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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q

(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 29, 2023
Or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to                     
Commission file number: 1-8703

wdcolor logo.gif.gif
WESTERN DIGITAL CORPORATION
(Exact Name of Registrant as Specified in Its Charter)
Delaware33-0956711
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer Identification No.)
5601 Great Oaks ParkwaySan Jose,California95119
(Address of principal executive offices)(Zip Code)
Registrant’s telephone number, including area code: (408) 717-6000
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading symbol(s)Name of each exchange on which registered
Common Stock, $0.01 Par Value Per ShareWDCThe Nasdaq Stock Market LLC
 (Nasdaq Global Select Market)
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  ¨



Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filerAccelerated filerNon-accelerated filerSmaller reporting companyEmerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.    
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  ý
As of the close of business on October 25, 2023, 324,243,164 shares of common stock, par value $0.01 per share, were outstanding.



WESTERN DIGITAL CORPORATION
INDEX
PAGE NO.
PART I. FINANCIAL INFORMATION
Item 1.Financial Statements (unaudited)
Condensed Consolidated Balance Sheets — As of September 29, 2023 and June 30, 2023
Condensed Consolidated Statements of Operations — Three Months Ended September 29, 2023 and September 30, 2022
Condensed Consolidated Statements of Comprehensive Loss — Three Months Ended September 29, 2023 and September 30, 2022
Condensed Consolidated Statements of Cash Flows — Three Months Ended September 29, 2023 and September 30, 2022
Condensed Consolidated Statements of Convertible Preferred Stock and Shareholders' Equity — Three Months Ended September 29, 2023 and September 30, 2022
Notes to Condensed Consolidated Financial Statements
Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 3.Quantitative and Qualitative Disclosures About Market Risk
Item 4.Controls and Procedures
PART II. OTHER INFORMATION
Item 1.Legal Proceedings
Item 1A.Risk Factors
Item 5.
Other Information
Item 6.Exhibits

Unless otherwise indicated, references herein to specific years and quarters are to our fiscal years and fiscal quarters, and references to financial information are on a consolidated basis. As used herein, the terms “we,” “us,” “our,” the “Company,” “WDC” and “Western Digital” refer to Western Digital Corporation and its subsidiaries, unless we state, or the context indicates, otherwise.

WDC, a Delaware corporation, is the parent company of our data storage business. Our principal executive offices are located at 5601 Great Oaks Parkway, San Jose, California 95119. Our telephone number is (408) 717-6000.

Western Digital, the Western Digital logo, SanDisk, and WD are registered trademarks or trademarks of Western Digital or its affiliates in the U.S. and/or other countries. All other trademarks, registered trademarks and/or service marks, indicated or otherwise, are the property of their respective owners.


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FORWARD-LOOKING STATEMENTS

This document contains forward-looking statements within the meaning of the federal securities laws. Any statements that do not relate to historical or current facts or matters are forward-looking statements. You can identify some of the forward-looking statements by the use of forward-looking words, such as “may,” “will,” “could,” “would,” “project,” “believe,” “anticipate,” “expect,” “estimate,” “continue,” “potential,” “plan,” “forecast,” and the like, or the use of future tense. Statements concerning current conditions may also be forward-looking if they imply a continuation of current conditions. Examples of forward-looking statements include, but are not limited to, statements concerning: expectations regarding our plan to separate our HDD and Flash business units; the global macroeconomic environment; expectations regarding demand trends and market conditions for our products; expectations regarding long-term growth opportunities; expectations regarding our product momentum and product development and technology plans; expectations regarding capital expenditure plans and investments, including relating to our Flash Ventures joint venture with Kioxia Corporation (“Kioxia”), and sources of funding for related expenditures; expectations regarding our effective tax rate and our unrecognized tax benefits; and our beliefs regarding our capital allocation plans and the sufficiency of our available liquidity to meet our working capital, debt and capital expenditure needs.

These forward-looking statements are based on management’s current expectations, represent the most current information available to the Company as of the date of this Quarterly Report on Form 10-Q and are subject to a number of risks, uncertainties and other factors that could cause actual results or performance to differ materially from those expressed or implied in the forward-looking statements. These risks and uncertainties include, but are not limited to:

volatility in global or regional economic conditions;
dependence on a limited number of suppliers or disruptions in our supply chain;
future responses to and effects of the COVID-19 pandemic or other similar public health crises;
damage or disruption to our operations or to those of our suppliers;
hiring and retention of key employees;
compromise, damage or interruption from cybersecurity incidents or other data or system security risks;
product defects;
the outcome and impact of the planned separation of our HDD and Flash business units, including with respect to customer and supplier relationships, contractual restrictions, stock price volatility and the diversion of management’s attention from ongoing business operations and opportunities;
our reliance on strategic relationships with key partners, including Kioxia;
the competitive environment, including actions by our competitors, and the impact of competitive products and pricing;
our development and introduction of products based on new technologies and expansion into new data storage markets;
risks associated with cost saving initiatives, restructurings, acquisitions, divestitures, mergers, joint ventures and our strategic relationships;
changes to our relationships with key customers;
our ability to respond to market changes in our distribution channel and retail market;
our level of debt and other financial obligations;
changes in tax laws or unanticipated tax liabilities;
fluctuations in currency exchange rates as a result of our international operations;
risks associated with compliance with changing legal and regulatory requirements and the outcome of legal proceedings;
risks associated with our goals relating to environmental, social and governance matters, including the company’s ability to meet its GHG emissions reduction and other ESG goals;
our reliance on intellectual property and other proprietary information; and
the other risks and uncertainties disclosed in Part I, Item 1A of our Annual Report on Form 10-K for the year ended June 30, 2023 (the “2023 Annual Report on Form 10-K”).

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You are urged to carefully review the disclosures we make concerning these risks and review the additional disclosures we make concerning material risks and other factors that may affect the outcome of our forward-looking statements and our business and operating results, including those made in Part I, Item 1A of our 2023 Annual Report on Form 10-K and any of those made in our other reports filed with the Securities and Exchange Commission, including under “Risk Factors” in Item 1A of subsequent Annual Reports on Form 10-K and Quarterly Reports on Form 10-Q that may from time to time amend, supplement or supersede the risks and uncertainties disclosed in the 2023 Annual Report on Form 10-K. You are cautioned not to place undue reliance on the forward-looking statements included in this Quarterly Report on Form 10-Q, which speak only as of the date of this document. We do not intend, and undertake no obligation, to update or revise these forward-looking statements to reflect new information or events after the date of this document or to reflect the occurrence of unanticipated events, except as required by law.
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PART I. FINANCIAL INFORMATION

Item 1.    Financial Statements (unaudited)

WESTERN DIGITAL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(in millions, except par value)
(Unaudited)
September 29,
2023
June 30,
2023
ASSETS
Current assets:
Cash and cash equivalents$2,032 $2,023 
Accounts receivable, net1,451 1,598 
Inventories3,497 3,698 
Other current assets597 567 
Total current assets7,577 7,886 
Property, plant and equipment, net3,371 3,620 
Notes receivable and investments in Flash Ventures1,245 1,297 
Goodwill10,035 10,037 
Other intangible assets, net80 80 
Other non-current assets1,693 1,509 
Total assets$24,001 $24,429 
LIABILITIES, CONVERTIBLE PREFERRED STOCK AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable$1,294 $1,293 
Accounts payable to related parties277 292 
Accrued expenses1,347 1,288 
Income taxes payable675 999 
Accrued compensation349 349 
Current portion of long-term debt1,850 1,213 
Total current liabilities5,792 5,434 
Long-term debt5,822 5,857 
Other liabilities1,398 1,415 
Total liabilities13,012 12,706 
Commitments and contingencies (Notes 9, 10, 12 and 16)
Convertible preferred stock, $0.01 par value; authorized — 5 shares; issued and outstanding — 1 shares; aggregate liquidation preference of $939 and $924, respectively
876 876 
Shareholders’ equity:
Common stock, $0.01 par value; authorized — 450 shares; issued and outstanding — 324 shares and 322 shares, respectively
3 3 
Additional paid-in capital3,970 3,936 
Accumulated other comprehensive loss(599)(516)
Retained earnings6,739 7,424 
Total shareholders’ equity10,113 10,847 
Total liabilities, convertible preferred stock and shareholders’ equity$24,001 $24,429 

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
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WESTERN DIGITAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in millions, except per share amounts)
(Unaudited)
Three Months Ended
September 29,
2023
September 30,
2022
Revenue, net$2,750 $3,736 
Cost of revenue2,651 2,755 
Gross profit99 981 
Operating expenses:
Research and development431 552 
Selling, general and administrative207 247 
Employee termination, asset impairment, and other57 24 
Total operating expenses695 823 
Operating income (loss)(596)158 
Interest and other income (expense):
Interest income8 2 
Interest expense(98)(70)
Other income (expense), net4 (6)
Total interest and other expense, net(86)(74)
Income (loss) before taxes(682)84 
Income tax expense3 57 
Net income (loss)(685)27 
Less: cumulative dividends allocated to preferred shareholders15  
Net income (loss) attributable to common shareholders$(700)$27 
Net income (loss) per common share:
Basic$(2.17)$0.09 
Diluted$(2.17)$0.08 
Weighted average shares outstanding:
Basic323 316 
Diluted323 319 

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 LOSS
(in millions)
(Unaudited)
Three Months Ended
September 29,
2023
September 30,
2022
Net income (loss)$(685)$27 
Other comprehensive loss, before tax:
Foreign currency translation adjustment(38)(80)
Net unrealized loss on derivative contracts and available-for-sale securities(58)(76)
Total other comprehensive loss, before tax(96)(156)
Income tax benefit related to items of other comprehensive loss, before tax13 16 
Other comprehensive loss, net of tax(83)(140)
Total comprehensive loss$(768)$(113)

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
September 29,
2023
September 30,
2022
Cash flows from operating activities
Net income (loss)$(685)$27 
Adjustments to reconcile net income (loss) to net cash provided by (used in) operations:
Depreciation and amortization147 216 
Stock-based compensation77 86 
Deferred income taxes(46)(42)
Loss (Gain) on disposal of assets
(87)1 
Non-cash portion of asset impairment95  
Amortization of debt issuance costs and discounts4 3 
Other non-cash operating activities, net1 44 
Changes in:
Accounts receivable, net147 382 
Inventories201 (224)
Accounts payable25 (125)
Accounts payable to related parties(15)(25)
Accrued expenses63 (44)
Income taxes payable(325)117 
Accrued compensation1 (104)
Other assets and liabilities, net(229)(306)
Net cash provided by (used in) operating activities
(626)6 
Cash flows from investing activities
Purchases of property, plant and equipment(124)(320)
Proceeds from the sale of property, plant and equipment193  
Notes receivable issuances to Flash Ventures(121)(84)
Notes receivable proceeds from Flash Ventures134 183 
Strategic investments and other, net2 (3)
Net cash provided by (used in) investing activities
84 (224)
Cash flows from financing activities
Taxes paid on vested stock awards under employee stock plans(43)(50)
Net proceeds from convertible preferred stock
(3) 
Repayments of debt (300)
Proceeds from debt600 300 
Net cash provided by (used in) financing activities554 (50)
Effect of exchange rate changes on cash(3)(10)
Net increase (decrease) in cash and cash equivalents
9 (278)
Cash and cash equivalents, beginning of year2,023 2,327 
Cash and cash equivalents, end of period$2,032 $2,049 
Supplemental disclosure of cash flow information:
Cash paid for income taxes$545 $134 
Cash paid for interest$127 $106 

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 StockCommon StockAdditional Paid-In CapitalAccumulated Other Comprehensive Loss Retained EarningsTotal Shareholders’ Equity
SharesAmountSharesAmount
Balance at June 30, 20231 $876 322 $3 $3,936 $(516)$7,424 $10,847 
Net loss— — — — — — (685)(685)
Employee stock plans— — 2 — (43)— — (43)
Stock-based compensation— — — — 77 — — 77 
Foreign currency translation adjustment— — — — — (38)— (38)
Net unrealized loss on derivative contracts— — — — — (45)— (45)
Balance at September 29, 20231$876 324$3 $3,970 $(599)$6,739 $10,113 

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 StockCommon StockAdditional Paid-In CapitalAccumulated Other Comprehensive LossRetained EarningsTotal Shareholders’ Equity
SharesAmountSharesAmount
Balance at July 1, 2022 $ 315 $3 $3,733 $(554)$9,039 $12,221 
Net income— — — — — — 27 27 
Adoption of new accounting standards— — — — (128)— 91 (37)
Employee stock plans— — 3 — (50)— — (50)
Stock-based compensation— — — — 86 — — 86 
Foreign currency translation adjustment— — — — — (80)— (80)
Net unrealized loss on derivative contracts— — — — — (60)— (60)
Balance at September 30, 2022 $ 318$3 $3,641 $(694)$9,157 $12,107 

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

The Company’s broad portfolio of technology and products address the following key end markets: Cloud, Client and Consumer. The Company also generates immaterial license and royalty revenue from its extensive intellectual property portfolio, which is included in each of these three end market categories.

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 Company’s Annual Report on Form 10‑K for the year ended June 30, 2023. In the opinion of management, all adjustments necessary to fairly state the Condensed Consolidated Financial Statements have been made. All such adjustments are of a normal, recurring nature. Certain information and footnote disclosures normally included in the Consolidated Financial Statements prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) 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 Company’s Annual Report on Form 10‑K for the year ended June 30, 2023. 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 2024, which will end on June 28, 2024, and fiscal year 2023, which ended June 30, 2023, are each comprised of 52 weeks, with all quarters presented consisting of 13 weeks.

Segment Reporting

The Company manufactures, markets, and sells data storage devices and solutions in the United States (“U.S.”) and in foreign countries through its sales personnel, dealers, distributors, retailers, and subsidiaries. The Company manages and reports under two reportable segments: flash-based products (“Flash”) and hard disk drives (“HDD”).

The Chief Executive Officer, who is the Company’s Chief Operating Decision Maker (“CODM”), evaluates the performance of the Company and makes decisions regarding the allocation of resources based on each operating segment’s net revenue and gross margin. Because of the integrated nature of the Company’s production and distribution activities, separate segment asset measures are either not available or not used as a basis for the CODM to evaluate the performance of or to allocate resources to the segments.

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 with consideration given to the potential impacts of current macroeconomic conditions. However, actual results could differ materially from these estimates.



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WESTERN DIGITAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 2.    Recent Accounting Pronouncements

Accounting Pronouncements Recently Adopted

In September 2022, the Financial Accounting Standards Board issued an accounting standards update (“ASU”) No. 2022-04, “Liabilities-Supplier Finance Programs (Subtopic 405-50): Disclosure of Supplier Finance Program Obligations”, which requires annual and interim disclosures for entities that use supplier finance programs in connection with the purchase of goods and services. The ASU requires the Company to provide disclosure of outstanding obligations to such suppliers for all balance sheet dates presented beginning with the Company’s first quarter of 2024 and to provide certain rollforward information related to those obligations beginning in the Company’s first fiscal quarter of 2025. The ASU does not affect the recognition, measurement, or financial statement presentation of supplier finance program obligations. The Company adopted the guidance on the first day of fiscal year 2024, except for the rollforward information, which the Company is compiling and intends to provide beginning in fiscal year 2025. See Note 15, Supplier Finance Program, of the Notes to the Condensed Consolidated Financial Statements for information regarding the supplier finance program.


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WESTERN DIGITAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 3.    Business Segments, Geographic Information, and Concentrations of Risk

The following table summarizes the operating performance of the Company’s reportable segments:
Three Months Ended
September 29,
2023
September 30,
2022
$ in millions
Net revenue:
Flash$1,556 $1,722 
HDD1,194 2,014 
Total net revenue$2,750 $3,736 
Gross profit:
Flash$(161)$422 
HDD273 574 
Total gross profit for segments112 996 
Unallocated corporate items:
Stock-based compensation expense(13)(14)
Amortization of acquired intangible assets (1)
Total unallocated corporate items(13)(15)
Consolidated gross profit$99 $981 
Gross margin:
Flash(10.3)%24.5 %
HDD22.9 %28.5 %
Consolidated gross margin3.6 %26.3 %

Disaggregated Revenue

The Company’s broad portfolio of technology and products address multiple end markets. Cloud is comprised primarily of products for public or private cloud environments and end customers, which the Company believes it is uniquely positioned to address as the only provider of both Flash and HDD. Through the Client end market, the Company provides its original equipment manufacturer (“OEM”) and channel customers a broad array of high-performance flash and hard drive solutions across personal computer, mobile, gaming, automotive, virtual reality headsets, at-home entertainment, and industrial spaces. The Consumer end market is highlighted by the Company’s broad range of retail and other end-user products, which capitalize on the strength of the Company’s product brand recognition and vast points of presence around the world.

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WESTERN DIGITAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The Company’s disaggregated revenue information is as follows:
Three Months Ended
September 29,
2023
September 30,
2022
(in millions)
Revenue by End Market
Cloud$872 $1,829 
Client1,147 1,229 
Consumer731 678 
Total Revenue$2,750 $3,736 
Revenue by Geography
Asia$1,551 $1,686 
Americas662 1,423 
Europe, Middle East and Africa537 627 
Total Revenue$2,750 $3,736 

The Company’s top 10 customers accounted for 44% and 52% of its net revenue for the three months ended September 29, 2023 and September 30, 2022, respectively. For the three months ended September 29, 2023 and September 30, 2022, no single customer accounted for 10% or more of the Company’s net revenue.

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 performed a goodwill impairment assessment for each segment and concluded there were no impairment indicators as of either the beginning or end of the three months ended September 29, 2023. The following table provides a summary of goodwill activity for the period:
FlashHDDTotal
(in millions)
Balance at June 30, 2023$5,716 $4,321 $10,037 
Foreign currency translation adjustment(1)(1)(2)
Balance at September 29, 2023$5,715 $4,320 $10,035 



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WESTERN DIGITAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 4.    Supplemental Financial Statement Data

Accounts receivable, net

From time to time, in connection with factoring agreements, the Company sells trade accounts receivable without recourse to third-party purchasers in exchange for cash. During the three months ended September 29, 2023 and September 30, 2022, the Company sold trade accounts receivable aggregating $150 million and $291 million, respectively. The discounts on the trade accounts receivable sold were not material and were recorded within Other income (expense), net in the Condensed Consolidated Statements of Operations. As of both September 29, 2023 and June 30, 2023, the amount of factored receivables that remained outstanding was $150 million.

Inventories
September 29,
2023
June 30,
2023
(in millions)
Inventories:
Raw materials and component parts$1,975 $2,096 
Work-in-process925 979 
Finished goods597 623 
Total inventories$3,497 $3,698 

Property, plant and equipment, net
September 29,
2023
June 30,
2023
(in millions)
Property, plant and equipment:
Land$235 $269 
Buildings and improvements1,842 1,955 
Machinery and equipment8,691 8,704 
Computer equipment and software473 470 
Furniture and fixtures55 54 
Construction-in-process729 798 
Property, plant and equipment, gross12,025 12,250 
Accumulated depreciation(8,654)(8,630)
Property, plant and equipment, net$3,371 $3,620 

Other Intangible assets, net

As part of prior acquisitions, the Company recorded at the time of the acquisition acquired in-process research and development (“IPR&D”) for projects in progress that had not yet reached technological feasibility. IPR&D is initially accounted for as an indefinite-lived intangible asset. Once a project reaches technological feasibility, the Company reclassifies the balance to existing technology and begins to amortize the intangible asset over its estimated useful life. As of both September 29, 2023, and June 30, 2023, IPR&D included in intangible assets, net was $80 million. As of both September 29, 2023 and June 30, 2023, all other intangible assets were fully amortized.

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WESTERN DIGITAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Product warranty liability

Changes in the warranty accrual were as follows:
Three Months Ended
September 29,
2023
September 30,
2022
(in millions)
Warranty accrual, beginning of period$244 $345 
Charges to operations22 32 
Utilization(43)(34)
Changes in estimate related to pre-existing warranties(5)(3)
Warranty accrual, end of period$218 $340 

The current portion of the warranty accrual is classified in Accrued expenses and the long-term portion is classified in Other liabilities as noted below:
September 29,
2023
June 30,
2023
(in millions)
Warranty accrual:
Current portion (included in Accrued expenses)$61 $97 
Long-term portion (included in Other liabilities)157 147 
Total warranty accrual$218 $244 

Other liabilities
September 29,
2023
June 30,
2023
(in millions)
Other liabilities:
Non-current net tax payable$199 $464 
Non-current portion of unrecognized tax benefits497 408 
Other non-current liabilities702 543 
Total other liabilities$1,398 $1,415 

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WESTERN DIGITAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Accumulated other comprehensive loss

Accumulated other comprehensive loss (“AOCL”), net of tax refers to expenses, gains and losses that are recorded as an element of shareholders’ equity but are excluded from net income. The following table illustrates the changes in the balances of each component of AOCL:
Actuarial Pension LossesForeign Currency Translation AdjustmentUnrealized Losses on Derivative ContractsTotal Accumulated Comprehensive Loss
(in millions)
Balance at June 30, 2023$(2)$(357)$(157)$(516)
Other comprehensive loss before reclassifications (38)(101)(139)
Amounts reclassified from accumulated other comprehensive loss  43 43 
Income tax benefit related to items of other comprehensive loss 1 12 13 
Net current-period other comprehensive loss (37)(46)(83)
Balance at September 29, 2023$(2)$(394)$(203)$(599)

During the three months ended September 29, 2023, the amounts reclassified out of AOCL were losses related to foreign exchange contracts that were substantially charged to Cost of revenue in the Condensed Consolidated Statements of Operations.

As of September 29, 2023, substantially all existing net losses related to cash flow hedges recorded in AOCL are expected to be reclassified to earnings within the next twelve months. In addition, as of September 29, 2023, the Company did not have any foreign exchange forward contracts with credit-risk-related contingent features.

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WESTERN DIGITAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 5.    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 assets and liabilities that are measured at fair value on a recurring basis as of September 29, 2023 and June 30, 2023, and indicate the fair value hierarchy of the valuation techniques utilized to determine such values:
September 29, 2023
 Level 1Level 2Level 3Total
(in millions)
Assets:
Cash equivalents - Money market funds$371 $ $ $371 
Foreign exchange contracts 28  28 
Total assets at fair value$371 $28 $ $399 
Liabilities:
Foreign exchange contracts$ $226 $ $226 
Total liabilities at fair value$ $226 $ $226 

June 30, 2023
 Level 1Level 2Level 3Total
(in millions)
Assets:
Cash equivalents - Money market funds$371 $ $ $371 
Foreign exchange contracts 35  35 
Total assets at fair value$371 $35 $ $406 
Liabilities:
Foreign exchange contracts$ $192 $ $192 
Total liabilities at fair value$ $192 $ $192 

During the periods presented, the Company had no transfers of financial assets and liabilities 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 was categorized as Level 2 for all periods presented, based on the frequency of trading immediately prior to the end of the first quarter of 2024 and the fourth quarter of 2023, respectively.
September 29, 2023June 30, 2023
Carrying
Value
Fair
Value
Carrying
Value
Fair
Value
(in millions)
1.50% convertible notes due 2024
$1,099 $1,082 $1,099 $1,067 
Variable interest rate Delayed Draw Term Loan due 2024600 606   
4.75% senior unsecured notes due 2026
2,294 2,194 2,293 2,193 
Variable interest rate Term Loan A-2 maturing 20272,688 2,678 2,687 2,661 
2.85% senior notes due 2029
496 401 496 400 
3.10% senior notes due 2032
495 367 495 371 
     Total$7,672 $7,328 $7,070 $6,692 

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WESTERN DIGITAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 6.    Derivative Instruments and Hedging Activities

As of September 29, 2023, the Company had outstanding foreign exchange forward contracts that were designated as either cash flow hedges or non-designated hedges. Substantially all of the contract maturity dates of these foreign exchange forward contracts do not exceed 12 months. As of September 29, 2023, the Company did not have any derivative contracts with credit-risk-related contingent features.

Changes in fair values of the non-designated foreign exchange contracts are recognized in Other income (expense), net and are largely offset by corresponding changes in the fair values of the foreign currency-denominated monetary assets and liabilities. For each of the three months ended September 29, 2023 and September 30, 2022, total net realized and unrealized transaction and foreign exchange contract currency gains and losses were not material to the Company’s Condensed Consolidated Financial Statements.

Unrealized gains or losses on designated cash flow hedges are recognized in AOCL. For more information regarding cash flow hedges, see Note 4, Supplemental Financial Statement Data - Accumulated other comprehensive loss.

Netting Arrangements

Under certain provisions and conditions within agreements with counterparties to the Company’s foreign exchange forward contracts, subject to applicable requirements, the Company has the right of offset associated with the Company’s foreign exchange forward contracts and is allowed to net settle transactions of the same currency with a single net amount payable by one party to the other. As of September 29, 2023 and June 30, 2023, the effect of rights of offset was not material and the Company did not offset or net the fair value amounts of derivative instruments in its Condensed Consolidated Balance Sheets.

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WESTERN DIGITAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 7.    Debt

Debt consisted of the following:
September 29,
2023
June 30,
2023
(in millions)
1.50% convertible notes due 2024
$1,100 $1,100 
Variable interest rate Delayed Draw Term Loan due 2024600  
4.75% senior unsecured notes due 2026
2,300 2,300 
Variable interest rate Term Loan A-2 maturing 20272,700 2,700 
2.85% senior notes due 2029
500 500 
3.10% senior notes due 2032
500 500 
Total debt7,700 7,100 
Issuance costs and debt discounts(28)(30)
Subtotal7,672 7,070 
Less current portion of long-term debt(1,850)(1,213)
Long-term debt$5,822 $5,857 

During the three months ended September 29, 2023, the Company drew $600 million principal amount (the “Delayed Draw Term Loan”) under a loan agreement entered into in January 2023 and amended in June 2023 (the “Delayed Draw Term Loan Agreement”), which allowed the Company to draw a single loan of up to $600 million through August 14, 2023. The Delayed Draw Term Loan will mature on June 28, 2024.

The Delayed Draw Term Loan bears interest, at the Company’s option, at a per annum rate equal to either (x) the Adjusted Term SOFR Rate (as defined in the Delayed Draw Term Loan Agreement) plus an applicable margin varying from 1.750% to 2.625% or (y) a base rate plus an applicable margin varying from 0.750% to 1.625%, in each case depending on the corporate family ratings of the Company from at least two of Standard & Poor’s Ratings Services, Moody’s Investors Service, Inc. and Fitch Ratings, Inc. (the “Credit Rating Agencies”). The all-in interest rate for the Delayed Draw Term Loan as of September 29, 2023 was 7.416%.

The Term Loan A-2 Loan bears interest, at the Company’s option, at a per annum rate equal to either (x) the Adjusted Term SOFR (as defined in the loan agreement governing the Term Loan A-2) plus an applicable margin varying from 1.125% to 2.000% or (y) a base rate plus an applicable margin varying from 0.125% to 1.000%, in each case depending on the corporate family ratings of the Company from at least two of the Credit Rating Agencies, with an initial interest rate of Adjusted Term SOFR plus 1.375%. The all-in interest rate for Term Loan A-2 as of September 29, 2023 was 6.807%.

The loan agreements governing the Company’s revolving credit facility, Term Loan A-2 due 2027, and the Delayed Draw Term Loan require the Company to comply with certain financial covenants, consisting of a leverage ratio, a minimum liquidity and a free cash flow requirement. As of September 29, 2023, the Company was in compliance with these financial covenants.



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WESTERN DIGITAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 8.    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 in Japan, Thailand and the Philippines. All pension and other post-retirement benefit plans outside of the Company’s Japan, Thailand and the Philippines defined benefit pension plans (the “Pension Plans”) are immaterial to the 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:
September 29,
2023
June 30,
2023
(in millions)
Benefit obligation at end of period$265 $273 
Fair value of plan assets at end of period180 185 
Unfunded status$85 $88 

The following table presents the unfunded amounts related to the Pension Plans as recognized on the Company’s Condensed Consolidated Balance Sheets:
September 29,
2023
June 30,
2023
(in millions)
Current liabilities$1 $1 
Non-current liabilities84 87 
Net amount recognized$85 $88 

Net periodic benefit costs were not material for the three months ended September 29, 2023.

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WESTERN DIGITAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 9.    Related Parties and Related Commitments and Contingencies

Flash Ventures

The Company’s business ventures with Kioxia Corporation (“Kioxia”) consist of three separate legal entities: Flash Partners Ltd. (“Flash Partners”), Flash Alliance Ltd. (“Flash Alliance”), and Flash Forward Ltd. (“Flash Forward”), collectively referred to as “Flash Ventures”.

The following table presents the notes receivable from, and equity investments in, Flash Ventures:
September 29,
2023
June 30,
2023
(in millions)
Notes receivable, Flash Partners$21 $37 
Notes receivable, Flash Alliance35 48 
Notes receivable, Flash Forward699 709 
Investment in Flash Partners155 160 
Investment in Flash Alliance227 234 
Investment in Flash Forward108 109 
Total notes receivable and investments in Flash Ventures$1,245 $1,297 

During the three months ended September 29, 2023 and September 30, 2022, the Company made net payments to Flash Ventures of $0.9 billion and $1.0 billion, respectively, for purchased flash-based memory wafers and net loans.

The Company makes, or will make, loans to Flash Ventures to fund equipment investments for new process technologies and additional wafer capacity. The Company aggregates its Flash Ventures’ notes receivable into one class of financing receivables due to the similar ownership interest and common structure in each Flash Venture entity. For all reporting periods presented, no loans were past due and no loan impairments were recorded. The Company’s notes receivable from each Flash Ventures entity, denominated in Japanese yen, are secured by equipment owned by that Flash Ventures entity.

As of September 29, 2023 and June 30, 2023, the Company had accounts payable balances due to Flash Ventures of $277 million and $292 million, respectively.

The Company’s maximum reasonably estimable loss exposure (excluding lost profits) as a result of its involvement with Flash Ventures, based upon the Japanese yen to U.S. dollar exchange rate at September 29, 2023, is presented below. Investments in Flash Ventures are denominated in Japanese yen, and the maximum estimable loss exposure excludes any cumulative translation adjustment due to revaluation from the Japanese yen to the U.S. dollar.
September 29,
2023
(in millions)
Notes receivable$755 
Equity investments490 
Operating lease guarantees1,590 
Inventory and prepayments1,047 
Maximum estimable loss exposure$3,882 

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WESTERN DIGITAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The Company is obligated to pay for variable costs incurred in producing its share of Flash Ventures’ flash-based memory wafer supply, based on its three-month forecast, which generally equals 50% of Flash Ventures’ output. In addition, the Company is obligated to pay for half of Flash Ventures’ fixed costs regardless of the output the Company chooses to purchase. The Company is not able to estimate its total wafer purchase commitment obligation beyond its rolling three-month purchase commitment because the price is determined by reference to the future cost of producing the semiconductor wafers. In addition, the Company is committed to fund 49.9% to 50.0% of each Flash Ventures entity’s capital investments to the extent that each Flash Ventures entity’s operating cash flow is insufficient to fund these investments.

Flash Ventures has historically operated near 100% of its manufacturing capacity. During 2023 and the three months ended September 29, 2023, as a result of flash market conditions, the Company temporarily reduced its utilization of its share of Flash Ventures’ manufacturing capacity to an abnormally low level to more closely align the Company’s flash-based wafer supply with projected demand. During the three months ended September 29, 2023, the Company incurred costs of $141 million associated with the reduction in utilization related to Flash Ventures, which was recorded as a charge to Cost of revenue. No such charges were incurred during the three months ended September 30, 2022.

The Company has facility agreements with Kioxia related to the construction and operation of Kioxia’s “K1” 300-millimeter wafer fabrication facility in Kitakami, Japan and a wafer fabrication facility in Yokkaichi, Japan, referred to as “Y7”. In connection with the start-up of these facilities, the Company has made prepayments toward future building depreciation. As of September 29, 2023, such prepayments aggregated $539 million and will be credited against future wafer charges.

Inventory Purchase Commitments with Flash Ventures. Purchase orders placed under Flash Ventures for up to three months are binding and cannot be canceled.

Research and Development Activities. The Company participates in common research and development (“R&D”) activities with Kioxia and is contractually committed to a minimum funding level. R&D commitments are immaterial to the Condensed Consolidated Financial Statements.

Off-Balance Sheet Liabilities

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 the Company guarantees half or all of the outstanding obligations under each lease agreement. The lease agreements are subject to customary covenants and cancellation events related to Flash Ventures and each of the guarantors. The occurrence of a cancellation event could result in an acceleration of Flash Ventures’ obligations and a call on the Company’s guarantees.

The following table presents the Company’s portion of the remaining guarantee obligations under the Flash Ventures’ lease facilities in both Japanese yen and U.S. dollar-equivalent, based upon the Japanese yen to U.S. dollar exchange rate as of September 29, 2023.
Lease Amounts
(Japanese yen, in billions)(U.S. dollar, in millions)
Total guarantee obligations¥237 $1,590 

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WESTERN DIGITAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The following table details the breakdown of the Company’s remaining guarantee obligations between the principal amortization and the purchase option exercise price at the end of the term of the Flash Ventures lease agreements, in annual installments as of September 29, 2023 in U.S. dollars, based upon the Japanese yen to U.S. dollar exchange rate as of September 29, 2023:
Annual InstallmentsPayment of Principal AmortizationPurchase Option Exercise Price at Final Lease TermsGuarantee Amount
(in millions)
Remaining nine months of 2024
$340 $70 $410 
2025273 80 353 
2026324 121 445 
2027128 102 230 
202837 99 136 
202911516 
Total guarantee obligations$1,103 $487 $1,590 

The Company and Kioxia have agreed to mutually contribute to, and indemnify each other and Flash Ventures for, environmental remediation costs or liability resulting from Flash Ventures’ manufacturing operations in certain circumstances. The Company has not made any indemnification payments, nor recorded any indemnification receivables, under any such agreements. As of September 29, 2023, no amounts had been accrued in the Condensed Consolidated Financial Statements with respect to these indemnification agreements.

Unis Venture

The Company has a joint venture with Unisplendour Corporation Limited and Unissoft (Wuxi) Group Co. Ltd. (“Unis”), referred to as the “Unis Venture”, to market and sell the Company’s products in China and to develop data storage systems for the Chinese market in the future. The Unis Venture is 49% owned by the Company and 51% owned by Unis. The Company accounts for its investment in the Unis Venture under the equity method of accounting. Revenue on products distributed by the Unis Venture is recognized upon sell through to third-party customers. For the three months ended September 29, 2023 and September 30, 2022, the Company recognized approximately 6% and 3% of its consolidated revenue on products distributed by the Unis Venture, respectively. The outstanding accounts receivable due from the Unis Venture were 7% and 8% of Accounts receivable, net as of September 29, 2023 and June 30, 2023, respectively.

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WESTERN DIGITAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 10.    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 2039. 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 summarizes supplemental balance sheet information related to operating leases as of September 29, 2023:
Lease Amounts
($ in millions)
Minimum lease payments by year:
Remaining nine months of 2024
$49 
202563 
202665 
202758 
202851 
Thereafter329 
Total future minimum lease payments615 
Less: Imputed interest175 
Present value of lease liabilities440 
Less: Current portion (included in Accrued expenses)
44 
Long-term operating lease liabilities (included in Other liabilities )
$396 
Operating lease right-of-use assets (included in Other non-current assets)
$419 
Weighted average remaining lease term in years10.5
Weighted average discount rate6.0 %

The following table summarizes supplemental disclosures of operating cost and cash flow information related to operating leases:
Three Months Ended
September 29,
2023
September 30,
2022
(in millions)
Cost of operating leases$14 $14 
Cash paid for operating leases15 14 
Operating lease assets obtained in exchange for operating lease liabilities168 4 
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WESTERN DIGITAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Sale-Leaseback

In September 2023, the Company completed a sale and leaseback of its facility in Milpitas, California. The Company received net proceeds of $191 million in cash and recorded a gain of $85 million on the sale. In connection with the sale, the Company agreed to lease back the facility at an annual lease rate of $16 million for the first year, increasing by 3% per year thereafter through January 1, 2039. The lease includes three 5-year renewal options and one 4-year renewal option for the ability to extend through December 2057. The supplemental balance sheet information and supplemental disclosures of operating cost and cash flow information related to the lease are included in the tables above.

Purchase Agreements and Other Commitments

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 receipt 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 September 29, 2023, the Company had the following minimum long-term commitments:
Long-Term Commitments
(in millions)
Year:
Remaining nine months of 2024
$215 
2025267 
202675 
202752 
202820 
Thereafter130 
Total$759 

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WESTERN DIGITAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 11.     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 financial statement line as well as the related tax benefit included in the Company’s Condensed Consolidated Statements of Operations:
Three Months Ended
September 29,
2023
September 30,
2022
(in millions)
RSUs and PSUs$65 $75 
ESPP12 11 
Total$77 $86 

Three Months Ended
September 29,
2023
September 30,
2022
(in millions)
Cost of revenue$13 $14 
Research and development34 39 
Selling, general and administrative30 33 
Subtotal77 86 
Tax benefit(10)(13)
Total$67 $73 

Any shortfalls or excess windfall tax benefits and tax deficiencies for shortfalls 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 September 29, 2023:
Unamortized Compensation CostsWeighted Average Service Period
(in millions)(years)
RSUs and PSUs (1)
$588 2.8
ESPP55 1.2
Total unamortized compensation cost$643 
(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

Stock Options

The following table summarizes stock option activity under the Company’s incentive plans. As of September 29, 2023, there were no remaining outstanding options.
Number of SharesWeighted Average Exercise Price Per ShareWeighted Average Remaining Contractual Life
(in millions)(in years)
Options outstanding at June 30, 20230.3 $44.95 0.10
Canceled or expired(0.3)44.95 
Options outstanding at September 29, 2023 $ 

RSUs and PSUs

The following table summarizes RSU and PSU activity under the Company’s incentive plans:
Number of SharesWeighted Average Grant Date Fair ValueAggregate Intrinsic Value at Vest Date
(in millions)(in millions)
RSUs and PSUs outstanding at June 30, 202313.8 $46.56 
Granted5.5 37.87 
Vested(3.3)47.00 $147 
Forfeited(0.9)46.86 
RSUs and PSUs outstanding at September 29, 202315.1 $43.85 

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.

Convertible Preferred Stock

On January 31, 2023, the Board of Directors of the Company authorized the designation of 900,000 shares of Series A Convertible Perpetual Preferred Stock, par value $0.01 per share (the “Preferred Shares”), from the Company’s existing five million authorized but unissued shares of preferred stock and issued the Preferred Shares through a private placement for an aggregate purchase price of $900 million, less issuance costs of $24 million. The Preferred Shares accrue a cumulative preferred dividend at an annual rate of 6.25% per annum (increasing to 7.25% per annum on January 31, 2030 and to 8.25% per annum on January 31, 2033) compounded on a quarterly basis. The Preferred Shares also participate in any dividends declared for common shareholders on an as-converted equivalent basis. No dividends have been declared or paid since the issuance of the Preferred Shares. As of September 29, 2023 and June 30, 2023, unpaid and cumulative dividends payable with respect to the Preferred Shares were $39 million and $24 million, respectively.

The Preferred Shares outstanding would have been convertible, if otherwise permitted, into approximately 20 million shares of common stock on September 29, 2023 and June 30, 2023 and as of September 29, 2023 and June 30, 2023, the total aggregate liquidation preference was $939 million and $924 million, respectively.



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WESTERN DIGITAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 12.    Income Tax Expense

The Tax Cuts and Jobs Act (the “2017 Act”), enacted on December 22, 2017, includes a broad range of tax reform proposals affecting businesses. The Company completed its accounting for the tax effects of the enactment of the 2017 Act during the second quarter of 2019. However, the U.S. Treasury and the Internal Revenue Service (“IRS”) have issued tax guidance on certain provisions of the 2017 Act since the enactment date, and the Company anticipates the issuance of additional regulatory and interpretive guidance. The Company applied a reasonable interpretation of the 2017 Act along with the then-available guidance in finalizing its 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 the Company’s 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 $1.0 billion. The corporate alternative minimum tax is effective for the Company beginning with fiscal year 2024. The Company is not subject to the CAMT of 15% for fiscal year 2024 as its average annual AFSI did not exceed $1.0 billion for the preceding three-year period.

The following table presents the Company’s Income tax expense and the effective tax rate:
Three Months Ended
September 29,
2023
September 30,
2022
($ in millions)
Income (loss) before taxes$(682)$84 
Income tax expense3 57 
Effective tax rate %