Supplemental Financial Statement Data

6 Months Ended

Dec. 27, 2024

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Goodwill

The following table provides a summary of goodwill activity for the period presented:


	(in millions)
Balance at June 28, 2024	$	7,207

Divestiture (1)	(382)
Balance at September 27, 2024	$	6,825

(1) On September 28, 2024, the Company sold its majority interest in a subsidiary. See further discussion in Part 1, Item 1, Note 9, Related Parties and Related Commitments and Contingencies.

Goodwill attributed to the Company represents the historical goodwill balances in WDC’s business arising from acquisitions specific to the Company.

The Company determined that its single operating segment was also its single reporting unit. 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. The Company uses qualitative factors to determine whether goodwill is more likely than not impaired and whether a quantitative test for impairment is considered necessary. If the Company concludes from the qualitative assessment that goodwill is more likely than not impaired, the Company is required to perform a quantitative approach to determine the amount of impairment.

The Company is required to use judgment when assessing goodwill for impairment, including evaluating the impact of industry and macroeconomic conditions and the determination of the fair value of the reporting unit. In addition, the estimates and assumptions used to determine the fair value as well as the actual carrying value may change based on future changes in the Company’s results of operations, macroeconomic conditions or other factors. Changes in these estimates and assumptions could materially affect the Company’s assessment of the fair value and goodwill impairment. In addition, if negative macroeconomic conditions continue or worsen, goodwill could become impaired, which could result in an impairment charge and materially adversely affect the Company’s financial condition and results of operations.

For the three and six months ended December 29, 2023, there were no impairment charges recorded. In the three months ended December 27, 2024, the Company identified macroeconomic conditions and other qualitative factors indicating a potential impairment of goodwill at December 27, 2024. The Company conducted a quantitative analysis of the fair value of its sole reporting unit to determine the existence and magnitude of any potential goodwill impairment. The quantitative analysis employed a weighted valuation model, assessing the fair value of the reporting unit using both income and market approaches.

The income approach valued the projected discounted cash flows that are expected to be generated by the Company’s reporting unit and required judgments and estimates surrounding general economic conditions and company-specific performance inputs such as revenue growth rates, gross margins, operating costs, capital expenditures, assumed tax rates and other assumptions deemed reasonable by management. The market approach valued the reporting unit based upon financial performance and market multiples of comparable public companies, including consideration of a control premium representing the estimated amount a market participant would pay to obtain a controlling interest in the Company. After completion of the quantitative analysis, the Company determined that the fair value of its reporting unit exceeded its carrying value by 12%, resulting in no impairment charges recorded in the three and six months ended December 27, 2024. See Part 1, Item 1, Note 15, Subsequent Events, for information about a potential impairment of goodwill for the three months ending March 28, 2025.

Accounts receivable, net

From time to time, in connection with factoring agreements, WDC sells certain of our trade accounts receivable without recourse to third-party purchasers in exchange for cash. During the six months ended December 27, 2024, there were no trade accounts receivable of the Company sold by WDC. During the six months ended December 29, 2023, WDC sold trade accounts receivable of the Company and received cash proceeds of $272 million. The discounts on the trade accounts receivable sold during the period were not material and were recorded within Other expense, net in the Condensed Combined Statements of Operations. There were no factored receivables outstanding as of December 27, 2024 and June 28, 2024.

Inventories


	December 27, 2024		June 28, 2024
	(in millions)
Inventories:
Raw materials and component parts	$	1,661	$	1,398
Work-in-process	208		237
Finished goods	303		320
Total inventories	$	2,172	$	1,955

Property, plant and equipment, net


	December 27, 2024		June 28, 2024
	(in millions)
Property, plant and equipment:
Land	$	10	$	10
Machinery and equipment	1,463		2,340
Buildings and improvements	280		397
Computer equipment and software	153		123
Furniture and fixtures	18		16
Construction-in-process	114		108
Property, plant and equipment, gross	2,038		2,994
Accumulated depreciation	(1,459)		(2,203)
Property, plant and equipment, net	$	579	$	791

Product warranty liability

Changes in the warranty accrual were as follows:


	Three Months Ended				Six Months Ended
	December 27, 2024		December 29, 2023		December 27, 2024		December 29, 2023
	(in millions)
Warranty accrual, beginning of period	$	41	$	40	$	48	$	42
Charges to operations	8		8		9		15
Utilization	(9)		(7)		(17)		(17)
Changes in estimate related to pre-existing warranties	4		2		4		3
Warranty accrual, end of period	$	44	$	43	$	44	$	43

The current portion of the warranty accrual was classified in Accrued expenses and the long-term portion was classified in Other liabilities as noted below:


	December 27, 2024		June 28, 2024
	(in millions)
Warranty accrual:
Current portion	$	22	$	27
Long-term portion	22		21
Total warranty accrual	$	44	$	48

Other liabilities


	December 27, 2024		June 28, 2024
	(in millions)
Other liabilities:
Non-current lease liability	$	179	$	171
Non-current net tax payable	66		56
Other non-current liabilities	62		59
Total other liabilities	$	307	$	286

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 equity but are excluded from net income. The components of AOCL were as follows:


	Foreign Currency Translation Adjustment		Unrealized Income (Losses) on Derivative Contracts		Total Accumulated Comprehensive Loss
	(in millions)





Balance at June 28, 2024	$	(208)	$	(244)	$	(452)
Other comprehensive income (loss)	(35)		74		39
Income tax expense related to items of other comprehensive income	—		(15)		(15)
Net current-period other comprehensive income (loss)	(35)		59		24
Net transfer to Parent	—		(6)		(6)
Balance at December 27, 2024	$	(243)	$	(191)	$	(434)

During the three and six months ended December 27, 2024, the amounts reclassified out of AOCL were losses related to foreign exchange contracts, substantially all of which were charged to Cost of revenue in the Condensed Combined Statements of Operations.

As of December 27, 2024, 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.