Shareholders' Equity

12 Months Ended

Jul. 01, 2022

Share-Based Payment Arrangement [Abstract]

Shareholders' Equity

Shareholders’ Equity

2021 Long-Term Incentive Plan

In November 2021, stockholders approved the Western Digital Corporation 2021 Long-Term Incentive Plan (the “2021 Plan”). Upon the effective date of the 2021 Plan, no new awards were granted under the Western Digital Corporation Amended and Restated 2017 Performance Incentive Plan (the “2017 Plan”). The aggregate maximum number of shares of the Company’s common stock that may be issued pursuant to awards from the 2021 Plan may not exceed (a) 9.5 million shares, less (b) one share of common stock for each share of common stock granted under a prior plan on or after September 5, 2021 and prior to the 2021 Plan’s effective date, plus (c) any shares of common stock subject to outstanding awards under a prior plan as of the effective date that on or after the effective date are forfeited, terminated, expire, lapse without being exercised (to the extent applicable), or are otherwise reacquired by the Company. Any shares subject to awards under the 2017 Plan that are cancelled, forfeited, or otherwise terminate without having vested or been exercised, as applicable, will become available for award grants under the 2021 Plan. The types of awards that may be granted under the 2021 Plan include stock options, stock appreciation rights (“SARs”), RSUs, PSUs, restricted stock and other forms of awards granted or denominated in the Company’s common stock or units of the Company’s common stock, as well as cash awards. Persons eligible to receive awards under the 2021 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 2021 Plan and the 2017 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 is ten years after the grant date of the award. RSUs typically vest over periods ranging from two 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. Currently, there are outstanding awards that may vest under the 2017 Plan as well as outstanding awards of stock options under the SanDisk Corporation 2013 Incentive Plan, a plan assumed in connection with the acquisition of SanDisk Corporation, which may affect dilution.

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 1, 2022, the maximum number of shares of the Company’s common stock that was authorized for award grants under the 2021 Plan was 10.8 million shares. Shares issued in respect of all awards granted under the 2021 Plan count against the 2021 Plan’s share limit on a one-for-one basis, whereas under the 2017 Plan, shares issued in respect of awards other than stock options and SARs granted count against the 2017 Plan’s share limit as 1.72 shares for every one share issued in connection with such award. The 2021 Plan will terminate on November 22, 2031 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 2022, 2021 and 2020, the Company issued 2.1 million, 3.2 million, and 3.0 million shares, respectively, under the ESPP for aggregate purchase amounts of $113 million, $115 million and $107 million, respectively.

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

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:

	2022		2021		2020
	(in millions)
Options	$	—	$	—	$	7
RSUs and PSUs	286		282		268
ESPP	40		36		33
Total	$	326	$	318	$	308

	2022		2021		2020
	(in millions)
Cost of revenue	$	48	$	55	$	51
Research and development	167		158		163
Selling, general and administrative	111		105		94
Subtotal	326		318		308
Tax benefit	(48)		(47)		(45)
Total	$	278	$	271	$	263

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 not material 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 following table presents the unamortized compensation cost and weighted average service period of all unvested outstanding awards as of July 1, 2022:

	Unamortized Compensation Costs		Weighted Average Service Period
	(in millions)		(years)
RSUs and PSUs (1)	$	557	2.2
ESPP	61		1.2
Total unamortized compensation cost	$	618

(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 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
Exercised	(0.4)	44.34			6
Canceled or expired	(0.8)	75.42
Options outstanding at July 2, 2021	1.5	72.84
Exercised	(0.2)	43.80			3
Canceled or expired	(0.4)	97.65
Options outstanding at July 1, 2022	0.9	$	66.76	0.54

No options were granted in 2022, 2021 or 2020. All outstanding options were exercisable at July 1, 2022.

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 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
Granted	8.8	40.40
Vested	(4.5)	60.18		196
Forfeited	(1.5)	55.74
RSUs and PSUs outstanding at July 2, 2021	16.1	50.12
Granted	6.9	60.00
Vested	(5.2)	54.27		317
Forfeited	(2.4)	52.14
RSUs and PSUs outstanding at July 1, 2022	15.4	$	52.89

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:

	2022	2021	2020
Weighted-average expected term (in years)	1.25	1.25	1.25
Risk-free interest rate	1.42%	0.10%	0.55%
Stock price volatility	0.48	0.56	0.59
Dividend yield	—%	—%	1.08%
Fair value	$15.56	$21.59	$12.76

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 1, 2022, 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 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 1, 2022 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 1, 2022:

	Number of Shares
	(in millions)
Outstanding awards and shares available for award grants	26
ESPP	4
Total	30

Dividends to Shareholders

The Company issued a quarterly cash dividend from the first quarter of 2013 up to the third quarter of 2020. In April 2020, the Company suspended its dividend to reinvest in the business and to support its ongoing deleveraging efforts.