal amount under its $ 2.25 billion revolving credit facility maturing in January 2027 (the “2027 Revolving Credit Facility”).

In December 2022, the Company amended the credit agreement governing the 2027 Revolving Credit Facility and Term Loan A-2 for the purposes of providing flexibility by adjusting the leverage ratio requirements of the financial covenant thereunder through the Company’s quarter ending September 27, 2024 (such period, the “Covenant Relief Period”).

2 unchanged sentences

Leverage ratio

December 30, 2022 3.25 to 1.00

March 31, 2023 3.75 to 1.00

6 unchanged sentences

December 27, 2024 and thereafter 3.25 to 1.00

As of December 30, 2022, the Company was in compliance with this financial covenant.

As of March 31, 2023, the Company was in compliance with this financial covenant.

The amendment also provides that the due date for amounts outstanding under the Credit Agreement will be accelerated from January 7, 2027 to November 2, 2023 if, as of that date, the Company does not have cash and cash equivalents plus available unused capacity under its credit facilities that exceed by $ 1 billion the sum of the outstanding balance of the 1.50 % convertible notes due 2024 plus the outstanding principal amount of any other debt maturing within 12 months.

2 unchanged sentences

(the “Credit Rating Agencies”) drops below investment grade and includes limits on secured indebtedness and certain types of unsecured subsidiary indebtedness.

WESTERN DIGITAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

In January 2023, the Company entered into a loan agreement (the “Delayed Draw Term Loan Agreement”), which allows the Company to draw a single unsecured loan of up to $ 875 million (the “Delayed Draw Term Loan”) through June 30, 2023.

The Delayed Draw Term Loan Agreement may be terminated, at the election of the Company, at any time without premium or penalty, subject to certain conditions.

As of March 31, 2023, the Company had not drawn on the Delayed Draw Term Loan.

WESTERN DIGITAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Any amount drawn under the Delayed Draw Term Loan Agreement will mature 364 days following the date of the initial draw.

2 unchanged sentences

The Company will also pay an unused commitment fee on the Delayed Draw Term Loan Agreement of 0.200 %.

The key covenants, limitations and requirements provided under Credit Agreement amendment noted above also apply to the Delayed Draw Term Loan Agreement.

The key covenants, limitations and requirements provided under the Credit Agreement amendment noted above also apply to the Delayed Draw Term Loan Agreement.

As described in Note 2, Recent Accounting Pronouncements, the Company adopted ASU 2020-06 effective July 2, 2022, using a modified retrospective method, which resulted in the elimination of the originally recorded debt discount associated with the conversion feature on its 1.50 % convertible notes due 2024.

17 unchanged sentences

Net amount recognized $ 111 $ 105

Net periodic benefit costs were not material for the three and six months ended December 30, 2022.

Net periodic benefit costs were not material for the three and nine months ended March 31, 2023.

WESTERN DIGITAL CORPORATION

16 unchanged sentences

Total notes receivable and investments in Flash Ventures $ 1,379 $ 1,396

During the three and six months ended December 30, 2022 and December 31, 2021, the Company made net payments to Flash Ventures of $ 1.0 billion and $ 2.0 billion, and $ 1.1 billion and $ 2.3 billion, respectively, for purchased flash-based memory wafers and net loans.

During the three and nine months ended March 31, 2023 and April 1, 2022, the Company made net payments to Flash Ventures of $ 1.2 billion and $ 3.2 billion, and $ 1.1 billion and $ 3.4 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.

2 unchanged sentences

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 30, 2022 and July 1, 2022, the Company had accounts payable balances due to Flash Ventures of $ 368 million and $ 320 million, respectively.

As of March 31, 2023 and July 1, 2022, the Company had accounts payable balances due to Flash Ventures of $ 265 million and $ 320 million, respectively.

The Company’s maximum reasonably estimable loss exposure (excluding lost profits) as a result of its involvement with Flash Ventures, based upon the Japanese yen to U.S.

dollar exchange rate at December 30, 2022, is presented below.

dollar exchange rate at March 31, 2023, is presented below.

Investments in Flash Ventures are denominated in Japanese yen, and the maximum estimable loss exposure excludes any cumulative translation adjustment due to revaluation from the Japanese yen to the U.S.

14 unchanged sentences

The Company is committed to pay, among other items, future building depreciation prepayments aggregating approximately $ 70 million as follows:

$ 124 million for the remaining six months of 2023 and $ 23 million in 2024, to be credited against future wafer charges.

$ 47 million for the remaining three months of 2023 and $ 23 million in 2024, to be credited against future wafer charges.

Inventory Purchase Commitments with Flash Ventures.

9 unchanged sentences

dollar-equivalent, based upon the Japanese yen to U.S.

dollar exchange rate as of December 30, 2022.

dollar exchange rate as of March 31, 2023.

Lease Amounts

4 unchanged sentences

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The following table details the breakdown of the Company’s remaining guarantee obligations between the principal amortization and the purchase option exercise price at the end of the term of the Flash Ventures lease agreements, in annual installments as of December 30, 2022 in U.S.

dollars, based upon the Japanese yen to U.S.

dollar exchange rate as of December 30, 2022:

dollar exchange rate as of March 31, 2023:

Annual Installments Payment of Principal Amortization Purchase Option Exercise Price at Final Lease Terms Guarantee Amount

(in millions)

Remaining six months of 2023

Remaining three months of 2023

$ 144 $ 31 $ 175

7 unchanged sentences

The Company has not made any indemnification payments, nor recorded any indemnification receivables, under any such agreements.

As of December 30, 2022, no amounts have been accrued in the Condensed Consolidated Financial Statements with respect to these indemnification agreements.

As of March 31, 2023, no amounts have been accrued in the Condensed Consolidated Financial Statements with respect to these indemnification agreements.

The Company has a joint venture with Unisplendour Corporation Limited and Unissoft (Wuxi) Group Co.

3 unchanged sentences

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 30, 2022, the Company recognized approximately 3 % of its consolidated revenue on products distributed by the Unis Venture.

For both the three and six months ended December 31, 2021, the Company recognized approximately 4 % of its consolidated revenue on products distributed by the Unis Venture.

The outstanding accounts receivable due from the Unis Venture were 7 % and 5 % of Accounts receivable, net as of December 30, 2022 and July 1, 2022, respectively.

For both the three and nine months ended March 31, 2023, the Company recognized approximately 3 % of its consolidated revenue on products distributed by the Unis Venture.

For both the three and nine months ended April 1, 2022, the Company recognized approximately 5 % of its consolidated revenue on products distributed by the Unis Venture.

The outstanding accounts receivable due from the Unis Venture were 7 % and 5 % of Accounts receivable, net as of March 31, 2023 and July 1, 2022, respectively.

WESTERN DIGITAL CORPORATION

7 unchanged sentences

Lease expense is recognized on a straight-line basis over the lease term.

The following table summarizes supplemental balance sheet information related to operating leases as of December 30, 2022:

The following table summarizes supplemental balance sheet information related to operating leases as of March 31, 2023:

Lease Amounts

1 unchanged sentence

Minimum lease payments by year:

Remaining six months of 2023

Remaining three months of 2023

Thereafter 149

8 unchanged sentences

The following table summarizes supplemental disclosures of operating cost and cash flow information related to operating leases:

Three Months Ended Six Months Ended

2022 December 31,

2021 December 30,

2022 December 31,

Three Months Ended Nine Months Ended

2023 April 1,

2022 March 31,

2023 April 1,

(in millions)

8 unchanged sentences

The Company also enters into long-term agreements with suppliers that contain fixed future commitments, which are contingent on certain conditions such as performance, quality and technology of the vendor’s components.

As of December 30, 2022, the Company had the following minimum long-term commitments:

As of March 31, 2023, the Company had the following minimum long-term commitments:

Long-Term Commitments

(in millions)

Remaining six months of 2023

Remaining three months of 2023

Thereafter 159

1 unchanged sentence

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Shareholders’ Equity

Shareholders’ Equity and Convertible Preferred Stock

Stock-based Compensation Expense

The following tables present the Company’s stock-based compensation for equity-settled awards by type (i.e., restricted stock units (“RSUs”), restricted stock unit awards with performance conditions or market conditions (“PSUs”), and rights to purchase shares of common stock under the Company’s Employee Stock Purchase Plan (“ESPP”)) and financial statement line as well as the related tax benefit included in the Company’s Condensed Consolidated Statements of Operations:

Three Months Ended Six Months Ended

2022 December 31,

2021 December 30,

2022 December 31,

The following tables present the Company’s stock-based compensation for equity-settled awards by type (i.e.

restricted stock units (“RSUs”), restricted stock unit awards with performance conditions or market conditions (“PSUs”), and rights to purchase shares of common stock under the Company’s Employee Stock Purchase Plan (“ESPP”)) and financial statement line as well as the related tax benefit included in the Company’s Condensed Consolidated Statements of Operations:

Three Months Ended Nine Months Ended

2023 April 1,

2022 March 31,

2023 April 1,

(in millions)

2 unchanged sentences

Total $ 74 $ 86 $ 246 $ 249

Three Months Ended Six Months Ended

2022 December 31,

2021 December 30,

2022 December 31,

Three Months Ended Nine Months Ended

2023 April 1,

2022 March 31,

2023 April 1,

(in millions)

7 unchanged sentences

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.

The following table presents the unamortized compensation cost and weighted average service period of all unvested outstanding awards as of December 30, 2022:

The following table presents the unamortized compensation cost and weighted average service period of all unvested outstanding awards as of March 31, 2023:

Unamortized Compensation Costs Weighted Average Service Period

8 unchanged sentences

The following table summarizes stock option activity under the Company’s incentive plans.

All outstanding options were exercisable at December 30, 2022:

All outstanding options were exercisable at March 31, 2023:

Number of Shares Weighted Average Exercise Price Per Share Weighted Average Remaining Contractual Life

2 unchanged sentences

Canceled or expired ( 0.5 ) 83.10

Options outstanding at December 30, 2022 0.4 $ 44.63 0.57

Options outstanding at March 31, 2023 0.4 $ 44.76 0.33

RSUs and PSUs

6 unchanged sentences

Forfeited ( 1.3 ) 55.61

RSUs and PSUs outstanding at December 30, 2022 14.5 $ 49.18

RSUs and PSUs outstanding at March 31, 2023 14.5 $ 47.50

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

Convertible Preferred Stock

On January 31, 2023, the Board of Directors of the Company authorized the designation of 900,000 shares of Series A Convertible Perpetual Preferred Stock, par value $ 0.01 per share (the “Preferred Shares”), from the Company’s existing five million authorized but unissued shares of preferred stock and issued the Preferred Shares through a private placement for an aggregate purchase price of $ 900 million, less issuance costs of $ 24 million.

Dividend provisions

The Preferred Shares will have a stated value of $ 1,000 per share and accrue a cumulative preferred dividend at an annual rate of 6.25 % per annum (increasing to 7.25 % per annum on January 31, 2030 and to 8.25 % per annum on January 31, 2033) compounded on a quarterly basis.

The Preferred Shares will also participate in any dividends declared for common shareholders on an as-converted equivalent basis.

As of March 31, 2023, (i) no dividends have been declared or paid since the issuance of the Preferred Shares, and (ii) unpaid and cumulative dividends payable with respect to the Preferred Shares were $ 9 million.

WESTERN DIGITAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Conversion rights

The Preferred Shares will be convertible into shares of the Company’s common stock at an initial conversion rate of $ 47.75 per share (the “Conversion Price”) (subject to anti-dilution adjustments and certain other one-time adjustments upon the occurrence of various specified spin-off transactions) applied to the aggregate sum of the stated value of the Preferred Shares plus any cumulative accrued but unpaid dividends (the “Accumulated Stated Value”).

In the event of a standalone spin-off transaction, the holders of Preferred Shares may have one third of their Preferred Shares converted to a similar class of preferred shares of the spin-off entity.

The Preferred Shares will be convertible at the option of the holder upon the earlier of on January 31, 2024, and the date a specified spin-off transaction is completed, unless the Company enters into a definitive agreement with respect to a sale, merger or combination of the spun-off entity, in which case the twelve ( 12 ) month period will be extended until the earlier of the consummation of such transaction or the termination of the definitive agreement.

The Preferred Shares will be convertible at the option of the Company after January 31, 2026 if the closing price per share of the Company’s common stock exceeds 150 % of the Conversion Price for at least 20 out of 30 consecutive trading days immediately prior to the Company’s conversion notice.

As of March 31, 2023, the Preferred Shares outstanding would have been convertible, if otherwise permitted, into 19 million shares of common stock.

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 110 % 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 Condensed 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.

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 amount in cash equal to 110 % of the Accumulated Stated Value plus accrued and unpaid dividends and (ii) the payment that the holders of Preferred Shares would have received had all 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 March 31, 2023, the total aggregate liquidation preference was $ 909 million.

Stock Repurchase Program

The Company’s Board of Directors has authorized a stock repurchase program for the repurchase of up to $ 5.0 billion of the Company’s common stock, which authorization is effective through July 25, 2023.

The Company did not make any stock repurchases during the six months ended December 30, 2022 and has not repurchased any shares of its common stock pursuant to its stock repurchase program since the first quarter of fiscal 2019.

The Company did not make any stock repurchases during the nine months ended March 31, 2023 and has not repurchased any shares of its common stock pursuant to its stock repurchase program since the first quarter of fiscal 2019.

Although the Company will reevaluate the repurchasing of common stock when appropriate, there can be no assurance if, when or at what level the Company may resume such activity.

The remaining amount available to be repurchased under the Company’s current stock repurchase program as of December 30, 2022 was $ 4.5 billion.

The remaining amount available to be repurchased under the Company’s current stock repurchase program as of March 31, 2023 was $ 4.5 billion.

Repurchases under the stock repurchase program may be made in the open market or in privately negotiated transactions and may be made under a Rule 10b5-1 plan.

12 unchanged sentences

The following table presents the Company’s Income tax expense and the effective tax rate:

Three Months Ended Six Months Ended

2022 December 31,

2021 December 30,

2022 December 31,

Three Months Ended Nine Months Ended

2023 April 1,

2022 March 31,

2023 April 1,

($ in millions)

3 unchanged sentences

Beginning in fiscal year 2023, the 2017 Act requires the Company to capitalize and amortize R&D expenses rather than expensing them in the year incurred.

The tax effects related to the capitalization of R&D expenses are included in the effective tax rate for the three and six months ended December 30, 2022 but did not have a material impact on the effective tax rate.

The primary drivers of the difference between the effective tax rate for the three and six months ended December 30, 2022 and the U.S.

Federal statutory rate of 21% are the relative mix of earnings and losses by jurisdiction, the deduction for foreign derived intangible income, credits, and tax holidays in Malaysia, the Philippines and Thailand that will expire at various dates during fiscal years 2024 through 2031.

The primary drivers of the difference between the effective tax rate for the three and six months ended December 31, 2021 and the U.S.

The tax effects related to the capitalization of R&D expenses are included in the effective tax rate for the three and nine months ended March 31, 2023 but did not have a material impact on the effective tax rate.

The primary drivers of the difference between the effective tax rate for the three and nine months ended March 31, 2023 and the U.S.

In addition, the effective tax rate for the three and six months ended December 31, 2021 included the discrete effect of an increase to unrecognized tax benefits of $ 8 million and $ 25 million, respectively, as a result of ongoing discussions with various taxing authorities.

The primary drivers of the difference between the effective tax rate for the three and nine months ended April 1, 2022 and the U.S.

In addition, the effective tax rate for the three and nine months ended April 1, 2022 includes the discrete effect of an increase to unrecognized tax benefits, which includes interest and offsetting tax benefits, as a result of settlement discussions with various taxing authorities of $ 194 million and $ 219 million, respectively.

Uncertain Tax Positions

2 unchanged sentences

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The following is a tabular reconciliation of the total amounts of unrecognized tax benefits excluding accrued interest and penalties for the three months ended December 30, 2022 (in millions):

The following is a tabular reconciliation of the total amounts of unrecognized tax benefits excluding accrued interest and penalties for the three months ended March 31, 2023 (in millions):

Accrual balance at July 1, 2022

4 unchanged sentences

Lapse of statute of limitations ( 3 )

Accrual balance at December 30, 2022

As of December 30, 2022, the liability for unrecognized tax benefits (excluding accrued interest and penalties) was $ 1.04 billion.

Accrual balance at March 31, 2023

As of March 31, 2023, the liability for unrecognized tax benefits (excluding accrued interest and penalties) was $ 1.02 billion.

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 December 30, 2022 was $ 279 million.

Accrued interest and penalties included in the Company’s liability related to unrecognized tax benefits as of March 31, 2023 was $ 280 million.

Of these amounts, approximately $ 1.16 billion could result in potential cash payments.

As previously disclosed, the IRS issued statutory notices of deficiency and notices of proposed adjustments with respect to transfer pricing with the Company’s foreign subsidiaries and intercompany payable balances for years 2008 through 2015.

In September 2018 and March 2019, the Company filed petitions with the U.S.

Tax Court covering years 2008 through 2012, for which it had received statutory notices of deficiency, while years 2013 through 2015 remain in the jurisdiction of the IRS’s Examination function.

The IRS has filed various Amendments to Answer with the U.S.

Tax Court which, together with the notices of proposed adjustments, would result in additional federal income tax liabilities totaling approximately $ 1.6 billion and penalties totaling $ 449 million with respect to years 2008 through 2015.

In May 2022, the Company and the IRS tentatively reached a settlement for resolving the statutory notices of deficiency and notices of proposed adjustments with respect to years 2008 through 2015 subject to the parties entering into final stipulations and a closing agreement.

Based on the tentative settlement for resolution, the Company expects to pay tax and interest totaling approximately $ 720 million to $ 760 million, which the Company expects to be partially offset by future reductions to its mandatory deemed repatriation tax obligations and tax savings from interest deductions aggregating to approximately $ 100 million to $ 150 million.

While the Company continues to work with the IRS to come to a final agreement on the federal tax and interest calculations, the Company is uncertain as to when a final agreement will be reached and the exact timing of when any payments will be made.

However, the Company believes it is reasonably likely that these payments may be made within the next twelve months and has classified that portion of these unrecognized tax benefits, including interest in Income taxes payable on its Condensed Consolidated Balance Sheets as of December 30, 2022.

The Company and the IRS reached an agreement on the federal tax and interest calculations with respect to years 2008 through 2012 for which the Company expects to pay tax and interest totaling approximately $ 620 million to $ 650 million within the next twelve months.

The Company and the IRS have also reached a tentative settlement for the years 2013 through 2015 for which the Company expects to pay tax and interest totaling approximately $ 100 million to $ 110 million.

The Company is uncertain as to when a final agreement for years 2013 through 2015 will be reached and the exact timing of when these payments will be made.

However, the Company believes it is reasonably likely that these payments may be made within the next twelve months and has classified that portion of these unrecognized tax benefits, including interest, in Income taxes payable on its Condensed Consolidated Balance Sheets as of March 31, 2023.

This classification and amount may be subject to change in the next twelve months depending on when the Company is able to reach a final agreement with the IRS.

In connection with these settlements, the Company expects to realize reductions to its mandatory deemed repatriation tax obligations and tax savings from interest deductions aggregating to approximately $ 100 million to $ 150 million in future years.

The Company believes that adequate provision has been made for any adjustments that may result from any other tax examinations.

6 unchanged sentences

The following table presents the computation of basic and diluted income (loss) per common share:

Three Months Ended Six Months Ended

2022 December 31,

2021 December 30,

2022 December 31,

Three Months Ended Nine Months Ended

2023 April 1,

2022 March 31,

2023 April 1,

(in millions, except per share data)

Net income (loss) $ ( 572 ) $ 25 $ ( 991 ) $ 1,199

cumulative dividends on Preferred Stock 9 — 9 —

Net income (loss) attributable to common shareholders

$ ( 581 ) $ 25 $ ( 1,000 ) $ 1,199

Weighted average shares outstanding:

1 unchanged sentence

Employee stock options, RSUs, PSUs, and ESPP — 3 — 4

Basic and diluted 318 315 317 315

Income (loss) per common share

Diluted 319 316 318 316

Income (loss) per common shares

Basic $ ( 1.82 ) $ 0.08 $ ( 3.14 ) $ 3.84

1 unchanged sentence

Anti-dilutive potential common shares excluded 15 5 15 4

The Company computes basic income (loss) per common share using Net income (loss) and the weighted average number of common shares outstanding during the period.

Diluted income (loss) per common share is computed using Net income (loss) and the weighted average number of common shares and potentially dilutive common shares outstanding during the period.

Potentially dilutive common shares include dilutive outstanding employee stock options, RSUs and PSUs, and rights to purchase shares of common stock under the Company’s ESPP.

For the three and six months ended and December 31, 2021, 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 the period.

For the three and six months ended December 30, 2022, the Company recorded a net loss and all shares subject to outstanding equity awards were excluded from the calculation of diluted shares for those periods because their impact would have been anti-dilutive.

The Company computes basic income (loss) per common share by dividing net income attributable to common shareholders and the weighted average number of common shares outstanding during the period.

Diluted income (loss) per common share is computed by using diluted net income attributable to common shareholders, the weighted average number of common shares and potentially dilutive securities outstanding during the period using the treasury stock method or the “if-converted” method based on the nature of the securities.

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 or loss per share attributable to common shareholders is computed as (i) basic net income (loss) attributable to common shareholders plus (ii) diluted adjustments to income allocable to participating securities divided by (iii) weighted average diluted shares outstanding.

The "if-converted" method is used to determine the dilutive impact for the Company's convertible Preferred Stock and the treasury stock method is used to determine the dilutive impact of unvested restricted stock.

Potentially dilutive common shares include dilutive outstanding employee stock options, RSUs and PSUs, rights to purchase shares of common stock under the Company’s ESPP, shares issuable in connection with the 1.50 % convertible notes due 2024, and the Preferred Shares.

For the three and nine months ended March 31, 2023, the Company recorded a net loss and all shares subject to outstanding equity awards were excluded from the calculation of diluted shares for those periods because their impact would have been anti-dilutive.

For the three and nine months ended and April 1, 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 the period.

WESTERN DIGITAL CORPORATION

4 unchanged sentences

The Company recorded the following charges related to these actions:

Three Months Ended Six Months Ended

2022 December 31,

2021 December 30,

2022 December 31,

Three Months Ended Nine Months Ended

2023 April 1,

2022 March 31,

2023 April 1,

(in millions)

Employee termination benefits $ 40 $ 4 $ 125 $ 22

Asset impairments and losses on disposal of assets 15 ( 1 ) 15 2

Asset impairments and other charges — — 15 2

Total employee termination, asset impairment, and other charges $ 40 $ 4 $ 140 $ 24

The following table presents an analysis of the components of these activities against the reserve during the six months ended December 30, 2022:

The following table presents an analysis of the components of these activities against the reserve during the nine months ended March 31, 2023:

Employee Termination Benefits

2 unchanged sentences

Cash payments ( 126 )

Accrual balance at December 30, 2022 $ 33

Accrual balance at March 31, 2023 $ 16

WESTERN DIGITAL CORPORATION

2 unchanged sentences

For disclosures regarding statutory notices of deficiency issued by the IRS on June 28, 2018 and December 10, 2018, petitions filed by the Company with the U.S.

Tax Court in September 2018 and March 2019, additional penalties asserted by the IRS in March 2021 and further Amendments to Answers filed by the IRS in June 2021 and January 2022, and a tentative resolution with respect to certain matters, see Note 13, Income Tax Expense .

Tax Court in September 2018 and March 2019, additional penalties asserted by the IRS in March 2021 and further Amendments to Answers filed by the IRS in June 2021 and January 2022, and the status of resolution with respect to certain matters, see Note 13, Income Tax Expense .

Other Matters

2 unchanged sentences

However, any monetary liability and financial impact to the Company from these matters could differ materially from the Company’s expectations.

WESTERN DIGITAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Subsequent Events

On January 31, 2023, the Board of Directors of the Company authorized the designation of 900,000 shares of Series A Convertible Perpetual Preferred Stock, par value $ 0.01 per share (the “Preferred Shares”) from the Company’s existing five million authorized but unissued shares of preferred stock and issued the Preferred Shares through a private placement for an aggregate purchase price of $ 900 million.

The Preferred Shares will also participate in any dividends declared for common shareholders on an as-converted equivalent basis.

The Preferred Shares will be convertible into shares of the Company’s common stock at an initial conversion rate of $ 47.75 per share (the “Conversion Price”) (subject to anti-dilution adjustments and certain other one-time adjustments upon the occurrence of various specified spin-off transactions) applied to the aggregate of the stated value plus any cumulative accrued but unpaid dividends (the “Accumulated Stated Value”).

The Preferred Shares will be convertible at the option of the holder beginning on January 31, 2024, or on the date a specified spin-off transaction is completed, if earlier.

After January 31, 2030, the Company will have the right, but not the obligation, to redeem the Preferred Shares at an amount equal to 110 % 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 will vote on an as-converted equivalent basis along with holders of the Company’s common stock, except to the extent that shares issuable upon conversion of the Preferred Stock would exceed 19.9 % of common stock outstanding immediately prior to the original issuance date of the Preferred Stock.

In the event of liquidation, holders of the Preferred Shares will be senior to the holders of the Company’s common stock.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements