Leases and Other Commitments

6 Months Ended

Dec. 27, 2024

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 fiscal year 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 presents right-of-use lease assets and lease liabilities included in the Company’s Condensed Combined Balance Sheets:


	December 27, 2024		June 28, 2024
	(in millions)
Operating lease right-of-use assets (included in other non-current assets)	$	191	$	179

Operating lease liabilities:
Current portion of long-term operating lease liabilities (included in accrued expenses)	17		11
Long-term operating lease liabilities (included in other liabilities)	179		171
Total operating lease liabilities	$	196	$	182

The following table summarizes supplemental disclosures of operating cost and cash flow information related to operating leases:


	Three Months Ended				Six Months Ended
	December 27, 2024		December 29, 2023		December 27, 2024		December 29, 2023
	(in millions)
Cost of operating leases	$	8	$	7	$	16	$	13
Cash paid for operating leases	7		8		14		14
Operating lease assets obtained in exchange for operating lease liabilities	4		—		4		167

The weighted average remaining lease term and discount rate for the Company’s operating leases were as follows:


	December 27, 2024		June 28, 2024
Weighted average remaining lease term in years	12.6		13.7
Weighted average discount rate	7.4	%	7.5	%

As of December 27, 2024, minimum lease payments were as follows:


	Lease Amounts
	(in millions)
Minimum lease payments by fiscal year:
Remaining six months of 2025	$	14
2026	30
2027	28
2028	20
2029	20
Thereafter	198
Total future minimum lease payments	310
Less: Imputed interest	114
Present value of lease liabilities	$	196

Sale-Leaseback

In September 2023, WDC completed a sale and leaseback of its facility in Milpitas, California and received net proceeds of $191 million in cash. A substantial majority of these assets are associated with the Company, and as a result, $134 million of the net proceeds from the sale-leaseback transaction has been allocated to us on a relative square footage basis and reflected as a cash inflow from investing activities within the Condensed Combined Statements of Cash Flows for the six months ended December 29, 2023. In connection with the sale and leaseback, the Company recorded a gain of $60 million upon the closing of the transaction. For more information, see Part 1, Item 1, Note 13, Employee Termination and Other Charges of the Notes to Condensed Combined Financial Statements included in this Quarterly Report on Form 10-Q.

The property is being leased back to the Company at a total annual rate of $16 million for the first year and increasing by 3% per year thereafter through January 1, 2039. The lease includes three five-year renewal options and one four-year renewal option for the ability to extend through December 2057. The associated operating lease liability and right-of-use asset for this facility has been included in the Condensed Combined Balance Sheets as of December 27, 2024 and June 28, 2024. This facility is utilized in the Company’s operations, and the total lease expense has been allocated to the Company based on the continued usage of the facility.

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 coming months, 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 upon certain conditions such as performance, quality and technology of the vendor’s components. As of December 27, 2024, the Company had the following minimum long-term commitments:


	Long-term commitments
	(in millions)
Fiscal year:
Remaining six months of 2025	$	26
2026	496
2027	586
2028	570
2029	570
Thereafter	660
Total	$	2,908