Quarterly Report (10-q)

Date : 02/11/2020 @ 11:03AM
Source : Edgar (US Regulatory)
Stock : Western Digital Corporation (WDC)
Quote : 45.05  -0.29 (-0.64%) @ 5:00AM
After Hours
Last Trade
Last $ 45.70 ▲ 0.65 (1.44%)

Quarterly Report (10-q)

false--07-03Q2202000001060400.010.014500000004500000003120000003120000002950000002990000000.010.470.010.010.0050.0152210000000.010.01500000050000000000P6MP1YP1Y1700000013000000P3Y 0000106040 2019-06-29 2020-01-03 0000106040 2020-02-04 0000106040 2020-01-03 0000106040 2019-06-28 0000106040 2019-10-05 2020-01-03 0000106040 2018-09-29 2018-12-28 0000106040 2018-06-30 2018-12-28 0000106040 2018-06-29 0000106040 2018-12-28 0000106040 us-gaap:RetainedEarningsMember 2018-09-29 2018-12-28 0000106040 us-gaap:AdditionalPaidInCapitalMember 2018-09-29 2018-12-28 0000106040 us-gaap:CommonStockMember 2018-12-28 0000106040 us-gaap:CommonStockMember 2018-06-29 0000106040 us-gaap:TreasuryStockMember 2018-06-29 0000106040 us-gaap:AdditionalPaidInCapitalMember 2018-06-30 2018-09-28 0000106040 us-gaap:RetainedEarningsMember 2018-06-29 0000106040 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2018-09-29 2018-12-28 0000106040 us-gaap:TreasuryStockMember 2018-09-29 2018-12-28 0000106040 us-gaap:TreasuryStockMember 2018-12-28 0000106040 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2018-06-29 0000106040 us-gaap:TreasuryStockMember 2018-06-30 2018-09-28 0000106040 us-gaap:TreasuryStockMember 2018-09-28 0000106040 us-gaap:AdditionalPaidInCapitalMember 2018-12-28 0000106040 us-gaap:CommonStockMember 2018-09-28 0000106040 2018-09-28 0000106040 2018-06-30 2018-09-28 0000106040 us-gaap:RetainedEarningsMember 2018-06-30 0000106040 2018-06-30 0000106040 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2018-09-28 0000106040 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2018-06-30 2018-09-28 0000106040 us-gaap:AdditionalPaidInCapitalMember 2018-06-29 0000106040 us-gaap:RetainedEarningsMember 2018-12-28 0000106040 us-gaap:RetainedEarningsMember 2018-09-28 0000106040 us-gaap:RetainedEarningsMember 2018-06-30 2018-09-28 0000106040 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2018-12-28 0000106040 us-gaap:AdditionalPaidInCapitalMember 2018-09-28 0000106040 2019-10-04 0000106040 us-gaap:RetainedEarningsMember 2019-06-29 2019-10-04 0000106040 2019-06-29 0000106040 us-gaap:AdditionalPaidInCapitalMember 2019-10-04 0000106040 us-gaap:CommonStockMember 2019-10-04 0000106040 us-gaap:AdditionalPaidInCapitalMember 2020-01-03 0000106040 us-gaap:AdditionalPaidInCapitalMember 2019-10-05 2020-01-03 0000106040 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2019-06-29 2019-10-04 0000106040 us-gaap:TreasuryStockMember 2019-10-05 2020-01-03 0000106040 2019-06-29 2019-10-04 0000106040 us-gaap:TreasuryStockMember 2019-06-29 2019-10-04 0000106040 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2019-06-28 0000106040 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2019-10-05 2020-01-03 0000106040 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2019-10-04 0000106040 us-gaap:TreasuryStockMember 2019-10-04 0000106040 us-gaap:RetainedEarningsMember 2019-06-29 0000106040 us-gaap:RetainedEarningsMember 2019-10-05 2020-01-03 0000106040 us-gaap:CommonStockMember 2020-01-03 0000106040 us-gaap:TreasuryStockMember 2020-01-03 0000106040 us-gaap:AdditionalPaidInCapitalMember 2019-06-29 2019-10-04 0000106040 us-gaap:TreasuryStockMember 2019-06-28 0000106040 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2020-01-03 0000106040 us-gaap:CommonStockMember 2019-06-28 0000106040 us-gaap:RetainedEarningsMember 2020-01-03 0000106040 us-gaap:RetainedEarningsMember 2019-10-04 0000106040 us-gaap:RetainedEarningsMember 2019-06-28 0000106040 us-gaap:AdditionalPaidInCapitalMember 2019-06-28 0000106040 us-gaap:AccountingStandardsUpdate201602Member 2019-06-29 0000106040 wdc:ClientSolutionsMember 2019-06-29 2020-01-03 0000106040 wdc:DataCenterDevicesSolutionsMember 2018-09-29 2018-12-28 0000106040 wdc:FlashbasedMember 2018-09-29 2018-12-28 0000106040 wdc:ClientDevicesMember 2019-10-05 2020-01-03 0000106040 srt:AmericasMember 2018-06-30 2018-12-28 0000106040 wdc:DataCenterDevicesSolutionsMember 2018-06-30 2018-12-28 0000106040 srt:AsiaMember 2018-09-29 2018-12-28 0000106040 wdc:FlashbasedMember 2018-06-30 2018-12-28 0000106040 wdc:ClientSolutionsMember 2019-10-05 2020-01-03 0000106040 srt:AmericasMember 2018-09-29 2018-12-28 0000106040 wdc:HDDMember 2018-09-29 2018-12-28 0000106040 wdc:FlashbasedMember 2019-10-05 2020-01-03 0000106040 srt:AmericasMember 2019-10-05 2020-01-03 0000106040 wdc:HDDMember 2019-06-29 2020-01-03 0000106040 srt:AsiaMember 2018-06-30 2018-12-28 0000106040 wdc:HDDMember 2019-10-05 2020-01-03 0000106040 wdc:DataCenterDevicesSolutionsMember 2019-06-29 2020-01-03 0000106040 wdc:EuropeMiddleEastAndAfricaMember 2018-06-30 2018-12-28 0000106040 wdc:EuropeMiddleEastAndAfricaMember 2018-09-29 2018-12-28 0000106040 wdc:ClientDevicesMember 2019-06-29 2020-01-03 0000106040 wdc:ClientDevicesMember 2018-06-30 2018-12-28 0000106040 srt:AmericasMember 2019-06-29 2020-01-03 0000106040 srt:AsiaMember 2019-06-29 2020-01-03 0000106040 srt:AsiaMember 2019-10-05 2020-01-03 0000106040 wdc:EuropeMiddleEastAndAfricaMember 2019-10-05 2020-01-03 0000106040 wdc:HDDMember 2018-06-30 2018-12-28 0000106040 wdc:ClientSolutionsMember 2018-09-29 2018-12-28 0000106040 wdc:ClientDevicesMember 2018-09-29 2018-12-28 0000106040 wdc:DataCenterDevicesSolutionsMember 2019-10-05 2020-01-03 0000106040 wdc:ClientSolutionsMember 2018-06-30 2018-12-28 0000106040 wdc:EuropeMiddleEastAndAfricaMember 2019-06-29 2020-01-03 0000106040 wdc:FlashbasedMember 2019-06-29 2020-01-03 0000106040 wdc:TopTenCustomersMember us-gaap:RevenueFromContractWithCustomerMember us-gaap:CustomerConcentrationRiskMember 2018-09-29 2018-12-28 0000106040 2022-07-02 2020-01-03 0000106040 wdc:TopTenCustomersMember us-gaap:RevenueFromContractWithCustomerMember us-gaap:CustomerConcentrationRiskMember 2019-06-29 2020-01-03 0000106040 wdc:TopTenCustomersMember us-gaap:RevenueFromContractWithCustomerMember us-gaap:CustomerConcentrationRiskMember 2019-10-05 2020-01-03 0000106040 2020-01-04 2020-01-03 0000106040 2021-07-03 2020-01-03 0000106040 2020-07-04 2020-01-03 0000106040 wdc:TopTenCustomersMember us-gaap:RevenueFromContractWithCustomerMember us-gaap:CustomerConcentrationRiskMember 2018-06-30 2018-12-28 0000106040 us-gaap:AccumulatedGainLossNetCashFlowHedgeParentMember 2019-06-29 2020-01-03 0000106040 us-gaap:AccumulatedTranslationAdjustmentMember 2019-06-29 2020-01-03 0000106040 us-gaap:AccumulatedDefinedBenefitPlansAdjustmentNetUnamortizedGainLossMember 2019-06-29 2020-01-03 0000106040 us-gaap:AccumulatedDefinedBenefitPlansAdjustmentNetUnamortizedGainLossMember 2019-06-28 0000106040 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2019-06-29 2020-01-03 0000106040 us-gaap:AccumulatedGainLossNetCashFlowHedgeParentMember 2020-01-03 0000106040 us-gaap:AccumulatedTranslationAdjustmentMember 2020-01-03 0000106040 us-gaap:AccumulatedTranslationAdjustmentMember 2019-06-28 0000106040 us-gaap:AccumulatedDefinedBenefitPlansAdjustmentNetUnamortizedGainLossMember 2020-01-03 0000106040 us-gaap:AccumulatedGainLossNetCashFlowHedgeParentMember 2019-06-28 0000106040 us-gaap:MachineryAndEquipmentMember 2020-01-03 0000106040 us-gaap:BuildingAndBuildingImprovementsMember 2020-01-03 0000106040 us-gaap:ConstructionInProgressMember 2020-01-03 0000106040 us-gaap:FurnitureAndFixturesMember 2020-01-03 0000106040 wdc:ComputerEquipmentandSoftwareMember 2020-01-03 0000106040 us-gaap:FurnitureAndFixturesMember 2019-06-28 0000106040 wdc:ComputerEquipmentandSoftwareMember 2019-06-28 0000106040 us-gaap:MachineryAndEquipmentMember 2019-06-28 0000106040 us-gaap:LandMember 2020-01-03 0000106040 us-gaap:ConstructionInProgressMember 2019-06-28 0000106040 us-gaap:LandMember 2019-06-28 0000106040 us-gaap:BuildingAndBuildingImprovementsMember 2019-06-28 0000106040 us-gaap:DisposalGroupDisposedOfBySaleNotDiscontinuedOperationsMember wdc:IntelliFlashMember 2019-11-19 2019-11-19 0000106040 2019-09-10 2019-09-10 0000106040 wdc:FactoredReceivablesMember 2019-06-28 0000106040 wdc:FactoredReceivablesMember 2020-01-03 0000106040 us-gaap:InterestRateSwapMember us-gaap:FairValueInputsLevel2Member us-gaap:FairValueMeasurementsRecurringMember 2020-01-03 0000106040 us-gaap:MoneyMarketFundsMember us-gaap:FairValueInputsLevel3Member us-gaap:FairValueMeasurementsRecurringMember 2020-01-03 0000106040 us-gaap:FairValueInputsLevel2Member us-gaap:FairValueMeasurementsRecurringMember 2020-01-03 0000106040 us-gaap:ForeignExchangeContractMember us-gaap:FairValueInputsLevel1Member us-gaap:FairValueMeasurementsRecurringMember 2020-01-03 0000106040 us-gaap:ForeignExchangeContractMember us-gaap:FairValueMeasurementsRecurringMember 2020-01-03 0000106040 us-gaap:MoneyMarketFundsMember us-gaap:FairValueInputsLevel2Member us-gaap:FairValueMeasurementsRecurringMember 2020-01-03 0000106040 us-gaap:ForeignExchangeContractMember us-gaap:FairValueInputsLevel2Member us-gaap:FairValueMeasurementsRecurringMember 2020-01-03 0000106040 us-gaap:InterestRateSwapMember us-gaap:FairValueInputsLevel1Member us-gaap:FairValueMeasurementsRecurringMember 2020-01-03 0000106040 us-gaap:FairValueInputsLevel3Member us-gaap:FairValueMeasurementsRecurringMember 2020-01-03 0000106040 us-gaap:FairValueMeasurementsRecurringMember 2020-01-03 0000106040 us-gaap:FairValueInputsLevel1Member us-gaap:FairValueMeasurementsRecurringMember 2020-01-03 0000106040 us-gaap:ForeignExchangeContractMember us-gaap:FairValueInputsLevel3Member us-gaap:FairValueMeasurementsRecurringMember 2020-01-03 0000106040 us-gaap:InterestRateSwapMember us-gaap:FairValueMeasurementsRecurringMember 2020-01-03 0000106040 us-gaap:MoneyMarketFundsMember us-gaap:FairValueInputsLevel1Member us-gaap:FairValueMeasurementsRecurringMember 2020-01-03 0000106040 us-gaap:InterestRateSwapMember us-gaap:FairValueInputsLevel3Member us-gaap:FairValueMeasurementsRecurringMember 2020-01-03 0000106040 us-gaap:MoneyMarketFundsMember us-gaap:FairValueMeasurementsRecurringMember 2020-01-03 0000106040 us-gaap:MoneyMarketFundsMember us-gaap:FairValueInputsLevel3Member us-gaap:FairValueMeasurementsRecurringMember 2019-06-28 0000106040 us-gaap:InterestRateSwapMember us-gaap:FairValueInputsLevel1Member us-gaap:FairValueMeasurementsRecurringMember 2019-06-28 0000106040 us-gaap:CertificatesOfDepositMember us-gaap:FairValueInputsLevel2Member us-gaap:FairValueMeasurementsRecurringMember 2019-06-28 0000106040 us-gaap:ForeignExchangeContractMember us-gaap:FairValueInputsLevel1Member us-gaap:FairValueMeasurementsRecurringMember 2019-06-28 0000106040 us-gaap:FairValueInputsLevel1Member us-gaap:FairValueMeasurementsRecurringMember 2019-06-28 0000106040 us-gaap:InterestRateSwapMember us-gaap:FairValueInputsLevel2Member us-gaap:FairValueMeasurementsRecurringMember 2019-06-28 0000106040 us-gaap:MoneyMarketFundsMember us-gaap:FairValueMeasurementsRecurringMember 2019-06-28 0000106040 us-gaap:FairValueInputsLevel2Member us-gaap:FairValueMeasurementsRecurringMember 2019-06-28 0000106040 us-gaap:ForeignExchangeContractMember us-gaap:FairValueMeasurementsRecurringMember 2019-06-28 0000106040 us-gaap:ForeignExchangeContractMember us-gaap:FairValueInputsLevel3Member us-gaap:FairValueMeasurementsRecurringMember 2019-06-28 0000106040 us-gaap:InterestRateSwapMember us-gaap:FairValueMeasurementsRecurringMember 2019-06-28 0000106040 us-gaap:FairValueMeasurementsRecurringMember 2019-06-28 0000106040 us-gaap:FairValueInputsLevel3Member us-gaap:FairValueMeasurementsRecurringMember 2019-06-28 0000106040 us-gaap:InterestRateSwapMember us-gaap:FairValueInputsLevel3Member us-gaap:FairValueMeasurementsRecurringMember 2019-06-28 0000106040 us-gaap:MoneyMarketFundsMember us-gaap:FairValueInputsLevel1Member us-gaap:FairValueMeasurementsRecurringMember 2019-06-28 0000106040 us-gaap:MoneyMarketFundsMember us-gaap:FairValueInputsLevel2Member us-gaap:FairValueMeasurementsRecurringMember 2019-06-28 0000106040 us-gaap:ForeignExchangeContractMember us-gaap:FairValueInputsLevel2Member us-gaap:FairValueMeasurementsRecurringMember 2019-06-28 0000106040 us-gaap:CertificatesOfDepositMember us-gaap:FairValueInputsLevel3Member us-gaap:FairValueMeasurementsRecurringMember 2019-06-28 0000106040 us-gaap:CertificatesOfDepositMember us-gaap:FairValueMeasurementsRecurringMember 2019-06-28 0000106040 us-gaap:CertificatesOfDepositMember us-gaap:FairValueInputsLevel1Member us-gaap:FairValueMeasurementsRecurringMember 2019-06-28 0000106040 wdc:OnePointFiftyPercentSeniorConvertibleNotesDueTwoThousandTwentyFourMember us-gaap:CarryingReportedAmountFairValueDisclosureMember 2020-01-03 0000106040 wdc:U.S.TermLoanB4Member us-gaap:CarryingReportedAmountFairValueDisclosureMember 2020-01-03 0000106040 us-gaap:FairValueInputsLevel2Member us-gaap:EstimateOfFairValueFairValueDisclosureMember 2019-06-28 0000106040 wdc:FourPointSeventyFivePercentSeniorUnsecuredNotesDueTwoThousandTwentySixMember us-gaap:CarryingReportedAmountFairValueDisclosureMember 2020-01-03 0000106040 wdc:TermLoanA1Member us-gaap:CarryingReportedAmountFairValueDisclosureMember 2019-06-28 0000106040 wdc:OnePointFiftyPercentSeniorConvertibleNotesDueTwoThousandTwentyFourMember us-gaap:FairValueInputsLevel2Member us-gaap:EstimateOfFairValueFairValueDisclosureMember 2019-06-28 0000106040 us-gaap:CarryingReportedAmountFairValueDisclosureMember 2019-06-28 0000106040 wdc:ConvertibleSeniorNotesDueTwoThousandTwentyMemberMember us-gaap:FairValueInputsLevel2Member us-gaap:EstimateOfFairValueFairValueDisclosureMember 2020-01-03 0000106040 wdc:TermLoanA1Member us-gaap:CarryingReportedAmountFairValueDisclosureMember 2020-01-03 0000106040 wdc:ConvertibleSeniorNotesDueTwoThousandTwentyMemberMember us-gaap:FairValueInputsLevel2Member us-gaap:EstimateOfFairValueFairValueDisclosureMember 2019-06-28 0000106040 wdc:TermLoanA1Member us-gaap:FairValueInputsLevel2Member us-gaap:EstimateOfFairValueFairValueDisclosureMember 2020-01-03 0000106040 wdc:OnePointFiftyPercentSeniorConvertibleNotesDueTwoThousandTwentyFourMember us-gaap:FairValueInputsLevel2Member us-gaap:EstimateOfFairValueFairValueDisclosureMember 2020-01-03 0000106040 wdc:FourPointSeventyFivePercentSeniorUnsecuredNotesDueTwoThousandTwentySixMember us-gaap:CarryingReportedAmountFairValueDisclosureMember 2019-06-28 0000106040 wdc:TermLoanA1Member us-gaap:FairValueInputsLevel2Member us-gaap:EstimateOfFairValueFairValueDisclosureMember 2019-06-28 0000106040 us-gaap:FairValueInputsLevel2Member us-gaap:EstimateOfFairValueFairValueDisclosureMember 2020-01-03 0000106040 wdc:FourPointSeventyFivePercentSeniorUnsecuredNotesDueTwoThousandTwentySixMember us-gaap:FairValueInputsLevel2Member us-gaap:EstimateOfFairValueFairValueDisclosureMember 2019-06-28 0000106040 wdc:OnePointFiftyPercentSeniorConvertibleNotesDueTwoThousandTwentyFourMember us-gaap:CarryingReportedAmountFairValueDisclosureMember 2019-06-28 0000106040 wdc:U.S.TermLoanB4Member us-gaap:FairValueInputsLevel2Member us-gaap:EstimateOfFairValueFairValueDisclosureMember 2020-01-03 0000106040 wdc:ConvertibleSeniorNotesDueTwoThousandTwentyMemberMember us-gaap:CarryingReportedAmountFairValueDisclosureMember 2020-01-03 0000106040 us-gaap:CarryingReportedAmountFairValueDisclosureMember 2020-01-03 0000106040 wdc:U.S.TermLoanB4Member us-gaap:CarryingReportedAmountFairValueDisclosureMember 2019-06-28 0000106040 wdc:U.S.TermLoanB4Member us-gaap:FairValueInputsLevel2Member us-gaap:EstimateOfFairValueFairValueDisclosureMember 2019-06-28 0000106040 wdc:FourPointSeventyFivePercentSeniorUnsecuredNotesDueTwoThousandTwentySixMember us-gaap:FairValueInputsLevel2Member us-gaap:EstimateOfFairValueFairValueDisclosureMember 2020-01-03 0000106040 wdc:ConvertibleSeniorNotesDueTwoThousandTwentyMemberMember us-gaap:CarryingReportedAmountFairValueDisclosureMember 2019-06-28 0000106040 wdc:TermLoanA1Member 2020-01-03 0000106040 wdc:ConvertibleSeniorNotesDueTwoThousandTwentyMemberMember 2019-06-28 0000106040 wdc:FourPointSeventyFivePercentSeniorUnsecuredNotesDueTwoThousandTwentySixMember 2020-01-03 0000106040 wdc:FourPointSeventyFivePercentSeniorUnsecuredNotesDueTwoThousandTwentySixMember 2019-06-28 0000106040 wdc:TermLoanA1Member 2019-06-28 0000106040 wdc:OnePointFiftyPercentSeniorConvertibleNotesDueTwoThousandTwentyFourMember us-gaap:ConvertibleDebtMember 2019-06-28 0000106040 wdc:U.S.TermLoanB4Member 2020-01-03 0000106040 wdc:OnePointFiftyPercentSeniorConvertibleNotesDueTwoThousandTwentyFourMember us-gaap:ConvertibleDebtMember 2020-01-03 0000106040 wdc:U.S.TermLoanB4Member 2019-06-28 0000106040 wdc:ConvertibleSeniorNotesDueTwoThousandTwentyMemberMember 2020-01-03 0000106040 wdc:U.S.TermLoanB4Member 2020-01-03 2020-01-03 0000106040 wdc:U.S.TermLoanB4Member us-gaap:SubsequentEventMember 2020-01-31 2020-01-31 0000106040 wdc:U.S.TermLoanB4Member 2019-10-04 2019-10-04 0000106040 wdc:FlashPartnersLtdMember 2019-06-28 0000106040 wdc:FlashForwardLtdMember 2019-06-28 0000106040 us-gaap:EquityMethodInvesteeMember 2020-01-03 0000106040 wdc:FlashPartnersLtdMember 2020-01-03 0000106040 wdc:FlashAllianceLtdMember 2019-06-28 0000106040 us-gaap:EquityMethodInvesteeMember 2019-06-28 0000106040 wdc:FlashAllianceLtdMember 2020-01-03 0000106040 wdc:FlashForwardLtdMember 2020-01-03 0000106040 us-gaap:EquityMethodInvesteeMember 2018-09-29 2018-12-28 0000106040 us-gaap:EquityMethodInvesteeMember 2020-01-03 0000106040 us-gaap:EquityMethodInvesteeMember 2019-06-29 2020-01-03 0000106040 wdc:FlashVenturesMember 2020-01-03 0000106040 wdc:UnisVentureMember us-gaap:RevenueFromContractWithCustomerMember us-gaap:ProductConcentrationRiskMember 2019-10-05 2020-01-03 0000106040 srt:MinimumMember wdc:WesternDigitalCorpMember 2020-01-03 0000106040 wdc:UnisVentureMember 2020-01-03 0000106040 wdc:UnissoftWuxiGroupCoLtd.Member wdc:UnisVentureMember 2020-01-03 0000106040 us-gaap:EquityMethodInvesteeMember 2019-10-05 2020-01-03 0000106040 us-gaap:EquityMethodInvesteeMember 2018-06-30 2018-12-28 0000106040 srt:MaximumMember wdc:WesternDigitalCorpMember 2020-01-03 0000106040 us-gaap:EquityMethodInvesteeMember 2019-06-28 0000106040 wdc:FlashVenturesMember wdc:PrepaymentsOfFutureDepreciationMember 2019-05-31 0000106040 us-gaap:EquityMethodInvesteeMember wdc:OffBalanceSheetGuaranteeMember 2020-01-03 0000106040 us-gaap:EquityMethodInvesteeMember 2020-01-03 0000106040 us-gaap:EquityMethodInvesteeMember us-gaap:EquityMethodInvestmentsMember 2020-01-03 0000106040 us-gaap:EquityMethodInvesteeMember us-gaap:NotesReceivableMember 2020-01-03 0000106040 us-gaap:EquityMethodInvesteeMember us-gaap:PrepaidExpensesAndOtherCurrentAssetsMember 2020-01-03 0000106040 wdc:PaymentOfPrincipalAmortizationMember us-gaap:EquityMethodInvesteeMember 2020-01-03 0000106040 wdc:PurchaseOptionExercisePriceMember us-gaap:EquityMethodInvesteeMember 2020-01-03 0000106040 wdc:FlashVenturesMember wdc:PrepaymentsOfFutureDepreciationMember 2019-05-01 2019-05-31 0000106040 wdc:UnisVentureMember us-gaap:RevenueFromContractWithCustomerMember us-gaap:ProductConcentrationRiskMember 2018-09-29 2018-12-28 0000106040 wdc:UnisVentureMember us-gaap:RevenueFromContractWithCustomerMember us-gaap:ProductConcentrationRiskMember 2019-06-29 2020-01-03 0000106040 wdc:UnisVentureMember us-gaap:RevenueFromContractWithCustomerMember us-gaap:ProductConcentrationRiskMember 2018-06-30 2018-12-28 0000106040 us-gaap:CostOfSalesMember 2019-06-29 2020-01-03 0000106040 us-gaap:SellingGeneralAndAdministrativeExpensesMember 2018-09-29 2018-12-28 0000106040 us-gaap:ResearchAndDevelopmentExpenseMember 2019-06-29 2020-01-03 0000106040 us-gaap:SellingGeneralAndAdministrativeExpensesMember 2019-06-29 2020-01-03 0000106040 us-gaap:ResearchAndDevelopmentExpenseMember 2018-06-30 2018-12-28 0000106040 us-gaap:CostOfSalesMember 2018-09-29 2018-12-28 0000106040 us-gaap:SellingGeneralAndAdministrativeExpensesMember 2019-10-05 2020-01-03 0000106040 us-gaap:CostOfSalesMember 2018-06-30 2018-12-28 0000106040 us-gaap:ResearchAndDevelopmentExpenseMember 2018-09-29 2018-12-28 0000106040 us-gaap:CostOfSalesMember 2019-10-05 2020-01-03 0000106040 us-gaap:SellingGeneralAndAdministrativeExpensesMember 2018-06-30 2018-12-28 0000106040 us-gaap:ResearchAndDevelopmentExpenseMember 2019-10-05 2020-01-03 0000106040 wdc:RestrictedStockUnitsAndPerformanceShareUnitsMember 2019-06-29 2020-01-03 0000106040 wdc:RestrictedStockUnitsAndPerformanceShareUnitsMember 2019-06-28 0000106040 wdc:RestrictedStockUnitsAndPerformanceShareUnitsMember 2020-01-03 0000106040 wdc:StockRepurchaseProgramEffectiveUntilJuly252023Member 2020-01-03 0000106040 wdc:ShareRepurchaseProgramMember 2020-01-03 0000106040 us-gaap:SubsequentEventMember 2020-01-21 2020-01-21 0000106040 us-gaap:RestrictedStockUnitsRSUMember 2020-01-03 0000106040 us-gaap:EmployeeStockOptionMember 2019-06-29 2020-01-03 0000106040 wdc:EmployeeStockPurchasePlanMember 2020-01-03 0000106040 wdc:EmployeeStockPurchasePlanMember 2019-06-29 2020-01-03 0000106040 us-gaap:RestrictedStockUnitsRSUMember 2019-06-29 2020-01-03 0000106040 us-gaap:EmployeeStockOptionMember 2020-01-03 0000106040 us-gaap:RestrictedStockUnitsRSUMember 2019-10-05 2020-01-03 0000106040 wdc:EmployeeStockPurchasePlanMember 2018-09-29 2018-12-28 0000106040 us-gaap:EmployeeStockOptionMember 2018-09-29 2018-12-28 0000106040 us-gaap:RestrictedStockUnitsRSUMember 2018-09-29 2018-12-28 0000106040 wdc:EmployeeStockPurchasePlanMember 2018-06-30 2018-12-28 0000106040 us-gaap:EmployeeStockOptionMember 2018-06-30 2018-12-28 0000106040 wdc:EmployeeStockPurchasePlanMember 2019-10-05 2020-01-03 0000106040 us-gaap:RestrictedStockUnitsRSUMember 2018-06-30 2018-12-28 0000106040 us-gaap:EmployeeStockOptionMember 2019-10-05 2020-01-03 0000106040 us-gaap:InternalRevenueServiceIRSMember wdc:TaxYear2008Through2009Member 2019-06-29 2020-01-03 0000106040 us-gaap:InternalRevenueServiceIRSMember wdc:TaxYears2010Through2012Member 2019-06-29 2020-01-03 0000106040 us-gaap:InternalRevenueServiceIRSMember 2019-06-29 2020-01-03 0000106040 us-gaap:OneTimeTerminationBenefitsMember wdc:BusinessRealignmentActivitiesMember 2019-06-29 2020-01-03 0000106040 us-gaap:OneTimeTerminationBenefitsMember wdc:BusinessRealignmentActivitiesMember 2019-06-28 0000106040 us-gaap:ContractTerminationMember wdc:BusinessRealignmentActivitiesMember 2020-01-03 0000106040 wdc:BusinessRealignmentActivitiesMember 2019-06-29 2020-01-03 0000106040 us-gaap:OneTimeTerminationBenefitsMember wdc:BusinessRealignmentActivitiesMember 2020-01-03 0000106040 us-gaap:ContractTerminationMember wdc:BusinessRealignmentActivitiesMember 2019-06-29 2020-01-03 0000106040 wdc:BusinessRealignmentActivitiesMember 2019-06-28 0000106040 wdc:BusinessRealignmentActivitiesMember 2020-01-03 0000106040 us-gaap:ContractTerminationMember wdc:BusinessRealignmentActivitiesMember 2019-06-28 0000106040 wdc:BusinessRealignmentActivitiesMember 2018-09-29 2018-12-28 0000106040 wdc:BusinessRealignmentActivitiesMember 2019-10-05 2020-01-03 0000106040 wdc:ClosureofForeignManufacturingFacilitiesMember 2018-09-29 2018-12-28 0000106040 wdc:ClosureofForeignManufacturingFacilitiesMember 2019-06-29 2020-01-03 0000106040 wdc:ClosureofForeignManufacturingFacilitiesMember 2019-10-05 2020-01-03 0000106040 wdc:BusinessRealignmentActivitiesMember 2018-06-30 2018-12-28 0000106040 wdc:ClosureofForeignManufacturingFacilitiesMember 2018-06-30 2018-12-28 0000106040 wdc:ClosureofForeignManufacturingFacilitiesMember 2020-01-03 0000106040 us-gaap:OneTimeTerminationBenefitsMember wdc:ClosureofForeignManufacturingFacilitiesMember 2020-01-03 0000106040 us-gaap:ContractTerminationMember wdc:ClosureofForeignManufacturingFacilitiesMember 2019-06-29 2020-01-03 0000106040 wdc:ClosureofForeignManufacturingFacilitiesMember 2019-06-28 0000106040 us-gaap:OneTimeTerminationBenefitsMember wdc:ClosureofForeignManufacturingFacilitiesMember 2019-06-29 2020-01-03 0000106040 us-gaap:OneTimeTerminationBenefitsMember wdc:ClosureofForeignManufacturingFacilitiesMember 2019-06-28 0000106040 us-gaap:ContractTerminationMember wdc:ClosureofForeignManufacturingFacilitiesMember 2019-06-28 0000106040 us-gaap:ContractTerminationMember wdc:ClosureofForeignManufacturingFacilitiesMember 2020-01-03 0000106040 srt:ParentCompanyMember 2018-09-29 2018-12-28 0000106040 srt:NonGuarantorSubsidiariesMember 2018-09-29 2018-12-28 0000106040 srt:ConsolidationEliminationsMember 2018-09-29 2018-12-28 0000106040 srt:GuarantorSubsidiariesMember 2018-09-29 2018-12-28 0000106040 srt:ConsolidationEliminationsMember 2019-06-29 2020-01-03 0000106040 srt:ParentCompanyMember 2019-06-29 2020-01-03 0000106040 srt:NonGuarantorSubsidiariesMember 2019-06-28 0000106040 srt:GuarantorSubsidiariesMember 2019-06-29 2020-01-03 0000106040 srt:NonGuarantorSubsidiariesMember 2019-06-29 2020-01-03 0000106040 srt:NonGuarantorSubsidiariesMember 2020-01-03 0000106040 srt:ParentCompanyMember 2020-01-03 0000106040 srt:GuarantorSubsidiariesMember 2019-06-28 0000106040 srt:ParentCompanyMember 2019-06-28 0000106040 srt:ConsolidationEliminationsMember 2020-01-03 0000106040 srt:GuarantorSubsidiariesMember 2020-01-03 0000106040 srt:ConsolidationEliminationsMember 2019-06-28 0000106040 srt:ParentCompanyMember 2018-06-30 2018-12-28 0000106040 srt:NonGuarantorSubsidiariesMember 2018-06-30 2018-12-28 0000106040 srt:GuarantorSubsidiariesMember 2018-06-30 2018-12-28 0000106040 srt:ConsolidationEliminationsMember 2018-06-30 2018-12-28 0000106040 srt:NonGuarantorSubsidiariesMember 2019-10-05 2020-01-03 0000106040 srt:GuarantorSubsidiariesMember 2019-10-05 2020-01-03 0000106040 srt:ParentCompanyMember 2019-10-05 2020-01-03 0000106040 srt:ConsolidationEliminationsMember 2019-10-05 2020-01-03 0000106040 srt:GuarantorSubsidiariesMember 2018-12-28 0000106040 srt:ParentCompanyMember 2018-06-29 0000106040 srt:NonGuarantorSubsidiariesMember 2018-12-28 0000106040 srt:ParentCompanyMember 2018-12-28 0000106040 srt:NonGuarantorSubsidiariesMember 2018-06-29 0000106040 srt:ConsolidationEliminationsMember 2018-06-29 0000106040 srt:ConsolidationEliminationsMember 2018-12-28 0000106040 srt:GuarantorSubsidiariesMember 2018-06-29 xbrli:pure iso4217:USD xbrli:shares xbrli:shares iso4217:JPY iso4217:USD
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 January 3, 2020
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
 
 

WDCORPORATELOGO1.JPG
WESTERN DIGITAL CORPORATION
(Exact Name of Registrant as Specified in Its Charter)
 
 
 
Delaware
 
33-0956711
 
 
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer Identification No.)
 
 
 
 
 
 
 
 
 
5601 Great Oaks Parkway
San Jose,
California
 
95119
 
 
(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 class
Trading symbol(s)
Name of each exchange on which registered
Common Stock, $.01 Par Value Per Share
WDC
The 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 filer
Accelerated filer
Non-accelerated filer
Smaller reporting company
Emerging 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 February 4, 2020, 298,931,536 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 January 3, 2020 and June 28, 2019
5
 
Condensed Consolidated Statements of Operations — Three and Six Months Ended January 3, 2020 and December 28, 2018
6
 
Condensed Consolidated Statements of Comprehensive Income (Loss) — Three and Six Months Ended January 3, 2020 and December 28, 2018
7
 
Condensed Consolidated Statements of Cash Flows — Six Months Ended January 3, 2020 and December 28, 2018
8
 
Condensed Consolidated Statements of Shareholders' Equity — Six Months Ended January 3, 2020 and December 28, 2018
9
 
Notes to Condensed Consolidated Financial Statements
11
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
48
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
58
Item 4.
Controls and Procedures
58
 
 
 
PART II. OTHER INFORMATION
Item 1.
Legal Proceedings
59
Item 1A.
Risk Factors
59
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
75
Item 3.
Defaults Upon Senior Securities
75
Item 4.
Mine Safety Disclosures
75
Item 5.
Other Information
75
Item 6.
Exhibits
75

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, G-Technology, 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.



3


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 Flash Ventures joint venture with Kioxia Corporation, the flash industry and our flash wafer output plans;
expectations regarding pricing conditions for flash products;
the exit from our Storage Systems business;
expectations regarding our product development and technology plans;
expectations regarding the outcome of legal proceedings in which we are involved;
our quarterly cash dividend policy and share repurchase program;
expectations regarding the repatriation of funds from our foreign operations;
our beliefs regarding tax benefits and the timing of future payments, if any, relating to the unrecognized tax benefits, and the adequacy of our tax provisions;
expectations regarding capital investments and sources of funding for those investments; and
our beliefs regarding the sufficiency of our available liquidity to meet our working capital, debt and capital expenditure needs as well as our dividend plans.

Forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those expressed in the forward-looking statements. You are urged to carefully review the disclosures we make concerning risks and other factors that may affect our business and operating results, including those made in Part II, Item 1A of this Quarterly Report on Form 10-Q, and any of those made in our other reports filed with the Securities and Exchange Commission. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this document. We do not intend, and undertake no obligation, to publish revised forward-looking statements to reflect events or circumstances after the date of this document or to reflect the occurrence of unanticipated events.


4


PART I. FINANCIAL INFORMATION

Item 1.
Financial Statements (unaudited)

WESTERN DIGITAL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(in millions, except par value)
(Unaudited)
 
January 3,
2020
 
June 28,
2019
ASSETS
Current assets:
 
 
 
Cash and cash equivalents
$
3,137

 
$
3,455

Accounts receivable, net
1,791

 
1,204

Inventories
3,122

 
3,283

Other current assets
577

 
535

Total current assets
8,627

 
8,477

Property, plant and equipment, net
2,722

 
2,843

Notes receivable and investments in Flash Ventures
2,321

 
2,791

Goodwill
10,069

 
10,076

Other intangible assets, net
1,311

 
1,711

Other non-current assets
810

 
472

Total assets
$
25,860

 
$
26,370

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
 
 
 
Accounts payable
$
1,736

 
$
1,567

Accounts payable to related parties
364

 
331

Accrued expenses
1,559

 
1,296

Accrued compensation
537

 
347

Current portion of long-term debt
286

 
276

Total current liabilities
4,482

 
3,817

Long-term debt
9,547

 
10,246

Other liabilities
2,452

 
2,340

Total liabilities
16,481

 
16,403

Commitments and contingencies (Notes 9, 10, 12 and 15)

 

Shareholders’ equity:
 
 
 
Preferred stock, $0.01 par value; authorized — 5 shares; issued and outstanding — none

 

Common stock, $0.01 par value; authorized — 450 shares; issued — 312 shares; outstanding — 299 shares and 295 shares, respectively
3

 
3

Additional paid-in capital
3,731

 
3,851

Accumulated other comprehensive loss
(110
)
 
(68
)
Retained earnings
6,717

 
7,449

Treasury stock — common shares at cost; 13 shares and 17 shares, respectively
(962
)
 
(1,268
)
Total shareholders’ equity
9,379

 
9,967

Total liabilities and shareholders’ equity
$
25,860

 
$
26,370


The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

5


WESTERN DIGITAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in millions, except per share amounts)
(Unaudited)
 
Three Months Ended

Six Months Ended
 
January 3,
2020

December 28,
2018

January 3,
2020

December 28,
2018
Revenue, net
$
4,234

 
$
4,233

 
$
8,274

 
$
9,261

Cost of revenue
3,299

 
3,189

 
6,581

 
6,553

Gross profit
935

 
1,044

 
1,693

 
2,708

Operating expenses:
 
 
 
 
 
 
 
Research and development
578

 
539

 
1,152

 
1,115

Selling, general and administrative
298

 
309

 
603

 
665

Employee termination, asset impairment, and other charges
9

 
20

 
17

 
66

Total operating expenses
885

 
868

 
1,772

 
1,846

Operating income (loss)
50

 
176

 
(79
)
 
862

Interest and other income (expense):
 
 
 
 
 
 
 
Interest income
8

 
15

 
20

 
30

Interest expense
(105
)
 
(118
)
 
(227
)
 
(234
)
Other income, net
7

 
8

 
9

 
6

Total interest and other expense, net
(90
)
 
(95
)
 
(198
)
 
(198
)
Income (loss) before taxes
(40
)

81


(277
)
 
664

Income tax expense
99

 
568

 
138

 
640

Net income (loss)
$
(139
)
 
$
(487
)
 
$
(415
)
 
$
24

 
 
 
 
 
 
 
 
Income (loss) per common share
 
 
 
 
 
 
 
Basic
$
(0.47
)
 
$
(1.68
)
 
$
(1.40
)
 
$
0.08

Diluted
$
(0.47
)
 
$
(1.68
)
 
$
(1.40
)
 
$
0.08

Weighted average shares outstanding:
 
 
 
 
 
 
 
Basic
298

 
290

 
297

 
291

Diluted
298

 
290

 
297

 
296

 
 
 
 
 
 
 
 
Cash dividends declared per share
$
0.50

 
$
0.50

 
$
1.00

 
$
1.00


The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

6


WESTERN DIGITAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(in millions)
(Unaudited)
 
Three Months Ended
 
Six Months Ended
 
January 3,
2020
 
December 28,
2018
 
January 3,
2020
 
December 28,
2018
Net income (loss)
$
(139
)
 
$
(487
)
 
$
(415
)
 
$
24

Other comprehensive income (loss), before tax:
 
 
 
 
 
 
 
Actuarial pension gain
2

 
1

 
3

 
1

Foreign currency translation adjustment
(15
)
 
31

 
(10
)
 
(6
)
Net unrealized gain (loss) on derivative contracts and available-for-sale securities
(6
)
 
7

 
(39
)
 
6

Total other comprehensive income (loss), before tax
(19
)
 
39

 
(46
)
 
1

Income tax benefit (expense) related to items of other comprehensive income (loss), before tax
(1
)
 
2

 
4

 
3

Other comprehensive income (loss), net of tax
(20
)
 
41

 
(42
)
 
4

Total comprehensive income (loss)
$
(159
)
 
$
(446
)
 
$
(457
)
 
$
28


The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

7


WESTERN DIGITAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
(Unaudited)
 
Six Months Ended
 
January 3,
2020
 
December 28,
2018
Cash flows from operating activities
 
 
 
Net income (loss)
$
(415
)
 
$
24

Adjustments to reconcile net income (loss) to net cash provided by operations:
 
 
 
Depreciation and amortization
805

 
952

Stock-based compensation
154

 
158

Deferred income taxes
(42
)
 
281

Loss (gain) on disposal of assets
(12
)
 
1

Amortization of debt discounts
20

 
19

Other non-cash operating activities, net
(20
)
 
37

Changes in:
 
 
 
Accounts receivable, net
(587
)
 
482

Inventories
155

 
(483
)
Accounts payable
170

 
(256
)
Accounts payable to related parties
33

 
51

Accrued expenses
327

 
254

Accrued compensation
191

 
(134
)
Other assets and liabilities, net
(269
)
 
(212
)
Net cash provided by operating activities
510

 
1,174

Cash flows from investing activities
 
 
 
Purchases of property, plant and equipment
(305
)
 
(500
)
Proceeds from the sale of property, plant and equipment

 
3

Acquisitions, net of cash acquired
(22
)
 

Purchases of investments

 
(33
)
Proceeds from sale of investments

 
13

Proceeds from maturities of investments

 
7

Notes receivable issuances to Flash Ventures
(224
)
 
(508
)
Notes receivable proceeds from Flash Ventures
690

 
312

Strategic investments and other, net
21

 
(19
)
Net cash provided by (used in) investing activities
160

 
(725
)
Cash flows from financing activities
 
 
 
Issuance of stock under employee stock plans
72

 
61

Taxes paid on vested stock awards under employee stock plans
(54
)
 
(69
)
Repurchases of common stock

 
(563
)
Dividends paid to shareholders
(296
)
 
(292
)
Repayment of debt
(707
)
 
(75
)
Repayment of revolving credit facility

 
(500
)
Net cash used in financing activities
(985
)
 
(1,438
)
Effect of exchange rate changes on cash
(3
)
 
(3
)
Net decrease in cash and cash equivalents
(318
)
 
(992
)
Cash and cash equivalents, beginning of year
3,455

 
5,005

Cash and cash equivalents, end of period
$
3,137

 
$
4,013

Supplemental disclosure of cash flow information:
 
 
 
Cash paid for income taxes
$
181

 
$
264

Cash paid for interest
$
206

 
$
216


The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

8


WESTERN DIGITAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(in millions)
 
Common Stock
 
Treasury Stock
 
Additional Paid-In Capital
 
Accumulated Other Comprehensive Income (Loss)
 
Retained Earnings
 
Total Shareholders’ Equity
 
Shares
 
Amount
Shares
 
Amount
Balance at June 28, 2019
312

 
$
3

 
(17
)
 
$
(1,268
)
 
$
3,851

 
$
(68
)
 
$
7,449

 
$
9,967

Net loss

 

 

 

 

 

 
(276
)
 
(276
)
Adoption of New Accounting Standard

 

 

 

 

 

 
(5
)
 
(5
)
Employee stock plans

 

 
3

 
181

 
(207
)
 

 

 
(26
)
Stock-based compensation

 

 

 

 
77

 

 

 
77

Dividends to shareholders

 

 

 

 
7

 

 
(156
)
 
(149
)
Actuarial pension gain

 

 

 

 

 
1

 

 
1

Foreign currency translation adjustment

 

 

 

 

 
4

 

 
4

Net unrealized loss on derivative contracts

 

 

 

 

 
(27
)
 

 
(27
)
Balance at October 4, 2019
312

 
3

 
(14
)
 
(1,087
)
 
3,728

 
(90
)
 
7,012

 
9,566

Net loss

 

 

 

 

 

 
(139
)
 
(139
)
Employee stock plans

 

 
1

 
125

 
(81
)
 

 

 
44

Stock-based compensation

 

 

 

 
77

 

 

 
77

Dividends to shareholders

 

 

 

 
7

 

 
(156
)
 
(149
)
Actuarial pension gain

 

 

 

 

 
1

 

 
1

Foreign currency translation adjustment

 

 

 

 

 
(13
)
 

 
(13
)
Net unrealized loss on derivative contracts

 

 

 

 

 
(8
)
 

 
(8
)
Balance at January 3, 2020
312

 
$
3

 
(13
)
 
$
(962
)
 
$
3,731

 
$
(110
)
 
$
6,717

 
$
9,379



9


WESTERN DIGITAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(in millions)

 
Common Stock
 
Treasury Stock
 
Additional Paid-In Capital
 
Accumulated Other Comprehensive Income (Loss)
 
Retained Earnings
 
Total Shareholders’ Equity
 
Shares
 
Amount
Shares
 
Amount
Balance at June 29, 2018
312

 
$
3

 
(16
)
 
$
(1,444
)
 
$
4,254

 
$
(39
)
 
$
8,757

 
$
11,531

Net income

 

 

 

 

 

 
511

 
511

Adoption of New Accounting Standards

 

 

 

 

 

 
56

 
56

Employee stock plans

 

 
1

 
198

 
(256
)
 

 

 
(58
)
Stock-based compensation

 

 

 

 
79

 

 

 
79

Repurchases of common stock

 

 
(8
)
 
(563
)
 

 

 

 
(563
)
Dividends to shareholders

 

 

 

 
8

 

 
(152
)
 
(144
)
Foreign currency translation adjustment

 

 

 

 

 
(37
)
 

 
(37
)
Balance at September 28, 2018
312

 
3

 
(23
)
 
(1,809
)
 
4,085

 
(76
)
 
9,172

 
11,375

Net loss

 

 

 

 

 

 
(487
)
 
(487
)
Employee stock plans

 

 
2

 
159

 
(109
)
 

 

 
50

Stock-based compensation

 

 

 

 
79

 

 

 
79

Dividends to shareholders

 

 

 

 
7

 

 
(153
)
 
(146
)
Actuarial pension gain

 

 

 

 

 
1

 

 
1

Foreign currency translation adjustment

 

 

 

 

 
29

 

 
29

Net unrealized gain on derivative contracts

 

 

 

 

 
11

 

 
11

Balance at December 28, 2018
312

 
$
3

 
(21
)
 
$
(1,650
)
 
$
4,062

 
$
(35
)
 
$
8,532

 
$
10,912


The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

10


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 that address the evolving needs of the information technology (“IT”) industry and the infrastructure that enables the proliferation of data in virtually every other industry. The Company creates environments for data to thrive. The Company is driving the innovation needed to help customers capture, preserve, access and transform an ever-increasing diversity of data. Everywhere data lives, from advanced data centers to mobile sensors to personal devices, the Company’s industry-leading solutions deliver the possibilities of data.

The Company’s broad portfolio of technology and products address the following key end markets: Client Devices; Data Center Devices and Solutions; and Client Solutions. The Company also generates license and royalty revenue from its extensive intellectual property (“IP”), 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 fiscal year ended June 28, 2019. 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 fiscal year ended June 28, 2019. 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 2020, which ends on July 3, 2020, will be comprised of 53 weeks, with the first quarter consisting of 14 weeks and the remaining quarters consisting of 13 weeks each. Fiscal year 2019, which ended on June 28, 2019, was comprised of 52 weeks, with all quarters presented consisting of 13 weeks.

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. However, actual results could differ materially from these estimates.


11


WESTERN DIGITAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


Note 2.
Recent Accounting Pronouncements

Accounting Pronouncements Recently Adopted

In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-02, “Leases (Topic 842)” (“ASU 2016-02”). ASU 2016-02 supersedes ASC 840 “Leases”. The amendments in this update require, among other things, that lessees recognize the following for all leases (unless a policy election is made by class of underlying asset to exclude short-term leases) at the commencement date: (1) a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis; and (2) a right-of-use asset, which is an asset that represents the lessee’s right to use, or the direct use of, a specified asset for the lease term. The FASB issued ASU 2018-11 on July 30, 2018, which allows entities to apply the provisions of ASC 842 at the effective date without adjusting comparative periods. The Company adopted this standard effective June 29, 2019, the first day of the fiscal year ending July 3, 2020, and has elected the transition method provided in ASU 2018-11 to apply Topic 842 as of the date of adoption without adjusting comparative periods. The Company has elected the package of practical expedients and did not reassess prior conclusions including (a) whether its contracts are or contain a lease, (b) lease classification and (c) capitalization of initial direct costs. The adoption of Topic 842 resulted in an increase in lease assets and a corresponding increase in lease liabilities on the Condensed Consolidated Balance Sheet of $221 million as of June 29, 2019. The cumulative effect of adopting Topic 842 also included an after-tax decrease to opening retained earnings of $5 million as of June 29, 2019, which was primarily related to previously recorded sublease proceed assumptions on lease exit liabilities for which there was no expected future economic benefit at transition. See Note 10, Leases and Other Commitments, for additional disclosures related to this standard.

In October 2018, the FASB issued ASU No. 2018-16, “Derivatives and Hedging (Topic 815): Inclusion of the Secured Overnight Financing Rate (SOFR) Overnight Index Swap (OIS) Rate as a Benchmark Interest Rate for Hedge Accounting Purposes” (“ASU 2018-16”). ASU 2018-16 allows for the use of the OIS rate based on the SOFR as a U.S. benchmark interest rate for hedge accounting purposes under Topic 815, Derivatives and Hedging. The Company adopted this standard in the first quarter of 2020. The Company’s adoption of ASU 2018-16 did not have a material impact on its Condensed Consolidated Financial Statements.

Recently Issued Accounting Pronouncements Not Yet Adopted

In November 2018, the FASB issued ASU No. 2018-18, “Collaborative Arrangements (Topic 808): Clarifying the Interaction between Topic 808 and Topic 606” (“ASU 2018-18”). ASU 2018-18 clarifies that certain transactions between collaborative arrangement participants should be accounted for as revenue when the collaborative arrangement participant is a customer in the context of a unit of account and precludes recognizing as revenue consideration received from a collaborative arrangement participant if the participant is not a customer. This ASU requires retrospective adoption to the date the Company adopted ASC 606 by recognizing a cumulative-effect adjustment to the opening balance of retained earnings of the earliest annual period presented. The amendments are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019, which for the Company is the first quarter of fiscal 2021. The Company does not expect this update to have a material impact on its Condensed Consolidated Financial Statements.

In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” (“ASU 2016-13”). ASU 2016-13 seeks to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments, including trade receivables, and other commitments to extend credit held by a reporting entity at each reporting date. The amendments require an entity to replace the incurred loss impairment methodology in current U.S. GAAP with a methodology that reflects current expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The amendments are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019, which for the Company is the first quarter of fiscal 2021. The Company is currently evaluating the impact this update will have on its Condensed Consolidated Financial Statements.


12


WESTERN DIGITAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


Note 3.
Revenues

Contract assets represent the Company’s rights to consideration where performance obligations are completed but the customer payments are not due until another performance obligation is satisfied. The Company did not have any contract assets as of either January 3, 2020 or June 28, 2019.

The Company incurs sales commissions and other direct incremental costs to obtain sales contracts. The Company has applied the practical expedient to recognize the direct incremental costs of obtaining contracts as an expense when incurred if the amortization period is expected to be one year or less or the amount is not material, with these costs charged to Selling, general and administrative expenses. Direct incremental costs to obtain contracts that have an expected benefit of greater than one year are amortized over the period of expected cash flows from the related contracts, and the amortization expense is recorded as a reduction to revenue. Total capitalized contract costs as of January 3, 2020 and June 28, 2019 as well as the related amortization for the three and six months ended January 3, 2020 and December 28, 2018 were not material.

Contract liabilities relate to customers’ payments in advance of performance under the contract and primarily relate to remaining performance obligations under support and maintenance contracts. As of January 3, 2020 and June 28, 2019, contract liabilities were not material.

The Company applies the practical expedients and does not disclose transaction price allocated to the remaining performance obligations for (i) arrangements that have an original expected duration of one year or less, which mainly consist of the support and maintenance contracts, and (ii) variable consideration amounts for sale-based or usage-based royalties for IP license arrangements, which typically range longer than one year. Remaining performance obligations are mainly attributed to right-to-access patent license arrangements and customer support and service contracts which will be recognized over the remaining contract period. The transaction price allocated to the remaining performance obligations as of January 3, 2020 was $140 million, which is mainly attributable to the functional IP license and service arrangements. The Company expects to recognize this amount as revenue as follows: $24 million during the remainder of fiscal 2020, $43 million in fiscal 2021, $40 million in fiscal 2022 and $33 million thereafter.


13


WESTERN DIGITAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


The Company’s disaggregated revenue information is as follows:
 
Three Months Ended
 
Six Months Ended
 
January 3,
2020
 
December 28, 2018
 
January 3,
2020
 
December 28, 2018
 
(in millions)
Revenue by Product
 
 
 
 
 
 
 
Hard disk drives (“HDD”)
$
2,396

 
$
2,060

 
$
4,804

 
$
4,554

Flash-based
1,838

 
2,173

 
3,470

 
4,707

Total Revenue
$
4,234

 
$
4,233

 
$
8,274

 
$
9,261

 
 
 
 
 
 
 
 
Revenue by End Market
 
 
 
 
 
 
 
Client Devices
$
1,797

 
$
2,214

 
$
3,413

 
$
4,864

Data Center Devices & Solutions
1,489

 
1,074

 
3,021

 
2,520

Client Solutions
948

 
945

 
1,840

 
1,877

Total Revenue
$
4,234

 
$
4,233

 
$
8,274

 
$
9,261

 
 
 
 
 
 
 
 
Revenue by Geography
 
 
 
 
 
 
 
Americas
$
1,296

 
$
1,015

 
$
2,609

 
$
2,296

Europe, Middle East and Africa
811

 
817

 
1,590

 
1,701

Asia
2,127

 
2,401

 
4,075

 
5,264

Total Revenue
$
4,234

 
$
4,233

 
$
8,274

 
$
9,261



The Company’s top 10 customers accounted for 44% and 43% of its net revenue for the three and six months ended January 3, 2020, respectively, and 47% of its net revenue for both the three and six months ended December 28, 2018. For the three and six months ended January 3, 2020 and December 28, 2018, no single customer accounted for 10% or more of the Company’s net revenue.


14


WESTERN DIGITAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


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 six months ended January 3, 2020 and December 28, 2018, the Company sold trade accounts receivable and received cash proceeds of $198 million and $370 million, respectively. The discounts on the trade accounts receivable sold during the periods were not material and were recorded within Other income, net in the Condensed Consolidated Statements of Operations. As of January 3, 2020 and June 28, 2019, the amount of factored receivables that remained outstanding was $113 million and $318 million, respectively.

Inventories
 
January 3,
2020
 
June 28,
2019
 
(in millions)
Inventories:
 
 
 
Raw materials and component parts
$
1,334

 
$
1,142

Work-in-process
847

 
968

Finished goods
941

 
1,173

Total inventories
$
3,122

 
$
3,283



Property, plant and equipment, net
 
January 3,
2020
 
June 28,
2019
 
(in millions)
Property, plant and equipment:
 
 
 
Land
$
294

 
$
294

Buildings and improvements
1,806

 
1,743

Machinery and equipment
7,171

 
7,267

Computer equipment and software
447

 
441

Furniture and fixtures
55

 
56

Construction-in-process
184

 
202

Property, plant and equipment, gross
9,957

 
10,003

Accumulated depreciation
(7,235
)
 
(7,160
)
Property, plant and equipment, net
$
2,722

 
$
2,843



Goodwill
 
Carrying Amount
 
(in millions)
Balance at June 28, 2019
$
10,076

Goodwill recorded in connection with an acquisition
14

Reduction in goodwill in connection with disposition of business
(20
)
Foreign currency translation adjustment
(1
)
Balance at January 3, 2020
$
10,069




15


WESTERN DIGITAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


Acquisition

On September 10, 2019, the Company acquired substantially all the assets of Kazan Networks, Inc., an innovator in high-performance networking and non-volatile memory express over fabrics technology ("NVMe-oF"), and an industry leader in application-specific integrated circuit and adapter solutions to connect storage platforms and systems over ethernet fabrics. The purchase price of this acquisition was $22 million in cash, with net assets acquired primarily consisting of in-process research and development (“IPR&D”) of $8 million and $14 million allocated to Goodwill. Goodwill is primarily attributable to the benefits the Company expects to derive from diversifying product offerings in its Data Center Devices and Solutions and Client Solutions end markets as well as the acquired workforce. The expenses incurred by the Company related to the acquisition as well as the revenues and earnings related to the acquisition were not material to the Condensed Consolidated Financial Statements.

Dispositions

In September 2019, the Company announced the sale of its IntelliFlash business and intention to exit Storage Systems, which consists of IntelliFlash and ActiveScale. These actions will allow the Company to redirect investments to other high value priorities. In November 2019, the Company completed its sale of IntelliFlash for a price of $28 million, to be collected over the next three years. The sale of the IntelliFlash business included an immaterial amount of inventory, other tangible and intangible assets, and goodwill and resulted in a gain of approximately $17 million recorded in Employee termination, asset impairment, and other charges in the Condensed Consolidated Statements of Operations for both the three and six months ended January 3, 2020. Additionally, in February 2020, the Company entered into an agreement for the sale of ActiveScale. The net assets sold and the proceeds from the sale of ActiveScale were not material. The revenues and expenses related to these businesses were not material to the Condensed Consolidated Financial Statements and did not qualify to be reported as discontinued operations. The operating results of these businesses have and will be reflected in the Company’s results from continuing operations in the Condensed Consolidated Statements of Operations for all periods presented through the date of disposition.

Intangible assets
 
January 3,
2020
 
June 28,
2019
 
(in millions)
Finite-lived intangible assets
$
5,798

 
$
5,824

In-process research and development
80

 
72

Accumulated amortization
(4,567
)
 
(4,185
)
Intangible assets, net
$
1,311

 
$
1,711



As part of prior acquisitions, the Company recorded at the time of the acquisition acquired 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.


16


WESTERN DIGITAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


Product warranty liability

Changes in the warranty accrual were as follows:
 
Three Months Ended
 
Six Months Ended
 
January 3,
2020
 
December 28,
2018
 
January 3,
2020
 
December 28, 2018
 
(in millions)
Warranty accrual, beginning of period
$
357

 
$
323

 
$
350

 
$
318

Charges to operations
50

 
47

 
99

 
81

Utilization
(35
)
 
(42
)
 
(83
)
 
(68
)
Changes in estimate related to pre-existing warranties
6

 
9

 
12

 
6

Warranty accrual, end of period
$
378

 
$
337

 
$
378

 
$
337



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:

 
January 3,
2020
 
June 28,
2019
 
(in millions)
Warranty accrual
 
 
 
Current portion (included in Accrued expenses)
$
193

 
$
188

Long-term portion (included in Other liabilities)
185

 
162

Total warranty accrual
$
378

 
$
350



Other liabilities
 
January 3,
2020
 
June 28,
2019
 
(in millions)
Other liabilities:
 
 
 
Non-current net tax payable
$
839

 
$
928

Payables related to unrecognized tax benefits
708

 
699

Other non-current liabilities
905

 
713

Total other liabilities
$
2,452

 
$
2,340




17


WESTERN DIGITAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


Accumulated other comprehensive income (loss)

Other comprehensive income (loss) (“OCI”), 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 Accumulated other comprehensive income (loss) (“AOCI”):
 
Actuarial Pension Gains (Losses)
 
Foreign Currency Translation Adjustment
 
Unrealized Gains (Losses) on Derivative Contracts
 
Total Accumulated Comprehensive Income (Loss)
 
(in millions)
Balance at June 28, 2019
$
(53
)
 
$
4

 
$
(19
)
 
$
(68
)
Other comprehensive income (loss) before reclassifications
3

 
(10
)
 
(20
)
 
(27
)
Amounts reclassified from accumulated other comprehensive income (loss)

 

 
(19
)
 
(19
)
Income tax benefit (expense) related to items of other comprehensive income (loss)
(1
)
 
1

 
4

 
4

Net current-period other comprehensive income (loss)
2

 
(9
)
 
(35
)
 
(42
)
Balance at January 3, 2020
$
(51
)
 
$
(5
)
 
$
(54
)
 
$
(110
)


During the three and six months ended January 3, 2020 and December 28, 2018, the amounts reclassified out of AOCI related to derivative contracts were not material and substantially all were charged to Cost of revenue in the Condensed Consolidated Statements of Operations.


18


WESTERN DIGITAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


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 January 3, 2020 and June 28, 2019, and indicate the fair value hierarchy of the valuation techniques utilized to determine such values:
 
January 3, 2020
 
Level 1
 
Level 2
 
Level 3
 
Total
 
(in millions)
Assets:
 
 
 
 
 
 
 
Cash equivalents - Money market funds
$
1,051

 
$

 
$

 
$
1,051

Foreign exchange contracts

 
31

 

 
31

Total assets at fair value
$
1,051

 
$
31

 
$

 
$
1,082

Liabilities:
 
 
 
 
 
 
 
Foreign exchange contracts
$

 
$
14

 
$

 
$
14

Interest rate swap contract

 
69

 

 
69

Total liabilities at fair value
$

 
$
83

 
$

 
$
83


 
June 28, 2019
 
Level 1
 
Level 2
 
Level 3
 
Total
 
(in millions)
Assets:
 
 
 
 
 
 
 
Cash equivalents:
 
 
 
 
 
 
 
Money market funds
$
1,388

 
$

 
$

 
$
1,388

Certificates of deposit

 
17

 

 
17

Total cash equivalents
1,388

 
17

 

 
1,405

Foreign exchange contracts

 
44

 

 
44

Interest rate swap contracts

 
2

 

 
2

Total assets at fair value
$
1,388

 
$
63

 
$

 
$
1,451

Liabilities:
 
 
 
 
 
 
 
Foreign exchange contracts
$

 
$
40

 
$

 
$
40

Interest rate swap contract

 
65

 

 
65

Total liabilities at fair value
$

 
$
105

 
$

 
$
105



During the three and six months ended January 3, 2020, the Company had no transfers of financial assets and liabilities between levels and there were no changes in valuation techniques and the inputs used in the fair value measurement.

19


WESTERN DIGITAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)



Financial Instruments Not Carried at Fair Value

The carrying value of the Company’s revolving credit facility approximates its fair value given the revolving nature of the balance and the variable market interest rate. 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 second quarter of 2020 and the fourth quarter of 2019, respectively.
 
January 3, 2020
 
June 28, 2019
 
Carrying
Value
 
Fair
Value
 
Carrying
Value
 
Fair
Value
 
(in millions)
0.50% convertible senior notes due 2020
$
33

 
$
33

 
$
33

 
$
31

Variable interest rate Term Loan A-1 maturing 2023
4,700

 
4,720

 
4,824

 
4,780

Variable interest rate U.S. Term Loan B-4 maturing 2023
1,843

 
1,857

 
2,424

 
2,370

1.50% convertible notes due 2024
973

 
1,085

 
958

 
986

4.75% senior unsecured notes due 2026
2,284

 
2,419

 
2,283

 
2,263

Total
$
9,833

 
$
10,115

 
$
10,522

 
$
10,430



20


WESTERN DIGITAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


Note 6.
Derivative Instruments and Hedging Activities

As of January 3, 2020, 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. In addition, the Company had outstanding pay-fixed interest rate swaps that were designated as cash flow hedges of variable rate interest payments on a portion of its term loans through February 2023.

As of January 3, 2020, the amount of existing net losses related to cash flow hedges recorded in AOCI included $51 million related to the Company’s interest rate swaps that is expected to be reclassified to earnings after twelve months. In addition, as of January 3, 2020, the Company did not have any foreign exchange forward contracts with credit-risk-related contingent features.

Changes in fair values of the non-designated foreign exchange contracts are recognized in Other income, 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 and six months ended January 3, 2020 and December 28, 2018, 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.

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 January 3, 2020 and June 28, 2019, 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.


21


WESTERN DIGITAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


Note 7.
Debt

Debt consisted of the following as of January 3, 2020 and June 28, 2019:
 
January 3,
2020
 
June 28,
2019
 
(in millions)
0.50% convertible senior notes due 2020
$
35

 
$
35

Variable interest rate Term Loan A-1 maturing 2023
4,708

 
4,834

Variable interest rate U.S. Term Loan B-4 maturing 2023
1,843

 
2,425

1.50% convertible notes due 2024
1,100

 
1,100

4.75% senior unsecured notes due 2026
2,300

 
2,300

Total debt
9,986

 
10,694

Issuance costs and debt discounts
(153
)
 
(172
)
Subtotal
9,833

 
10,522

Less current portion of long-term debt
(286
)
 
(276
)
Long-term debt
$
9,547

 
$
10,246



The credit agreement governing the revolving credit facility and Term Loan A-1 requires the Company to comply with certain financial covenants, consisting of a leverage ratio and an interest coverage ratio. As of January 3, 2020, the Company was in compliance with these financial covenants.

On October 4, 2019 and January 3, 2020, the Company made voluntary prepayments of $250 million and $325 million, respectively, on its U.S. Term Loan B-4, which were applied toward the remaining scheduled amortization and the remainder towards the principal due at maturity. As of January 3, 2020, there are no longer any scheduled amortization payments due under the U.S. Term Loan B-4 prior to its maturity on April 29, 2023. On January 31, 2020, the Company made an incremental voluntary prepayment of $150 million on its Term Loan B-4.

22


WESTERN DIGITAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


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. All pension and other post-retirement benefit plans outside of the Company’s Japanese defined benefit pension plan (the “Japanese Plan”) are immaterial to the Condensed Consolidated Financial Statements. The expected long-term rate of return on the Japanese Plan assets is 2.5%.

Obligations and Funded Status

The following table presents the unfunded status of the benefit obligations for the Japanese Plan:
 
January 3,
2020
 
June 28,
2019
 
(in millions)
Benefit obligation at end of period
$
278

 
$
280

Fair value of plan assets at end of period
210

 
208

Unfunded status
$
68

 
$
72



The following table presents the unfunded amounts related to the Japanese Plan as recognized on the Company’s Condensed Consolidated Balance Sheets:
 
January 3,
2020
 
June 28,
2019
 
(in millions)
Current liabilities
$
1

 
$
1

Non-current liabilities
67

 
71

Net amount recognized
$
68

 
$
72



Net periodic benefit costs were not material for either the three or six months ended January 3, 2020.


23


WESTERN DIGITAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


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 as of January 3, 2020 and June 28, 2019:
 
January 3,
2020
 
June 28,
2019
 
(in millions)
Notes receivable, Flash Partners
$
412

 
$
551

Notes receivable, Flash Alliance
625

 
878

Notes receivable, Flash Forward
663

 
743

Investment in Flash Partners
200

 
200

Investment in Flash Alliance
297

 
296

Investment in Flash Forward
124

 
123

Total notes receivable and investments in Flash Ventures
$
2,321

 
$
2,791



During the three and six months ended January 3, 2020 and during the three and six months ended December 28, 2018, the Company made net payments to Flash Ventures of $648 million and $1.33 billion, and $1.12 billion and $1.86 billion respectively, for purchased flash-based memory wafers and net loans and investments.

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 January 3, 2020 and June 28, 2019, the Company had Accounts payable balances due to Flash Ventures of $364 million and $331 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 January 3, 2020, 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.
 
January 3,
2020
 
 
Notes receivable
$
1,700

Equity investments
621

Operating lease guarantees
1,746

Inventory and prepayments
462

Maximum estimable loss exposure
$
4,529



24


WESTERN DIGITAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


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.

In June 2019, an unexpected power outage incident occurred at the flash-based memory manufacturing facilities operated by Flash Ventures in Yokkaichi, Japan. The power outage incident impacted the facilities and process tools and resulted in the damage of flash wafers in production and a reduction in the Company’s flash wafer availability. As a result of this incident, the Company incurred charges of $68 million in its fiscal 2020, all incurred in the three months ended October 4, 2019, which were recorded in Cost of revenue and primarily consisted of unabsorbed manufacturing overhead costs. The Company is pursuing recovery of its losses associated with this event; however, the amount of any recovery cannot be estimated at this time.

In May 2019, the Company entered into additional agreements with Kioxia to extend Flash Ventures to a new wafer fabrication facility, known as “K1,” located in Kitakami, Japan. The primary purpose of K1 is to provide clean room space to continue the transition of existing flash-based wafer capacity to newer technology nodes. Output from the initial production line at K1 began in the second half of fiscal year 2020, although meaningful output from K1 is not expected to begin until the first half of fiscal year 2021. The Company’s share of the initial commitment for K1 will result in equipment investments, relocation and other start-up costs which are expected to be incurred primarily through the second half of fiscal year 2020. The Company also agreed to prepay an aggregate of approximately $360 million over a 3-year period beginning in the first half of fiscal year 2020 toward K1 building depreciation, to be credited against future wafer charges. As of January 3, 2020, remaining committed prepayments totaled $265 million.

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 January 3, 2020.
 
Lease Amounts
 
(Japanese yen, in billions)
 
(U.S. dollar, in millions)
Total guarantee obligations
¥
189

 
$
1,746




25


WESTERN DIGITAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


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 January 3, 2020 in U.S. dollars, based upon the Japanese yen to U.S. dollar exchange rate as of January 3, 2020:
Annual Installments
 
Payment of Principal Amortization
 
Purchase Option Exercise Price at Final Lease Terms
 
Guarantee Amount
 
 
(in millions)
Remaining six months of 2020
 
$
239

 
$
35

 
$
274

2021
 
406

 
108

 
514

2022
 
323

 
49

 
372

2023
 
215

 
67

 
282

2024
 
98

 
120

 
218

Thereafter
 
12

 
74


86

Total guarantee obligations
 
$
1,293

 
$
453

 
$
1,746



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 January 3, 2020, no amounts have 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 both the three and six months ended January 3, 2020 and December 28, 2018, the Company recognized approximately 1% of its consolidated revenue on products distributed by the Unis Venture. The outstanding accounts receivable due from and investment in the Unis Venture were not material to the Condensed Consolidated Financial Statements as of January 3, 2020 or June 28, 2019.




26


WESTERN DIGITAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


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 2034. 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 that option. 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 January 3, 2020:
 
Lease Amounts
Minimum lease payments by fiscal year:
(in millions)
Remaining six months of 2020
$
26

2021
45

2022
30

2023
25

2024
27

Thereafter
168

Total future minimum lease payments
321

Less: Imputed Interest
(63
)
Present value of lease liabilities
258

Less: Current portion (included in Accrued expenses)
41

Long-term operating lease liabilities (included in Other liabilities)
$
217

 
 
Operating lease right-of-use assets (included in Other non-current assets)
$
242

 
 
Weighted average remaining lease term in years
9.4

Weighted average discount rate
4.2
%


The following table summarizes supplemental disclosures of operating cost and cash flow information related to operating leases for the three and six months ended January 3, 2020:
 
Three Months Ended
 
Six Months Ended
 
January 3,
2020
 
January 3,
2020
 
(in millions)
Cost of operating leases
$
18

 
$
30

Cash paid for operating leases
13

 
29

Operating lease assets obtained in exchange for operating lease liabilities
1

 
50



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 January 3, 2020, the Company had the following minimum long-term commitments:

27


WESTERN DIGITAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


 
 
Long-term commitments
 
 
(in millions)
Fiscal year:
 
 
Remaining six months of 2020
 
$
123

2021
 
304

2022
 
390

2023
 
407

2024
 
180

Thereafter
 
338

Total
 
$
1,742




28


WESTERN DIGITAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


Note 11
Shareholders’ Equity

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 Condensed Consolidated Statements of Operations:
 
Three Months Ended
 
Six Months Ended
 
January 3,
2020
 
December 28,
2018
 
January 3,
2020
 
December 28, 2018
 
(in millions)
Options
$
2

 
$
4

 
$
4

 
$
9

Restricted and performance stock units
70

 
70

 
136

 
137

Employee stock purchase plan
5