Item 1. Financial Statements
Item 1. Financial Statements (unaudited)
WESTERN DIGITAL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(in millions)
(Unaudited)
October 2,
2026 July 3,
2026
ASSETS
Current assets:
Cash and cash equivalents $ 1,314 $ 1,579
Accounts receivable, net 2,232 2,026
Inventories 1,781 1,511
Other current assets 541 518
Total current assets 5,868 5,634
Property, plant and equipment, net 2,586 2,476
Goodwill 4,321 4,321
Other non-current assets 1,464 1,430
Total assets $ 14,239 $ 13,861
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable $ 1,855 $ 1,774
Accrued expenses 675 690
Accrued compensation 469 551
Income taxes payable 304 173
Debt, current 789 1,052
Total current liabilities 4,092 4,240
Other liabilities 799 757
Total liabilities 4,891 4,997
Commitments and contingencies (Notes 6 and 12)
Shareholders’ equity:
Common stock
4 4
Additional paid-in capital 66 961
Accumulated other comprehensive income
24 23
Retained earnings 9,269 9,998
Treasury stock
( 15 ) ( 2,122 )
Total shareholders’ equity 9,348 8,864
Total liabilities and shareholders’ equity $ 14,239 $ 13,861
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
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WESTERN DIGITAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in millions, except per share amounts)
(Unaudited)
Three Months Ended
October 2,
2026 October 3,
2025
Revenue, net $ 4,381 $ 2,818
Cost of revenue 1,847 1,591
Gross profit 2,534 1,227
Operating expenses:
Research and development 283 294
Selling, general and administrative 162 138
Business realignment charges 43 3
Total operating expenses 488 435
Operating income 2,046 792
Interest and other income (expense):
Interest income 7 17
Interest expense ( 11 ) ( 59 )
Gain on retained interest in Sandisk — 611
Other expense, net ( 4 ) ( 24 )
Total interest and other income (expense), net ( 8 ) 545
Income before taxes 2,038 1,337
Income tax expense 259 155
Net income 1,779 1,182
Dividends allocated to preferred shareholders — ( 5 )
Income attributable to participating securities — ( 25 )
Basic net income attributable to common shareholders 1,779 1,152
Re-allocation of participating securities considered potentially dilutive — 2
Diluted net income attributable to common shareholders $ 1,779 $ 1,154
Weighted average common shares outstanding:
Basic 366 345
Diluted 384 376
Net income per common share:
Basic $ 4.86 $ 3.34
Diluted $ 4.63 $ 3.07
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
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WESTERN DIGITAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in millions)
(Unaudited)
Three Months Ended
October 2,
2026 October 3,
2025
Net income
$ 1,779 $ 1,182
Other comprehensive income (loss), before tax:
Actuarial pension loss ( 1 ) —
Net unrealized gain (loss) on derivative contracts 3 ( 7 )
Total other comprehensive income (loss), before tax 2 ( 7 )
Income tax benefit (expense) related to items of other comprehensive income (loss), before tax ( 1 ) 1
Other comprehensive income (loss), net of tax 1 ( 6 )
Total comprehensive income
$ 1,780 $ 1,176
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
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WESTERN DIGITAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
(Unaudited)
Three Months Ended
October 2,
2026 October 3,
2025
Cash flows from operating activities
Net income $ 1,779 $ 1,182
Adjustments to reconcile net income to net cash provided by operations:
Depreciation and amortization 104 88
Stock-based compensation 79 53
Deferred income taxes ( 30 ) 55
Gain on retained interest in Sandisk
— ( 611 )
Other non-cash operating activities, net 3 4
Changes in:
Accounts receivable, net ( 206 ) 131
Inventories ( 269 ) ( 101 )
Accounts payable 52 248
Accrued expenses ( 14 ) ( 21 )
Accrued compensation ( 83 ) 6
Income taxes payable 131 ( 503 )
Other assets and liabilities, net 58 141
Net cash provided by operating activities 1,604 672
Cash flows from investing activities
Purchases of property, plant and equipment ( 227 ) ( 73 )
Strategic investments and other, net 2 16
Net cash used in investing activities ( 225 ) ( 57 )
Cash flows from financing activities
Taxes paid on vested stock awards under employee stock plans ( 317 ) ( 55 )
Repurchases of common stock ( 1,001 ) ( 553 )
Dividends paid to common shareholders ( 56 ) ( 34 )
Dividends paid to preferred shareholders — ( 5 )
Settlement of convertible notes transactions ( 570 ) —
Repayments of debt ( 600 ) ( 31 )
Proceeds from debt 900 —
Net cash used in financing activities ( 1,644 ) ( 678 )
Effect of exchange rate changes on cash — ( 3 )
Net decrease in cash and cash equivalents ( 265 ) ( 66 )
Cash and cash equivalents, beginning of period 1,579 2,114
Cash and cash equivalents, end of period
$ 1,314 $ 2,048
Supplemental disclosure of cash flow information:
Cash paid for income taxes $ 36 $ 446
Cash paid for interest $ 6 $ 50
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
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WESTERN DIGITAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CONVERTIBLE PREFERRED STOCK AND SHAREHOLDERS’ EQUITY
(in millions)
(Unaudited)
Common Stock Treasury Stock Additional Paid-In Capital Accumulated Other Comprehensive Income Retained Earnings Total Shareholders’ Equity
Shares Amount Shares Amount
Balance at July 3, 2026 364 $ 4 ( 3 ) $ ( 2,122 ) $ 961 $ 23 $ 9,998 $ 8,864
Net income — — — — — — 1,779 1,779
Employee stock plans 1 — 1 313 ( 630 ) — — ( 317 )
Stock-based compensation — — — — 79 — — 79
Repurchases of common stock — — ( 2 ) ( 1,001 ) — — — ( 1,001 )
Convertible notes transactions 9 — 4 2,795 ( 2,796 ) — — ( 1 )
Common stock dividends — — — — 1 — ( 57 ) ( 56 )
Actuarial pension loss — — — — — ( 1 ) — ( 1 )
Net unrealized gain on derivative contracts, net of taxes — — — — — 2 — 2
Reclassification of negative additional paid-in capital — — — — 2,451 — ( 2,451 ) —
Balance at October 2, 2026 374 $ 4 — $ ( 15 ) $ 66 $ 24 $ 9,269 $ 9,348
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
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WESTERN DIGITAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CONVERTIBLE PREFERRED STOCK AND SHAREHOLDERS’ EQUITY
(in millions)
(Unaudited)
Convertible Preferred Stock Common Stock Treasury Stock Additional Paid-In Capital Accumulated Other Comprehensive Income Retained Earnings Total Shareholders’ Equity
Shares Amount Shares Amount Shares Amount
Balance at June 27, 2025 0.2 $ 229 349 $ 3 ( 2 ) $ ( 95 ) $ 4,621 $ 20 $ 762 $ 5,311
Net income — — — — — — — — 1,182 1,182
Employee stock plans — — — — 1 69 ( 125 ) — — ( 56 )
Stock-based compensation — — — — — — 53 — — 53
Repurchases of common stock — — — — ( 6 ) ( 557 ) — — — ( 557 )
Preferred stock dividends — — — — — — — — ( 5 ) ( 5 )
Common stock dividends — — — — — — 1 — ( 35 ) ( 34 )
Net unrealized loss on derivative contracts, net of taxes — — — — — — — ( 6 ) — ( 6 )
Balance at October 3, 2025 0.2 $ 229 349 $ 3 ( 7 ) $ ( 583 ) $ 4,550 $ 14 $ 1,904 $ 5,888
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
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WESTERN DIGITAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1. Organization and Basis of Presentation
Western Digital Corporation (“Western Digital,” “WD,” or the “Company”) is a leading developer, manufacturer, and provider of data storage devices and solutions based on hard disk drive (“HDD”) technologies.
The Company manufactures, markets, and sells data storage devices and solutions globally through its sales personnel, dealers, distributors, retailers, and subsidiaries. Its extensive portfolio of technology and products addresses the following key 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, the Company provides its 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 wide range of retail and other end-user products, which capitalize on the strength of the Company’s product brand recognition and vast presence around the world.
The accounting policies followed by the Company are set forth in Part II, Item 8, Note 1, Organization and Basis of Presentation, of the Notes to Consolidated Financial Statements included in the 2026 Annual Report on Form 10-K. There were no changes to the Company’s significant accounting policies and no new accounting standards adopted during the three months ended October 2, 2026. In the opinion of management, all adjustments necessary to fairly state the Condensed Consolidated Financial Statements prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) have been made. Such adjustments consist of items of a normal, recurring nature. Certain information and disclosures normally included in the Consolidated Financial Statements have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). These Condensed Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and the notes thereto included in the 2026 Annual Report on Form 10‑K. The results of operations for interim periods are not necessarily indicative of results to be expected for the full year.
Fiscal Year
The Company’s fiscal year ends on the Friday nearest to June 30 and typically consists of 52 weeks. Approximately every five to six years, the Company reports a 53-week fiscal year to align the fiscal year with the foregoing policy. Fiscal year 2027, which will end on July 2, 2027, will be comprised of 52 weeks, with all quarters presented consisting of 13 weeks each. Fiscal year 2026, which ended on July 3, 2026, was comprised of 53 weeks, with the first quarter consisting of 14 weeks and the remaining quarters consisting of 13 weeks each. 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.
Use of Estimates
Company management has made estimates and assumptions relating to the reporting of certain assets and liabilities in conformity with U.S. GAAP. These estimates and assumptions have been applied using methodologies that are consistent throughout the periods presented; however, actual results could differ materially.
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WESTERN DIGITAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 2. Disaggregated Revenue, Geographic Information, Concentrations of Risk, and Segment Reporting
The Company’s disaggregated net revenue by end market is as follows:
Three Months Ended
October 2,
2026 October 3,
2025
(in millions)
Net revenue by end market
Cloud $ 3,868 $ 2,510
Client 320 146
Consumer 193 162
Total net revenue $ 4,381 $ 2,818
Net revenue by geography (1)
Americas $ 2,081 $ 1,100
Asia 1,708 1,175
Europe, Middle East and Africa 592 543
Total net revenue $ 4,381 $ 2,818
(1) Net revenue is attributed to geographic regions based on the ship-to location of the customer.
Beginning in the three months ended October 2, 2026, the Company updated its methodology for identifying customers for purposes of revenue concentration disclosure. Under the updated methodology, concentrations are attributed to the ultimate end customer when products are purchased on its behalf by distributors, contract manufacturers, or other resellers (collectively referred to as “intermediary purchasers”), rather than being attributed to such intermediary purchasers. The Company believes this presentation provides investors with a more meaningful reflection of the Company’s economic relationship with its customers. Prior year concentrations have been revised to conform to the current year presentation.
The Company’s top 10 customers accounted for 64 % of its net revenue for the three months ended October 2, 2026, compared to 73 % of its net revenue for the three months ended October 3, 2025. For the three months ended October 2, 2026, two customers accounted for 14 % and 13 %, respectively, of the Company’s net revenue. For the three months ended October 3, 2025, four customers accounted for 16 %, 13 %, 13 % and 12 %, respectively, of the Company’s net revenue.
As of October 2, 2026 and July 3, 2026, net accounts receivable were $ 2.23 billion and $ 2.03 billion, respectively, and reserves for potential credit losses were not material. As of October 2, 2026, three customers accounted for 21 %, 14 %, and 12 %, respectively, of the Company’s net accounts receivable, and as of July 3, 2026, two customers accounted for 25 % and 17 %, respectively, of the Company’s net accounts receivable.
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WESTERN DIGITAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Segment Reporting
The Company’s Chief Executive Officer is the Company’s Chief Operating Decision Maker (“CODM”). The CODM manages the business as a provider of data storage devices and solutions based on HDD technology. The CODM evaluates the performance of the Company and makes decisions regarding the allocation of resources based on the Company’s Net income and Total assets. The Company has therefore determined that it has one reportable segment: HDD.
The following table is a reconciliation of the Company’s measure of segment profit or loss, significant segment expenses and other segment items:
Three Months Ended
October 2,
2026 October 3,
2025
(in millions)
Revenue, net
$ 4,381 $ 2,818
Less: Significant expenses and other segment items
Cost of revenue (1)
1,837 1,581
Research and development (1)
261 270
Selling, general and administrative (1)
130 111
Stock-based compensation 79 53
Business realignment charges
27 3
Interest expense, net
4 42
Gain on retained interest in Sandisk — ( 611 )
Other expense, net 8 2
Other segment items (2)
( 3 ) 30
Income tax expense 259 155
Net income $ 1,779 $ 1,182
(1) Excludes amounts related to stock-based compensation, which are presented separately in the table above.
(2) Other segment items include activity from strategic investments and other small charges.
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WESTERN DIGITAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 3. Supplemental Financial Statement Data
Inventories
October 2,
2026 July 3,
2026
(in millions)
Inventories:
Raw materials and component parts $ 435 $ 285
Work-in-process 935 829
Finished goods 411 397
Total inventories $ 1,781 $ 1,511
Property, plant and equipment, net
October 2,
2026 July 3,
2026
(in millions)
Property, plant and equipment:
Land and improvements
$ 225 $ 225
Buildings and improvements 1,621 1,611
Machinery and equipment 6,944 6,830
Computer equipment and software 309 292
Furniture and fixtures 43 40
Construction-in-process 486 457
Property, plant and equipment, gross 9,628 9,455
Accumulated depreciation ( 7,042 ) ( 6,979 )
Property, plant and equipment, net $ 2,586 $ 2,476
Non-current assets
October 2,
2026 July 3,
2026
(in millions)
Non-current assets:
Deferred tax assets
$ 905 $ 872
Other non-current assets
559 558
Total non-current assets
$ 1,464 $ 1,430
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WESTERN DIGITAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Product warranty accrual
Changes in the warranty accrual were as follows:
Three Months Ended
October 2,
2026 October 3,
2025
(in millions)
Warranty accrual, beginning of period $ 207 $ 152
Charges to operations 37 27
Utilization ( 26 ) ( 24 )
Changes in estimate related to pre-existing warranties 23 5
Warranty accrual, end of period $ 241 $ 160
The current portion of the warranty accrual was classified in Accrued expenses and the non-current portion was classified in Other liabilities, as noted below:
October 2,
2026 July 3,
2026
(in millions)
Warranty accrual:
Current portion
$ 44 $ 42
Non-current portion 197 165
Total warranty accrual $ 241 $ 207
Other liabilities
October 2,
2026 July 3,
2026
(in millions)
Other liabilities:
Non-current portion of unrecognized tax benefits $ 249 $ 235
Other non-current liabilities 550 522
Total other liabilities $ 799 $ 757
Goodwill
Goodwill is not amortized. Instead, it is tested for impairment annually as of the beginning of the Company’s fourth quarter, or more frequently if events or changes in circumstances indicate that goodwill may be impaired. Management concluded there were no impairment indicators for either of the three months ended October 2, 2026 and October 3, 2025. The carrying amount of goodwill was $ 4.32 billion as of both October 2, 2026 and July 3, 2026.
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WESTERN DIGITAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Accumulated other comprehensive income
Accumulated other comprehensive income refers to expenses, gains, and losses that are recorded as an element of shareholders’ equity but are excluded from net income. The components of Accumulated other comprehensive income were as follows:
Actuarial Pension Gains Foreign Currency Translation Adjustment Unrealized Gains (Losses) on Derivative Contracts
Total Accumulated Other Comprehensive Income
(in millions)
Balance at July 3, 2026 $ 39 $ ( 3 ) $ ( 13 ) $ 23
Other comprehensive loss before reclassifications ( 1 ) — ( 4 ) ( 5 )
Amounts reclassified from accumulated other comprehensive income (loss) — — 7 7
Income tax expense related to items of other comprehensive income (loss) — — ( 1 ) ( 1 )
Net current-period other comprehensive income (loss) ( 1 ) — 2 1
Balance at October 2, 2026 $ 38 $ ( 3 ) $ ( 11 ) $ 24
During the three months ended October 2, 2026, the amounts reclassified from Accumulated other comprehensive income were losses related to foreign exchange contracts that were substantially charged to Cost of revenue in the Condensed Consolidated Statements of Income.
As of October 2, 2026, all existing net losses related to cash flow hedges recorded in Accumulated other comprehensive income are expected to be reclassified to earnings within the next twelve months.
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WESTERN DIGITAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 4. Fair Value Measurements and Investments
Financial Instruments Carried at Fair Value
Financial assets and liabilities that are remeasured and reported at fair value at each reporting period are classified and disclosed in one of the following three levels:
Level 1. Quoted prices in active markets for identical assets or liabilities.
Level 2. Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3. 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 instruments that were measured at fair value on a recurring basis for the periods presented and indicate the fair value hierarchy of the valuation techniques utilized to determine such values:
October 2, 2026
Level 1 Level 2 Level 3 Total
(in millions)
Assets:
Cash equivalents - Money market funds 23 — — 23
Foreign exchange contracts — 2 — 2
Total assets at fair value $ 23 $ 2 $ — $ 25
Liabilities:
Foreign exchange contracts $ — $ 21 $ — $ 21
Total liabilities at fair value $ — $ 21 $ — $ 21
July 3, 2026
Level 1 Level 2 Level 3 Total
(in millions)
Assets:
Cash equivalents - Money market funds 67 — — 67
Foreign exchange contracts — 2 — 2
Total assets at fair value $ 67 $ 2 $ — $ 69
Liabilities:
Foreign exchange contracts $ — $ 22 $ — $ 22
Total liabilities at fair value $ — $ 22 $ — $ 22
During the periods presented, the Company had no transfers of financial instruments between levels and there were no changes in valuation techniques or the inputs used in the fair value measurement.
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WESTERN DIGITAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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. Each of the financial instruments presented below were categorized as Level 2 for all periods presented, based on the frequency of trading immediately prior to the end of the first quarter of 2027 and the fourth quarter of 2026, respectively.
October 2, 2026 July 3, 2026
Carrying
Value Fair
Value Carrying
Value Fair
Value
(in millions)
Revolving Credit Facility maturing January 2027 $ 650 $ 650 $ 350 $ 350
3.00 % convertible notes
139 1,523 702 10,109
Total
$ 789 $ 2,173 $ 1,052 $ 10,459
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WESTERN DIGITAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 5. Debt
Debt consisted of the following:
October 2,
2026 July 3,
2026
(in millions)
Revolving Credit Facility maturing January 2027 $ 650 $ 350
3.00 % convertible notes
141 710
Total principal 791 1,060
Issuance costs ( 2 ) ( 8 )
Debt, current $ 789 $ 1,052
Revolving Credit Facility and Term Loans
As of July 3, 2026, the Company had $ 350 million outstanding under its revolving credit facility maturing in January 2027 (the “Revolving Credit Facility”). During the three months ended October 2, 2026, the Company drew an additional $ 900 million in principal amount and repaid $ 600 million under the Revolving Credit Facility, resulting in $ 650 million outstanding as of October 2, 2026. As of October 2, 2026, the Company had no outstanding standby letters of credit and the remaining available capacity under the Revolving Credit Facility was $ 600 million.
During the three months ended October 3, 2025, the Company made scheduled principal repayments of $ 31 million under its then outstanding term loan A-3, which was later settled in full in February 2026.
The loan agreement governing the Revolving Credit Facility requires the Company to comply with a financial leverage ratio covenant. As of October 2, 2026, the Company was in compliance with the financial covenant.
Convertible Notes
As of July 3, 2026, the Company had outstanding $ 710 million aggregate principal amount of convertible senior notes pursuant to an indenture dated as of November 3, 2023 (the “Indenture”), which bear interest at an annual rate of 3.00 % and have an original maturity date of November 15, 2028, unless earlier repurchased, redeemed or converted (the “Convertible Notes”).
During the three months ended October 2, 2026, the Company entered into privately negotiated exchange agreements with certain holders of the Convertible Notes, in an aggregate principal amount of $ 191 million, pursuant to which the Company fully settled the obligation for an aggregate $ 193 million in cash (which reflected the principal amount and a small inducement cost) and 4.7 million shares of the Company’s common stock for the conversion premium of $ 2.16 billion. In connection with these exchange transactions, $ 2 million of remaining unamortized issuance costs associated with these notes was charged to Additional paid-in capital. The Company accounted for these exchange transactions as induced conversion transactions and recognized an immaterial induced conversion expense in Other expense, net in the Condensed Consolidated Statements of Income. There were no settlements or modifications made to the related capped call transactions in connection with the exchange agreements (see “Capped Calls” below).
During the three months ended October 2, 2026, the Company also settled the conversion obligation on $ 378 million in aggregate principal amount of Convertible Notes that had been tendered by holders pursuant to the Indenture. The aggregate principal amount of these notes was settled in cash with substantially all of the conversion premium of $ 5.09 billion settled for 9.3 million shares of the Company’s common stock. In connection with these conversions, $ 4 million of remaining unamortized issuance costs associated with these notes was charged to Additional paid-in capital.
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WESTERN DIGITAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
As of October 2, 2026, $ 141 million in aggregate principal amount of the Convertible Notes remained outstanding. The Convertible Notes are currently convertible at the option of any holder, at a conversion price of approximately $ 37.70 per share of common stock as of October 2, 2026. Upon any conversion of the 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. Through October 2, 2026, $ 31 million in aggregate principal amount of these notes had been tendered for conversion. The Company has elected to issue shares of its common stock to satisfy the conversion obligation in excess of the principal amount for substantially all of the notes tendered for conversion, which are expected to settle in the second quarter of 2027.
On September 14, 2026, the Company issued a notice of redemption to redeem at par plus unpaid and accrued interest, on November 16, 2026 (the “Redemption Date”), all then-outstanding Convertible Notes that have not been converted prior to the Redemption Date. The Company currently expects that holders of substantially all Convertible Notes will convert such Convertible Notes before the Redemption Date.
Capped Calls
In connection with the issuance of the Convertible Notes, the Company entered into privately negotiated capped call transactions with certain counterparties (the “Capped Calls”). As of October 2, 2026, the outstanding Capped Calls had an aggregate notional value of $ 1.19 billion with each having a strike price of approximately $ 37.70 per share and a cap price of approximately $ 50.38 per share. The Capped Calls were generally intended to reduce or offset the potential dilution to the Company’s common stock upon any conversion of the Convertible Notes tendered by the holders, with such reduction or offset, as the case may be, subject to a cap based on the cap price. 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 Convertible Notes. As these transactions meet certain accounting criteria, the Capped Calls are recorded in shareholders’ equity and are not accounted for as derivatives.
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WESTERN DIGITAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 6. Leases and Other Commitments
Leases
The Company leases certain domestic and international facilities and data center space under long-term, non-cancelable operating leases that expire at various dates through 2034. These leases include no material variable or contingent lease payments. Operating lease assets and liabilities are recognized based on the present value of the remaining lease payments discounted using the Company’s incremental borrowing rate. Operating lease assets also include prepaid lease payments minus any lease incentives. Extension or termination options present in the Company’s lease agreements are included in determining the right-of-use asset and lease liability when it is reasonably certain the Company will exercise those options. Lease expense is recognized on a straight-line basis over the lease term.
The following table presents right-of-use lease assets and lease liabilities included in the Company’s Condensed Consolidated Balance Sheets:
October 2,
2026 July 3,
2026
(in millions)
Operating lease right-of-use assets (included in Other non-current assets )
$ 119 $ 122
Operating lease liabilities:
Current portion of long-term operating lease liabilities (included in Accrued expenses )
$ 31 $ 32
Long-term operating lease liabilities (included in Other liabilities )
102 107
Total operating lease liabilities $ 133 $ 139
The following table summarizes supplemental disclosures of operating cost and cash flow information related to operating leases:
Three Months Ended
October 2,
2026 October 3,
2025
(in millions)
Cost of operating leases $ 10 $ 9
Cash paid for operating leases 12 10
Operating lease assets obtained in exchange for operating lease liabilities 2 —
The weighted average remaining lease term and discount rate for the Company’s operating leases were as follows:
October 2,
2026 July 3,
2026
Weighted average remaining lease term in years
5.5 5.6
Weighted average discount rate
5.0 % 5.1 %
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WESTERN DIGITAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
As of October 2, 2026, minimum lease payments were as follows:
Lease Amounts
(in millions)
Remaining nine months of 2027
$ 28
2028 31
2029 25
2030 19
2031 16
Thereafter 33
Total future minimum lease payments 152
Less: imputed interest 19
Present value of lease liabilities $ 133
Purchase Obligations and Other Commitments
In the normal course of business, the Company enters into purchase orders with suppliers for the purchase of components used to manufacture its products. These purchase orders generally cover forecasted component supplies needed for production during the next quarter, are recorded as a liability upon transfer of the components, and generally may be changed or canceled at any time prior to shipment of the components. The Company also enters into long-term agreements with suppliers that contain fixed future commitments, which are contingent on certain conditions, such as performance, quality and technology of the vendor’s components. As of October 2, 2026, the Company had the following minimum long-term commitments:
Long-Term Commitments
(in millions)
Remaining nine months of 2027
$ 48
2028 31
2029 56
2030 98
2031 71
Total 304
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WESTERN DIGITAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 7. Income Taxes
The following table presents the Company’s Income tax expense and the effective tax rate:
Three Months Ended
October 2,
2026 October 3,
2025
($ in millions)
Income before taxes $ 2,038 $ 1,337
Income tax expense
259 155
Effective tax rate 13 % 12 %
The primary drivers of the difference between the effective tax rate and the U.S. Federal statutory rate of 21% for the three months ended October 2, 2026 are the relative mix of earnings and losses by jurisdiction, the deduction for Foreign-Derived Deduction Eligible Income (“FDDEI”), excess tax over book deductions for stock-based compensation, and certain tax credits. These resulted in decreases to the Company’s effective tax rate below the U.S. Federal statutory rate for the three months ended October 2, 2026. The Company maintains tax holidays on a portion of its earnings in the Philippines and Thailand, which are set to expire at various dates from 2029 through 2033. The tax benefits from these holidays are minimized by the implementation of the global minimum tax (“GMT”) and are not material to the Company’s Condensed Consolidated Financial Statements for the three months ended October 2, 2026.
The primary drivers of the difference between the effective tax rate and the U.S. Federal statutory rate of 21% for the three months ended October 3, 2025 were the relative mix of earnings and losses by jurisdiction, the deduction for FDDEI, certain tax credits and tax-free gain on the retained interest in Sandisk. These resulted in decreases to the Company’s effective tax rate below the U.S. Federal statutory rate for the three months ended October 3, 2025.
Previously, the Tax Cuts and Jobs Act of 2017 (“TCJA”) eliminated the ability to deduct research and development (“R&D”) expenditures in the year incurred, requiring capitalization and amortization. In July 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 2026. The legislation also includes favorable modifications to international tax provisions, including changes to the Global Intangible Low-Taxed Income regime, which is renamed as Net CFC Tested Income, and enhancements to the FDDEI deduction that became effective for the Company in 2027.
Beginning in 2027, the Company became subject to the Corporate Alternative Minimum Tax (“CAMT”) of 15% on corporations as its average annual Adjusted Financial Statement Income (“AFSI”) exceeded $1.0 billion for the preceding three-year period. The Company anticipates that its CAMT liability will exceed its regular tax liability due to tax deductions in excess of book deductions attributable to stock-based compensation during the year. The Company anticipates that any CAMT paid in 2027 will generate credit carryforwards that can be carried forward indefinitely to offset future regular tax liabilities when they exceed CAMT liabilities. Because the Company expects regular tax liabilities to exceed CAMT liabilities in future periods, no valuation allowance is required against these credit carryforwards. As a result, the CAMT liability did not impact the effective tax rate for the three months ended October 2, 2026.
In January 2026, the Organisation for Economic Co-operation and Development (“OECD”) released a side-by-side package that modifies key elements of the Pillar Two GMT by introducing new safe harbors and providing an exemption for U.S. based multinational companies from parts of the GMT. While these safe harbors and exemptions are generally favorable to the Company, they require local legislative action by each country before they can be considered enacted for financial accounting purposes. The Company evaluated the potential effects of these rules based on current local legislative developments in jurisdictions where the Company operates and expects the financial statement impact associated with their enactment to be immaterial. For 2027, the Company’s effective tax rate considers GMT in Malaysia and Thailand.
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WESTERN DIGITAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Liability for Uncertain Tax Positions
With the exception of certain unrecognized tax benefits that are directly associated with the tax position taken, unrecognized tax benefits are presented gross in the Condensed Consolidated Balance Sheets.
The following is a reconciliation of the total amounts of unrecognized tax benefits excluding accrued interest and penalties for the three months ended October 2, 2026 (in millions):
Accrual balance as of July 3, 2026
$ 610
Gross increases related to current year tax positions 18
Gross decreases related to prior year tax positions ( 2 )
Accrual balance as of October 2, 2026
$ 626
In addition to the amounts noted above, 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 October 2, 2026 was $ 126 million. Of the aggregate unrecognized tax benefits, including interest and penalties, approximately $ 351 million could result in potential cash payments to be made within the next twelve months.
The Company believes that an adequate provision has been made for any adjustments that may result from any other tax examinations; however, the outcome of such tax examinations cannot be predicted with certainty. If any issues addressed in the Company’s tax examinations are resolved in a manner not consistent with management’s expectations, the Company could be required to adjust its provision for income taxes in the period such resolution occurs.
In connection with Internal Revenue Service (“IRS”) settlements for the years 2008 through 2015, the Company expects to realize reductions to its mandatory deemed repatriation tax obligations aggregating to approximately $ 101 million. These tax receivables are classified in Other current assets on the Condensed Consolidated Balance Sheets as of October 2, 2026.
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WESTERN DIGITAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 8. Business Realignment Charges
The Company periodically incurs charges to realign its operations with the current and expected future business environment, primarily consisting of organization rationalization designed to streamline its business, reduce its cost structure, and focus its resources. These actions may result in charges for employee termination benefits or charges from the impairment of intangible assets and other long-lived assets.
The Company recorded the following net charges related to these actions for the periods presented:
Three Months Ended
October 2,
2026 October 3,
2025
(in millions)
Cash-based employee termination benefits $ 27 $ 3
Stock-based employee termination benefits 16 —
Total business realignment charges $ 43 $ 3
As a result of the above actions, the Company expects to record incremental employee termination costs of approximately $ 74 million in the remainder of 2027.
The following table presents an analysis of the components of these activities against the reserve (included in Accrued expenses) during the three months ended October 2, 2026:
Employee Termination Benefits Contract Termination and Other
Total
(in millions)
Accrual balance as of July 3, 2026 $ — $ 13 $ 13
Charges 27 — 27
Accrual balance as of October 2, 2026 $ 27 $ 13 $ 40
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WESTERN DIGITAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 9. Pension and Other Post-Retirement Benefit Plans
The Company has pension and other post-retirement benefit plans in various countries. The Company’s principal pension plans are its defined benefit pension plans in Japan, Thailand, and the Philippines (the “Pension Plans”). All other pension and post-retirement benefit plans are immaterial to the Condensed Consolidated Financial Statements. The expected long-term rate of return on the Pension Plans’ assets is 2.5 %.
Obligations and Funded Status
The following table presents the unfunded status of the benefit obligations for the Pension Plans:
October 2,
2026 July 3,
2026
(in millions)
Projected benefit obligation at end of period $ 230 $ 237
Less: Fair value of plan assets at end of period 183 189
Unfunded status $ 47 $ 48
The following table presents the unfunded amounts related to the Pension Plans as recognized on the Company’s Condensed Consolidated Balance Sheets:
October 2,
2026 July 3,
2026
(in millions)
Current liabilities (included in Accrued expenses)
$ 1 $ 1
Non-current liabilities (included in Other liabilities)
46 47
Net amount recognized $ 47 $ 48
Net periodic benefit costs were immaterial for the three months ended October 2, 2026 and October 3, 2025.
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WESTERN DIGITAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 10. Shareholders’ Equity and Convertible Preferred Stock
Stock-based Compensation Expense
The following tables present the Company’s stock-based compensation for equity-settled awards by type (i.e., restricted stock units (“RSUs”), restricted stock unit awards with performance conditions or market conditions (“PSUs”), and rights to purchase shares of common stock under the Company’s Employee Stock Purchase Plan (“ESPP”)) and the financial statement line items where the costs and related tax benefit are included in the Company’s Condensed Consolidated Statements of Income:
Three Months Ended
October 2,
2026 October 3,
2025
(in millions)
RSUs and PSUs $ 74 $ 49
ESPP 5 4
Total $ 79 $ 53
Three Months Ended
October 2,
2026 October 3,
2025
(in millions)
Cost of revenue $ 9 $ 9
Research and development 22 23
Selling, general and administrative 32 21
Business realignment charges 16 —
Subtotal 79 53
Tax benefit ( 12 ) ( 7 )
Total $ 67 $ 46
Any excess windfall tax benefits and tax deficiencies for shortfalls related to the vesting and exercise of stock-based awards are recognized as a component of the Company’s Income tax expense. During the three months ended October 2, 2026, excess windfall tax benefits were $ 98 million. The excess windfall tax benefits were immaterial for the three months ended October 3, 2025.
Compensation cost related to unvested RSUs, PSUs, and rights to purchase shares of common stock under the ESPP are generally amortized on a straight-line basis over the remaining average service period. The following table presents the unamortized compensation cost and weighted average service period of all unvested outstanding awards as of October 2, 2026:
Unamortized Compensation Cost
Weighted Average Service Period
(in millions) (years)
RSUs and PSUs (1)
$ 604 1.8
ESPP 11 0.3
Total unamortized compensation cost $ 615
(1) Weighted average service period assumes the performance conditions are met for the PSUs.
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WESTERN DIGITAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Plan Activities
RSUs and PSUs
The following table summarizes RSU and PSU activity under the Company’s incentive plans:
Number of Shares Weighted Average Grant Date Fair Value Aggregate Intrinsic Value at Vest Date
(in millions) (in millions)
RSUs and PSUs outstanding at July 3, 2026 6.6 $ 52.21
Granted 0.7 368.46
Vested ( 1.8 ) 45.60 $ 820
RSUs and PSUs outstanding at October 2, 2026 5.5 $ 105.07
RSUs and PSUs are generally settled in an equal number of shares of the Company’s common stock at the time of vesting of the units.
Common Stock
The Company is authorized to issue 750 million shares of common stock, $ 0.01 par value per share. As of October 2, 2026, there were 374 million shares issued and outstanding. As of July 3, 2026, there were 364 million shares issued and 361 million shares outstanding, which was net of 3 million shares of treasury stock held at cost.
Share Repurchase Program
Under the Company’s share repurchase program, the Board of Directors has authorized the repurchase of up to $ 6.0 billion of the Company’s common stock (the “Share Repurchase Program”). There is no expiration date for the Share Repurchase Program. During the three months ended October 2, 2026, the Company repurchased 2.0 million shares under the Share Repurchase Program for a total cash cost of $ 1.00 billion. During the three months ended October 3, 2025, the Company repurchased 6.4 million shares under the Share Repurchase Program for a total cash cost of $ 553 million plus $ 4 million for accrued excise taxes. As of October 2, 2026, the Company had $ 2.26 billion available for repurchases pursuant to the Share Repurchase Program. 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. The Company expects shares repurchased under the Share Repurchase Program to be funded principally by operating cash flows. The amount and timing of share repurchases will depend on market conditions and other corporate considerations. The Company may suspend or discontinue the Share Repurchase Program at any time.
Reclassification of Negative Additional Paid-in Capital
During the three months ended October 2, 2026, the Company issued shares of common stock in connection with settlements of Convertible Notes and vestings under employee stock plans, utilizing all of its then available treasury stock balance. These transactions resulted in charges to Additional paid-in capital. To the extent such charges exceeded the available Additional paid-in capital balance, the excess of $ 2.45 billion was reflected as a reduction of Retained earnings. Subsequent to Additional paid-in capital being initially exhausted, activity related to stock-based compensation expense recognized and capped call settlements resulted in an Additional paid-in capital balance of $ 66 million as of October 2, 2026.
Dividends to Common Shareholders
On April 29, 2025, the Company’s Board of Directors authorized the adoption of a cash dividend program. Under the cash dividend program, holders of the Company’s common stock will receive dividends when and as declared by the Board of Directors. During the three months ended October 2, 2026, the Company paid cash dividends of $ 0.15 per share of its outstanding common stock, totaling $ 56 million. During the three months ended October 3, 2025, the Company paid aggregate cash dividends of $ 0.10 per share of its outstanding common stock, totaling $ 34 million.
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Subsequent to quarter-end, on October 21, 2026, the Board of Directors declared a cash dividend of $ 0.175 per share of the Company’s common stock, which will be paid on December 17, 2026 to shareholders of record as of the close of business on December 4, 2026.
The Company may modify, suspend, or cancel its cash dividend program in any matter and at any time. The amount of future dividends under the Company’s cash dividend program, and the declaration and payment thereof, will be based upon all relevant factors, including the Company’s financial position, results of operations, cash flows, capital requirements and restrictions under the Company’s loan agreement and other financing agreements, and shall be in compliance with applicable law.
Convertible Preferred Stock
Prior to February 17, 2026, the Company had outstanding shares of Series A Convertible Perpetual Preferred Stock, par value $ 0.01 per share (the “Preferred Shares”). The Preferred Shares had an initial stated value of $ 1,000 per share and accrued a cumulative preferred dividend at an annual rate of 6.25 % per annum, compounded on a quarterly basis. Through December 27, 2024, the Company paid quarterly dividends on the Preferred Shares in-kind through an increase to their stated value. Subsequently, quarterly dividends on the Preferred Shares were made in cash, including $ 4 million paid in the three months ended October 3, 2025. In the three months ended October 3, 2025, the Company also paid $ 1 million to holders of the Company’s Preferred Shares in accordance with their participation rights in the dividend paid to common shareholders.
On February 17, 2026, the Company converted all remaining outstanding Preferred Shares into 7 million shares of the Company’s common stock pursuant to a mandatory conversion in accordance with their terms. Immediately prior to conversion, the Preferred Shares outstanding had an aggregate liquidation preference of $ 267 million, which included previous dividends paid in-kind of $ 32 million. On February 24, 2026, the Company filed a Certificate of Elimination with the Secretary of State of the State of Delaware with respect to the Preferred Shares, pursuant to which the Preferred Shares were eliminated and returned to the status of authorized and unissued preferred shares of the Company.
Additional information regarding the Company’s previously outstanding Preferred Shares is included in Part II, Item 8, Note 13, Shareholders’ Equity and Convertible Preferred Stock , of the Notes to Consolidated Financial Statements included in the 2026 Annual Report on Form 10-K.
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WESTERN DIGITAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 11. Net Income Per Common Share
The following table presents the computation of basic and diluted net income per common share:
Three Months Ended
October 2,
2026 October 3,
2025
(in millions, except per share data)
Net income $ 1,779 $ 1,182
Dividends allocated to preferred shareholders
— ( 5 )
Income attributable to participating securities (1)
— ( 25 )
Net income attributable to common shareholders - basic 1,779 1,152
Re-allocation of participating securities considered potentially dilutive
— 2
Net income attributable to common shareholders - diluted $ 1,779 $ 1,154
Weighted average shares:
Basic 366 345
RSUs, PSUs, ESPP, and Convertible Notes 18 31
Diluted 384 376
Net income per common share:
Basic:
$ 4.86 $ 3.34
Diluted:
$ 4.63 $ 3.07
(1) Participating securities in the prior year period consisted of Preferred Shares because, prior to their conversion, they participated on a pro rata basis in any dividends declared on shares of common stock.
Basic net income per common share is computed using (i) net income less (ii) dividends allocated to preferred shareholders less (iii) net income attributable to participating securities divided by (iv) basic weighted average shares outstanding. Diluted net income per common share is computed as (i) basic net income attributable to common shareholders plus (ii) diluted adjustments to income allocable to participating securities divided by (iii) diluted weighted average shares outstanding. The “if-converted” method is used to determine the dilutive impact for the Convertible Notes and the Preferred Shares. The treasury stock method is used to determine the dilutive impact of unvested equity awards.
Potentially dilutive common shares include dilutive outstanding RSUs and PSUs, rights to purchase shares of common stock under the Company’s ESPP, shares issuable in connection with the Company’s Convertible Notes and Preferred Shares. For the three months ended October 2, 2026 and October 3, 2025, based on the Company’s average stock price during the period, an insignificant number of common shares subject to outstanding equity awards were anti-dilutive.
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 12. Legal Proceedings
Intellectual Property Litigation
On September 28, 2016, SPEX Technologies, Inc. (“SPEX”) filed a lawsuit in the Central District Court against the Company and two of the Company’s current or former wholly-owned subsidiaries, Western Digital Technologies, Inc. and HGST Inc., alleging infringement of U.S. Patent Nos. 6,088,802 and 6,003,135, both of which allegedly relate to moving a security mechanism (e.g., the encrypting/decrypting mechanism) from a host computer or a separate device to a peripheral device that provides data storage. As the case progressed, SPEX dismissed its allegations relating to U.S. Patent No. 6,003,135 and narrowed its case to one claim related to U.S. Patent No. 6,088,802 and asserted this against certain HDD products that may include certain encryption capabilities. The trial commenced on October 8, 2024, and concluded on October 18, 2024, and the jury awarded SPEX damages of $ 316 million for the use of one claim related to U.S. Patent No. 6,088,802 in the past, prior to its expiration in 2017. On January 8, 2025, the Court entered judgment for SPEX in accordance with the verdict and also awarded SPEX prejudgment interest of $ 237 million and legal costs. On June 16, 2025, the Court ruled on the Company’s post-trial motions, finding that SPEX did not present sufficient evidence on which a damages award could be determined and therefore awarded nominal damages of $ 1 . On June 27, 2025, the Court entered an amended judgment awarding SPEX nominal damages of $ 1 with no prejudgment interest and no legal costs. The Company has appealed the infringement finding, and SPEX has appealed damages-related issues. Based on available appellate arguments, the Company believes a loss is not probable and has not accrued a liability as a result of the jury verdict or the entry of amended judgment in its financial statements as of October 2, 2026.
Other Matters
In the normal course of business, the Company is subject to legal proceedings, lawsuits and other claims. Although the ultimate aggregate amount of reasonably possible monetary liability or financial impact with respect to these other matters is subject to many uncertainties, management believes that any monetary liability or financial impact to the Company from these matters, individually and in the aggregate, would not be material to the Company’s financial condition, results of operations or cash flows. However, any monetary liability and financial impact to the Company from these matters could differ materially from management’s expectations.
The ability to predict the ultimate outcome of any legal proceeding involves judgments, estimates and inherent uncertainties. The actual outcome of these matters could differ materially from management’s estimates.
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