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Item 7. Management’s Discussion and Analysis

2025-08-14 compared with 2024-08-20 · 248 added, 233 removed, 176 unchanged (73% of the section changed)

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The following discussion and analysis contains forward-looking statements within the meaning of the federal securities laws and should be read in conjunction with the disclosures we make concerning risks and other factors that may affect our business and operating results.

You should read this information in conjunction with the Consolidated Financial Statements and the notes thereto included in Part II, Item 8 of this Annual Report on Form 10-K.

See also “Forward-Looking Statements” immediately prior to Part I, Item 1 of this Annual Report on Form 10-K.

We are a leading developer, manufacturer, and provider of data storage devices based on both HDD and NAND flash technologies.

With a differentiated innovation engine driving advancements in storage and semiconductor technologies, our broad and ever-expanding portfolio delivers powerful HDD and Flash storage solutions for everyone from students, gamers, and home offices to the largest enterprises and public clouds to capture, preserve, access, and transform an ever-increasing diversity of data.

Our broad portfolio of technology and products addresses our multiple end markets:

You should read this information in conjunction with the Consolidated Financial Statements and the notes thereto included in Part II, Item 8, Financial Statements and Supplementary Data , of this Annual Report on Form 10-K.

See also “Forward-Looking Statements” immediately prior to Part I, Item 1, Business , of this Annual Report on Form 10-K.

We are a leading developer, manufacturer, and provider of data storage devices and solutions based on hard disk drive (“HDD”) technology.

We leverage our capability in the HDD industry primarily for the cloud and hyperscale data center markets.

HDDs are critical components in the worldwide data infrastructure market, powering the digital economy.

HDDs provide reliable, cost-effective, high-capacity storage needs for a wide range of applications, ranging from cloud data centers, enterprise storage systems, edge computing, video surveillance to client and consumer.

Our broad portfolio of technology and products addresses our customers’ storage needs through multiple end markets:

“Cloud,” “Client” and “Consumer”.

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

Through the Client end market, we provide our OEM and channel customers a broad array of high-performance HDD and Flash solutions across personal computer, mobile, gaming, automotive, virtual reality headsets, at-home entertainment, and industrial spaces.

The Consumer end market is highlighted by our broad range of retail and other end-user products, which capitalize on the strength of our product brand recognition and vast points of presence around the world.

Through the Client end market, we provide our original equipment manufacturer (“OEM”) and channel customers a broad array of high-performance HDD solutions across desktop and notebooks.

The Consumer end market provides a broad range of retail and other end-user products, which capitalize on the strength of our product brand recognition and vast points of presence around the world.

Our fiscal year ends on the Friday nearest to June 30 and typically consists of 52 weeks.

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

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

Fiscal year 2026, ending on July 3, 2026 will be comprised of 53 weeks, with the first quarter consisting of 14 weeks.

Fiscal years 2025, 2024, and 2023, which ended on June 27, 2025, June 28, 2024, and June 30, 2023, respectively, each comprised 52 weeks, with all quarters presented consisting of 13 weeks.

Key Developments

Separation of Business Units

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

We believe the separation will better position each business unit to execute innovative technology and product development, capitalize on unique growth opportunities, extend respective leadership positions, and operate more efficiently with distinct capital structures.

The completion of the planned separation is subject to certain conditions, including final approval by our Board of Directors.

Significant effort is underway and extensive progress has been made with respect to the separation as we continue to drive towards completing the work required to separate the businesses by the end of calendar year 2024.

On February 21, 2025 (the “Separation Date”), we completed the separation of our HDD and Flash business units (the “Separation”) to create two independent public companies, with Western Digital focusing on our existing HDD business and Sandisk Corporation (“Sandisk”), formerly a wholly-owned subsidiary of the Company, holding the Flash business.

We believe the Separation better positions each business unit to execute innovative technology and product development, capitalize on unique growth opportunities, extend respective leadership positions, operate more efficiently with distinct capital structures, and pursue capital allocation strategies that maximize long-term shareholder value.

The Separation was effected through a pro rata distribution of 80.1% of the outstanding shares of Sandisk common stock to holders of the Company’s common stock as of February 12, 2025, the record date for the distribution.

The Company did not issue fractional shares of Sandisk common stock in connection with the distribution.

Sandisk is now an independent public company, and Sandisk common stock commenced trading “regular way” under the symbol “SNDK” on the Nasdaq Stock Market LLC (“Nasdaq”) on February 24, 2025, which was the next trading day following the distribution date.

The Company continues to trade on Nasdaq under the symbol “WDC” following the Separation.

Following the Separation, the Company no longer consolidates Sandisk within the Company’s financial results.

As part of the Separation, the Company retained 28.8 million shares of Sandisk common stock, or a 19.9% stake.

During the quarter ended June 27, 2025, the Company disposed of 21.3 million shares of Sandisk common stock, along with $4 million in cash, in a tax-free exchange for $800 million principal amount of the Company’s term loan A-3.

The Company expects to monetize its remaining stake in Sandisk within one year from the Separation Date.

Information provided herein is presented on a continuing operations basis to reflect the impact of the Separation.

See Part II, Item 8, Note 3, Discontinued Operations , of the Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K for additional information regarding the Separation.

Macroeconomic Conditions

The United States has recently announced changes to its trade policy, including increasing tariffs on imports, in some cases significantly.

Several of these recent tariff actions have been followed by announcements of limited exemptions and temporary pauses.

These actions have caused substantial uncertainty and have also resulted in retaliatory measures on U.S.

Our business and results of operations were not materially impacted in fiscal 2025 as a result of the recent tariff actions.

We are actively monitoring developments and plan to leverage tariff exemptions where possible and will take other actions as appropriate to offset any resulting increase in the cost of importing our products or the costs for materials or components in our products, including optimizing our supply chain, sourcing from alternative suppliers, or passing the costs to our customers through tariff surcharges, or increased prices.

There can be no assurance that we will be able to successfully offset or mitigate any resulting increase in our costs.

In addition, the impact of the tariff actions on our customers, retaliatory measures by other countries in response to U.S.

trade policy and any resulting decline in consumer confidence, significant inflation and diminished expectations for the economy could reduce demand for our products and adversely affect our business, financial condition and results of operations.

For additional information, please see Part I, Item 1A, Risk Factors , included in this Annual Report on Form 10-K.

Operational Update

Macroeconomic factors such as inflation, higher interest rates and recession concerns had softened demand for our products in recent years, with certain customers reducing purchases as they adjusted their production levels and right-sized their inventories.

As a result, we and our industry experienced a supply-demand imbalance, which resulted in reduced shipments and negatively impacted pricing.

To adapt to these conditions, since the beginning of 2023, we have been implementing measures to reduce operating expenses, and to proactively manage supply and inventory to align with demand and improve our capital efficiency while continuing to deploy innovative products.

These actions have enabled us to scale back on capital expenditures, consolidate production lines and reduce production bit growth.

In 2024 and 2023, these actions have resulted in incremental charges for employee termination, asset impairment and other charges as well as charges for unabsorbed manufacturing overhead costs in HDD and Flash as a result of the underutilization of facilities as we temporarily scaled back production.

In the latter half of 2024, we began to see an improvement in the supply and demand dynamic, leading to improved revenues.

The increased demand resulted in improved pricing and gross margin across our segments and end markets compared to 2023.

We anticipate that digital transformation, including AI data-cycle, will continue driving improved market conditions in the near- and long-term for data storage, encompassing both HDD and Flash technologies.

Leveraging our expertise and innovation in both areas, we believe we are well-positioned to capitalize on this improved market condition.

In fiscal 2025, we saw an improvement in the supply and demand dynamic relative to the prior year, and we anticipate that digital transformation, including the AI data-cycle, will drive improved market conditions in the long term.

However, macroeconomic factors such as tariffs, inflation, changes in interest rates, and recession concerns can affect demand for our products.

As an example, in fiscal 2024, we and our industry experienced a supply-demand imbalance, which led to reduced shipments, negatively impacted pricing, and resulted in business realignment charges and charges for unabsorbed manufacturing overhead costs due to the underutilization of facilities as we temporarily scaled back production and took other actions to align our operations to the market at the time.

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

Capital Allocation Actions

We have taken significant actions to deleverage our business and to initiate programs to return capital to our investors.

In February 2025, in connection with the Separation, we amended the loan agreement governing our revolving credit facility maturing in January 2027 (the “2027 Revolving Credit Facility”) and Term Loan Facility (as defined below), dated as of January 7, 2022 (as amended, the “Loan Agreement”) to, among other changes, permit the Separation, provide for the issuance of a new $2.51 billion Term Loan A-3 maturing in January 2027 (the “Term Loan A-3”) in a noncash exchange to replace our previously existing Term Loan A-2 (the “Term Loan A-2” and, together with the Term Loan A-3, the “Term Loan Facility”);

facilitate a subsequent exchange of a portion of the Term Loan A-3 for shares of Sandisk retained by us at the Separation;

and reduce the aggregate commitments under the 2027 Revolving Credit Facility from $2.25 billion to $1.25 billion.

In April 2025, we redeemed, at our election, $1.80 billion aggregate principal amount of our 4.75% senior unsecured notes due 2026 (the “2026 Notes”) at par plus accrued interest.

In June 2025, we settled $800 million principal amount of our Term Loan A-3 through an exchange of 21.3 million shares of Sandisk common stock held by us and $4 million in cash paid by us.

These actions, along with scheduled principal payments made on our term loans, reduced the principal amount of our debt by $2.78 billion during fiscal 2025.

On April 29, 2025, our Board of Directors authorized the adoption of a quarterly cash dividend program.

Under the cash dividend program, holders of our common stock will receive dividends when and as declared by our Board of Directors.

During the year ended June 27, 2025, we paid cash dividends of $0.10 per share of our outstanding common stock, totaling $36 million, including payment to holders of our Series A Preferred Stock in accordance with their participation rights.

Subsequent to year-end, on July 29, 2025, our Board of Directors declared a cash dividend of $0.10 per share of our common stock, which will be paid on September 18, 2025 to our shareholders of record as of the close of business on September 4, 2025.

On May 9, 2025, our Board of Directors authorized a share repurchase program for the repurchase of up to $2.0 billion of our common stock.

For the year ended June 27, 2025, we repurchased 2.8 million shares for a total cost of $149 million.

The remaining amount available to be repurchased under our share repurchase program as of June 27, 2025 was $1.85 billion.

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

We expect share repurchases to be funded principally by operating cash flows.

Information regarding our indebtedness, including the principal repayment terms, interest rates, covenants and other key terms of our outstanding indebtedness, and additional information on the terms of our convertible preferred shares is included in Part II, Item 8, Note 8, Debt , and Note 12, Shareholders’ Equity and Convertible Preferred Stock , of the Notes to Consolidated Financial Statements in this Annual Report on Form 10-K.

Tax Resolution

As disclosed in previous periods, we had previously reached a final agreement with the Internal Revenue Service (“IRS”) and received notices of deficiency with respect to years 2008 through 2012 and in February 2024, we also reached a final agreement for resolving the notices of proposed adjustments with respect to years 2013 through 2015.

During the twelve months ended June 28, 2024, we made payments aggregating $524 million for tax and interest with respect to years 2008 through 2012 and have a remaining liability of $185 million as of June 28, 2024 related to all years from 2008 through 2015.

We expect to pay any remaining balance with respect to this matter within the next twelve months.

Additional information is provided in our discussion in our “Results of Operations – Income Tax Expense, ” and the “Short- and Long-term Liquidity – Unrecognized Tax Benefits ” section below, and in Part II, Item 8, Note 13, Income Tax Expense , of the Notes to the Consolidated Financial Statements in this Annual Report on Form 10-K.

Financing Activities

On November 3, 2023, we 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”).

We received net proceeds of approximately $1.56 billion after issuance costs.

Contemporaneously with the issuance of the 2028 Convertible Notes, we entered into individually negotiated transactions with certain holders of our existing 1.50% convertible senior notes due February 1, 2024 (the “2024 Convertible Notes”) to repurchase approximately $508 million aggregate principal amount of such notes at an immaterial discount using net proceeds from the offering of the 2028 Convertible Notes.

In connection with the issuance of the 2028 Convertible Notes, we also used approximately $155 million of the net proceeds from the offering to pay the cost of entering into capped call contracts with a cap price of approximately $70.26 to hedge the potential dilution impact of the conversion feature.

On February 1, 2024, we used a portion of the remaining net proceeds from the offering of the 2028 Convertible Notes to settle the remaining 2024 Convertible Notes in accordance with their original terms for an aggregate cash principal payment of $592 million plus interest.

During 2024, we drew and repaid $600 million principal amount (the “Delayed Draw Term Loan”) under a loan agreement we entered into in January 2023 and amended in June 2023.

Proceeds from this loan were primarily used for payments on our tax liability to the IRS for the years 2008 through 2012.

Additional information regarding our indebtedness, including the principal repayment terms, interest rates, covenants and other key terms of our outstanding indebtedness, and additional information on the terms of our convertible preferred shares is included in Part II, Item 8, Note 7, Debt, of the Notes to Consolidated Financial Statements in this Annual Report on Form 10-K.

See Part I, Item 1A, Risk Factors , of this Annual Report on Form 10-K for more information regarding the risks we face as a result of macroeconomic conditions, and supply chain disruptions.

Agreement to Sell a Majority Interest in a Subsidiary

In March 2024, our wholly-owned subsidiary, SanDisk China Limited (“SanDisk China”) entered into an Equity Purchase Agreement to sell 80% of its equity interest in SanDisk Semiconductor (Shanghai) Co.

(“SDSS”), our indirect wholly-owned subsidiary, to JCET Management Co., Ltd.

(“JCET”), a wholly-owned subsidiary of JCET Group Co., Ltd., a Chinese publicly listed company, thereby forming a joint venture between SanDisk China and JCET (the “Transaction”).

Closing of the Transaction is subject to the satisfaction or waiver of certain conditions, after which JCET will own 80% of the equity interest in SDSS, with SanDisk China owning the remaining 20%.

Following the closing, we expect to enter into various ancillary agreements, including (i) a shareholders agreement governing the joint venture relationships from and after the closing;

(ii) a supply agreement (“Supply Agreement”) with the joint venture to supply us with certain flash-based products currently produced by SDSS, which may include flash memory cards, embedded flash products, and flash components;

and (iii) an intellectual property license agreement granting SDSS certain intellectual property rights on a royalty-free basis for use in manufacturing products on our behalf for the term of and pursuant to the Supply Agreement.

Sale-Leaseback

In September 2023, we completed a sale and leaseback of our facility in Milpitas, California.

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

We are leasing 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.

Asset Impairment and Contract Termination Costs

In connection with the cost-saving actions described in “ Operational Update ” above, we reassessed our existing capacity development plans and made decisions during 2024 to cancel certain projects, including projects to expand capacity in our Penang, Malaysia facility.

This resulted in a $146 million impairment of existing construction in progress and other assets and recognition of $34 million for certain contract termination costs during the year ended June 28, 2024.

As previously disclosed, we had reached a final agreement with the U.S.

Internal Revenue Service (the “IRS”) and received notices of deficiency with respect to years 2008 through 2012, and in February 2024, we also reached a final agreement for resolving the notices of proposed adjustments with respect to years 2013 through 2015.

During the year ended June 27, 2025, we made payments aggregating to $162 million for tax and interest with respect to years 2008 through 2015 and have no remaining liability as of June 27, 2025 related to all years from 2008 through 2015.

Additional information regarding these settlements and related tax matters is provided in Part II, Item 8, Note 13, Income Taxes , of the Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K.

Results of Operations

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Litigation matter (198) (2.1) 291 4.6 — —

Employee termination, asset impairment, and other 139 1.1 193 1.6 43 0.2

Business separation costs 97 0.7 — — — —

Business realignment charges (6) (0.1) 209 3.3 146 2.3

Total operating expenses 1,358 14.3 2,176 34.4 1,939 31.0

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Interest expense (357) (3.8) (414) (6.6) (310) (5.0)

Other income, net 34 0.3 23 0.2 78 0.4

Loss on retained interest in Sandisk (772) (8.1) — — — —

Loss on extinguishment of debt (100) (1.1) — — — —

Other income (expense), net

(20) (0.2) 45 0.7 (10) (0.2)

Total interest and other income, net (1,204) (12.6) (336) (5.3) (301) (4.8)

Income (loss) before taxes 1,130 11.9 (739) (11.7) (849) (13.6)

Income tax expense 137 1.1 134 1.1 625 3.3

Net income (loss) (798) (6.1) (1,684) (13.7) 1,546 8.2

cumulative dividends allocated to preferred shareholders 54 0.4 24 0.2 — —

Net income (loss) attributable to common shareholders $ (852) (6.6) % $ (1,708) (13.9) % $ 1,546 8.2 %

(1) Percentage may not total due to rounding.

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

Income tax expense (benefit)

(513) (5.4) 26 0.4 53 0.8

(in millions, except percentages)

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

HDD 6,316 6,255 9,040

Total net revenue $ 13,003 $ 12,318 $ 18,793

Gross profit:

Flash $ 1,079 $ 433 $ 3,527

HDD 1,881 1,505 2,661

Unallocated corporate items:

Stock-based compensation expense (49) (49) (48)

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

Recovery from contamination incident

Contamination related charges — — (207)

Recoveries from a power outage incident — — 7

Other — (2) —

Total unallocated corporate items (15) (51) (314)

Consolidated gross profit $ 2,945 $ 1,887 $ 5,874

Gross margin:

Flash 16.1% 7.1% 36.2%

HDD 29.8% 24.1% 29.4%

Consolidated gross margin 22.6% 15.3% 31.3%

Net income (loss) from continuing operations

$ 1,643 17.3 % $ (765) (12.1) % $ (902) (14.4) %

(1) Percentages may not total due to rounding.

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

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Revenue by geography

Asia $ 6,902 $ 6,046 $ 10,054

Americas $ 4,592 $ 2,858 $ 2,924

Asia 3,392 2,392 2,156

Europe, Middle East and Africa 1,536 1,067 1,175

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Exabytes shipped

Net revenue increased 6% in 2024 compared to 2023, primarily due to increased exabytes sold, and improved supply-demand balance conditions in the second half of the year as described in the “Key Developments – Operational Update ” section above and as discussed in more detail by business units below.

Flash revenue increased 10% in 2024 compared to 2023, primarily driven by a 21% increase in exabytes sold, partially offset by an 8% decline in ASPs per gigabyte.

The increase in exabytes sold was primarily driven by improved demand from our OEM customers in our Client end market, and higher shipments of SSDs to our customers in our Consumer end market, partially offset by lower shipments in our Cloud end market.

The decrease in ASPs per gigabyte was primarily driven by the supply-demand imbalance in the first half of the year, prior to the recent improvement in supply-demand conditions as described above.

HDD revenue was relatively flat in 2024 compared to 2023, primarily reflecting an 8% increase in exabytes sold, largely offset by a 5% decline in ASPs per gigabyte.

The increase in exabytes sold was driven by an increase in shipments of our high-capacity enterprise drives.

The decline in ASPs per gigabyte was primarily due to a shift in the product mix to larger capacity drives.

Cloud revenue increased 2% in 2024 compared to 2023, primarily driven by a 12% increase in exabytes sold, largely offset by a 7% decline in ASPs per gigabyte.

The increase in exabytes sold was driven by higher shipments of our high-capacity enterprise HDD products.

The decline in ASPs per gigabyte was primarily due to a shift in product mix to larger capacity drives, and pricing pressure driven by the supply-demand imbalance in the first half of the year as described above.

Client revenue increased 7% in 2024 compared to 2023, primarily driven by a 6% increase in exabytes sold and a 2% increase in ASPs per gigabyte.

The increase in exabytes sold was driven by an increase in SSD shipments into PC applications, partially offset by lower HDD shipments.

Consumer revenue increased 9% in 2024 compared to 2023, primarily driven by a 6% increase in ASPs per gigabyte and a 3% increase in exabytes sold.

The increase in ASPs per gigabyte was primarily driven by a favorable shift in product mix.

The increase in exabytes sold was primarily due to increased shipments across all Flash products, partially offset by lower shipments of HDD products.

The changes in net revenue by geography in 2024 compared to 2023, primarily reflected larger growth in Asia from OEMs in this region as their production levels increased as well as routine variations in the mix of business.

Net revenue increased by 51% in 2025 compared to 2024, primarily driven by a 29% increase in average selling price per unit as a result of a shift in product mix to higher capacity drives.

The increase was also driven by a 15% increase in units sold as a result of higher shipments of our high-capacity enterprise products stemming from data center expansions.

Cloud revenue increased by 65% in 2025 compared to 2024, primarily driven by a 36% increase in units sold and a 20% increase in average selling price per unit.

The increase in units sold was driven by higher shipments of our high-capacity enterprise products.

The increase in average selling price per unit was primarily due to a shift in product mix to higher capacity drives.

Client revenue decreased by 4% in 2025 compared to 2024, primarily driven by a 16% decrease in units sold, reflecting lower demand in the market, partially offset by a 14% increase in average selling price per unit as a result of a shift in product mix to higher capacity drives.

Consumer revenue decreased by 9% in 2025 compared to 2024, primarily driven by a 14% decrease in units sold, reflecting lower demand in the market, partially offset by a 5% increase in average selling price per unit as a result of a shift in product mix to higher capacity drives.

Net revenue increased by 1% in 2024 compared to 2023, primarily driven by a 25% increase in average selling price per unit as a result of a shift in product mix to higher capacity drives, partially offset by a 13% decrease in units sold reflecting lower demand in the market.

The increase was offset by approximately 7 percentage points due to a decline in data storage systems revenues resulting from weakness in the market.

Cloud revenue increased by 6% in 2024 compared to 2023, primarily driven by a 1% increase in units sold and a 16% increase in average selling price per unit.

The changes in units sold and average selling price per unit were primarily due to customers moving to higher capacity drives.

The increase was offset by approximately 9 percentage points due to a decline in data storage systems revenues resulting from weakness in the market.

Client revenue decreased by 17% in 2024 compared to 2023, primarily driven by a 30% decrease in units sold, reflecting lower demand in the market, partially offset by a 19% increase in average selling price per unit as a result of a shift in product mix to higher capacity drives.

Consumer revenue decreased by 15% in 2024 compared to 2023, primarily driven by a 25% decrease in units sold, reflecting lower demand in the market, partially offset by a 13% increase in average selling price per unit as a result of a shift in product mix to higher capacity drives.

For 2025, 2024 and 2023, our top 10 customers accounted for 68%, 55% and 56%, respectively, of our net revenue.

For each of 2024, 2023 and 2022, no single customer accounted for 10% or more of our net revenue.

For 2025, three customers accounted for 17%, 12%, and 10%, respectively, of our net revenue.

For 2024 and 2023, no single customer accounted for 10% or more of our net revenue.

Consistent with standard industry practice, we have sales incentive and marketing programs that provide customers with price protection and other incentives or reimbursements that are recorded as a reduction to gross revenue.

For 2024, 2023 and 2022, these programs represented 15%, 20% and 17%, respectively, of gross revenues.

For 2025, 2024 and 2023, these programs represented 10%, 11% and 18%, respectively, of gross revenue.

The amounts attributed to our sales incentive and marketing programs generally vary according to several factors, including industry conditions, list pricing strategies, seasonal demand, competitor actions, channel mix and overall availability of products.

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Gross Profit and Gross Margin

Consolidated gross profit increased $1.06 billion in 2024 compared to 2023.

The increase was largely due to higher revenues from both Flash and HDD, cost reductions due to cost efficiencies achieved through improved manufacturing operations and cost-saving actions, and a more favorable product mix.

The increase also reflected charges of approximately $407 million ($252 million in Flash and $155 million in HDD) for unabsorbed manufacturing overhead costs as a result of the reduced utilization of our manufacturing capacity in 2024, compared to approximately $497 million of such costs ($296 million in Flash and $201 million in HDD) in 2023.

In addition, we incurred charges of approximately $50 million in 2024 to write down Flash inventory as a result of the decreases in market pricing, compared to charges of $108 million of such costs in 2023.

Consolidated gross margin increased 7.3 percentage points in 2024 compared to 2023, with approximately 2 percentage points of the increase due to the lower net charges in the current period and the remainder driven by the same factors as noted above.

Flash gross margin increased by 9.0 percentage points year over year, driven by improving pricing, cost reduction initiatives and a favorable shift in product mix.

HDD gross margin increased by 5.7 percentage points year over year driven by improving pricing and cost reduction initiatives.

Gross profit increased by $1.92 billion in 2025 compared to 2024.

The increase was largely due to higher revenues, cost reductions due to efficiencies achieved through improved manufacturing operations, cost-saving actions, and a more favorable product mix.

The increase also reflected charges for unabsorbed manufacturing overhead of approximately $155 million in 2024 which were not incurred in 2025.

Gross margin increased 10.7 percentage points in 2025 compared to 2024, with approximately 2.5 percentage points of the increase due to the impact of unabsorbed manufacturing overhead costs in the prior year and the remainder driven by the factors as noted above.

Gross profit increased by $382 million in 2024 compared to 2023.

The increase was largely due to cost efficiencies achieved through improved manufacturing operations, cost-saving actions, and a more favorable product mix.

The increase also reflected a reduction in charges for unabsorbed manufacturing overhead costs as a result of the reduced utilization of our manufacturing capacity to approximately $155 million in 2024, from approximately $200 million of such costs in 2023.

Gross margin increased 5.9 percentage points in 2024 compared to 2023, with approximately 1 percentage point of the increase due to the reduction in unabsorbed manufacturing overhead costs from the prior year and the remainder driven by the factors as noted above.

Operating Expenses

R&D expense decreased $102 million or 5% in 2024 compared to 2023, which was primarily driven by a $31 million decrease in compensation and benefits, a $30 million decrease in depreciation and amortization and a $13 million decrease in outside services.

The decrease in compensation and benefits was due to a reduction in headcount.

The reduction in depreciation and amortization is attributed to lower capital expenditures in 2024 compared to 2023.

Selling, general and administrative (“SG&A”) expense decreased $142 million or 15% in 2024 compared to 2023.

This decrease was primarily driven by a $133 million decrease in intangible amortization expense and a $13 million decrease in sales and marketing expenses, partially offset by an increase of $18 million in material purchases.

The reduction in intangible amortization expense was due to most of our intangible assets becoming fully amortized in the previous year.

Litigation matter of $291 million for the year ended June 28, 2024 was related to a judgment in an intellectual property dispute as disclosed in Part II Item 8, Note 17, Legal Proceedings, of the Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K.

Employee termination, asset impairment, and other decreased $54 million or 28% in 2024 compared to 2023, reflecting fewer restructuring actions taken in the current period and a gain on the sale-leaseback of our Milpitas, California facility, partially offset by higher contract termination charges and asset impairments caused by project cancellations.

For additional information regarding employee termination, asset impairment, and other, see Part II, Item 8, Note 15, Employee Termination, Asset Impairment, and Other , of the Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K.

Business separation costs were $97 million for the year ended June 28, 2024, primarily reflecting $33 million of charges incurred for stamp duties associated with establishing new legal entities, with the remaining charges attributable to fees to outside professional service providers to support the planned separation of our Flash and HDD businesses.

Interest and Other Income

Total interest and other income, net increased $79 million or 30% in 2024 compared to 2023, primarily reflecting a $105 million of higher interest expense resulting from increases in interest rates and higher outstanding debt balance, partially offset by higher other income, net, of $11 million, driven primarily by a net gain on our strategic investments, and $15 million of higher interest income due to higher interest rates.

Income Tax Expense

The Tax Cuts and Jobs Act (the “2017 Act”) includes a broad range of tax reform proposals affecting businesses.

We completed our accounting for the tax effects of the enactment of the 2017 Act during the second quarter of fiscal 2019.

However, the U.S.

Treasury and the IRS have issued tax guidance on certain provisions of the 2017 Act since the enactment date, and we anticipate the issuance of additional regulatory and interpretive guidance.

We applied a reasonable interpretation of the 2017 Act along with the then-available guidance in finalizing our accounting for the tax effects of the 2017 Act.

Any additional regulatory or interpretive guidance would constitute new information, which may require further refinements to our estimates in future periods.

On August 16, 2022, President Biden signed into law the Inflation Reduction Act of 2022, which contained significant law changes related to tax, climate, energy and health care.

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

The CAMT is effective for us beginning with fiscal year 2024.

We are not subject to the CAMT of 15% for fiscal year 2024 as our average annual AFSI did not exceed $1.00 billion for the preceding three-year period.

Research and development (“R&D”) expense increased by $44 million or 5% in 2025 compared to 2024.

This increase was primarily driven by a $46 million increase in costs for compensation and benefits, which was attributed to an increase in headcount in support of our technology and product roadmap.

This increase was partially offset by a decrease in depreciation and amortization.

R&D expense decreased by $36 million or 4% in 2024 compared to 2023.

This decrease was driven by relatively equal decreases in depreciation and amortization and in outside services as we scaled back expenditures in response to market conditions.

Selling, general and administrative (“SG&A”) expense decreased by $158 million or 22% in 2025 compared to 2024.

This decrease was primarily driven by a $122 million decrease in costs for compensation and benefits, which was attributed to certain shared overhead roles in the prior year that have since transferred to Sandisk and were not backfilled after the Separation.

The decrease also reflects a $38 million decrease in strategic review costs incurred in the prior year but not incurred in the current year.

SG&A expense decreased by $81 million or 10% in 2024 compared to 2023.

This decrease was primarily driven by a $37 million decrease in costs for compensation and benefits, attributed to a decrease in headcount, a $19 million decrease in outside services and various smaller savings as we scaled back expenditures in response to market conditions.

For information regarding litigation matters, see Part II Item 8, Note 17, Legal Proceedings , of the Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K.

For information regarding Business realignment charges, see Part II Item 8, Note 15, Business Realignment Charges , of the Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K.

Interest and Other Expense

Total interest and other expense, net increased by $868 million or 258% in 2025 compared to 2024, primarily reflecting a $772 million mark-to-market loss on our retained interest in Sandisk and a $100 million loss on the extinguishment of debt in connection with the debt-for-equity exchange.

The increase was partially offset by lower interest expense driven by lower debt balances.

Total interest and other expense, net increased by $35 million or 12% in 2024 compared to 2023.

The increase primarily reflects higher interest rates and higher outstanding debt balances in the period.

Income Tax Expense (Benefit)

Previously, the Tax Cuts and Jobs Act of 2017 (“TCJA”) eliminated the ability to deduct R&D expenditures in the year incurred, requiring capitalization and amortization under Internal Revenue Code Section 174.

On July 4, 2025, the One Big Beautiful Bill Act of 2025 (“OBBBA”) was signed into law, which includes broad tax reform provisions that extend and modify key elements of the TCJA.

Notably, the new legislation now allows an option for the immediate expensing of domestic R&D expenditures, beginning with our fiscal year 2026.

The legislation also includes favorable modifications to international tax provisions, including changes to the Global Intangible Low-Taxed Income regime and enhancements to the Foreign-Derived Intangible Income deduction.

Because the OBBBA provisions are not effective for us until fiscal year 2026 and the enactment date occurred after the balance sheet date, the tax effects of the OBBBA are not included in the Company’s operating results for the fiscal year ended June 27, 2025.

On August 16, 2022, the Inflation Reduction Act of 2022 was signed into law, which contained, 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 CAMT became effective for us beginning with fiscal year 2024.

We were not subject to CAMT in fiscal year 2024 and do not expect to be subject to CAMT for fiscal year 2025 as our average annual AFSI did not exceed $1.0 billion for the preceding three-year period.

On December 20, 2021, the Organization for Economic Co-operation and Development G20 Inclusive Framework on Base Erosion and Profit Shifting released Model Global Anti-Base Erosion rules under Pillar Two.

Several non-U.S.

jurisdictions have either enacted legislation or announced their intention to enact future legislation to adopt certain or all components of Pillar Two, also known as Global Minimum Tax (“GMT”), some of which are effective for us in fiscal year 2025.

For fiscal year 2025, we currently expect to be able to meet certain transitional safe harbors and do not expect any material GMT taxes.

As most of the jurisdictions in which we operate have adopted this legislation for our fiscal year 2026, we expect there will be increases in our future tax obligations in these jurisdictions.

The following table sets forth Income tax information from our Consolidated Statements of Operations by dollar and effective tax rate:

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Income (loss) before taxes $ 1,130 $ (739) $ (849)

Income tax expense 137 134 625

Income tax expense (benefit)

Effective tax rate (45) % (4) % (6) %

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

The tax effects related to the capitalization of R&D expenses are included in the effective tax rate for fiscal years 2023 and 2024.

The primary drivers of the difference between the effective tax rate for 2024 and the U.S.

Federal statutory rate of 21% are the relative mix of earnings and losses by jurisdiction, the deduction for foreign derived intangible income, credits, and tax holidays in Malaysia, the Philippines and Thailand that will expire at various dates during years 2025 through 2031.

On November 1, 2023, one of our tax holidays in Malaysia expired.

We have applied for an extension and anticipate 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, we are applying the Malaysia corporate statutory tax rate on the expired tax holiday income.

If a retroactive extension is granted, we will make an adjustment to our effective tax rate in that period.

The primary drivers of the difference between the effective tax rate for 2023 and the U.S.

Our future effective tax rate is subject to future regulatory developments and changes in the mix of our U.S.

earnings compared to foreign earnings.

The 2017 Act requires us to capitalize and amortize R&D expenses rather than expensing them in the year incurred.

As described above, these capitalized expenses are included in our effective tax rate for 2024, but did not have a material impact on the effective tax rate due to our reduced profitability.

Mandatory capitalization of R&D is expected to materially increase our effective tax rate and taxes paid in future periods, if not repealed or otherwise modified.

In addition, our total tax expense in future years may also vary as a result of discrete items such as excess tax benefits or deficiencies.

On December 20, 2021, the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting released Model Global Anti-Base Erosion rules under Pillar Two (“Pillar Two Model Rules”).

Several non-US jurisdictions have either enacted legislation or announced their intention to enact future legislation to adopt certain or all components of the Pillar Two Model Rules, which may be effective for us as early as 2025.

When effective, this legislation could materially increase our tax obligations in certain jurisdictions.

We continue to evaluate the tax impact of enacted and future legislation concerning the Pillar Two Model Rules in the non-US tax jurisdictions we operate in.

For additional information regarding Income tax expense, see Part II, Item 8, Note 13, Income Tax Expense , of the Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K.

A discussion of our results of operations for 2022, including a comparison of such results of operations to 2023, is included in Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations , included in our Annual Report on Form 10-K for the year ended June 30, 2023 filed with the SEC on August 22, 2023.

The primary drivers of the difference between the effective tax rate for fiscal year 2025 and the U.S.

Federal statutory rate of 21% are the relative mix of earnings and losses by jurisdiction, the deduction for foreign derived intangible income, credits, and tax holidays in the Philippines and Thailand that will expire at various dates during 2026 through 2033.

These resulted in decreases to our effective tax rate below the U.S.

Federal statutory rate for fiscal year 2025.

In anticipation of us operating as a standalone HDD business in a GMT environment, we executed an inter-entity asset transfer in conjunction with the Separation.

This resulted in the recognition of one-time deferred tax benefits to continuing operations of $690 million.

Our income before tax is reduced by a loss in our retained interest in Sandisk.

This loss is not deductible for tax purposes and provides no income tax benefit to us.

The primary drivers of the difference between the effective tax rate for fiscal year 2024 and the U.S.

On November 1, 2023, our tax holiday in Malaysia expired.

We have applied for an extension and continue to be engaged in active discussions with the Malaysian Investment Development Authority.

Because the exact terms of an extension are not currently known, we are applying the Malaysia corporate statutory tax rate on our Malaysian income for the full fiscal year.

If an extension is granted, we will make an adjustment to our effective tax rate in that period.

The primary drivers of the difference between the effective tax rate for fiscal year 2023 and the U.S.

While we do not expect to be subject to the CAMT in fiscal year 2026, the potential benefits from the OBBBA changes could be partially offset in future periods by CAMT, which is designed to ensure that large corporations pay a minimum level of tax by applying a 15% tax on financial statement income rather than taxable income.

This may result in a higher effective tax rate and impact the realizability of our deferred tax assets in future periods.

We continue to assess how these new rules and future regulatory guidance may affect our tax rate, financial reporting, and long-term tax strategy.

For additional information regarding Income tax expense, see Part II, Item 8, Note 13, Income Taxes , of the Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K.

Liquidity and Capital Resources

The following table summarizes our statements of cash flows:

The following table summarizes our statements of cash flows, which are presented on a consolidated basis.

Cash flows related to discontinued operations have not been segregated.

See Part II, Item 8, Note 3, Discontinued Operations , of the Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K for additional cash flow information related to our discontinued operations.

2025 2024 2023

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Effect of exchange rate changes on cash

Net decrease in cash and cash equivalents

Net increase (decrease) in cash and cash equivalents

$ 235 $ (144) $ (304)

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

During the twelve months ended June 28, 2024, we made payments of $363 million for tax and $161 million for interest with respect to years 2008 through 2012 and recorded adjustments to align with IRS calculations, resulting in a remaining liability of $185 million as of June 28, 2024, related to all years from 2008 through 2015.

We expect to pay any remaining balance with respect to this matter within the next twelve months.

During the year ended June 27, 2025, we made payments of $130 million for interest with respect to years 2008 through 2012 and $32 million for tax and interest with respect to years 2013 through 2015, resulting in no remaining liability as of June 27, 2025 related to all years from 2008 through 2015.

In connection with settlements for the years 2008 through 2015, we expect to realize reductions to our mandatory deemed repatriation tax obligations and tax savings from interest deductions in future years aggregating to $166 million.

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

See Part II, Item 8, Note 13, Income Tax Expense, of the Notes to the Consolidated Financial Statements in this Annual Report on Form 10-K.

We have an existing shelf registration statement (the “Shelf Registration Statement”) filed with the SEC, which allows us to offer and sell shares of common stock, preferred stock, warrants, and debt securities.

The Shelf Registration Statement expires in late August 2024, and we plan to renew the Shelf Registration Statement at that time.

See Part II, Item 8, Note 13, Income Taxes , of the Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K for further details.

In August 2024, we filed a shelf registration statement (the “Shelf Registration Statement”) with the Securities and Exchange Commission that expires in August 2027.

The Shelf Registration Statement allows us to offer and sell shares of common stock, preferred stock, warrants, and debt securities.

We may use the Shelf Registration Statement or other capital sources, including other offerings of equity or debt securities or the credit markets, to satisfy future financing needs, including planned or unanticipated capital expenditures, investments, debt repayments or other expenses.

Any such additional financing will be subject to market conditions and may not be available on terms acceptable to us or at all.

As noted previously, in 2024, we had scaled back on capital expenditures, consolidating production lines and reducing bit growth to align with market demand.

We reduced our expenditures for property, plant and equipment and our portion of the Flash Ventures’ capital expenditures for its operations to approximately $825 million in 2024 from approximately $2.22 billion in 2023.

After consideration of the Flash Ventures’ lease financing of its capital expenditures and net operating cash flow, we reduced our net cash used for our purchases of property, plant and equipment and net activity in notes receivable relating to Flash Ventures to $53 million in 2024 from $794 million in 2023.

We continue to be cautious in our capital investment and expect our cash capital expenditures in 2025 to remain below 2023 expenditures.

We believe our cash and cash equivalents as well as our available revolving credit facility will be sufficient to meet our working capital, debt and capital expenditure needs for at least the next twelve months and for the foreseeable future thereafter.

We believe we can also access the various capital markets to further supplement our liquidity position if necessary.

As a result of the Separation, we no longer have any capital expenditure requirements for the Flash business or its joint ventures with Kioxia Corporation.

We expect our capital expenditures for fiscal year 2026 to be between 4% to 6% of our net revenue.

We believe our cash and cash equivalents and our available 2027 Revolving Credit Facility will be sufficient to meet our working capital, debt, dividend and capital expenditure needs for at least the next twelve months and for the foreseeable future thereafter.

We believe we can also access the various debt and equity capital markets to further supplement our liquidity position if necessary.

Our ability to sustain our working capital position is subject to a number of risks that we discuss in Part I, Item 1A, Risk Factors , in this Annual Report on Form 10-K.

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Net cash provided by or used in operating activities primarily consists of net income or loss, adjusted for non-cash charges, plus or minus changes in operating assets and liabilities.

Net cash used for changes in operating assets and liabilities was $307 million for 2024, as compared to $92 million of net cash provided by such changes for 2023, which largely reflects payments made on the IRS matter and an increase in net operating assets and liabilities resulting from the increase in the volume of our business.

Net cash used for changes in operating assets and liabilities was $1.03 billion for 2025, as compared to $307 million of net cash used for such changes for 2024, which largely reflects an increase in net operating assets and liabilities resulting from the increase in the volume of our business as well as the timing and amount of tax payments.

Changes in our operating assets and liabilities are largely affected by our working capital requirements, which are dependent on our volume of business and the effective management of our cash conversion cycle as well as timing of payments for taxes.

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We make modifications primarily to manage our vendor relationships and to manage our cash flows, including our cash balances.

In 2024, DSO decreased by 2 days over the prior year, reflecting timing of shipments and customer collections, partially offset by a 5-day increase from lower accounts receivable factoring.

DIO decreased by 4 days over the prior year, primarily reflecting an increase in products shipped.

DPO increased 9 days over the prior year, primarily due to more favorable payment terms and routine variations in the timing of purchases and payments during the period.

In 2025, DSO decreased by 4 days over the prior year, reflecting timing of shipments and customer collections.

DIO decreased by 21 days over the prior year, primarily reflecting improvements in inventory management.

DPO increased by 2 days over the prior year, primarily due to more favorable payment terms and routine variations in the timing of purchases and payments during the period.

Investing Activities

N et cash used in investing activities in 2024 primarily consisted of $487 million in capital expenditures, partially offset by $239 million in net notes receivable proceeds from (issuances to) Flash Ventures and $195 million in proceeds from the sale of property, plant and equipment.

Net cash used in investing activities in 2023 primarily consisted of $821 million of capital expenditures, partially offset by $14 million in net notes receivable proceeds from (issuances to) Flash Ven tures.

Net cash provided by investing activities in 2025 primarily consisted of $401 million in net proceeds from our sale of a majority interest in one of our subsidiaries and $148 million in net notes receivable proceeds from Flash Ventures, partially offset by $412 million in capital expenditures.

Net cash used in investing activities in 2024 primarily consisted of $487 million of capital expenditures, partially offset by $239 million in net notes receivable proceeds from Flash Ventures and $195 million in proceeds from the sale-leaseback of property, plant and equipment.

Financing Activities

During 2024, net cash provided by financing activities primarily consisted of $3.00 billion in proceeds from the issuance of the 2028 Convertible Notes, the drawdown of the Delayed Draw Term Loan and draws on the revolving credit facility.

These sources were partially offset by $2.10 billion used for the repayment of draws on the revolving credit facility, repayments of the Delayed Draw Term Loan, scheduled payments on the Term Loan A-2, and settlement of the remaining 2024 Convertible Notes;

$505 million used to repurchase a portion of the 2024 Convertible Notes and $155 million for the purchase of capped calls to hedge the potential dilution impact of the conversion feature of the 2028 Convertible Notes.

Net cash provided by financing activities in 2023 primarily consisted of $881 million from the issuance of Series A Preferred Stock and $93 million from issuance of stock under employee stock plans, partially offset by $80 million used for taxes paid on vested stock awards under employee stock plans.

In addition, we drew and repaid $1.18 billion under our revolving credit facility within the period.

During 2025, net cash used in financing activities primarily consisted of $2.09 billion used for the partial repayment of the 2026 Notes, repayment of borrowings on the 2027 Revolving Credit Facility, and scheduled principal payments on our Term Loan A-2 and Term Loan A-3;

$1.37 billion of cash transferred to Sandisk at the Separation;

$149 million in share repurchases;

$113 million for taxes paid on vested stock awards;

$73 million in debt issuance costs;

and $44 million in dividends on our common stock and our Series A Preferred Stock.

These uses were partially offset by $2.00 billion of proceeds from drawing on the Sandisk credit facilities in connection with the Separation, $150 million from the 2027 Revolving Credit Facility, and $77 million from issuances of shares under our employee stock plans.

During 2024, net cash provided by financing activities primarily consisted of $3.00 billion in proceeds from the issuance of the 2028 Convertible Notes, the drawdown of a delayed draw term loan and draws on the revolving credit facility.

These sources were partially offset by $2.10 billion used for the repayment of draws on the revolving credit facility, repayments of a delayed draw term loan, scheduled payments on the Term Loan A-2, and settlement of our remaining 1.50% convertible senior notes due February 1, 2024 (the “2024 Convertible Notes”);

$505 million used to repurchase a portion of the 2024 Convertible Notes;

and $155 million for the purchase of capped calls to hedge the potential dilution impact of the conversion feature of the 2028 Convertible Notes.

A discussion of our cash flows for 2023, including a comparison of such cash flows to 2024, is included in Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources , included in our Annual Report on Form 10-K for the year ended June 28, 2024 filed with the SEC on August 20, 2024.

Off-Balance Sheet Arrangements

Other than the commitments related to Flash Ventures incurred in the normal course of business and certain indemnification provisions (see “Short- and Long-term Liquidity – Indemnifications ” below), we do not have any other material off-balance sheet financing arrangements or liabilities, guarantee contracts, retained or contingent interests in transferred assets, or any other obligation arising out of a material variable interest in an unconsolidated entity.

Other than certain indemnification provisions (see “Short- and Long-term Liquidity – Purchase Obligations and Other Commitments ” below), we do not have any other material off-balance sheet financing arrangements or liabilities, guarantee contracts, retained or contingent interests in transferred assets, or any other obligation arising out of a material variable interest in an unconsolidated entity.

We do not have any majority-owned subsidiaries that are not included in the Consolidated Financial Statements.

Additionally, with the exception of Flash Ventures and our joint venture with Unisplendour Corporation Limited and Unissoft (Wuxi) Group Co.

(“Unis”), referred to as the “Unis Venture”, we do not have an interest in, or relationships with, any variable interest entities.

For additional information regarding our off-balance sheet arrangements, see Part II, Item 8, Note 9, Related Parties and Related Commitments and Contingencies , of the Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K.

Additionally, we do not have an interest in, or relationships with, any variable interest entities.

Short- and Long-term Liquidity

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The following is a summary of our known material cash requirements, including those for capital expenditures, as of June 27, 2025.

In addition, see the discussions further below related to unrecognized tax benefits, the intellectual property litigation, dividend rights with respect to the Series A Preferred Stock, foreign exchange contracts and indemnifications.

In addition, see the discussions further below related to unrecognized tax benefits, litigation matters, cash dividend program, dividend rights with respect to the Series A Preferred Stock, foreign exchange contracts and indemnifications.

Total 1 Year (2026) 2-3 Years (2027-2028) 4-5 Years (2029-2030) More than 5 Years (Beyond 2030)

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Interest on debt 507 203 204 69 31

Flash Ventures related commitments (2)

4,168 2,021 1,526 522 99

Operating leases 165 36 53 30 46

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Total $ 5,828 $ 2,846 $ 1,806 $ 599 $ 577

(1) Principal portion of debt, excluding discounts and issuance costs based on contractual maturity.

As of June 28, 2024, $1.60 billion of our 2028 Convertible Notes are currently convertible at the option of the holders through September 30, 2024, at which point the trading price of our common stock price will be re-evaluated to determine if the 2028 Convertible Notes will continue to be convertible in the subsequent calendar quarter.

(2) Includes reimbursement for depreciation and lease payments on owned and committed equipment, funding commitments for loans and equity investments and payments for other committed expenses, including R&D and building depreciation.

Funding commitments assume no additional operating lease guarantees.

Additional operating lease guarantees can reduce funding commitments.

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

Unrecognized Tax Benefits

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Accrued interest and penalties related to unrecognized tax benefits as of June 27, 2025, were approximately $82 million.

Of these amounts, approximately $736 million could result in potential cash payments.

Of these amounts, approximately $498 million could result in potential cash payments, of which $332 million is reasonably expected to be paid within the next twelve months.

This potential cash payment is expected to be netted with offsetting favorable tax receivables totaling $148 million, including a reduction to our mandatory deemed repatriation tax obligations related to the settlement for the years 2008 through 2015, for a potential net cash payment of $184 million.

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

We expect to pay any remaining balance with respect to this matter within the next twelve months.

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

See Part II, Item 8, Note 13, Income Tax Expense of the Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K.

Intellectual Property Litigation

As of June 28, 2024, we have recognized an aggregate liability of $384 million within Accrued expenses on our Consolidated Balance Sheets as of June 28, 2024, for the potential loss from a litigation matter, as discussed in Part II, Item 8, Note 17, Legal Proceedings , of the Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K.

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

See Part II, Item 8, Note 17, Legal Proceedings , of the Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K for more information.

See Part II, Item 8, Note 13, Income Taxes of the Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K.

Litigation Matters

For additional information on our litigation matters, see Part II, Item 8, Note 17, Legal Proceedings , of the Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K.

Cash Dividend Program

On April 29, 2025, our Board of Directors authorized the adoption of a quarterly cash dividend program.

Under the cash dividend program, holders of our common stock will receive dividends when and as declared by our Board of Directors.

We may modify, suspend, or cancel our cash dividend program in any manner and at any time.

The amount of future dividends under our cash dividend program, and the declaration and payment thereof, will be based upon all relevant factors, including our financial position, results of operations, cash flows, capital requirements and restrictions under our Loan Agreement and other financing agreements, and shall be in compliance with applicable law.

Dividend Rights

As of June 27, 2025, 235,000 shares of our Series A Preferred Stock remained outstanding.

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See Part II, Item 8, Note 12, Shareholders’ Equity and Convertible Preferred Stock , of the Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K for more information regarding these dividend provisions.

In April 2020, we suspended the payment of dividends to common shareholders and intend to utilize cash from operations to reinvest in the business and to support our ongoing deleveraging efforts.

As described in “Key Developments – Financing Activities ” above, we undertook several financing actions during 2024, including the issuance of the 2028 Convertible Notes and the repurchase and/or settlement of our 2024 Convertible Notes.

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

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

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

As described in “Key Developments – Capital Allocation Actions ” above, we undertook several financing actions during 2025, including the amendment of our Credit Facility in connection with the Separation and the exchange of a portion of our retained interest in Sandisk shares to reduce a portion of our TLA-3 loan balance.

The Company issued $1.60 billion aggregate principal amount of convertible senior notes in November 2023, which bear interest at an annual rate of 3.00% and mature on November 15, 2028 (the “2028 Convertible Notes”).

The 2028 Convertible Notes are convertible at the option of any holder beginning August 15, 2028 at a conversion price of approximately $37.82 per share of common stock (which conversion price has been adjusted from approximately $52.20 in accordance with the indenture as a result of the Separation).

Prior to August 15, 2028, if the trading price of our common stock remains above 130% of the conversion price for at least 20 trading days (whether or not consecutive) during the 30 consecutive trading-day period prior to the end of a calendar quarter, holders of the 2028 Convertible Notes would have the right to convert the 2028 Convertible Notes during the next succeeding calendar quarter.

The 2028 Convertible Notes are also convertible prior to August 15, 2028 upon the occurrence of certain corporate events.

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

During the 30 trading-day period ended June 28, 2024, the last trading day of the applicable calendar quarter, the trading price of our common stock was greater than or equal to 130% of the then-applicable conversion price for the 2028 Convertible Notes for at least 20 trading days.

As such, the conditional conversion feature of the 2028 Convertible Notes was triggered and the 2028 Convertible Notes are convertible through September 30, 2024, at which point the trading price of our common stock price will be re-evaluated to determine if the 2028 Convertible Notes will continue to be convertible in the subsequent calendar quarter.

In addition to our existing debt, as of June 28, 2024 , we had $2.22 billion available for borrowing under our revolving credit facility until January 2027, subject to customary conditions under the loan agreement.

The sale price conditional conversion feature of the 2028 Convertible Notes was triggered during the calendar quarter ended June 30, 2025 and, accordingly, the holders of the 2028 Convertible Notes have the right to convert the notes during the succeeding calendar quarter ending September 30, 2025.

As a result, the 2028 Convertible Notes were classified as Short-term debt in the Consolidated Financial Statements as of June 27, 2025.

The Company will continue to evaluate the conversion feature quarterly to determine if the 2028 Convertible Notes become convertible in future periods.

In addition to our outstanding debt, as of June 27, 2025, we had $1.25 billion available for borrowing under our revolving credit facility maturing in January 2027 (the “2027 Revolving Credit Facility”), subject to customary conditions under the Loan Agreement.

The agreements governing our credit facilities each include limits on secured indebtedness and certain types of unsecured subsidiary indebtedness and require us and certain of our subsidiaries to provide guarantees and collateral to the extent the conditions providing for such guarantees and collateral are met.

Additional information regarding our indebtedness, including information about availability under our revolving credit facility and the principal repayment terms, interest rates, covenants and other key terms of our outstanding indebtedness, is included in Part II, Item 8, Note 7, Debt , of the Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K.

The loan agreement governing our revolving credit facility and our Term Loan A-2 due 2027 require us to comply with certain financial covenants, consisting of a minimum leverage ratio covenant and a minimum liquidity covenant.

As of June 28, 2024, we were in compliance with these financial covenants.

Flash Ventures

Flash Ventures sells to, and leases back from, a consortium of financial institutions a portion of its tools and has entered into equipment lease agreements, of which we guarantee half or all of the outstanding obligations under each lease agreement.

The leases are subject to customary covenants and cancellation events that relate to Flash Ventures and each of the guarantors.

The occurrence of a cancellation event could result in an acceleration of the lease obligations and a call on our guarantees.

As of June 28, 2024, we were in compliance with all covenants under these Japanese lease facilities.

See Part II, Item 8, Note 9, Related Parties and Related Commitments and Contingencies , of the Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K for information regarding Flash Ventures.

The loan agreement governing our 2027 Revolving Credit Facility and our Term Loan A-3 (as amended, the “Loan Agreement”) requires us to comply with a financial leverage ratio covenant.

As of June 27, 2025, we were in compliance with the financial covenant.

Additional information regarding our indebtedness, including information about availability under our 2027 Revolving Credit Facility and the principal repayment terms, interest rates, covenants, collateral and other key terms of our outstanding indebtedness, is included in Part II, Item 8, Note 8, Debt , of the Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K.

In connection with the Separation, we entered into an amendment with our existing lenders under the Loan Agreement governing our Term Loan Facility and the 2027 Revolving Credit Facility that, among other changes, (a) permitted the Separation, (b) provided for the automatic release, in connection with the Separation, of guarantees and liens on collateral provided by Sandisk and Sandisk Technologies, Inc.

under the Loan Agreement, (c) provided for the issuance of a new $2.51 billion Term Loan A-3 maturing in January 2027 (the “Term Loan A-3”) in a non-cash exchange to replace our previously

existing Term Loan A-2 (the “Term Loan A-2” and, together with the Term Loan A-3, the “Term Loan Facility”), (d) facilitated the debt for equity exchange with respect to the Term Loan A-3 in connection with the Sandisk retained interest, and (e) in connection with the Separation, reduced the aggregate commitments under the 2027 Revolving Credit Facility from $2.25 billion to $1.25 billion.

In June 2025, we settled $800 million of the Term Loan A-3 principal amount, through a non-cash exchange of 21.3 million shares of Sandisk common stock held by us, and a $4 million cash payment.

We may issue additional debt securities in the future that may be guaranteed by our 100% owned domestic subsidiary, Western Digital Technologies, Inc.

(“Guarantor” and, together with Western Digital Corporation, the “Obligor Group”).

Such guarantees may be full and unconditional, joint and several, on a secured or unsecured, subordinated or unsubordinated basis, and may be subject to certain customary guarantor release conditions.

We conduct operations almost entirely through our subsidiaries.

Accordingly, the Obligor Group’s cash flow and ability to service any guaranteed registered debt securities will depend on the earnings of our subsidiaries and the distribution of those earnings to the Obligor Group, including the earnings of the non-guarantor subsidiaries, whether by dividends, loans or otherwise.

Holders of such guaranteed registered debt securities would have a direct claim only against the Obligor Group.

The following tables include summarized financial information for the Obligor Group.

The financial information for the Obligor Group is presented on combined basis, excluding intercompany balances and transactions between the Company and the Guarantor, excluding net intercompany balances between the Obligor Group and non-guarantor subsidiaries, and excluding investments in and equity in the earnings of non-guarantor subsidiaries.

The Obligor Group’s amounts due from, amounts due to, and transactions with non-guarantor subsidiaries have been presented in separate line items in the tables below.

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

2025 June 28,

(in millions)

Current assets $ 2,992 $ 2,149

Non-current assets 4,553 2,208

Net intercompany receivables from (payables to) non-guarantor subsidiaries (1,543) 2,473

Current liabilities 3,800 3,758

Non-current liabilities 2,873 6,626

The operating results of the Obligor Group include the following:

2025 June 28,

(in millions)

Net sales $ 5,249 $ 4,066

Gross profit 1,941 1,002

Operating income (loss) 279 (927)

Net income (loss) (320) (1,211)

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

2025 June 28,

(in millions)

Intercompany revenue $ 1,378 $ 1,416

Net intercompany interest (income) expense (4) 8

Intercompany dividend income 2,215 567

Purchase Obligations and Other Commitments

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Mandatory Deemed Repatriation Tax

The following is a summary of our estimated mandatory deemed repatriation tax obligations that are payable in the following years (in millions):

As of June 27, 2025, our final estimated mandatory deemed repatriation tax obligation is $331 million and is expected to be paid within the next twelve months.

Mandatory Research and Development Expense Capitalization

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

Since the beginning of 2023, we have been required to capitalize and amortize both domestic and foreign R&D expenditures rather than expensing them in the year incurred.

The OBBBA, which was signed into law on July 4, 2025, includes broad tax reform provisions that extend and modify key elements of the TCJA.

Notably, the new legislation now allows an option for the immediate expensing of domestic R&D expenditures, beginning with our fiscal year 2026, which is expected to result in lower cash tax payments in future periods than previously anticipated.

Foreign Exchange Contracts

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We use the expected value method to arrive at the amount of variable consideration.

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

We constrain variable consideration until the likelihood of a significant revenue reversal is not probable and believe that the expected value method is the appropriate estimate of the amount of variable consideration based on the fact that we have a large number of contracts with similar characteristics.

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

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We value inventories at the lower of cost or net realizable value (“NRV”) with cost determined on a first-in, first-out basis.

We record inventory write-downs of our inventory to lower of cost or net realizable value or for obsolete or excess inventory based on assumptions, which requires significant judgement.

We record inventory write-downs of our inventory to the lower of cost or net realizable value or for obsolete or excess inventory based on assumptions, which requires significant judgement.

The determination of NRV involves estimating the ASPs less any selling expenses of inventory based on market conditions and customer demand.

To estimate the ASPs and selling expenses of inventory, we review historical sales, future demand, economic conditions, contract prices and other information.

We periodically perform an excess and obsolete analysis of our inventory based on assumptions, which includes changes in business and economic conditions, changes in technology and projected demand of our products.

We periodically perform an analysis of potential excess and obsolete inventory based on assumptions, which includes changes in business and economic conditions, changes in technology and projected demand of our products.

If in any period we anticipate a change in those assumptions to be less favorable than our previous estimates, additional inventory write-downs may be required and could materially and negatively impact our gross margin.

If in any period, we can sell inventories that had been written down to a level below the realized selling price in previous period, higher gross profit would be recognized in that period.

While adjustments to these reserves have generally not been material to the years presented, in 2023, we recorded a charge to Cost of revenue of approximately $130 million, primarily to reduce component inventory to net realizable value as a result of a sudden change in demand for certain products.

We account for income taxes under the asset and liability method, which provides that deferred tax assets and liabilities be recognized for temporary differences between the financial reporting basis and the tax basis of our assets and liabilities and expected benefits of utilizing net operating loss and tax credit carryforwards.

If in any period, we can sell inventories that had been written down to a level below the realized selling price in previous periods, higher gross profit would be recognized in the current period.

We account for income taxes under the asset and liability method, which provides that deferred tax assets and liabilities be recognized for temporary differences between the financial reporting bases and the tax bases of our assets and liabilities and expected benefits of utilizing net operating loss and tax credit carryforwards.

We record a valuation allowance when it is more likely than not that the deferred tax assets will not be realized.

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The actual liability for unrealized tax benefits in any such contingency may be materially different from our estimates, which could result in the need to record additional liabilities for unrecognized tax benefits or potentially adjust previously recorded liabilities for unrealized tax benefits and materially affect our operating results.

Goodwill is not amortized.

Instead, it is tested for impairment on an annual basis or more frequently whenever events or changes in circumstances indicate that goodwill may be impaired.

We perform our annual impairment test as of the first day of our fourth quarter for each reporting unit.

We use qualitative factors to determine whether goodwill is more likely than not impaired and whether a quantitative test for impairment is considered necessary.

If we conclude from the qualitative assessment that goodwill is more likely than not impaired, we are required to perform a quantitative assessment to determine the amount of impairment.

We are required to use judgment when applying the goodwill impairment test, including in the identification of our reporting units.

We also make judgments and assumptions in the assignment of assets and liabilities to our reporting units, assignment of goodwill to reporting units and determination of the fair value of each reporting unit.

In addition, the estimates used to determine the fair value of each of our reporting units may change based on results of operations, macroeconomic conditions or other factors.

Changes in these estimates could materially affect our assessment of the fair value and goodwill impairment for each reporting unit.

If our stock price decreases significantly, goodwill could become impaired, which could result in a material charge and adversely affect our results of operations.

We have not identified any impairment indicators for our reporting units as of June 28, 2024.

We also did not incur any impairment charges for 2023 or 2022.

Litigation and Contingencies

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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 7. Management’s Discussion and Analysis