Shareholders' Equity and Convertible Preferred Stock

9 Months Ended

Mar. 28, 2025

Share-Based Payment Arrangement [Abstract]

Shareholders' Equity and Convertible Preferred Stock

Shareholders’ Equity and Convertible Preferred Stock

Stock-based Compensation Expense

In connection with the Separation (as discussed in Note 3, Discontinued Operations), on February 21, 2025, all outstanding stock-based compensation awards associated with continuing Western Digital employees were adjusted with the intent to preserve the intrinsic value of each award immediately before and after the Separation. The adjustments were determined using a ratio calculated based on the closing price of the Company’s common stock immediately before the Separation and the average of the closing price on each of the first five days of trading after the Separation. The terms of the outstanding awards remain the same and any unvested stock awards will continue to vest over the original vesting periods. An incremental value of approximately $40 million resulting from the adjustment of the unvested awards will be recognized ratably over the remaining service periods. Upon the Separation, approximately 3.1 million unvested stock-based compensation awards were retained by Sandisk employees and will vest upon completion of any remaining service period with Sandisk and approximately 3.5 million awards were cancelled from the Company’s incentive plans.

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 items as well as the related tax benefit included in the Company’s Condensed Consolidated Statements of Operations:

	Three Months Ended				Nine Months Ended
	March 28, 2025		March 29, 2024		March 28, 2025		March 29, 2024
	(in millions)
RSUs and PSUs	$	34	$	44	$	110	$	137
ESPP	1		8		12		18
Total	$	35	$	52	$	122	$	155

	Three Months Ended				Nine Months Ended
	March 28, 2025		March 29, 2024		March 28, 2025		March 29, 2024
	(in millions)
Cost of revenue	$	7	$	8	$	26	$	28
Research and development	17		17		52		49
Selling, general and administrative	11		27		44		78
Subtotal	35		52		122		155
Tax benefit	(4)		(7)		(15)		(21)
Total	$	31	$	45	$	107	$	134

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 benefit, were immaterial for the periods presented.

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 March 28, 2025:

	Unamortized Compensation Costs		Weighted Average Service Period
	(in millions)		(years)
RSUs and PSUs (1)	$	270	2.2

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

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 June 28, 2024	13.0	$	44.42
Granted	5.2	59.54
Vested	(5.0)	42.92		$	304
Forfeited	(1.1)	45.71
Share conversion due to Separation	2.6	52.15
Awards cancelled due to Separation	(3.5)	52.32
RSUs and PSUs outstanding at March 28, 2025	11.2	$	37.88

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.

Dividends

On April 29, 2025, the Company’s Board of Directors authorized the adoption of a quarterly 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. In conjunction with the adoption of the cash dividend program, the Board of Directors declared a cash dividend of $0.10 per share of the Company’s common stock, which will be paid on June 18, 2025 to shareholders of record as of the close of business on June 4, 2025. The Company may suspend or discontinue its cash dividend program at any time.

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 5,000,000 authorized but unissued shares of preferred stock and issued the Preferred Shares through a private placement. As of March 28, 2025 and June 28, 2024, 235,000 of the Preferred Shares were outstanding.

The Preferred Shares have an initial stated value of $1,000 per share and 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. Such dividends are payable on a quarterly basis in cash or in-kind through an increase to the stated value. Through December 27, 2024, the Company paid quarterly dividends on the Preferred Shares in-kind through an increase to the stated value. On January 25, 2025, the Board of the Directors of the Company declared its first cash dividend on the Preferred Shares, which was paid subsequent to quarter end on March 31, 2025, to the holders of the Preferred Shares as of March 15, 2025, the record date for the dividend. As of March 28, 2025 and June 28, 2024, unpaid and cumulative dividends payable with respect to the Preferred Shares were $30 million and $22 million, respectively. The Preferred Shares also participate in any dividends declared for common shareholders on an as-converted equivalent basis.

As of March 28, 2025, the Preferred Shares are convertible into shares of the Company’s common stock at a conversion rate of approximately $35.51 per share (the “Conversion Price”). The conversion rate was adjusted from the initial conversion rate of $47.75 per share as a result of the Separation, in accordance with the Certificate of Designations for the Preferred Shares, using a ratio of the closing price of the Company’s and Sandisk’s common stock over the first 10 trading days after the Separation. This rate is subject to future anti-dilution adjustments and certain other one-time adjustments in the event of various specified spin-off transactions. The conversion applies to the total of the stated value of the Preferred Shares plus any cumulative accrued but unpaid dividends. In the case of future standalone spin-off transactions, holders of the Preferred Shares may convert one-third of their shares into a similar class of preferred shares of the spin-off entity. The Company may opt to convert the Preferred Shares after January 31, 2026, if the closing price per share of the Company’s common stock exceeds 150% of the Conversion Price for at least 20 out of 30 consecutive trading days immediately before the Company's conversion notice.

As of March 28, 2025 and June 28, 2024, the Preferred Shares outstanding had an aggregate liquidation preference of $265 million and $257 million, respectively, and would have been convertible, if otherwise permitted, into approximately 7 million and 5 million shares of common stock, respectively, based on the conversion rate in effect at each date.