Shareholders' Equity

12 Months Ended

Jul. 03, 2020

Share-based Payment Arrangement [Abstract]

Shareholders' Equity

Shareholders’ Equity

2017 Performance Incentive Plan

The types of awards that may be granted under the Western Digital Corporation Amended and Restated 2017 Performance Incentive Plan (as amended, the “2017 Performance Incentive Plan”) include stock options, stock appreciation rights (“SARs”), RSUs, PSUs, stock bonuses and other forms of awards granted or denominated in the Company’s common stock or units of the Company’s common stock, as well as cash bonus awards. Persons eligible to receive awards under the 2017 Performance Incentive Plan include officers and employees of the Company or any of its subsidiaries, directors of the Company and certain consultants and advisors to the Company or any of its subsidiaries. The vesting of awards under the 2017 Performance Incentive Plan is determined at the date of grant. Each award expires on a date determined at the date of grant; however, the maximum term of options and SARs under the 2017 Performance Incentive Plan is ten years after the grant date of the award. RSUs granted under the 2017 Performance Incentive Plan typically vest over periods ranging from one to four years from the date of grant. PSUs are granted to certain employees and vest only after the achievement of pre-determined performance conditions or market conditions and completion of requisite service periods. Once the performance conditions or market conditions are met, vesting of PSUs is generally subject to continued service by the employee. To the extent available, the Company issues shares out of treasury stock upon the vesting of awards, the exercise of employee stock options and the purchase of shares pursuant to the ESPP.

Outstanding RSU and PSU awards have dividend equivalent rights which entitle holders of such outstanding awards to the same dividend value per share as holders of common stock. Dividend equivalent rights are subject to the same vesting and other terms and conditions as the corresponding unvested RSUs and PSUs. Dividend equivalent rights are accumulated and paid in additional shares when the underlying shares vest.

As of July 3, 2020, the maximum number of shares of the Company’s common stock that was authorized for award grants under the 2017 Performance Incentive Plan was 95.6 million shares. Shares issued in respect of stock options and SARs granted under the 2017 Performance Incentive Plan count against the plan’s share limit on a one-for-one basis, whereas currently, shares issued in respect of any other type of award granted count against the plan’s share limit as 1.72 shares for every one share issued in connection with such award. The 2017 Performance Incentive Plan will terminate on August 4, 2025 unless terminated earlier by the Company’s Board of Directors.

Employee Stock Purchase Plan

Under the Company’s ESPP, eligible employees may authorize payroll deductions of up to 10% of their eligible compensation, subject to IRS limitations, during prescribed offering periods to purchase shares of the Company’s common stock at 95% of the fair market value of common stock either at the beginning of that offering period or on the applicable exercise date, whichever is less. A participant may participate in only one offering period at a time, and a new offering period generally begins each June 1st and December 1st. Each offering period is generally 24 months and consists of four exercise dates (each, generally six months following the start of the offering period or the preceding exercise date, as the case may be). If the fair market value of the Company’s common stock is less on a given exercise date than on the date of grant, employee participation in that offering period ends and participants are automatically re-enrolled in the next new offering period.

During 2020, 2019 and 2018, the Company issued 3.0 million, 2.6 million, and 2.5 million shares, respectively, for aggregate purchase amounts of $107 million, $102 million and $119 million, respectively.

Stock-based Compensation Expense

The following tables present the Company’s stock-based compensation for equity-settled awards by type and financial statement line as well as the related tax benefit included in the Company’s Consolidated Statements of Operations:

	2020		2019		2018
	(in millions)
Options	$	7	$	16	$	25
RSUs and PSUs	268		263		325
Employee stock purchase plan	33		27		27
Total	$	308	$	306	$	377

	2020		2019		2018
	(in millions)
Cost of revenue	$	51	$	48	$	49
Research and development	163		155		170
Selling, general and administrative	94		103		157
Employee termination, asset impairment, and other charges	—		—		1
Subtotal	308		306		377
Tax benefit	(45)		(50)		(66)
Total	$	263	$	256	$	311

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

Compensation cost related to unvested RSUs, PSUs, and rights to purchase shares of common stock under the ESPP will generally be amortized on a straight-line basis over the remaining average service period. The remaining compensation cost related to unvested stock options is immaterial as of July 3, 2020. The following table presents the unamortized compensation cost and weighted average service period of all unvested outstanding awards as of July 3, 2020:

	Unamortized Compensation Costs		Weighted Average Service Period
	(in millions)		(years)
RSUs and PSUs (1)	543		2.4
ESPP	38		1.1
Total unamortized compensation cost	$	581

⁽¹⁾ Weighted average service period assumes the performance conditions are met for the PSUs.

Plan Activities

Stock Options

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

	Number of Shares	Weighted Average Exercise Price Per Share		Weighted Average Remaining Contractual Life	Aggregate Intrinsic Value
	(in millions)			(in years)	(in millions)
Options outstanding at June 30, 2017	7.4	$	58.14
Exercised	(2.2)	44.52			$	99
Canceled or expired	(0.4)	60.85
Options outstanding at June 29, 2018	4.8	64.23
Exercised	(0.4)	39.58			$	8
Canceled or expired	(0.5)	74.79
Options outstanding at June 28, 2019	3.9	65.72
Exercised	(0.8)	43.26			$	12
Canceled or expired	(0.4)	88.58
Options outstanding at July 3, 2020	2.7	$	69.16	2.1	$	—
Exercisable at July 3, 2020	2.6	$	70.10	2.1	$	—

No options were granted in 2020, 2019 or 2018.

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 June 30, 2017	13.7	$	45.01
Granted	6.3	74.68
Vested	(6.3)	45.20		$	552
Forfeited	(1.1)	50.35
RSUs and PSUs outstanding at June 29, 2018	12.6	58.31
Granted	7.3	54.82
Vested	(6.3)	53.21		$	360
Forfeited	(2.0)	58.63
RSUs and PSUs outstanding at June 28, 2019	11.6	62.07
Granted	7.4	55.32
Vested	(4.4)	58.36		$	252
Forfeited	(1.3)	63.33
RSUs and PSUs outstanding at July 3, 2020	13.3	$	60.92

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.

Fair Value Valuation Assumptions

RSU and PSU Grants

The fair value of the Company’s RSU and PSU awards with a performance condition is determined based upon the closing price of the Company’s stock price on the date of grant. The fair value of PSU awards with a market condition is estimated using a Monte Carlo simulation model on the date of grant using historical volatility.

ESPP — Black-Scholes-Merton Model

The fair value of ESPP purchase rights issued is estimated at the date of grant of the purchase rights using the Black-Scholes-Merton option-pricing model. The Black-Scholes-Merton option-pricing model requires the input of assumptions such as the expected stock price volatility and the expected period until options are exercised. Purchase rights under the ESPP are generally granted on either June 1st or December 1st of each year.

The fair values of ESPP purchase rights have been estimated at the date of grant using a Black-Scholes-Merton option-pricing model with the following weighted average assumptions:

	2020	2019	2018
Weighted-average expected term (in years)	1.25	1.24	1.26
Risk-free interest rate	0.55%	2.25%	0.81%
Stock price volatility	0.59	0.35	0.42
Dividend yield	1.08%	2.42%	4.02%
Fair value	$12.76	$16.89	$10.06

Stock Repurchase Program

The Company’s Board of Directors has authorized a stock repurchase program for the repurchase of up to $5.0 billion of the Company’s common stock, which authorization is effective through July 25, 2023. For the year ended July 3, 2020, the Company did not make any stock repurchases and has not repurchased any shares of its common stock pursuant to its stock repurchase program since the first quarter of fiscal 2019. Although the Company will reevaluate the repurchasing of common stock when appropriate, there can be no assurance if, when or at what level the Company may resume such activity. The remaining amount available to be repurchased under the Company’s current stock repurchase program as of July 3, 2020 was $4.5 billion. Repurchases under the stock repurchase program may be made in the open market or in privately negotiated transactions and may be made under a Rule 10b5-1 plan.

Stock Reserved for Issuance

The following table summarizes all common stock reserved for issuance at July 3, 2020:

	Number of Shares
	(in millions)
Outstanding awards and shares available for award grants	31
ESPP	9
Total	40

Dividends to Shareholders

The Company issued a quarterly cash dividend from the first quarter of fiscal 2013 up to the third quarter of fiscal 2020. During the year ended July 3, 2020, the Company declared aggregate cash dividends of $1.50 per share on its outstanding common stock totaling $449 million. In April 2020, the Company suspended its dividend to reinvest in the business and to support its ongoing deleveraging efforts.