What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2024-08-20 compared with 2023-08-22 · 491 added, 355 removed, 1176 unchanged (42% of the section changed)

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Report of Independent Registered Public Accounting Firm (Auditor Firm ID:

Consolidated Balance Sheets — As of June 30, 2023 and July 1, 2022 53

Consolidated Balance Sheets — As of June 28, 2024 and June 30, 2023 54

Consolidated Statements of Operations — Three Years Ended June 28, 2024 55

Consolidated Statements of Comprehensive Income (Loss) — Three Years Ended June 30, 2023 55

Consolidated Statements of Comprehensive Loss — Three Years Ended June 28, 2024 56

Consolidated Statements of Cash Flows — Three Years Ended June 28, 2024 57

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Notes to Consolidated Financial Statements

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Report of Independent Registered Public Accounting Firm

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Opinions on the Consolidated Financial Statements and Internal Control Over Financial Reporting

We have audited the accompanying consolidated balance sheets of Western Digital Corporation and subsidiaries (the Company) as of June 30, 2023 and July 1, 2022, the related consolidated statements of operations, comprehensive income (loss), cash flows, convertible preferred stock and shareholders’ equity for each of the years in the three-year period ended June 30, 2023, and the related notes (collectively, the consolidated financial statements).

We have audited the accompanying consolidated balance sheets of Western Digital Corporation and subsidiaries (the Company) as of June 28, 2024 and June 30, 2023, the related consolidated statements of operations, comprehensive income (loss), cash flows, convertible preferred stock and shareholders’ equity for each of the years in the three-year period ended June 28, 2024, and the related notes (collectively, the consolidated financial statements).

We also have audited the Company’s internal control over financial reporting as of June 28, 2024, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of June 30, 2023 and July 1, 2022, and the results of its operations and its cash flows for each of the years in the three-year period ended June 30, 2023, in conformity with U.S.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of June 28, 2024 and June 30, 2023, and the results of its operations and its cash flows for each of the years in the three-year period ended June 28, 2024, in conformity with U.S.

generally accepted accounting principles.

Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of June 28, 2024 based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

Change in Accounting Principle

As discussed in Note 2 to the consolidated financial statements, the Company has changed its method of accounting for convertible debt instruments and convertible preferred stock as of July 2, 2022 due to the adoption of Accounting Standards Update No.

2020-06, “Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40):

Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity”.

Basis for Opinions

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Definition and Limitations of Internal Control Over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally

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accepted accounting principles.

A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;

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Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that:

(1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that:

(1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Assessment of variable consideration for sales to resellers

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We tested the channel inventory levels by comparing the on-hand inventory amounts for a sample of resellers to information obtained from the resellers and evaluated the reasonableness of reconciling items.

Goodwill Impairment Assessment of the Company’s Reporting Units

As discussed in Note 3 to the consolidated financial statements, the goodwill balance as of June 30, 2023 was $10,037 million.

The Company tests goodwill for impairment on an annual basis as of the beginning of its fourth quarter or more frequently if events or changes in circumstances indicate that the goodwill may be impaired.

The Company performed a quantitative assessment as of the end of the first and second quarters of fiscal 2023 and again as of its annual goodwill impairment test date, and the fair value of each reporting unit was measured based on a combination of valuation techniques, including an income approach and a market approach.

Based on the Company’s analysis, the fair value of both reporting units was in excess of the carrying values and therefore, did not result in any goodwill impairment.

We identified the assessment of goodwill for impairment for the Company’s reporting units as a critical audit matter.

A high degree of subjective auditor judgment was required to evaluate the forecasted revenue, including revenue growth rates, forecasted cost of goods sold, and the company-specific risk premium assumptions used in the income approach to estimate the fair value of the reporting units.

The assessment of these assumptions was challenging due to the degree of uncertainty related to future market and economic conditions.

Differences in judgment used to determine these assumptions could have a significant effect on the Company’s assessment of the fair value of the reporting units.

Additionally, evaluating the company-specific risk premium assumption required specialized skills and knowledge.

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The following are the primary procedures we performed to address this critical audit matter.

We evaluated the design and tested the operating effectiveness of certain internal controls over the Company’s goodwill impairment process, including controls over the development of the forecasted revenue, forecasted cost of goods sold, and the company-specific risk premium assumptions.

We evaluated the Company’s forecasted revenue by comparing it to historical results and revenue growth rates projected for peer companies and the industry.

We evaluated the Company’s forecasted cost of goods sold by comparing it to historical results and by comparing the forecasted gross margin to historical gross margin for peer companies and the industry.

In addition, we involved valuation professionals with specialized skills and knowledge, who assisted in evaluating the company-specific risk premium by comparing management’s financial projections to publicly available forecasts of comparable companies and the Company’s actual operating results in prior years.

We have served as the Company’s auditor since 1970.

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August 19, 2024

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WESTERN DIGITAL CORPORATION

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(in millions, except par value)

2024 June 30,

Current assets:

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Common stock, $ 0.01 par value;

authorized — 450 shares;

authorized — 750 shares in 2024 and 450 shares in 2023;

issued and outstanding — 343 shares in 2024 and 322 shares in 2023

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

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WESTERN DIGITAL CORPORATION

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(in millions, except per share amounts)

2024 June 30,

Revenue, net $ 13,003 $ 12,318 $ 18,793

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Selling, general and administrative 828 970 1,117

Employee termination, asset impairment, and other charges 193 43 ( 47 )

Litigation matter

Employee termination, asset impairment, and other

Business separation costs

Total operating expenses 3,262 3,172 3,483

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

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WESTERN DIGITAL CORPORATION

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(in millions)

2024 June 30,

Net income (loss) $ ( 798 ) $ ( 1,684 ) $ 1,546

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

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WESTERN DIGITAL CORPORATION

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(in millions)

2024 June 30,

Cash flows from operating activities

Net income (loss) $ ( 798 ) $ ( 1,684 ) $ 1,546

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

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

Depreciation and amortization 568 828 929

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Gain on disposal of assets ( 87 ) ( 7 ) ( 16 )

Non-cash portion of asset impairment 19 — —

Non-cash asset impairment

Gain on business divestiture — — ( 9 )

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Taxes paid on vested stock awards under employee stock plans ( 88 ) ( 80 ) ( 90 )

Net proceeds from convertible preferred stock 881 — —

Repayment of government grants — — ( 9 )

Purchase of capped calls

Proceeds from convertible preferred stock, net of issuance costs

Repurchases of debt

Repayment of debt ( 2,104 ) ( 1,180 ) ( 3,621 )

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Effect of exchange rate changes on cash ( 10 ) ( 9 ) ( 13 )

Net increase (decrease) in cash and cash equivalents ( 304 ) ( 1,043 ) 322

Net decrease in cash and cash equivalents

( 144 ) ( 304 ) ( 1,043 )

Cash and cash equivalents, beginning of year 2,023 2,327 3,370

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

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WESTERN DIGITAL CORPORATION

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Net income — — — — — — — — 1,546 1,546

Adoption of new accounting standard — — — — — — — — ( 7 ) ( 7 )

Employee stock plans — — 3 — 4 232 ( 201 ) — — 31

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Balance at July 1, 2022 — — 315 3 — — 3,733 ( 579 ) 9,166 12,323

Net income — — — — — — — — 1,500 1,500

Net loss — — — — — — — — ( 1,684 ) ( 1,684 )

Adoption of new accounting standard — — — — — — ( 128 ) — 91 ( 37 )

Employee stock plans — — 7 — — — 13 — — 13

Stock-based compensation — — — — — — 318 — — 318

Issuance of convertible preferred stock, net of issuance costs 0.9 876 — — — — — — — —

Actuarial pension gain — — — — — — — 9 — 9

Foreign currency translation adjustment — — — — — — — ( 87 ) — ( 87 )

Net unrealized loss on derivative contracts — — — — — — — ( 142 ) — ( 142 )

Balance at July 1, 2022 — — 315 3 — — 3,733 ( 554 ) 9,039 12,221

Net unrealized gain on derivative contracts — — — — — — — 109 — 109

Balance at June 30, 2023 0.9 876 322 3 — — 3,936 ( 548 ) 7,573 10,964

Net loss — — — — — — — — ( 798 ) ( 798 )

Adoption of new accounting standard — — — — — — ( 128 ) — 91 ( 37 )

Purchase of capped calls related to the issuance of convertible notes, net of tax — — — — — — ( 118 ) — — ( 118 )

Conversion of convertible preferred stock ( 0.7 ) ( 647 ) 15 — — — 647 — — 647

Employee stock plans — — 6 — — — ( 8 ) — — ( 8 )

Stock-based compensation — — — — — — 295 — — 295

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

Actuarial pension gain — — — — — — — 16 — 16

Foreign currency translation adjustment — — — — — — — ( 116 ) — ( 116 )

Net unrealized gain on derivative contracts — — — — — — — 109 — 109

Net unrealized loss on derivative contracts — — — — — — — ( 64 ) — ( 64 )

Balance at June 28, 2024 0.2 $ 229 343 $ 3 — $ — $ 4,752 $ ( 712 ) $ 6,775 $ 10,818

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Organization and Basis of Presentation

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

The Company’s broad portfolio of technology and products address the following key end markets:

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

The Company’s broad portfolio of technology and products addresses the following key end markets:

Cloud, Client and Consumer.

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Approximately every five to six years, the Company reports a 53-week fiscal year to align the fiscal year with the foregoing policy.

Fiscal years 2023, 2022, and 2021, which ended on June 30, 2023, July 1, 2022 and July 2, 2021, respectively, are comprised of 52 weeks, with all quarters presented consisting of 13 weeks.

Fiscal years 2024, 2023, and 2022, which ended on June 28, 2024, June 30, 2023 and July 1, 2022, respectively, are comprised of 52 weeks, with all quarters presented consisting of 13 weeks.

Unless otherwise indicated, references herein to specific years and quarters are to fiscal years and fiscal quarters, and references to financial information are on a consolidated basis.

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:

flash-based products (“Flash”) and hard disk drives (“HDD”).

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.

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Translation adjustments are recorded in Accumulated other comprehensive loss, a component of shareholders’ equity.

WESTERN DIGITAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Business Separation Costs

On October 30, 2023, the Company announced that its Board of Directors had completed its strategic review of its business and, after evaluating a comprehensive range of alternatives, authorized the Company to pursue a plan to separate its HDD and Flash business units to create two independent, public companies.

As a result of the plan, the Company has incurred separation and transition costs and expects to incur such costs through the completion of the separation of the businesses.

The separation and transition costs are recorded within Business separation costs in the Consolidated Statements of Operations.

Use of Estimates

Company management has made estimates and assumptions relating to the reporting of certain assets and liabilities in conformity with U.S.

These estimates and assumptions have been applied using methodologies that are consistent throughout the periods presented with consideration given to the potential impacts of current macroeconomic conditions.

These estimates and assumptions have been applied using methodologies that are consistent throughout the periods presented.

However, actual results could differ materially from these estimates.

WESTERN DIGITAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Cash Equivalents

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Recognition and Measurement of Financial Assets and Financial Liabilities,” which is cost minus impairment, if any, plus or minus changes resulting from observable price changes.

Previously, these investments were accounted for under the cost method of accounting.

These investments are recorded within Other non-current assets in the Consolidated Balance Sheets and are periodically analyzed to determine whether or not there are indicators of impairment.

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If the Company concludes that an investee is a VIE, the Company evaluates its power to direct the activities of the investee, its obligation to absorb the expected losses of the investee and its right to receive the expected residual returns of the investee to determine whether the Company is the primary beneficiary of the investee.

If the Company is the primary beneficiary of a VIE, the Company consolidates such entity and reflects the non-controlling interest of other beneficiaries of that entity.

The Company does not consolidate any cost method investment or equity method investment entities.

If the Company is the primary beneficiary of a VIE, the Company would consolidate such entity and reflect the non-controlling interest of other beneficiaries of that entity.

For the periods presented, the Company determined that it did not have any VIEs that are required to be consolidated.

WESTERN DIGITAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Fair Value of Financial Instruments

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Unanticipated changes in technology or customer demand could result in a decrease in demand for one or more of the Company’s products, which may require a write-down of inventory that could materially affect operating results.

WESTERN DIGITAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Property, Plant and Equipment

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If impairment is indicated, the impairment is measured as the amount by which the carrying amount of the assets exceeds the fair value of the assets.

The Company’s assessment resulted in no impairment of IPR&D in 2024, 2023 or 2022.

WESTERN DIGITAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Other long-lived assets are depreciated or amortized over their estimated useful lives based on the pattern in which the economic benefits are expected to be received.

Long-lived assets are tested for recoverability whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable.

Long-lived assets are tested for recoverability whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable from undiscounted cash flows.

If impairment is indicated, the impairment is measured as the amount by which the carrying amount of the assets exceeds the fair value of the assets.

The estimates of fair value require evaluation of future market conditions and product lifecycles as well as projected revenue, earnings and cash flow.

See Note 5, Supplemental Financial Statement Data , for additional disclosures related to the Company’s other intangible assets.

See Note 4, Supplemental Financial Statement Data , for additional disclosures related to the Company’s other long-lived assets.

Revenue and Accounts Receivable

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The Company’s performance obligations are typically not considered constrained based on the Company’s history with similar transactions and the fact that uncertainties are resolved in a fairly short period of time.

WESTERN DIGITAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Substantially all of the Company’s revenue is from the sale of tangible products for which the performance obligations are satisfied at a point in time, generally upon delivery.

The Company’s services revenue mainly includes professional service arrangements and post-contract customer support, warranty as a service and maintenance contracts.

The Company’s services revenue is immaterial, and mainly includes professional service arrangements and post-contract customer support, warranty as a service and maintenance contracts.

The performance obligations for the Company’s services are generally satisfied ratably over the service period based on the nature of the service provided and contract terms.

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For the sales-based royalty arrangements, the Company estimates and recognizes revenue in the period in which customers’ licensable sales occur.

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

The Company has applied the practical expedient to recognize the direct incremental costs of obtaining contracts as an expense when incurred if the amortization period is expected to be one year or less or the amount is not material, with these costs charged to Selling, general and administrative expenses.

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

The Company also 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.

The transaction price allocated to the Company’s remaining performance obligations as of June 28, 2024 and June 30, 2023, was not material.

The contract assets and contract liabilities for the years ended June 28, 2024 and June 30, 2023 were not material.

The Company’s customer payment terms are typically less than two months from the date control over the product or service is transferred to the customer.

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The Company constrains variable consideration until the likelihood of a significant revenue reversal is not probable and believes that the expected value method is the appropriate estimate of the amount of variable consideration based on the fact that the Company has a large number of contracts with similar characteristics.

WESTERN DIGITAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

For sales to OEMs, the Company’s methodology for estimating variable consideration is based on the amount of consideration expected to be earned based on the OEMs’ volume of purchases from the Company or other agreed-upon sales incentive programs.

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If the financial condition of a significant customer deteriorates resulting in its inability to pay its accounts when due, or if the Company’s overall loss trajectory changes significantly, an adjustment in the Company’s allowance for doubtful accounts would be required, which could materially affect operating results.

WESTERN DIGITAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The Company records an accrual for estimated warranty costs when revenue is recognized.

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When the Company becomes aware of a claim or potential claim, the Company assesses the likelihood of any loss or exposure.

The Company discloses information regarding each material claim where the likelihood of a loss contingency is probable or reasonably possible.

The Company discloses information regarding each claim where the likelihood of a material loss contingency is probable or reasonably possible.

If a loss contingency is probable and the amount of the loss can be reasonably estimated, the Company records an accrual for the loss.

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See Note 17, Legal Proceedings, for additional disclosures related to the Company’s litigation.

WESTERN DIGITAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Advertising Expense

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The Company accounts for interest and penalties related to income taxes as a component of the provision for income taxes.

WESTERN DIGITAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The Company recognizes liabilities for uncertain tax positions based on a two-step process.

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Diluted income (loss) per common share is computed by using diluted net income (loss) 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.

Potentially dilutive common shares include dilutive outstanding employee stock options, restricted stock unit awards (“RSUs”) and restricted stock unit awards with performance conditions or market conditions (“PSUs”), rights to purchase shares of common stock under the Company’s Employee Stock Purchase Plan (“ESPP”), shares issuable in connection with the 1.50 % convertible notes due 2024, and the convertible preferred stock.

Potentially dilutive common shares include dilutive outstanding employee stock options, restricted stock unit awards (“RSUs”) and restricted stock unit awards with performance conditions or market conditions (“PSUs”), rights to purchase shares of common stock under the Company’s Employee Stock Purchase Plan (“ESPP”), shares issuable in connection with the Company’s convertible notes and convertible preferred stock.

WESTERN DIGITAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Stock-Based Compensation

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The fair values of PSUs with a market condition are estimated using a Monte Carlo simulation model.

PSUs are granted to certain employees and vest only after the achievement of pre-determined performance or market conditions.

Once these conditions are met, vesting of PSUs is subject to continued service by the employee.

PSUs are granted to certain employees and vest only after the achievement of pre-determined performance or market conditions and completion of a requisite service period.

At the end of each reporting period, the Company evaluates the probability that PSUs with a performance condition will be earned and records the related stock-based compensation expense over the service period.

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Other Comprehensive Income (Loss), Net of Tax

Other comprehensive income (loss), net of tax refers to revenue, expenses, gains and losses that are recorded as an element of shareholders’ equity but are excluded from net income.

Other comprehensive income (loss), net of tax refers to gains and losses that are recorded as an element of shareholders’ equity but are excluded from net income.

The Company’s other comprehensive income (loss), net of tax is primarily comprised of unrealized gains or losses on foreign exchange contracts and interest rate swap agreements designated as cash flow hedges, foreign currency translation, and actuarial gains or losses related to pensions.

WESTERN DIGITAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Derivative Contracts

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The Company does not purchase foreign exchange contracts for speculative or trading purposes.

The Company had foreign exchange contracts with commercial banks for British pound sterling, European euro, Japanese yen, Malaysian ringgit, Philippine peso, Thai baht, Korean won and Israeli shekel, which had an aggregate notional amount of $ 5.66 billion and $ 6.07 billion at June 30, 2023 and July 1, 2022, respectively.

The Company had foreign exchange contracts with commercial banks for British pound sterling, European euro, Japanese yen, Malaysian ringgit, Philippine peso, Thai baht, Korean won and Israeli shekel, which had an aggregate notional amount of $ 3.86 billion and $ 5.66 billion at June 28, 2024 and June 30, 2023, respectively.

If the derivative is designated as a cash flow hedge and is determined to be highly effective, the change in fair value of the derivative is initially deferred in Other comprehensive income (loss), net of tax.

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A change in the fair value of undesignated hedges is recognized in earnings in the period incurred and is reported in Other income, net.

WESTERN DIGITAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Pensions and Other Post-Retirement Benefit Plans

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

Revision of Previously Issued Financial Statements

As previously disclosed in the Company’s Quarterly Reports on Form 10-Q for the periods ended December 29, 2023 and March 29, 2024, in connection with the preparation of its Condensed Consolidated Financial Statements as of and for the three and six months ended December 29, 2023, the Company identified certain errors related to the Company’s reporting and recording of its interests in its equity method investments in Flash Partners Ltd., Flash Alliance Ltd., and Flash Forward Ltd.

(collectively, “Flash Ventures”).

The errors related to unadjusted differences between Flash Ventures’ application of Japanese generally accepted accounting principles to certain lease-related transactions compared to the applicable U.S.

generally accepted accounting principles.

These unadjusted differences resulted in differences in the equity in earnings from these entities recognized by the Company in Other income (expense), net and the carrying value of the Company’s equity method investments in Flash Ventures.

Based on an analysis of quantitative and qualitative factors in accordance with SAB No.

99, “Materiality,” and SAB No.

108, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements,” and as described further in Note 18, Revision of Previously Issued Financial Statements , the Company evaluated the errors and determined the related impacts were not material to its financial statements for the prior periods when they occurred, but that correcting the cumulative errors in the period detected would have been material to the Company's results of operations for that period.

Accordingly, the Company has revised previously reported financial information presented herein for such immaterial errors.

A summary of revisions to the Condensed Consolidated Financial Statements presented herein is included for comparative purposes in Note 18, Revision of Previously Issued Financial Statements.

WESTERN DIGITAL CORPORATION

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Accounting Pronouncements Recently Adopted

In August 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No.

2020-06, “Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40):

Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity” (“ASU 2020-06”).

ASU 2020-06 reduces the number of accounting models for convertible debt instruments and convertible preferred stock and results in fewer instruments with embedded conversion features being separately recognized from the host contract as compared with current standards.

Those instruments that do not have a separately recognized embedded conversion feature will no longer recognize a debt issuance discount related to such a conversion feature and would recognize less interest expense on a periodic basis.

Additionally, the ASU amends the calculation of the share dilution impact related to a conversion feature and eliminates the treasury method as an option.

The Company adopted the new standard effective July 2, 2022, the first day of the year ending June 30, 2023, using the modified retrospective method.

On the date of adoption, the Company recorded a reduction in Additional paid-in capital of $ 128 million, a reduction of unamortized debt discount of $ 48 million, a reduction of deferred income tax liabilities of $ 11 million, and an increase to retained earnings of $ 91 million for 2023 for the after-tax impact of previously recognized amortization of the debt discount associated with the Co mpany’s convertible senior notes.

Amortization of debt discount included in Interest expense in the Consolidated Statements of Operations, under the previous accounting method was $ 29 million and $ 27 million in 2022 and 2021, respectively.

In November 2021, the FASB issued ASU No.

2021-10, “Government Assistance (Topic 832):

Disclosures by Business Entities about Government Assistance” (“ASU 2021-10”).

ASU 2021-10 increases the transparency of government assistance received by requiring most business entities to disclose information about government assistance received, including (1) the types of assistance, (2) the entity’s accounting for the assistance, and (3) the effect of the assistance on an entity’s financial statements.

The Company adopted this standard on July 2, 2022, the first day of fiscal 2023 and the adoption did not have a material impact on its Consolidated Financial Statements.

Recently Issued Accounting Pronouncements Not Yet Adopted

In September 2022, the FASB issued ASU No.

In September 2022, the Financial Accounting Standards Board (“FASB”) issued an accounting standards update (“ASU”) No.

2022-04, “Liabilities-Supplier Finance Programs (Subtopic 405-50):

Disclosure of Supplier Finance Program Obligations”.

This guidance requires entities that use supplier finance programs in connection with the purchase of goods and services to provide interim disclosures of the amount of outstanding supplier-financed purchases and annual disclosure of rollforward information related to those programs.

The ASU is effective for fiscal years beginning after December 15, 2022, which for the Company is the first quarter of 2024 (except for the amendment on rollforward information, which is effective for fiscal years beginning after December 15, 2023, which for the Company is the first quarter of 2025), with early adoption permitted.

Disclosure of Supplier Finance Program Obligations”, which requires annual and interim disclosures for entities that use supplier finance programs in connection with the purchase of goods and services.

The ASU requires the Company to provide disclosure of outstanding obligations to such suppliers for all balance sheet dates presented beginning with the Company’s first quarter of 2024 and to provide certain rollforward information related to those obligations beginning in the Company’s first fiscal quarter of 2025.

The ASU does not affect the recognition, measurement, or financial statement presentation of supplier finance program obligations.

The Company adopted the guidance on the first day of fiscal year 2024, except for the rollforward information, which the Company is compiling and intends to provide beginning in fiscal year 2025.

See Note 16, Supplier Finance Program, of the Notes to Consolidated Financial Statements for information regarding the supplier finance program.

Recently Issued Accounting Pronouncements Not Yet Adopted

In November 2023, the FASB issued ASU No.

2023-07, “Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures”, which expands on segment reporting requirements primarily through enhanced disclosures surrounding significant segment expenses.

The ASU expands on existing segment reporting requirements to require that a public entity disclose, on an annual and interim basis, significant segment expenses that are regularly provided to an entity's CODM, a description of other segment items by reportable segment, and any additional measures of a segment's profit or loss used by the CODM when deciding how to allocate resources.

These incremental disclosures will be required beginning with the Company’s financial statements for the year ending June 27, 2025.

The Company expects to provide any required disclosures at that time.

In December 2023, the FASB issued ASU 2023-09, “Income Taxes (Topic 740):

Improvements to Income Tax Disclosures”.

The ASU calls for enhanced income tax disclosure requirements surrounding the tabular rate reconciliation and income taxes paid.

The amendments are effective for the Company’s fiscal year 2026, with early adoption permitted.

The Company is currently compiling the information required for these disclosures.

These incremental disclosures will be required beginning with the Company’s financial statements for the year ending June 27, 2025.

The Company expects to provide any required disclosures at that time.

WESTERN DIGITAL CORPORATION

4 unchanged sentences

(in millions, except percentages)

Revenue, net:

Flash $ 6,687 $ 6,063 $ 9,753

8 unchanged sentences

Amortization of acquired intangible assets ( 3 ) — ( 66 )

Recovery from contamination incident

Contamination related charges — — ( 207 )

9 unchanged sentences

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

Cloud is comprised primarily of products for public or private cloud environments and end customers, 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.

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.

7 unchanged sentences

Total revenue

$ 13,003 $ 12,318 $ 18,793

WESTERN DIGITAL CORPORATION

26 unchanged sentences

The Company sells its products to computer manufacturers and OEMs, cloud service providers, resellers, distributors and retailers throughout the world.

For each of 2023, 2022 and 2021, no customer accounted for 10% or more of the Company’s net revenue.

For 2024, 2023 and 2022, no customer accounted for 10% or more of the Company’s net revenue.

For 2024, 2023 and 2022, the Company’s top 10 customers accounted for 39 %, 43 % and 45 %, respectively, of the Company’s net revenue.

1 unchanged sentence

The Company maintains allowances for potential credit losses, and such losses have historically been within management’s expectations.

At any given point in time, the total amount outstanding from any one of a number of its customers may be individually significant to the Company’s financial results.

As of June 30, 2023, the Company had net accounts receivable of $ 1.60 billion, and two customers, Arrow Electronics, Inc.

and Apple, Inc., accounted for 15 % and 13 %, respectively, of the Company’s outstanding accounts receivable.

As of July 1, 2022, the Company had net accounts receivable of $ 2.80 billion, and no customer accounted for more than 10% or more of the Company’s net accounts receivable.

Reserves for potential credit losses were not material as of each period end.

At any given point in time, the total amount outstanding from any one of a number of its customers may be individually significant to the Company’s financial condition.

As of June 28, 2024 and June 30, 2023, net accounts receivable were $ 2.17 billion and $ 1.60 billion, respectively, and reserves for potential credit losses were not material.

As of June 28, 2024, one customer accounted for 15 % of the Company’s net accounts receivable and as of June 30, 2023, two customers accounted for 15 % and 13 % of the Company’s net accounts receivable.

WESTERN DIGITAL CORPORATION

3 unchanged sentences

All of the Company’s Flash require silicon wafers for the memory and controller components.

The Company’s flash memory wafers are currently supplied almost entirely from Flash Ventures (as defined in Note 10) and the Company’s controller wafers are all manufactured by third-party sources.

The Company’s flash memory wafers are currently supplied almost entirely from Flash Ventures and the Company’s controller wafers are all manufactured by third-party sources.

The failure of any of these sources to deliver silicon wafers could have a material adverse effect on the Company’s business, financial condition and results of operations.

8 unchanged sentences

(in millions)

Balance at July 1, 2022 $ 5,718 $ 4,323 $ 10,041

Balance at June 30, 2023 $ 5,716 $ 4,321 $ 10,037

Foreign currency translation adjustment ( 3 ) ( 2 ) ( 5 )

Balance at June 28, 2024 $ 5,713 $ 4,319 $ 10,032

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.

The Company uses qualitative factors to determine whether goodwill is more-likely-than-not impaired and whether a quantitative test for impairment is considered necessary.

If the Company concludes from the qualitative assessment that goodwill is more-likely-than-not-impaired, the Company is required to perform a quantitative approach to determine the amount of impairment.

Management performed its annual goodwill impairment assessment for both reporting units as of the first day of its fourth quarter ended June 30, 2023.

During 2023, after considering changes in industry and macroeconomic conditions, management performed quantitative analyses of impairments for both the Flash and HDD reporting units as of the end of the first and second quarter of 2023 and again as part of its annual impairment assessment as of the first day of the Company’s fourth quarter ended June 30, 2023.

In each of these analyses, the fair value of each operating segment was based on a weighting of two valuation methodologies:

an income approach and a market approach.

The income approach was based on the present value of the projected discounted cash flows (“DCF”) expected to be generated by the operating segment.

Those projections required the use of significant estimates and assumptions specific to the reporting unit as well as those based on general economic conditions, which included, among other factors, revenue growth rates, gross margins, operating costs, capital expenditures, assumed tax rates and other assumptions deemed reasonable by management.

The present value was based on applying a weighted average cost of capital (“WACC”) which considered long-term interest rates and cost of equity based on the Company’s risk profile.

The market approach was based on a guideline company method, which analyzed market multiples of revenue and earnings before interest, taxes, depreciation and amortization (“EBITDA”) for a group of comparable public companies.

WESTERN DIGITAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The Company reconciled the aggregated estimated fair value of both operating segments to the Company’s market capitalization, including consideration of a control premium representing the estimated amount a market participant would pay to obtain a controlling interest in the Company.

In connection with the Company’s annual goodwill impairment assessment performed as of the first day of the fourth quarter ended June 30, 2023, the fair value derived from those valuation methodologies exceeded the carrying value by 20 % and 35 % for Flash and HDD, respectively.

Accordingly, there were no impairment charges recorded in 2023.

Management performed its annual goodwill impairment assessment for both reporting units as of the first day of its fourth quarter ended June 28, 2024 and concluded that there were no impairment indicators as of June 28, 2024.

The Company also did no t incur any impairment charges for 2023 or 2022.

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 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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

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 June 30, 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 June 30, 2023 and July 1, 2022 and changes in contract liabilities during 2023 and 2022 were not material.

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

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 IP 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 June 30, 2023 was not material.

WESTERN DIGITAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Supplemental Financial Statement Data

3 unchanged sentences

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

As of June 30, 2023 and July 1, 2022, the amount of factored receivables that remained outstanding was $ 150 million and $ 300 million, respectively.

No factored receivables were outstanding as of June 28, 2024, and $ 150 million of factored receivables remained outstanding as of June 30, 2023.

2024 June 30,

(in millions)

4 unchanged sentences

Property, plant and equipment, net

2024 June 30,

(in millions)

Property, plant and equipment:

Land $ 269 $ 269

Land and improvements

Buildings and improvements 1,820 1,955

7 unchanged sentences

Depreciation expense for property, plant and equipment totaled $ 566 million, $ 695 million and $ 708 million in 2024, 2023 and 2022, respectively.

WESTERN DIGITAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Intangible assets

The following tables present intangible assets as of June 30, 2023 and July 1, 2022:

June 30, 2023

Weighted Average Amortization Period Gross Carrying Amount Accumulated Amortization Net Carrying Amount

(in years) (in millions)

Finite-lived:

Existing technology 3 $ 4,231 $ ( 4,231 ) $ —

Trade names and trademarks 7 648 ( 648 ) —

Customer relationships 6 611 ( 611 ) —

Leasehold interests 31 1 ( 1 ) —

Total finite intangible assets 5,491 ( 5,491 ) —

In-process research and development 80 — 80

Total intangible assets $ 5,571 $ ( 5,491 ) $ 80

Weighted Average Amortization Period Gross Carrying Amount Accumulated Amortization Net Carrying Amount

(in years) (in millions)

Finite-lived:

Existing technology 3 $ 4,231 $ ( 4,231 ) $ —

Trade names and trademarks 7 648 ( 573 ) 75

Customer relationships 6 613 ( 555 ) 58

Leasehold interests 31 1 ( 1 ) —

Total finite intangible assets 5,493 ( 5,360 ) 133

In-process research and development 80 — 80

Total intangible assets $ 5,573 $ ( 5,360 ) $ 213

Other intangible assets, net

As part of prior acquisitions, the Company recorded at the time of the acquisition acquired IPR&D for projects in progress that had not yet reached technological feasibility.

1 unchanged sentence

Once a project reaches technological feasibility, the Company reclassifies the balance to existing technology and begins to amortize the intangible asset over its estimated useful life.

During 2023, 2022 and 2021, the Company did no t record any impairment charges related to intangible assets.

Intangible assets are amortized over the estimated useful lives based on the pattern in which the economic benefits are expected to be received.

Amortization expense for intangible assets subject to amortization totaled $ 133 million, $ 221 million, and $ 486 million in 2023, 2022 and 2021, respectively.

As of June 30, 2023, all finite-lived intangible assets were fully amortized.

As of June 28, 2024 and June 30, 2023, IPR&D included in intangible assets, net was $ 72 million and $ 80 million, respectively.

During the year ended June 28, 2024, one IPR&D project reached technological feasibility and $ 8 million was reclassified from IPR&D to existing technology and commenced amortization over an estimated useful life of three years .

During 2024, 2023 and 2022, the Company did no t record any impairment charges related to IPR&D.

WESTERN DIGITAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Amortizable intangible assets are amortized over the estimated useful lives based on the pattern in which the economic benefits are expected to be received.

As of June 28, 2024 and June 29, 2023, intangible assets had been substantially fully amortized and were not material.

Amortization expense for intangible assets subject to amortization totaled $ 3 million, $ 133 million and $ 221 million in 2024, 2023 and 2022, respectively.

Product warranty liability

25 unchanged sentences

The following table illustrates the changes in the balances of each component of AOCL:

Actuarial Pension Losses Foreign Currency Translation Adjustment Unrealized Losses on Derivative Contracts Total Accumulated Comprehensive Loss

Actuarial Pension Gains (Losses)

Foreign Currency Translation Adjustment Unrealized Gains (Losses) on Derivative Contracts

Total Accumulated Comprehensive Loss

(in millions)

4 unchanged sentences

Net current-period other comprehensive income (loss) 9 ( 87 ) 109 31

Balance at July 1, 2022 ( 11 ) ( 277 ) ( 266 ) ( 554 )

Balance at June 30, 2023 ( 2 ) ( 389 ) ( 157 ) ( 548 )

Other comprehensive income (loss) before reclassifications 23 ( 115 ) ( 331 ) ( 423 )

Amounts reclassified from accumulated other comprehensive loss — — 244 244

Income tax benefit (expense) related to items of other comprehensive income (loss) ( 3 ) 1 ( 29 ) ( 31 )

Net current-period other comprehensive income (loss) 9 ( 80 ) 109 38

Income tax benefit (expense) related to items of other comprehensive loss ( 7 ) ( 1 ) 23 15

Net current-period other comprehensive loss 16 ( 116 ) ( 64 ) ( 164 )

Balance at June 28, 2024 $ 14 $ ( 505 ) $ ( 221 ) $ ( 712 )

During 2023 and 2022, the amounts reclassified out of AOCL included gains of $ 10 million and losses of $ 47 million, respectively, related to interest rate swaps and losses of $ 361 million and $ 125 million, respectively, related to foreign exchange contracts.

During 2024, the amounts reclassified out of AOCL included losses of $ 244 million related to foreign exchange contracts.

During 2023, the amounts reclassified out of AOCL included losses of $ 361 million related to foreign exchange contracts, and gains of $ 10 million related to interest rate swaps.

The gains and losses related to interest rate swaps were charged to Interest expense and losses related to foreign contracts were substantially all charged to Cost of revenue in the Consolidated Statements of Operations.

As of June 28, 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.

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 June 30, 2023 and July 1, 2022, and indicate the fair value hierarchy of the valuation techniques utilized to determine such values:

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 June 28, 2024 and June 30, 2023, and indicate the fair value hierarchy of the valuation techniques utilized to determine such values:

June 28, 2024

6 unchanged sentences

Total liabilities at fair value $ — $ 197 $ — $ 197

June 30, 2023

Level 1 Level 2 Level 3 Total

2 unchanged sentences

Foreign exchange contracts — 35 — 35

Interest rate swap contracts — 3 — 3

Total assets at fair value $ 371 $ 35 $ — $ 406

1 unchanged sentence

Total liabilities at fair value $ — $ 192 $ — $ 192

WESTERN DIGITAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Money Market Funds.

3 unchanged sentences

Money market funds are valued based on quoted market prices.

WESTERN DIGITAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Foreign Exchange Contracts.

3 unchanged sentences

For more information on the Company’s foreign exchange contracts, see Note 6, Derivative Instruments and Hedging Activities .

Derivative assets and liabilities are reflected in the Company’s Consolidated Balance Sheet under Other current assets and Accrued expenses, respectively.

Interest Rate Swaps.

The Company’s interest rate swaps were long-term contracts to hedge the Company’s variable rate debt risk.

Interest rate swaps were valued based on estimated present value of future cash flows model.

The market-based observable inputs for the model include interest rate curves and credit valuation adjustments based on published credit default swap curves.

Derivative assets and liabilities are reflected in the Company’s Consolidated Balance Sheets under Other current assets and Accrued expenses, respectively.

During 2024 and 2023, the Company had no transfers of financial assets and liabilities between levels and there were no changes in valuation techniques and the inputs used in the fair value measurement.

Financial Instruments Not Carried at Fair Value

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

The following table contains the related carrying value (which includes principal adjusted for any unamortized issuance costs, and discounts or premiums) and fair value (which is based on quoted market prices) 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 fourth quarter of 2024 and the fourth quarter of 2023, respectively.

June 30, 2023 July 1, 2022

June 28, 2024 June 30, 2023

Value Carrying

2 unchanged sentences

$ — $ — $ 1,099 $ 1,067

3.00 % convertible notes due 2028

1,568 2,556 — —

4.75 % senior unsecured notes due 2026

10 unchanged sentences

As of June 28, 2024, the Company had outstanding foreign exchange forward contracts that were designated as either cash flow hedges or non-designated hedges.

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

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

As of June 28, 2024, the Company did not have any derivative contracts with credit-risk-related contingent features.

5 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 June 30, 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 Consolidated Balance Sheets.

As of June 28, 2024 and June 30, 2023, the effect of rights of offset was not material and the Company did not offset or net the fair value amounts of derivative instruments in its Consolidated Balance Sheets.

WESTERN DIGITAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Debt consisted of the following as of June 30, 2023 and July 1, 2022:

Debt consisted of the following as of June 28, 2024 and June 30, 2023:

2024 June 30,

(in millions)

1.50 % convertible notes due 2024

$ 1,100 $ 1,100

3.00 % convertible notes due 2028

4.75 % senior unsecured notes due 2026

3 unchanged sentences

Total debt 7,488 7,100

Issuance costs and debt discounts ( 30 ) ( 78 )

Issuance costs ( 54 ) ( 30 )

Subtotal 7,434 7,070

Less current portion of long-term debt ( 1,213 ) —

current portion of long-term debt ( 1,750 ) ( 1,213 )

Long-term debt $ 5,684 $ 5,857

During the year ended June 30, 2023, the Company entered into a first amendment (“Amendment No.

1”) and a second amendment (“Amendment No.

2”, and together with Amendment No.

1, the “Credit Agreement Amendments”) to the Company’s Amended and Restated Loan Agreement, dated as of January 7, 2022 which governs the Term-Loan A-2 and the revolving credit facility maturing in January 2027 (as amended, the “Credit Agreement”).

The Credit Agreement Amendments, among other things, (a) modified the leverage ratio requirements, and (b) introduced a minimum liquidity covenant applicable through the Company’s quarter ending September 27, 2024 and a minimum free cash flow requirement applicable through the Company’s quarter ending December 29, 2023.

The Credit Agreement Amendments also accelerate the due date for amounts outstanding under the Credit Agreement 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 2027 Revolving Facility (as defined below) that is at least $ 1.40 billion plus the aggregate principal amount of indebtedness that matures within 12 months of such date (including the 2024 Convertible Notes and the Delayed Draw Term Loan (as such terms are defined below)).

As amended, the Company is required to comply with maintaining a maximum ratio (“Leverage Ratio”) of total funded debt to Consolidated Adjusted EBITDA (as defined in the Credit Agreement) at the end of each quarter as follows:

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

The Company is not required to make principal payments on the 2028 Convertible Notes prior to the maturity date.

The 2028 Convertible Notes are jointly and severally guaranteed by each of the Company’s wholly-owned subsidiaries that guarantees the 4.75 % senior unsecured notes due 2026 (currently, Western Digital Technologies, Inc., Sandisk Technologies, Inc.

and Sandisk Corporation).

The 2028 Convertible Notes are convertible at the option of any holder beginning on August 15, 2028 at an initial conversion price of approximately $ 52.20 per share of common stock.

Prior to that date, if the trading price of the Company’s common stock remains above 130 % of the conversion price for at least 20 trading days (whether or not consecutive) during the 30 consecutive trading-day period prior to the end of a calendar quarter, holders of the 2028 Convertible Notes would have the right to convert the 2028 Convertible Notes during the next succeeding calendar quarter.

The 2028 Convertible Notes are also convertible prior to that date upon the occurrence of certain corporate events.

Upon any conversion of the 2028 Convertible Notes, the Company will pay cash for the aggregate principal amount of the notes to be converted and pay or deliver, as the case may be, cash, shares of the Company’s common stock or a combination thereof, at the Company’s election, in respect of the remainder, if any, of its conversion obligation in excess of the aggregate principal amount of the notes being converted.

During the three months ended June 28, 2024, the conditional conversion feature above of the 2028 Convertible Notes was triggered, based on the price of the Company’s common stock, as the last reported sale price of the Company’s common stock was greater than or equal to 130 % of the then-applicable conversion price for the 2028 Convertible Notes for at least 20 trading days during the period of 30 consecutive trading days ending on June 28, 2024, the last trading day of the applicable calendar quarter.

Accordingly, the 2028 Convertible Notes are convertible through September 30, 2024, at which point the common stock price will be re-evaluated to determine if the 2028 Convertible Notes will continue to be convertible in the subsequent calendar quarter.

The Company has classified the 2028 Convertible Notes as current liabilities in the Company’s Consolidated Financial Statements as of June 28, 2024.

Net proceeds from the 2028 Convertible Notes were approximately $ 1.56 billion after deducting issuance costs of approximately $ 37 million.

Debt issuance costs are amortized to interest expense over the term of the 2028 Convertible Notes.

As of June 28, 2024, issuance costs of $ 32 million remained unamortized.

For the year ended June 28, 2024, the total interest expense was $ 37 million with coupon interest expense of $ 32 million and the amortization of debt discount and issuance costs of $ 5 million, respectively.

WESTERN DIGITAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

In connection with the issuance of the 2028 Convertible Notes, the Company also entered into privately negotiated capped call transactions with certain counterparties (the “Capped Calls”).

The Capped Calls each have a strike price of approximately $ 52.20 per share, subject to certain adjustments, which correspond to the initial conversion price of the 2028 Convertible Notes.

The Capped Calls have initial cap prices of $ 70.26 per share, subject to certain adjustments.

The Capped Calls cover, subject to anti-dilution adjustments, approximately 8 million shares of the Company’s common stock.

The Capped Calls are generally intended to reduce or offset the potential dilution to the Company’s common stock upon any conversion of the 2028 Convertible Notes with such reduction or offset, as the case may be, subject to a cap based on the cap price.

However, if the market price per share of the Company’s common stock, as measured under the terms of the Capped Calls, exceeds the cap prices of the Capped Calls, there would not be an offset for the excess.

The Capped Calls are separate transactions, and not part of the terms of the 2028 Convertible Notes.

As these transactions meet certain accounting criteria, the Capped Calls are recorded in stockholders’ equity and are not accounted for as derivatives.

The cost of the Capped Calls of $ 155 million, net of $ 37 million in deferred tax assets, was recorded as a decrease to Additional paid-in capital on the Company’s Consolidated Balance Sheets.

In February 2018, the Company issued $ 1.10 billion aggregate principal amount of convertible senior notes due February 1, 2024 (the “2024 Convertible Notes”).

The 2024 Convertible Notes bore interest at an annual rate of 1.50 % with interest payable on February 1 and August 1 of each year.

Contemporaneously with the issuance of the 2028 Convertible Notes as noted above, the Company entered into individually negotiated transactions with certain holders of the Company’s 2024 Convertible Notes to repurchase approximately $ 508 million aggregate principal amount of such notes at an immaterial discount.

On February 1, 2024, the Company settled all remaining 2024 Convertible Notes in accordance with their original terms for an aggregate cash principal payment of $ 592 million plus interest.

During the year ended June 28, 2024, the Company entered into a third amendment (“Amendment No.

3”) to the Company’s Amended and Restated Loan Agreement, dated as of January 7, 2022 which governs the Term-Loan A-2 and the revolving credit facility maturing in January 2027 (as amended, the “Credit Agreement”).

Amendment No.

3 extended the time period during which certain real property is excluded from the collateral package supporting the obligations under the Credit Agreement.

The Credit Agreement requires the Company to maintain a ratio (“Leverage Ratio”) of total funded debt to Consolidated Adjusted EBITDA (as defined in the Credit Agreement) below a maximum at the end of each quarter as follows:

Quarter ending Leverage ratio

June 28, 2024 5.25 to 1.00

September 29, 2023 N/A (1) to 1.00

December 29, 2023 N/A (1) to 1.00

March 29, 2024 6.25 to 1.00

June 28, 2024 5.25 to 1.00

September 27, 2024 5.00 to 1.00

3 unchanged sentences

Thereafter 3.25 to 1.00

(1) Leverage ratio is not required.

For the purpose of the Leverage Ratio, Consolidated Adjusted EBITDA is calculated on a trailing twelve-month basis, except that for the quarters ended June 28, 2024 and September 27, 2024, Consolidated Adjusted EBITDA shall be (i) for the quarter ending June 28, 2024, Consolidated Adjusted EBITDA for such quarter and the immediately preceding quarter multiplied by two and (ii) for the quarter ending September 27, 2024, Consolidated Adjusted EBITDA for such quarter and the two immediately preceding quarters multiplied by four-thirds.

In addition, as of June 28, 2024, the Credit Agreement requires the Company and its subsidiaries to maintain minimum liquidity (defined as the sum of cash and cash equivalents plus available unused capacity under its 2027 Revolving Facility less the aggregate principal amount of indebtedness that matures within 12 months of such date) of $ 2.00 billion at the end of each quarter through September 27, 2024.

As of June 28, 2024, the Company was in compliance with all financial covenants under the Credit Agreement.

WESTERN DIGITAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

For the purpose of the Leverage Ratio, Consolidated Adjusted EBITDA is calculated on a trailing twelve-month basis, except that for the quarters ending March 29, 2024, June 28, 2024 and September 27, 2024, Consolidated Adjusted EBITDA shall be:

(a) for the quarter ending March 29, 2024, Consolidated Adjusted EBITDA for such quarter multiplied by four, (b) for the quarter ending June 28, 2024, Consolidated Adjusted EBITDA for such quarter and the immediately preceding quarter multiplied by two and (c) for the quarter ending September 27, 2024, Consolidated Adjusted EBITDA for such quarter and the two immediately preceding quarters multiplied by four-thirds.

In addition, the Credit Agreement requires the Company and its subsidiaries to maintain minimum liquidity (defined as the sum of cash and cash equivalents plus available unused capacity under its 2027 Revolving Facility less the aggregate principal amount of indebtedness that matures within 12 months of such date, excluding indebtedness under the Delayed Draw Term Loan Agreement (as defined below)) of $ 2.00 billion at the end of each quarter through September 23, 2024, and Free Cash Flow (as defined in the Credit Agreement) of no less than $( 550 ) million as of June 30, 2023, $( 500 ) million as of September 29, 2023 and $( 500 ) million as of December 29, 2023;

provided that if Free Cash Flow is greater than the amount noted as of the applicable quarter end date, the amount by which Free Cash Flow exceeds the stated amount may be carried forward to subsequent quarters such that the minimum Free Cash Flow amount for such fiscal quarter is increased by the amount of such excess.

As of June 30, 2023, the Company was in compliance with all financial covenants under the Credit Agreement.

The Credit Agreement also requires the Company to comply with customary covenants that include, among others, limitations on the incurrence of additional debt, liens on property, acquisitions and investments, loans and guarantees, mergers, consolidations, liquidations and dissolutions, asset sales, dividends and other payments in respect of the Company’s capital stock, prepayments of certain debt, transactions with affiliates and certain modifications of organizational documents and certain debt agreements.

The Credit Agreement also requires the Company to comply with customary covenants that include, among others, limitations on the incurrence of additional debt, liens on property, acquisitions and investments, loans and guarantees, mergers, consolidations, liquidations and dissolution, asset sales, dividends and distribution, and other payments in respect of the Company’s capital stock, prepayments of certain debt, transactions with affiliates and certain modifications of organizational documents and certain debt agreements.

The Term Loan A-2 Loan bears interest, at the Company’s option, at a per annum rate equal to either (x) the Adjusted Term SOFR (as defined in the Loan Agreement) plus an applicable margin varying from 1.125 % to 2.000 % or (y) a base rate plus an applicable margin varying from 0.125 % to 1.000 %, in each case depending on the corporate family ratings of the Company from at least two of Standard & Poor’s Ratings Services (“S&P”), Moody’s Investors Service, Inc.

(“Moody’s”) and Fitch Ratings, Inc.

(“Fitch”), with an initial interest rate of Adjusted Term SOFR plus 1.375 %.

During 2022, the Company made scheduled and voluntary principal payments aggregating $ 300 million on its Term Loan A-2.

$ 150 million was applied toward scheduled amortization through the quarter ending September 29, 2023 and the remainder towards the principal due at maturity.

(“Fitch”), with an interest rate of Adjusted Term SOFR plus 1.500 %.

The annualized interest rate for Term Loan A-2 as of June 28, 2024 was 6.942 %.

As of June 30, 2023, the remaining balance of Term Loan A-2 amortizes in quarterly installments of $ 38 million per quarter beginning with the quarter ending December 29, 2023, and the remaining balance is payable at maturity on January 7, 2027.

During the year ending June 28, 2024, the Company made scheduled payments aggregating $ 113 million on its Term Loan A-2.

As of June 28, 2024, the remaining balance of Term Loan A-2 amortizes in quarterly installments of $ 38 million per quarter beginning with the quarter ending September 27, 2024, and the remaining balance is payable at maturity on January 7, 2027.

Issuance costs for Term Loan A-2 are amortized to Interest expense over its term and unamortized costs were $ 9 million as of June 28, 2024.

During the year ended June 30, 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 Facility”).

Loans under the 2027 Revolving Facility bear interest at a per annum rate, at the Company’s option, equal to either (x) the Adjusted Term SOFR Rate (as defined in the Loan Agreement) plus an applicable margin varying from 1.125 % to 2.000 % or (y) a base rate plus an applicable margin varying from 0.125 % to 1.000 %, in each case depending on the corporate family ratings of the Company from at least two of S&P, Moody’s and Fitch, with an initial rate of Adjusted Term SOFR plus 1.375 %.

During the year ended June 28, 2024, the Company drew and repaid $ 800 million principal amount under its $ 2.25 billion revolving credit facility maturing in January 2027 (the “2027 Revolving Facility”).

The Company has issued standby letters of credit of $ 33 million as of June 28, 2024, which reduced the Company’s 2027 Revolving Facility’s capacity by the same amount to $ 2.22 billion as of that date.

The Company is also required to pay an unused commitment fee on the 2027 Revolving Facility ranging from 0.120 % to 0.350 % based on the corporate family ratings of the Company from at least two of S&P, Moody’s and Fitch, with an initial unused commitment fee of 0.200 %.

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

In June 2023, the Company entered into a first amendment and a second amendment to the Delayed Draw Term Loan Agreement (as amended, the “Amended Delayed Draw Term Loan Agreement”), which together extended the term loan commitments under the Delayed Draw Term Loan Agreement until August 14, 2023, and reduced the term loan commitments from $ 875 million to $ 600 million (the “Delayed Draw Term Loan”).

As of June 30, 2023, the Company had not drawn on the Delayed Draw Term Loan.

WESTERN DIGITAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

In August 2023, the Company drew the Delayed Draw Term Loan in the amount of $ 600 million.

The principal amount of the Delayed Draw Term Loan will mature on June 28, 2024.

However, the due date will be accelerated to November 2, 2023, if, as of that date, the Company does not have cash and cash equivalents plus available unused capacity under its 2027 Revolving Facility that is at least $ 1.40 billion plus the aggregate principal amount of indebtedness that matures within 12 months (including the 2024 Convertible Notes (as defined below) and the Delayed Draw Term Loan).

The Delayed Draw Term Loan bears interest, at the Company’s option, at a per annum rate equal to either (x) the Adjusted Term SOFR Rate (as defined in the Amended Delayed Draw Term Loan Agreement) plus an applicable margin varying from 1.750 % to 2.625 % or (y) a base rate plus an applicable margin varying from 0.750 % to 1.625 %, in each case depending on the corporate family ratings of the Company from at least two of the Credit Rating Agencies (as defined in the Amended Delayed Draw Term Loan Agreement).

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

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

Under the term of the Credit Agreement, the 2027 Revolving Facility and Term Loan A-2 (the “Credit Facilities”) are unconditionally guaranteed by Western Digital Technologies, Inc., Sandisk Technologies, Inc.

and Sandisk Corporation (the “Guarantors”) and are secured on a first-priority basis (subject to permitted liens) by a lien on substantially all assets and properties of the Company and the Guarantors (the “Collateral”), subject to certain exceptions.

Furthermore, the obligations under the Company’s 2.850 % Senior Notes due 2029 and 3.100 % Senior Notes due 2032 have been secured by the Collateral on an equal and ratable basis to the obligations under the Credit Facilities for so long as and to the extent required under the terms of the Indenture, and the obligations under the Company’s 2026 Senior Unsecured Notes have been guaranteed by the Guarantors pursuant to the First Supplemental Indenture dated as of June 20, 2023 and the Second Supplemental Indenture dated as of April 26, 2024 (the “2026 Senior Notes Supplemental Indentures”) for so long as and to the extent required under the terms of the indenture governing such notes and the 2026 Senior Notes Supplemental Indentures.

In August 2023, the Company drew $ 600 million under a delayed draw term loan agreement, which was repaid in full in June 2024.

That delayed draw term loan agreement is now terminated.

Borrowings under that delayed draw term loan agreement bore interest, at a rate based on SOFR Rate plus an applicable margin.

In December 2021, the Company issued $ 500 million aggregate principal amount of 2.850 % senior notes due February 1, 2029 (the “2029 Senior Notes”) and issued $ 500 million aggregate principal amount of 3.100 % senior notes due February 1, 2032 (the “2032 Senior Notes”) pursuant to the terms of an indenture, dated as of December 10, 2021 (the “Base Indenture”) between the Company and U.S.

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The Company is not required to make principal payments on either the 2029 Senior Notes or 2032 Senior Notes prior to their maturity dates.

In February 2018, the Company issued $ 1.10 billion aggregate principal amount of convertible senior notes due February 1, 2024 (the “2024 Convertible Notes”).

The 2024 Convertible Notes bear interest at an annual rate of 1.50 % with interest payable on February 1 and August 1 of each year.

The Company is not required to make principal payments on the 2024 Convertible Notes prior to the maturity date.

Holders of the 2024 Convertible Notes may freely convert their 2024 Convertible Notes on or after November 1, 2023 until the close of business on the business day immediately preceding the maturity date at an initial conversion price of $ 121.91 per share of common stock.

Prior to November 1, 2023, holders may convert their 2024 Convertible Notes based on variations in market price of the Company’s common stock in relation to the conversion price or the trading price of the 2024 Convertible Notes or upon the occurrence of specified corporate events.

The Company is required to settle any conversion value with the principal amount of the 2024 Convertible Notes settled in cash and any excess value in cash, shares of the Company’s common stock, or a combination thereof, pursuant to the terms of an indenture, dated as of February 13, 2018 between the Company, HGST, Inc., WD Media, LLC, Western Digital (Fremont), LLC, Western Digital Technologies, Inc.

Bank National Association, as trustee (the “ Convertible Notes Trustee”), as supplemented by the first supplemental indenture dated as of June 30, 2022 between the Company and the Convertible Notes Trustee.

As of June 30, 2023, none of the conditions allowing holders of the Convertible Notes to convert had been met.

Since February 5, 2021, the Company may redeem all or part of the 2024 Convertible Notes, at its option, if the market price of the Company’s stock achieves certain levels.

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 the 2024 Convertible Notes.

As of June 30, 2023, debt discount and issuance costs of $ 2 million remained unamortized.

WESTERN DIGITAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

In February 2018, the Company issued $ 2.30 billion aggregate principal amount of senior unsecured notes due February 15, 2026 (the “2026 Senior Unsecured Notes”).

2 unchanged sentences

Issuance costs for the 2026 Senior Unsecured Notes are amortized to interest expense over the term of the 2026 Senior Unsecured Notes and as of June 28, 2024, issuance costs of $ 4 million remained unamortized.

WESTERN DIGITAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The indentures and supplemental indentures, as applicable, governing the Company’s 2029 Senior Notes, 2032 Senior Notes, 2026 Senior Unsecured Notes and the 2028 Convertible Notes each contain various restrictive covenants, which can include limitations on the Company’s and its subsidiaries’ ability to, among other things, consolidate, merge or sell all or substantially all of their assets;

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and incur, assume or guarantee additional indebtedness, and are subject to a number of limitations and exceptions.

In connection with the amendments discussed above, the 2027 Revolving Facility, Term Loan A-2, and the Delayed Draw Term Loan (the “Credit Facilities”) have been unconditionally guaranteed by Western Digital Technologies, Inc.

(the “Initial Guarantor”) and are secured on a first-priority basis (subject to permitted liens) by a lien on substantially all assets and properties of the Company and the Initial Guarantor (the “Collateral”), subject to certain exceptions.

Furthermore, the obligations under the Company’s 2.850 % Senior Notes due 2029 and 3.100 % Senior Notes due 2032 have been secured by the Collateral on an equal and ratable basis to the obligations under the Credit Facilities for so long as and to the extent required under the terms of the Indenture, and the obligations under the Company’s 2026 Senior Unsecured Notes have been guaranteed by the Initial Guarantor pursuant to the First Supplemental Indenture dated as of June 20, 2023 (the “2026 Senior Notes First Supplemental Indenture”) for so long as and to the extent required under the terms of the indenture governing such notes and the 2026 Senior Notes First Supplemental Indenture.

Future Debt Payments

As of June 30, 2023, the required annual future debt payments were as follows:

Future Debt Payments

Maturity of Debt

As of June 28, 2024, the Company is subject to required principal payment or earlier conversion at the option of the holder as follows:

Contractual Maturity (1)

(in millions)

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Total debt maturities 7,488

Issuance costs and debt discounts ( 30 )

Issuance costs

Net carrying value $ 7,434

(1) As of June 28, 2024, the holders of the 2028 Convertible Notes have the option to convert the notes through September 30, 2024.

As such, the principal portion of these notes is reflected as current in the table above.

WESTERN DIGITAL CORPORATION

2 unchanged sentences

The Company has pension and other post-retirement benefit plans in various countries.

The Company’s principal pension plans are in Japan, Thailand and the Philippines.

All pension and other post-retirement benefit plans outside of the Company’s Japan, Thailand and the Philippines defined benefit pension plans (the “Pension Plans”) are immaterial to the Consolidated Financial Statements.

The Company’s principal pension plans are in Japan, Thailand and the Philippines (the “Pension Plans”).

All other pension and other post-retirement benefit plans are immaterial to the Consolidated Financial Statements.

The expected long-term rate of return on the Pension Plans’ assets is 2.5 %.

8 unchanged sentences

Plan amendments — — 9

Actuarial loss (gain) ( 6 ) ( 31 ) ( 5 )

Actuarial gain

( 17 ) ( 6 ) ( 31 )

Benefits paid ( 7 ) ( 8 ) ( 9 )

11 unchanged sentences

The following table presents the unfunded amounts related to the Pension Plans as recognized on the Company’s Consolidated Balance Sheets:

2024 June 30,

(in millions)

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As of June 28, 2024, the accumulated other income pension balance was $ 23 million.

There were no material prior service credits for the Pension Plans recognized in Accumulated other comprehensive loss in the Consolidated Balance Sheet as of June 30, 2023.

There were no material prior service credits for the Pension Plans recognized in Accumulated other comprehensive income (loss) in the Consolidated Balance Sheet as of June 28, 2024.

Net periodic benefit costs were not material for 2024, 2023 and 2022.

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Fair Value Measurements

The following tables present the Pension Plans’ major asset categories and their associated fair values and net asset values as of June 30, 2023 and July 1, 2022:

The following tables present the Pension Plans’ major asset categories and their associated fair values and net asset values as of June 28, 2024 and June 30, 2023:

June 28, 2024

9 unchanged sentences

Total investments at fair value $ — $ 157 $ — $ 184

June 30, 2023

Level 1 Level 2 Level 3 Total

52 unchanged sentences

The primary purpose of K1 is to provide clean room space to continue the transition of existing flash-based wafer capacity to newer technology nodes.

K1 is now fully operational.

In connection with the start-up of this facility, the Company has made prepayments toward future K1 building depreciation.

As of June 30, 2023, approximately $ 220 million of such prepayments were available to be credited against future wafer charges.

Production of flash-based wafers in K1 started in 2019.

In January 2022, the Company entered into additional agreements regarding Flash Ventures’ investment in a new wafer fabrication facility in Yokkaichi, Japan, referred to as “Y7”.

The primary purpose of Y7 is to provide clean room space to continue the transition of existing flash-based wafer capacity to newer flash technology nodes.

The first phase of construction of Y7 is now complete and has commenced output.

The Company is committed to pay, among other things, the remainder of prepayments toward future Y7 building depreciation aggregating approximately $ 21 million in 2024.

The prepayments can be used as credit against future wafer charges.

As of June 30, 2023, approximately $ 355 million of prepayments were available to be credited against future wafer charges.

Production of flash-based wafers in Y7 started in 2022.

In June 2024, the Company entered into additional agreements regarding Flash Ventures’ investment in a new wafer fabrication facility in Kitakami, Japan, referred to as “K2”.

The primary purpose of K2 is to provide clean room space to continue the transition of existing flash-based wafer capacity to newer flash technology nodes.

Output from K2 is expected to begin in the first half of fiscal year 2026.

In connection with the start-up of the K1, K2 and Y7 facilities, the Company has made prepayments over time, and as of June 28, 2024, $ 523 million remain to be credited against future building depreciation charges.

As of June 28, 2024, the Company is also committed to make additional building depreciation prepayments of $ 610 million, based on Japanese yen to U.S.

dollars exchange rate of 160.44 as of such date, payable as follows:

$ 372 million in fiscal year 2025, $ 29 million in fiscal year 2026, $ 109 million in fiscal year 2027, $ 87 million in fiscal year 2028 and $ 13 million in fiscal year 2029.

As of June 28, 2024, in addition to the requirements to make building depreciation prepayments, the Company will also make payments for building depreciation of approximately $ 290 million at varying dates through fiscal year 2035.

WESTERN DIGITAL CORPORATION

6 unchanged sentences

The Company concluded, based upon its 49.9 % ownership, the voting structure and the manner in which the day-to-day operations are conducted for each entity within Flash Ventures, that the Company lacked the power to direct most of the activities that most significantly impact the economic performance of each entity within Flash Ventures.

The following table presents the notes receivable from, and equity investments in, Flash Ventures as of June 30, 2023 and July 1, 2022:

The following table presents the notes receivable from, and equity investments in, Flash Ventures as of June 28, 2024 and June 30, 2023:

2024 June 30,

(in millions)

11 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 June 30, 2023 and July 1, 2022, the Company had Accounts payable balances due to Flash Ventures of $ 292 million and $ 320 million, respectively.

As of June 28, 2024 and June 30, 2023, the Company had Accounts payable balances due to Flash Ventures of $ 313 million and $ 292 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.

7 unchanged sentences

Maximum estimable loss exposure $ 3,359

As of June 30, 2023 and July 1, 2022, the Company’s retained earnings included cumulative undistributed earnings of Flash Ventures of $ 55 million and $ 43 million, respectively.

WESTERN DIGITAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

As of June 28, 2024 and June 30, 2023, the Company’s retained earnings included cumulative undistributed earnings of Flash Ventures of $ 158 million and $ 219 million, respectively.

The Company is obligated to pay for variable costs incurred in producing its share of Flash Ventures’ flash-based memory wafer supply, based on its three-month forecast, which generally equals 50 % of Flash Ventures’ output.

In addition, the Company is obligated to pay for half of Flash Ventures’ fixed costs regardless of the output the Company chooses to purchase.

The Company is not able to estimate its total wafer purchase commitment obligation beyond its rolling three-month purchase commitment because the price is determined by reference to the future cost of producing the semiconductor wafers.

In addition, the Company is committed to fund 49.9 % to 50.0 % of each Flash Ventures entity’s capital investments to the extent that Flash Ventures entity’s operating cash flow is insufficient to fund these investments.

In addition, the Company is obligated to pay for half of Flash Ventures’ fixed costs regardless of the output the Company chooses to purchase.

The Company is also committed to fund 49.9 % to 50.0 % of each Flash Ventures entity’s capital investments to the extent that Flash Ventures entity’s operating cash flow is insufficient to fund these investments.

Flash Ventures has historically operated near 100 % of its manufacturing capacity.

During 2023, as a result of flash business conditions, the Company temporarily reduced its utilization of its share of Flash Ventures’ manufacturing capacity to an abnormally low level to more closely align the Company’s flash-based wafer supply with projected demand.

In 2023, the Company incurred costs of $ 286 million associated with the reduction in utilization related to Flash Ventures, which was recorded as a charge to Cost of revenue.

In February 2022, contamination of certain material used in manufacturing processes occurred at both the Yokkaichi and Kitakami, Japan fabrication facilities, resulting in damage to inventory units in production, a temporary disruption to production operations and a reduction in the Company’s flash wafer availability.

During 2022, the Company incurred charges of $ 207 million related to this contamination incident that were recorded in Cost of revenue, which primarily consisted of scrapped inventory and rework costs, decontamination and other costs needed to restore the facilities to normal capacity, and under absorption of overhead costs.

During 2024 and 2023, as a result of flash business conditions, the Company temporarily reduced its utilization of its share of Flash Ventures’ manufacturing capacity to an abnormally low level to more closely align the Company’s flash-based wafer supply with projected demand.

In 2024 and 2023, the Company incurred costs of $ 249 million and $ 286 million, respectively, associated with the reduction in utilization related to Flash Ventures, which was recorded as a charge to Cost of revenue.

In February 2022, contamination of certain material used in manufacturing processes occurred at Flash Ventures’ fabrication facilities in both Yokkaichi and Kitakami, Japan which resulted in damage to inventory units in production, a temporary disruption to production operations and a reduction in the Company’s flash wafer availability.

During 2022, the Company incurred charges of $ 207 million related to this contamination incident that were recorded in Cost of revenue and primarily consisted of scrapped inventory and rework costs, decontamination and other costs needed to restore the facilities to normal capacity, as well as charges for under absorption of overhead costs.

During 2024, the Company received a recovery of $ 36 million related to this incident from its insurance carriers, which was recorded in Cost of revenue.

The Company continues to pursue recovery of its remaining losses associated with this event;

however, the total amount of recovery cannot be estimated at this time.

Inventory Purchase Commitments with Flash Ventures.

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Revenue on products distributed by the Unis Venture is recognized upon sell through to third-party customers.

For the years ended June 30, 2023, July 1, 2022 and July 2, 2021, the Company recognized approximately 3 %, 4 %, and 3 % of its consolidated revenue on products distributed by the Unis Venture, respectively.

The outstanding accounts receivable due from the Unis Venture were 8 % and 5 % of Accounts receivable, net as of June 30, 2023 and July 1, 2022, respectively.

For the years ended June 28, 2024, June 30, 2023 and July 1, 2022, the Company recognized approximately 3 %, 3 % and 4 % of its consolidated revenue on products distributed by the Unis Venture, respectively.

The outstanding accounts receivable due from the Unis Venture were 7 % and 8 % of Accounts receivable, net as of June 28, 2024 and June 30, 2023, 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 June 30, 2023:

Lease Amounts

Minimum lease payments by year:

The following table presents right-of-use lease assets and lease liabilities included in the Company’s Consolidated Balance Sheets:

2024 June 30,

(in millions)

Thereafter 114

Total future minimum lease payments 334

Imputed Interest 50

Present value of lease liabilities 284

Current portion (included in Accrued expenses )

Long-term operating lease liabilities (included in Other liabilities )

Operating lease right-of-use assets (included in Other non-current assets )

Weighted average remaining lease term in years 7.6

Weighted average discount rate 4.2 %

The following table summarizes supplemental disclosures of operating cost and cash flow information related to operating leases for the year ended June 30, 2023:

Operating lease liabilities:

Current portion of long-term operating lease liabilities (included in Accrued expenses )

Long-term operating lease liabilities (included in Other liabilities )

Total operating lease liabilities

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

2024 June 30,

(in millions)

2 unchanged sentences

Operating lease assets obtained in exchange for operating lease liabilities 178 17 137

Cost of operating leases was as follows:

2023 2022 2021

(in millions)

Cost of operating leases $ 57 $ 58 $ 50

Decrease in operating lease liabilities and right-of-use assets due to lease remeasurement 71 — —

The weighted average remaining lease term and discount rate for the Company’s operating leases were as follows:

Weighted average remaining lease term in years

Weighted average discount rate

WESTERN DIGITAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

As of June 28, 2024, minimum lease payments were as follows:

Lease Amounts

(in millions)

Thereafter 254

Total future minimum lease payments 499

imputed interest

Present value of lease liabilities $ 349

Sale-Leaseback

During the year ended June 28, 2024, the Company completed a sale and leaseback of its facility in Milpitas, California.

The Company received net proceeds of $ 191 million in cash and recorded a gain of $ 85 million on the sale.

In connection with the sale, the Company agreed to lease back the facility at an annual lease rate of $ 16 million for the first year, increasing by 3 % per year thereafter through January 1, 2039.

The lease includes three 5-year renewal options and one 4-year renewal option for the ability to extend through December 2057.

The supplemental balance sheet information and supplemental disclosures of operating cost and cash flow information related to the lease are included in the tables above.

Purchase Agreements and Other Commitments

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The Plan covers substantially all domestic employees, subject to certain eligibility requirements.

Eligible employees receive employer matching contributions immediately upon hire unless the individual is covered by a collective bargaining agreement, provides services as a consultant, intern, independent contractor, leased or temporary employee, or otherwise is not treated as a common-law employee.

Through December 31, 2021, eligible employees were generally able to contribute up to 75 % of their eligible compensation on a combined pre-tax and Roth basis, 10 % on a combined pre-tax catch-up and Roth catch-up basis, and 10 % on a non-Roth after-tax basis subject to Internal Revenue Service (“IRS”) limitations.

Effective January 1, 2022, eligible employees are generally able to contribute up to 85 % of their eligible compensation on a combined pre-tax and Roth basis regardless of age, and 10 % of their eligible compensation on an after-tax basis by payroll withholding.

Eligible employees receive employer matching contributions immediately upon hire.

Eligible employees do not include individuals that are covered by a collective bargaining agreement, provide services as a consultant, interns, independent contractors, leased or temporary employees, or who otherwise are not treated as common-law employees.

Eligible employees are able to contribute up to 85 % of their eligible compensation on a combined pre-tax and Roth basis regardless of age, and 10 % of their eligible compensation on an after-tax basis, all subject to Internal Revenue Service limitations.

The Company may make a basic matching contribution equal to 50 % of each eligible participant’s contribution that does not exceed 6 % of the eligible participant’s annual compensation in the year of contribution.

1 unchanged sentence

Contributions, including the Company’s matching contribution to the Plan, are recorded as soon as administratively possible after the Company makes payroll deductions from Plan participants.

Effective February 18, 2023, the Company announced its decision to suspend matching contributions.

The Company may resume matching contributions at any time at its discretion.

Effective February 18, 2023, the Company announced its decision to suspend its previous practice of matching contributions.

The Company later resumed matching contributions effective January 1, 2024.

For 2024, 2023 and 2022, the Company made Plan contributions of $ 13 million, $ 22 million and $ 36 million, respectively.

3 unchanged sentences

2021 Long-Term Incentive Plan

In November 2021, stockholders approved the Western Digital Corporation 2021 Long-Term Incentive Plan (the “2021 Plan”).

In November 2021, stockholders approved the Western Digital Corporation 2021 Long-Term Incentive Plan, (as amended and restated, the “2021 Plan”).

Upon the effective date of the 2021 Plan, no new awards were granted under the Western Digital Corporation Amended and Restated 2017 Performance Incentive Plan (the “2017 Plan”).

The 2021 Plan was amended in 2023 to increase the number of shares available for issuance under the plan by 2.8 million shares of common stock.

The aggregate maximum number of shares of the Company’s common stock that may be issued pursuant to awards from the 2021 Plan may not exceed (a) 12.0 million shares of common stock plus (b) any shares of common stock subject to outstanding awards under a prior plan as of the effective date that on or after the effective date are forfeited, terminated, expire, lapse without being exercised (to the extent applicable), or are otherwise reacquired by the Company.

Any shares subject to awards under the 2017 Plan that are cancelled, forfeited, or otherwise terminate without having vested or been exercised, as applicable, will become available for award grants under the 2021 Plan.

The types of awards that may be granted under the 2021 Plan include stock options, stock appreciation rights (“SARs”), RSUs, PSUs, restricted stock and other forms of awards granted or denominated in the Company’s common stock or units of the Company’s common stock, as well as cash awards.

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PSUs are granted to certain employees and vest only after the achievement of pre-determined performance conditions or market conditions and completion of requisite service periods.

Once the performance conditions or market conditions are met, vesting of PSUs is generally subject to continued service by the employee.

As of June 30, 2023, there were outstanding awards that may vest under the 2017 Plan as well as outstanding awards of stock options under the SanDisk Corporation 2013 Incentive Plan, a plan assumed in connection with the acquisition of SanDisk Corporation, which may affect dilution.

Once the performance conditions or market conditions are met, the employee’s vesting of PSUs is generally subject to continued service.

Outstanding RSU and PSU awards have dividend equivalent rights which entitle holders of such outstanding awards to the same dividend value per share as holders of common stock.

1 unchanged sentence

Dividend equivalent rights are accumulated and paid in additional shares when the underlying shares vest.

As of June 30, 2023, the maximum number of shares of the Company’s common stock that was authorized for award grants under the 2021 Plan was 17.0 million shares, which includes shares of common stock subject to outstanding awards under certain prior plans as of the effective date of the 2021 Plan that have been forfeited, terminated, expired, lapsed without being exercised or were otherwise reacquired by the Company.

Shares issued in respect of all awards granted under the 2021 Plan count against the 2021 Plan’s share limit on a one -for-one basis, whereas under the 2017 Plan, shares issued in respect of awards other than stock options and SARs granted count against the 2017 Plan’s share limit as 1.72 shares for every one share issued in connection with such award.

As of June 28, 2024, the maximum number of shares of the Company’s common stock that was authorized for award grants under the 2021 Plan was 21.3 million shares.

The 2021 Plan will terminate on November 22, 2031, unless terminated earlier by the Company’s Board of Directors.

5 unchanged sentences

During 2024, 2023 and 2022, the Company issued 2.4 million, 2.7 million and 2.1 million shares, respectively, under the ESPP for aggregate purchase amounts of $ 81 million, $ 92 million and $ 113 million, respectively.

To the extent available, the Company may issue shares out of treasury stock upon the vesting of awards, the exercise of employee stock options and the purchase of shares pursuant to the ESPP.

WESTERN DIGITAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

To the extent available, the Company may issue shares out of treasury stock upon the vesting of awards, the exercise of employee stock options and the purchase of shares pursuant to the ESPP.

Stock-based Compensation Expense

32 unchanged sentences

Options outstanding at July 1, 2022 0.9 66.76

Exercised ( 0.2 ) 43.80 $ 3

Canceled or expired ( 0.6 ) 80.72

Options outstanding at July 1, 2022 0.9 66.76

Options outstanding at June 30, 2023 0.3 44.95 0.10

Canceled or expired ( 0.3 ) 44.95

1 unchanged sentence

No options were granted in 2024, 2023 or 2022.

All outstanding options were exercisable at June 30, 2023.

As of June 28, 2024, there were no remaining outstanding options.

RSUs and PSUs

10 unchanged sentences

Forfeited ( 1.6 ) 54.56

RSUs and PSUs outstanding at July 1, 2022 15.4 52.89

RSUs and PSUs outstanding at June 30, 2023 13.8 46.56

Granted 6.6 42.29

22 unchanged sentences

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.

During the year ended June 28, 2024, 665,000 of the Preferred Shares were converted into approximately 15 million shares of common stock in accordance with the original term of the agreement.

As of June 28, 2024 and June 30, 2023, 235,000 and 900,000 of the Preferred Shares were outstanding, respectively.

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 June 30, 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 $ 24 million.

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

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

No dividends have been declared or paid since the issuance of the Preferred Shares.

As of June 28, 2024 and June 30, 2023, unpaid and undeclared cumulative dividends payable with respect to the Preferred Shares were $ 22 million and $ 24 million, respectively.

During the year ended June 28, 2024, $ 56 million in unpaid and undeclared cumulative dividends payable were included in the aggregate liquidation preference of the 665,000 of the Preferred Shares that were converted into approximately 15 million shares of common stock, as noted above.

WESTERN DIGITAL CORPORATION

1 unchanged sentence

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

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

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

As of June 30, 2023, the Preferred Shares outstanding would have been convertible, if otherwise permitted, into 19 million shares of common stock.

As of June 28, 2024 and June 30, 2023, the Preferred Shares outstanding would have been convertible, if otherwise permitted, into 5 million and 19 million shares of common stock, respectively.

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 Preferred Shares has been classified as mezzanine equity in the Company’s Consolidated Balance Sheets because, in the event of certain fundamental change in the business that are not solely within the control of the Company, the Preferred Shares would become redeemable at the option of the holders.

The Company did not adjust the carrying values of the Preferred Shares to the current redemption value of such shares since a liquidation event was not probable at any of the balance sheet dates.

2 unchanged sentences

Liquidation preference

In the event of any voluntary or involuntary liquidation, holders of the Preferred Shares will be senior to the holders of the Company’s common stock and the liquidation preference is the greater of (i) the sum of an amount in cash equal to 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 June 30, 2023, the total aggregate liquidation preference was $ 924 million.

Stock Repurchase Program

The Company’s Board of Directors previously authorized a stock repurchase program for the repurchase of up to $ 5.00 billion of the Company’s common stock, which expired on July 25, 2023.

For the year ended June 30, 2023, and through the expiration date of the program, the Company did no t make any stock repurchases.

WESTERN DIGITAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

In the event of any voluntary or involuntary liquidation, holders of the Preferred Shares will be senior to the holders of the Company’s common stock and the liquidation preference is the greater of (i) the sum of an amount in cash equal to 110 % of the Accumulated Stated Value plus accrued and unpaid dividends and (ii) the payment that the holders of the Preferred Shares would have received had all the Preferred Shares been converted into common stock immediately prior to such liquidation, before any distributions are made to common shareholders and all other classes of junior capital stock of the Company.

As of June 28, 2024 and June 30, 2023, the total aggregate liquidation preference was $ 257 million and $ 924 million, respectively.

Stock Reserved for Issuance

2 unchanged sentences

(in millions)

Convertible notes 40

Outstanding awards and shares available for award grants 22

Convertible preferred stock

WESTERN DIGITAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Dividends to Shareholders

31 unchanged sentences

The tax measures include, among other things, a corporate alternative minimum tax (“CAMT”) of 15% on corporations with three-year average annual adjusted financial statement income (“AFSI”) exceeding $1.00 billion.

The corporate alternative minimum tax will be effective for the Company beginning with 2024 and the Company is currently evaluating the potential effects of these legislative changes.

The corporate alternative minimum tax is effective for the Company beginning with 2024.

The Company is not subject to the CAMT of 15% for fiscal year 2024 as its average annual AFSI did not exceed $1.00 billion for the preceding three-year period.

WESTERN DIGITAL CORPORATION

2 unchanged sentences

Temporary differences and carryforwards, which give rise to a significant portion of deferred tax assets and liabilities were as follows:

2024 June 30,

(in millions)

5 unchanged sentences

Long-lived assets 75 72

Other 171 178

Interest and hedging costs not currently deductible 254 76

Total deferred tax assets 1,273 1,037

7 unchanged sentences

Deferred tax assets, net $ 326 $ 117

The increase in the deferred tax assets is attributable primarily to the IRS interest payments made in connection with the notice of deficiency received for years 2008 through 2011 that are not currently deductible under § 163(j) of the Internal Revenue Code of 1986, as amended, and the unamortized original issue discount (“OID”) related to the premium paid to purchase Capped Calls in connection with the offering of the 2028 Convertible Notes.

As described in Note 7, Debt , the deferred tax asset related to the unamortized OID was recorded as a decrease to Additional paid-in capital.

The assessment of valuation allowances against deferred tax assets requires estimations and significant judgment.

The Company continues to assess and adjust its valuation allowance based on operating results and market conditions.

After weighing both the positive and negative evidence available, including, but not limited to, earnings history, projected future outcomes, industry and market trends and the nature of each of the deferred tax assets, the Company determined that it is able to realize most of its deferred tax assets with the exception of certain loss and credit carryforwards.

After weighing both the positive and negative evidence available, including, but not limited to, earnings history, projected future outcomes, industry and market trends and the nature of each of the deferred tax assets, the Company determined that it is able to realize its deferred tax assets except for certain loss and credit carryforwards.

The Company is permanently reinvested with respect to certain foreign earnings.

18 unchanged sentences

permanent differences 1 — —

IRS Tentative Settlement 1 15 —

IRS Settlement ( 1 ) 1 15

Change in valuation allowance ( 3 ) 1 1

4 unchanged sentences

return to provision — ( 2 ) —

Tax reserves 1 ( 1 ) 2

Other 1 ( 3 ) —

3 unchanged sentences

Certain tax holidays and tax incentive programs may be extended if specific conditions are met.

On November 1, 2023, one of the Company’s tax holidays in Malaysia expired.

The Company has applied for an extension and anticipates this extension, if granted, will be applied retroactively and begin on November 2, 2023.

Because the exact terms of the extension are not currently known, the Company is applying the Malaysia corporate statutory tax rate on the expired tax holiday income.

If a retroactive extension is granted, the Company will make an adjustment to its effective tax rate in that period.

The net impact of these tax holidays and tax incentives was an increase to the Company’s net earnings by $ 209 million, or $ 0.64 per diluted share, $ 140 million, or $ 0.44 per diluted share, and $ 566 million, or $ 1.79 per diluted share, in 2024, 2023 and 2022, respectively.

7 unchanged sentences

State tax credits 746 No expiration

WESTERN DIGITAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The federal and state NOLs and credits relating to various acquisitions are subject to limitations under Sections 382 and 383 of the Internal Revenue Code.

1 unchanged sentence

The Company expects the total amount of federal and state credits ultimately realized will be reduced as a result of these provisions by $ 27 million and $ 2 million, respectively.

WESTERN DIGITAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

As of June 28, 2024, the Company had varying amounts of foreign NOL carryforwards that do not expire or, if not used, expire in various years, depending on the country.

2 unchanged sentences

(in millions)

Malaysia $ 106 2025 to 2028

Belgium $ 114 No expiration

Malaysia 108 2028 to 2030

Japan 61 2025 to 2026

Spain 46 No expiration

Netherlands 12 2025 to 2026

Netherlands 12 2026

Uncertain Tax Positions

10 unchanged sentences

Unrecognized tax benefit, ending balance $ 721 $ 1,021 $ 1,047

As of June 30, 2023, July 1, 2022 and July 2, 2021, the portion of the gross unrecognized tax benefits, if recognized, that would affect the effective tax rate is $ 855 million, $ 903 million, and $ 612 million, respectively.

As of June 28, 2024, June 30, 2023 and July 1, 2022, the portion of the gross unrecognized tax benefits, if recognized, that would affect the effective tax rate is $ 555 million, $ 855 million and $ 903 million, respectively.

Interest and penalties related to unrecognized tax benefits are recognized in liabilities recorded for uncertain tax positions and are recorded in the provision for income taxes.

Accrued interest and penalties included in the Company’s liability related to unrecognized tax benefits as of June 30, 2023, July 1, 2022 and July 2, 2021 was $ 289 million, $ 254 million and $ 138 million, respectively.

As of June 30, 2023, July 1, 2022 and July 2, 2021, the Company’s payables related to unrecognized tax benefits, including accrued interest and penalties, were $ 1.14 billion, $ 1.16 billion, and $ 750 million, respectively.

The Company believes it is reasonably likely that payments of approximately $ 720 million to $ 760 million may be made within the next twelve months and have classified that portion of these unrecognized tax benefits, including interest, in Income taxes payable on the Consolidated Balance Sheets as of June 30, 2023.

The remaining payables related to unrecognized tax benefits are included in Other liabilities on the Consolidated Balance Sheets as of June 30, 2023, July 1, 2022 and July 2, 2021.

Accrued interest and penalties included in the Company’s liability related to unrecognized tax benefits as of June 28, 2024, June 30, 2023 and July 1, 2022 was $ 181 million, $ 289 million and $ 254 million, respectively.

As of June 28, 2024, June 30, 2023 and July 1, 2022, the Company’s payables related to unrecognized tax benefits, including accrued interest and penalties, were $ 736 million, $ 1.14 billion and $ 1.16 billion, respectively.

Of these amounts, the Company believes it is reasonably likely that payments of $ 185 million may be made within the next twelve months and have classified that portion of these unrecognized tax benefits, including interest, in Income taxes payable on the Consolidated Balance Sheets as of June 28, 2024.

The remaining payables related to unrecognized tax benefits are included in Other liabilities on the Consolidated Balance Sheets as of June 28, 2024, June 30, 2023 and July 1, 2022.

WESTERN DIGITAL CORPORATION

16 unchanged sentences

United Kingdom (fiscal) 2022-2023

The Company reached a final agreement with the IRS and received notices of deficiency with respect to years 2008 through 2012.

In addition, the Company has tentatively reached a basis for resolving the notices of proposed adjustments with respect to years 2013 through 2015.

As of June 30, 2023, the Company has recognized a liability for tax and interest of $ 753 million related to all years from 2008 through 2015.

The Company expects to pay $ 523 million in the first quarter of 2024 with respect to years 2008 and 2012 and expect to pay any remaining balance with respect to this matter within the next twelve months.

In connection with settlements for years 2008 through 2015, the Company expects to realize reductions to its mandatory deemed repatriation tax obligations and tax savings from interest deductions in future years aggregating to approximately $ 160 million to $ 180 million.

The Company had previously reached a final agreement with the IRS regarding notices of deficiency with respect to years 2008 through 2012 and in February 2024, reached a final agreement for resolving the notices of proposed adjustments with respect to years 2013 through 2015.

During 2024, the Company made payments of $ 363 million for tax and $ 161 million for interest with respect to years 2008 through 2012 and recognized adjustments to align with IRS calculations, resulting in a remaining liability of $ 185 million related to all years from 2008 through 2015.

The Company expects to pay any remaining balance with respect to this matter within the next twelve months.

In connection with settlements for the years 2008 through 2015, the Company expects to realize reductions to its mandatory deemed repatriation tax obligations and tax savings from interest deductions in future years aggregating to $ 165 million.

Of this amount, $ 34 million of the interest savings from the interest paid with respect to years 2008 through 2012 is classified as a deferred tax asset due to interest expense limitation rules.

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

1 unchanged sentence

If any issues addressed in the Company’s tax examinations are resolved in a manner not consistent with management’s expectations, the Company could be required to adjust its provision for income taxes in the period such resolution occurs.

As of June 30, 2023, with the exception of the tentative settlement with the IRS, it was not possible to estimate the amount of change, if any, in the unrecognized tax benefits that is reasonably possible within the next twelve months.

As of June 28, 2024, with the exception of the final agreement with the IRS, it was not possible to estimate the amount of change, if any, in the unrecognized tax benefits that is reasonably possible within the next twelve months.

Any significant change in the amount of the Company’s liability for unrecognized tax benefits would most likely result from additional information relating to the examination of the Company’s tax returns.

12 unchanged sentences

Diluted 326 318 316

Income (loss) per common share:

Net income (loss) per common share:

Basic $ ( 2.61 ) $ ( 5.37 ) $ 4.96

3 unchanged sentences

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

The “if-converted” method is used to determine the dilutive impact for the shares issuable in connection with the 1.50 % convertible notes due 2024 and the convertible preferred stock, and the treasury stock method is used to determine the dilutive impact of outstanding employee stock options, RSUs, PSUs, and rights to purchase shares of common stock under the ESPP.

For 2023, the Company recorded a net loss and all shares subject to outstanding equity awards were excluded from the calculation of diluted shares for the period because their impact would have been anti-dilutive.

For 2022 and 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 those periods.

The "if-converted" method is used to determine the dilutive impact for the convertible notes and the Preferred Shares.

The treasury stock method is used to determine the dilutive impact of unvested equity awards.

For 2024 and 2023, the Company recorded a net loss and all shares subject to outstanding equity awards were excluded from the calculation of diluted shares for the period because their impact would have been anti-dilutive.

For 2022, the Company excluded common shares subject to certain outstanding equity awards from the calculation of diluted shares because their impact would have been anti-dilutive based on the Company’s average stock price during those periods.

WESTERN DIGITAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Employee Termination, Asset Impairment, and Other Charges

Employee Termination, Asset Impairment, and Other

Business Realignment

1 unchanged sentence

The Company may also record credits related to gains upon sale of property in connection with these activities.

The Company recognized gains related to the disposition of assets associated with these activities of $ 8 million, $ 7 million and $ 75 million for 2023, 2022 and 2021, respectively.

In this regard, in 2024, the Company reassessed existing capacity development plans and made a decision to cancel certain projects, including projects to expand capacity in its Penang, Malaysia facility, resulting in the impairment of existing construction in progress, other assets and the recognition of a liability for certain contract termination costs.

The Company has also taken actions to reduce the amount of capital invested in facilities, including the sale-leaseback of its facility in Milpitas, California in 2024.

The Company recorded the following charges related to these actions:

2 unchanged sentences

Employee termination benefits $ 44 $ 176 $ 50

Asset impairments and other charges (gains) 17 ( 7 ) ( 75 )

Total employee termination, asset impairment, and other charges $ 193 $ 43 $ ( 47 )

Asset impairments 146 20 —

Other charges (gains):

Gain on disposition of assets and other charges — ( 8 ) ( 7 )

Contract termination and other 34 5 —

Gain on sale-leaseback of facility ( 85 ) — —

Total employee termination, asset impairment, and other

$ 139 $ 193 $ 43

The following table presents an analysis of the components of these activities against the reserve during the year ended June 28, 2024:

Employee Termination Benefits

Employee Termination Benefits Contract Termination and Other

(in millions)

Accrual balance at July 1, 2022 $ 17

Accrual balance at June 30, 2023 $ 31 $ 5 $ 36

Charges 44 34 78

Cash payments ( 75 ) ( 11 ) ( 86 )

2 unchanged sentences

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Supplier Finance Program

The Company maintains a voluntary supplier finance program that provides participating suppliers with enhanced receivable options.

The program allows participating suppliers of the Company, at their sole discretion and cost, to sell their receivables due from the Company to a third-party financial institution and receive early payment at terms negotiated between the supplier and the third-party financial institution.

The Company’s vendor payment terms and amounts are not impacted by a supplier’s decision to participate in this program.

The Company’s current payment terms with its suppliers under these programs generally range from 60 to 90 days and payment terms that the Company negotiates with its suppliers are not impacted by whether a supplier participates in the program.

The Company does not provide any guarantees to any third parties and no assets are pledged in connection with the arrangements.

The Company’s outstanding payment obligations to vendors eligible to participate under its supplier finance program were $ 37 million and $ 38 million as of June 28, 2024 and June 30, 2023, respectively, and are included within Accounts payable on the Company’s Consolidated Balance Sheets.

WESTERN DIGITAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Legal Proceedings

For disclosures regarding statutory notices of deficiency issued by the IRS on June 28, 2018 and December 10, 2018, and the status of resolution with respect to certain matters, see Note 13, Income Tax Expense.

Intellectual Property Litigation

Unless otherwise stated, for each of the matters described below, the Company has either recorded an accrual for losses that are probable and reasonably estimable or has determined that, while a loss is reasonably possible (including potential losses in excess of the amounts accrued by the Company), a reasonable estimate of the amount of loss or range of possible losses with respect to the claim or in excess of amounts already accrued by the Company cannot be made.

The ability to predict the ultimate outcome of such matters involves judgments, estimates and inherent uncertainties.

The actual outcome of such matters could differ materially from management’s estimates.

On August 26, 2022, MR Technologies, GmbH (“MRT”) filed an action in the United States District Court for the Central District of California (the “Central District Court”) against the Company’s wholly-owned subsidiary, Western Digital Technologies, Inc., alleging infringement of U.S.

9,978,413, 9,928,864, 11,133,031 and 11,138,997, each of which relate to hard disk drive media.

As the case progressed, MRT dropped its claims with respect to U.S Patent Nos.

9,978,413 and 11,133,031, and the case proceeded to trial on the remaining two patents (together, the “MRT Patents”).

The trial commenced on July 16, 2024 and concluded on July 26, 2024, and the jury awarded MRT a lump sum of $ 262 million for use of the MRT Patents in the past and through their remaining lives.

MRT also requested and was awarded prejudgment interest totaling $ 117 million in a judgment entered on August 15, 2024.

We anticipate that MRT will also request costs, attorney’s fees and post-judgment interest.

The Company has recognized an aggregate liability for this matter of $ 384 million within Accrued expenses on the Company’s Consolidated Balance Sheets as of June 28, 2024.

Of this amount, $ 291 million was recognized as Litigation matter under Operating expenses on the Company’s Consolidated Statements of Operations for the year ended June 28, 2024 and $ 93 million recognized within Other non-current assets on the Company’s Consolidated Balance Sheets as of June 28, 2024, to be amortized over the remaining lives of the MRT Patents.

The Company believes it has meritorious defenses, plans to file post-trial motions, and if not successful, plans to appeal the judgment and continue to defend itself vigorously.

On September 28, 2016, SPEX Technologies, Inc.

(“SPEX”) filed a lawsuit in the Central District Court against the Company and two of the Company’s current or former wholly-owned subsidiaries, Western Digital Technologies, Inc.

and HGST Inc., alleging infringement of U.S.

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.

6,003,135 and narrowed its case to three claims under U.S.

6,088,802 asserted against certain HDD products that may include certain encryption capabilities.

Trial is scheduled to commence on October 8, 2024, and the Company intends to defend itself vigorously.

Other Matters

1 unchanged sentence

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 the Company’s expectations.

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

WESTERN DIGITAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Revision of Previously Issued Financial Statements

As described in Note 1, in connection with the preparation of its Condensed Consolidated Financial Statements as of and for the three and six months ended December 29, 2023, the Company identified certain errors related to the Company’s reporting and recording of its interests in its equity method investments in Flash Ventures.

These errors related to unadjusted differences between the Flash Ventures’ application of Japanese generally accepted accounting principles to certain lease-related transactions compared to the applicable U.S.

generally accepted accounting principles.

The following tables provide a summary of the revisions made to the Company’s Condensed Consolidated Financial Statements for the periods presented.

Year Ended July 1, 2022

Condensed Consolidated Statement of Operations

As Previously Reported

(in millions, except per share amounts)

Operating income

$ 2,391 $ — $ 2,391

Interest and other income:

Interest income 6 — 6

Interest expense ( 304 ) — ( 304 )

Other income, net 30 48 78

Total interest and other income, net

( 268 ) 48 ( 220 )

Income before taxes

2,123 48 2,171

Income tax expense 623 2 625

$ 1,500 $ 46 $ 1,546

Net income per common share:

Basic $ 4.81 $ 0.15 $ 4.96

Diluted $ 4.75 $ 0.14 $ 4.89

Year Ended June 30, 2023

Condensed Consolidated Statement of Operations

As Previously Reported

(in millions, except per share amounts)

Operating loss $ ( 1,285 ) $ — $ ( 1,285 )

Interest and other income:

Interest income 24 — 24

Interest expense ( 312 ) — ( 312 )

Other income, net 13 10 23

Total interest and other income, net

( 275 ) 10 ( 265 )

Loss before taxes ( 1,560 ) 10 ( 1,550 )

Income tax expense 146 ( 12 ) 134

Net loss ( 1,706 ) 22 ( 1,684 )

cumulative dividends allocated to preferred shareholders 24 — 24

Net loss attributable to common shareholders $ ( 1,730 ) $ 22 $ ( 1,708 )

Net loss per common share:

Basic $ ( 5.44 ) $ 0.07 $ ( 5.37 )

Diluted $ ( 5.44 ) $ 0.07 $ ( 5.37 )

WESTERN DIGITAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Year Ended July 1, 2022

Condensed Consolidated Statement of Comprehensive Income

As Previously Reported

Adjustment As Revised

(in millions)

$ 1,500 $ 46 $ 1,546

Other comprehensive loss, before tax:

Actuarial pension gain

Foreign currency translation adjustment ( 239 ) ( 23 ) ( 262 )

Net unrealized loss on derivative contracts

( 180 ) — ( 180 )

Total other comprehensive loss, before tax

( 393 ) ( 23 ) ( 416 )

Income tax benefit related to items of other comprehensive loss, before tax

Other comprehensive loss, net of tax

( 357 ) ( 23 ) ( 380 )

Total comprehensive income

$ 1,143 $ 23 $ 1,166

Year Ended June 30, 2023

Condensed Consolidated Statement of Comprehensive Loss

As Previously Reported

Adjustment As Revised

(in millions)

Net loss $ ( 1,706 ) $ 22 $ ( 1,684 )

Other comprehensive income, before tax:

Actuarial pension gain

Foreign currency translation adjustment ( 81 ) ( 7 ) ( 88 )

Net unrealized gain on derivative contracts

Total other comprehensive income, before tax 69 ( 7 ) 62

Income tax expense related to items of other comprehensive income, before tax ( 31 ) — ( 31 )

Other comprehensive income, net of tax 38 ( 7 ) 31

Total comprehensive loss $ ( 1,668 ) $ 15 $ ( 1,653 )

Year Ended July 1, 2022

Condensed Consolidated Statement of Cash Flows

As Previously Reported

Adjustment As Revised

(in millions)

Cash flows from operating activities

$ 1,500 $ 46 $ 1,546

Deferred income taxes 114 2 116

Other non-cash operating activities, net 67 ( 48 ) 19

Other assets and liabilities, net ( 349 ) — ( 349 )

Net cash provided by operating activities

1,880 — 1,880

WESTERN DIGITAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Year Ended June 30, 2023

Condensed Consolidated Statement of Cash Flows

As Previously Reported

Adjustment As Revised

(in millions)

Cash flows from operating activities

Net loss $ ( 1,706 ) $ 22 $ ( 1,684 )

Deferred income taxes ( 34 ) ( 14 ) ( 48 )

Other non-cash operating activities, net 71 ( 10 ) 61

Other assets and liabilities, net ( 185 ) 2 ( 183 )

Net cash used in operating activities

( 408 ) — ( 408 )

Condensed Consolidated Statement of Shareholders’ Equity

As Previously Reported

Adjustment As Revised

(in millions)

Retained earnings as of:

$ 7,539 $ 81 $ 7,620

Accumulated other comprehensive loss as of:

( 197 ) ( 2 ) ( 199 )

Foreign currency translation adjustment for the year ended June 30, 2023

( 80 ) ( 7 ) ( 87 )

Changes in and Disagreements With Accountants on Accounting and Financial Disclosure

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-K

Item 8. Financial Statements and Supplementary Data