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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2022
Or
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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
WESTERN DIGITAL CORPORATION
(Exact Name of Registrant as Specified in Its Charter)
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Delaware |
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33-0956711 |
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(State or other jurisdiction of
incorporation or organization) |
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(I.R.S. Employer Identification No.) |
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5601 Great Oaks Parkway |
San Jose, |
California |
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95119 |
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(Address of principal executive offices) |
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(Zip Code) |
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Registrant’s telephone number, including area code: (408)
717-6000
Securities registered pursuant to Section 12(b) of the
Act:
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Title of each class |
Trading symbol(s) |
Name of each exchange on which registered |
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Common Stock, $0.01 Par Value Per Share |
WDC |
The Nasdaq Stock Market LLC |
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(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.
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Large accelerated filer |
Accelerated filer |
Non-accelerated filer |
Smaller reporting company |
Emerging growth company |
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If an emerging growth company, indicate by check mark if the
registrant has elected not to use the extended transition period
for complying with any new or revised financial accounting
standards provided pursuant to Section 13(a) of the Exchange
Act. ☐
Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Exchange
Act). Yes ☐ No ý
As of the close of business on October 26, 2022, 317,650,295
shares of common stock, par value $0.01 per share, were
outstanding.
WESTERN DIGITAL CORPORATION
INDEX
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PAGE NO. |
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PART I. FINANCIAL INFORMATION |
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Item 1. |
Financial Statements (unaudited) |
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Condensed Consolidated Balance Sheets — As of September 30, 2022
and July 1, 2022 |
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Condensed Consolidated Statements of Operations — Three Months
Ended September 30, 2022 and October 1, 2021 |
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Condensed Consolidated Statements of Comprehensive Income (Loss) —
Three Months Ended September 30, 2022 and October 1,
2021 |
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Condensed Consolidated Statements of Cash Flows — Three Months
Ended September 30, 2022 and October 1, 2021 |
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Condensed Consolidated Statements of Shareholders' Equity — Three
Months Ended September 30, 2022 and October 1, 2021 |
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Notes to Condensed Consolidated Financial Statements
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Item 2. |
Management’s Discussion and Analysis of Financial Condition and
Results of Operations |
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Item 3. |
Quantitative and Qualitative Disclosures About Market
Risk |
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Item 4. |
Controls and Procedures |
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PART II. OTHER INFORMATION |
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Item 1. |
Legal Proceedings |
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Item 1A. |
Risk Factors |
|
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Item 6. |
Exhibits |
|
Unless otherwise indicated, references herein to specific years and
quarters are to our fiscal years and fiscal quarters, and
references to financial information are on a consolidated basis. As
used herein, the terms “we,” “us,” “our,” the “Company,” “WDC” and
“Western Digital” refer to Western Digital Corporation and its
subsidiaries, unless we state, or the context indicates,
otherwise.
WDC, a Delaware corporation, is the parent company of our data
storage business. Our principal executive offices are located at
5601 Great Oaks Parkway, San Jose, California 95119. Our telephone
number is (408) 717-6000.
Western Digital, the Western Digital logo, SanDisk, and WD are
registered trademarks or trademarks of Western Digital or its
affiliates in the U.S. and/or other countries. All other
trademarks, registered trademarks and/or service marks, indicated
or otherwise, are the property of their respective
owners.
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 the global
macroeconomic environment; the effects of the COVID-19 pandemic;
expectations regarding supply chain conditions and constraints;
expectations regarding demand trends and market conditions for our
products and expected future financial performance; expectations
regarding our product momentum and product development and
technology plans; expectations regarding capital expenditure plans
and investments, including relating to our Flash Ventures joint
venture with Kioxia Corporation (“Kioxia”), and sources of funding
for those expenditures; expectations regarding our effective tax
rate and our unrecognized tax benefits; and our beliefs regarding
the sufficiency of our available liquidity to meet our working
capital, debt and capital expenditure needs.
These forward-looking statements are based on management’s current
expectations, represent the most current information available to
the Company as of the date of this Quarterly Report on Form 10-Q
and are subject to a number of risks, uncertainties and other
factors that could cause actual results or performance to differ
materially from those expressed in the forward-looking
statements.
These risks and uncertainties include, but are not limited
to:
•volatility
in global economic conditions;
•future
responses to and effects of the COVID-19 pandemic or other similar
global health crises;
•impact
of business and market conditions;
•the
outcome and impact of our ongoing strategic review, including with
respect to customer and supplier relationships, regulatory and
contractual restrictions, stock price volatility and the diversion
of management’s attention from ongoing business operations and
opportunities;
•impact
of competitive products and pricing;
•our
development and introduction of products based on new technologies
and expansion into new data storage markets;
•risks
associated with cost saving initiatives, restructurings,
acquisitions, divestitures, mergers, joint ventures and our
strategic relationships;
•difficulties
or delays in manufacturing or other supply chain
disruptions;
•hiring
and retention of key employees;
•our
level of debt and other financial obligations;
•changes
to our relationships with key customers;
•disruptions
in operations from cybersecurity incidents or other system security
risks;
•actions
by competitors;
•risks
associated with compliance with changing legal and regulatory
requirements and the outcome of legal proceedings; and
•the
other risks and uncertainties disclosed in Part I, Item 1A of our
Annual Report on Form 10-K for the year ended July 1, 2022 (the
“2022 Annual Report on Form 10-K”).
You are urged to carefully review the disclosures we make
concerning these risks and review the additional disclosures we
make concerning material risks and other factors that may affect
the outcome of our forward-looking statements and our business and
operating results, including those made in Part I, Item 1A of our
2022 Annual Report on Form 10-K and any of those made in our other
reports filed with the Securities and Exchange Commission,
including under “Risk Factors” in Item 1A of subsequent Annual
Reports on Form 10-K and Quarterly Reports on Form 10-Q that may
from time to time amend, supplement or supersede the risks and
uncertainties disclosed in the 2022 Annual Report on Form 10-K. You
are cautioned not to place undue reliance on the forward-looking
statements included in this Quarterly Report on Form 10-Q, which
speak only as of the date of this document. We do not intend, and
undertake no obligation, to update or revise these forward-looking
statements to reflect new information or events after the date of
this document or to reflect the occurrence of unanticipated events,
except as required by law.
PART I. FINANCIAL INFORMATION
Item 1. Financial
Statements (unaudited)
WESTERN DIGITAL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(in millions, except par value)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
2022 |
|
July 1,
2022 |
|
ASSETS |
|
Current assets: |
|
|
|
|
Cash and cash equivalents |
$ |
2,049 |
|
|
$ |
2,327 |
|
|
Accounts receivable, net |
2,422 |
|
|
2,804 |
|
|
Inventories |
3,862 |
|
|
3,638 |
|
|
Other current assets |
738 |
|
|
684 |
|
|
Total current assets |
9,071 |
|
|
9,453 |
|
|
Property, plant and equipment, net |
3,718 |
|
|
3,670 |
|
|
Notes receivable and investments in Flash Ventures |
1,219 |
|
|
1,396 |
|
|
Goodwill |
10,037 |
|
|
10,041 |
|
|
Other intangible assets, net |
174 |
|
|
213 |
|
|
Other non-current assets |
1,467 |
|
|
1,486 |
|
|
Total assets |
$ |
25,686 |
|
|
$ |
26,259 |
|
|
LIABILITIES AND SHAREHOLDERS’ EQUITY |
|
Current liabilities: |
|
|
|
|
Accounts payable |
$ |
1,686 |
|
|
$ |
1,902 |
|
|
Accounts payable to related parties |
295 |
|
|
320 |
|
|
Accrued expenses |
1,592 |
|
|
1,636 |
|
|
Income taxes payable |
986 |
|
|
869 |
|
|
Accrued compensation |
407 |
|
|
510 |
|
|
|
|
|
|
Total current liabilities |
4,966 |
|
|
5,237 |
|
|
Long-term debt |
7,071 |
|
|
7,022 |
|
|
Other liabilities |
1,542 |
|
|
1,779 |
|
|
Total liabilities |
13,579 |
|
|
14,038 |
|
|
Commitments and contingencies (Notes 10, 11, 13 and 16) |
|
|
|
|
Shareholders’ equity: |
|
|
|
|
|
|
|
|
Common stock, $0.01 par value; authorized — 450 shares; issued —
318 shares and 315 shares, respectively; outstanding — 318 shares
and 315 shares, respectively
|
3 |
|
|
3 |
|
|
Additional paid-in capital |
3,641 |
|
|
3,733 |
|
|
Accumulated other comprehensive loss |
(694) |
|
|
(554) |
|
|
Retained earnings |
9,157 |
|
|
9,039 |
|
|
|
|
|
|
Total shareholders’ equity |
12,107 |
|
|
12,221 |
|
|
Total liabilities and shareholders’ equity |
$ |
25,686 |
|
|
$ |
26,259 |
|
The accompanying notes are an integral part of these Condensed
Consolidated Financial Statements.
WESTERN DIGITAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in millions, except per share amounts)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
|
|
September 30,
2022 |
|
October 1,
2021 |
|
|
|
|
|
|
|
Revenue, net |
$ |
3,736 |
|
|
$ |
5,051 |
|
|
|
|
|
|
|
|
Cost of revenue |
2,755 |
|
|
3,386 |
|
|
|
|
|
|
|
|
Gross profit |
981 |
|
|
1,665 |
|
|
|
|
|
|
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
Research and development |
552 |
|
|
578 |
|
|
|
|
|
|
|
|
Selling, general and administrative |
247 |
|
|
291 |
|
|
|
|
|
|
|
|
Employee termination, asset impairment, and other
charges |
24 |
|
|
18 |
|
|
|
|
|
|
|
|
Total operating expenses |
823 |
|
|
887 |
|
|
|
|
|
|
|
|
Operating income |
158 |
|
|
778 |
|
|
|
|
|
|
|
|
Interest and other income (expense): |
|
|
|
|
|
|
|
|
|
|
Interest income |
2 |
|
|
2 |
|
|
|
|
|
|
|
|
Interest expense |
(70) |
|
|
(78) |
|
|
|
|
|
|
|
|
Other income (expense), net |
(6) |
|
|
2 |
|
|
|
|
|
|
|
|
Total interest and other expense, net |
(74) |
|
|
(74) |
|
|
|
|
|
|
|
|
Income before taxes |
84 |
|
|
704 |
|
|
|
|
|
|
|
|
Income tax expense |
57 |
|
|
94 |
|
|
|
|
|
|
|
|
Net income |
$ |
27 |
|
|
$ |
610 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income per common share: |
|
|
|
|
|
|
|
|
|
|
Basic |
$ |
0.09 |
|
|
$ |
1.97 |
|
|
|
|
|
|
|
|
Diluted |
$ |
0.08 |
|
|
$ |
1.93 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding: |
|
|
|
|
|
|
|
|
|
|
Basic |
316 |
|
|
310 |
|
|
|
|
|
|
|
|
Diluted |
319 |
|
|
316 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these Condensed
Consolidated Financial Statements.
WESTERN DIGITAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(LOSS)
(in millions)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
September 30,
2022 |
|
October 1,
2021 |
|
|
|
|
|
|
|
Net income |
$ |
27 |
|
|
$ |
610 |
|
|
|
|
|
|
|
|
Other comprehensive income (loss), before tax: |
|
|
|
|
|
|
|
|
|
|
Actuarial pension gain |
— |
|
|
1 |
|
|
|
|
|
|
|
|
Foreign currency translation adjustment |
(80) |
|
|
4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized gain (loss) on derivative contracts and
available-for-sale securities |
(76) |
|
|
33 |
|
|
|
|
|
|
|
|
Total other comprehensive income (loss), before tax |
(156) |
|
|
38 |
|
|
|
|
|
|
|
|
Income tax benefit (expense) related to items of other
comprehensive income (loss), before tax |
16 |
|
|
(8) |
|
|
|
|
|
|
|
|
Other comprehensive income (loss), net of tax |
(140) |
|
|
30 |
|
|
|
|
|
|
|
|
Total comprehensive income (loss) |
$ |
(113) |
|
|
$ |
640 |
|
|
|
|
|
|
|
The accompanying notes are an integral part of these Condensed
Consolidated Financial Statements.
WESTERN DIGITAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
September 30,
2022 |
|
October 1,
2021 |
|
|
|
Cash flows from operating activities |
|
|
|
|
|
|
Net income |
$ |
27 |
|
|
$ |
610 |
|
|
|
|
Adjustments to reconcile net income to net cash provided by
operations: |
|
|
|
|
|
|
Depreciation and amortization |
216 |
|
|
250 |
|
|
|
|
Stock-based compensation |
86 |
|
|
76 |
|
|
|
|
Deferred income taxes |
(42) |
|
|
27 |
|
|
|
|
Gain on disposal of assets |
1 |
|
|
— |
|
|
|
|
|
|
|
|
|
|
Amortization of debt issuance costs and discounts |
3 |
|
|
10 |
|
|
|
|
|
|
|
|
|
|
Other non-cash operating activities, net |
44 |
|
|
(12) |
|
|
|
|
Changes in: |
|
|
|
|
|
|
Accounts receivable, net |
382 |
|
|
(188) |
|
|
|
|
Inventories |
(224) |
|
|
73 |
|
|
|
|
Accounts payable |
(125) |
|
|
(41) |
|
|
|
|
Accounts payable to related parties |
(25) |
|
|
(20) |
|
|
|
|
Accrued expenses |
(44) |
|
|
(1) |
|
|
|
|
Income taxes payable |
117 |
|
|
(35) |
|
|
|
|
Accrued compensation |
(104) |
|
|
(67) |
|
|
|
|
Other assets and liabilities, net |
(306) |
|
|
(161) |
|
|
|
|
Net cash provided by operating activities |
6 |
|
|
521 |
|
|
|
|
Cash flows from investing activities |
|
|
|
|
|
|
Purchases of property, plant and equipment |
(320) |
|
|
(245) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes receivable issuances to Flash Ventures |
(84) |
|
|
(165) |
|
|
|
|
Notes receivable proceeds from Flash Ventures |
183 |
|
|
113 |
|
|
|
|
Strategic investments and other, net |
(3) |
|
|
(15) |
|
|
|
|
Net cash used in investing activities |
(224) |
|
|
(312) |
|
|
|
|
Cash flows from financing activities |
|
|
|
|
|
|
Issuance of stock under employee stock plans |
— |
|
|
2 |
|
|
|
|
Taxes paid on vested stock awards under employee stock
plans |
(50) |
|
|
(78) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repayment of debt |
— |
|
|
(213) |
|
|
|
|
|
|
|
|
|
|
Repayments of revolving credit facility |
(300) |
|
|
— |
|
|
|
|
Proceeds from revolving credit facility |
300 |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities |
(50) |
|
|
(289) |
|
|
|
|
Effect of exchange rate changes on cash |
(10) |
|
|
— |
|
|
|
|
Net decrease in cash and cash equivalents |
(278) |
|
|
(80) |
|
|
|
|
Cash and cash equivalents, beginning of year |
2,327 |
|
|
3,370 |
|
|
|
|
Cash and cash equivalents, end of period |
$ |
2,049 |
|
|
$ |
3,290 |
|
|
|
|
Supplemental disclosure of cash flow information: |
|
|
|
|
|
|
Cash paid for income taxes |
$ |
134 |
|
|
$ |
221 |
|
|
|
|
Cash paid for interest |
$ |
106 |
|
|
$ |
99 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these Condensed
Consolidated Financial Statements.
WESTERN DIGITAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’
EQUITY
(in millions)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock |
|
Treasury Stock |
|
Additional Paid-In Capital |
|
Accumulated Other Comprehensive Loss |
|
Retained Earnings |
|
Total Shareholders’ Equity |
|
Shares |
|
Amount |
Shares |
|
Amount |
|
Balance at July 1, 2022 |
315 |
|
|
$ |
3 |
|
|
— |
|
|
$ |
— |
|
|
$ |
3,733 |
|
|
$ |
(554) |
|
|
$ |
9,039 |
|
|
$ |
12,221 |
|
|
Net income |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
27 |
|
|
27 |
|
|
Adoption of new accounting standards |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(128) |
|
|
— |
|
|
91 |
|
|
(37) |
|
|
Employee stock plans |
3 |
|
|
— |
|
|
— |
|
|
— |
|
|
(50) |
|
|
— |
|
|
— |
|
|
(50) |
|
|
Stock-based compensation |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
86 |
|
|
— |
|
|
— |
|
|
86 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(80) |
|
|
— |
|
|
(80) |
|
|
Net unrealized loss on derivative contracts |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(60) |
|
|
— |
|
|
(60) |
|
|
Balance at September 30, 2022 |
318 |
|
|
$ |
3 |
|
|
— |
|
|
$ |
— |
|
|
$ |
3,641 |
|
|
$ |
(694) |
|
|
$ |
9,157 |
|
|
$ |
12,107 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
The accompanying notes are an integral part of these Condensed
Consolidated Financial Statements.
WESTERN DIGITAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’
EQUITY
(in millions)
(Unaudited)
|
|
|
|
|
|
|
|
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|
|
|
|
|
Common Stock |
|
Treasury Stock |
|
Additional Paid-In Capital |
|
Accumulated Other Comprehensive Loss |
|
Retained Earnings |
|
Total Shareholders’ Equity |
|
Shares |
|
Amount |
Shares |
|
Amount |
|
Balance at July 2, 2021 |
312 |
|
|
$ |
3 |
|
|
(4) |
|
|
$ |
(232) |
|
|
$ |
3,608 |
|
|
$ |
(197) |
|
|
$ |
7,539 |
|
|
$ |
10,721 |
|
|
Net income |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
610 |
|
|
610 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee stock plans |
— |
|
|
— |
|
|
3 |
|
|
207 |
|
|
(283) |
|
|
— |
|
|
— |
|
|
(76) |
|
|
Stock-based compensation |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
76 |
|
|
— |
|
|
— |
|
|
76 |
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
Actuarial pension gain |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
1 |
|
|
— |
|
|
1 |
|
|
Foreign currency translation adjustment |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
4 |
|
|
— |
|
|
4 |
|
|
Net unrealized gain on derivative contracts |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
25 |
|
|
— |
|
|
25 |
|
|
Balance at October 1, 2021 |
312 |
|
|
$ |
3 |
|
|
(1) |
|
|
$ |
(25) |
|
|
$ |
3,401 |
|
|
$ |
(167) |
|
|
$ |
8,149 |
|
|
$ |
11,361 |
|
|
|
|
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|
The accompanying notes are an integral part of these Condensed
Consolidated Financial Statements.
WESTERN DIGITAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1. Organization and Basis of
Presentation
Western Digital Corporation (“Western Digital” or the “Company”) is
a leading developer, manufacturer, and provider of data storage
devices and solutions based on both flash-based products (“Flash”)
and hard disk drives (“HDD”) technologies. With dedicated Flash and
HDD business units driving advancements in memory technologies, the
Company creates and drives innovations needed to help customers
capture, preserve, access, and transform an ever-increasing
diversity of data.
The accounting policies followed by the Company are set forth in
Part II, Item 8, Note 1,
Organization and Basis of Presentation,
of the Notes to Consolidated Financial Statements included in the
Company’s Annual Report on Form 10‑K for the year ended
July 1, 2022. In the opinion of management, all adjustments
necessary to fairly state the Condensed Consolidated Financial
Statements have been made. All such adjustments are of a normal,
recurring nature. Certain information and footnote disclosures
normally included in the Consolidated Financial Statements prepared
in accordance with accounting principles generally accepted in the
United States (“U.S. GAAP”) have been condensed or omitted pursuant
to the rules and regulations of the Securities and Exchange
Commission (“SEC”). These Condensed Consolidated Financial
Statements should be read in conjunction with the Consolidated
Financial Statements and the notes thereto included in the
Company’s Annual Report on Form 10‑K for the year ended
July 1, 2022. 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 years 2023, which
ends on June 30, 2023, and 2022, which ended on July 1,
2022, are each comprised of 52 weeks, with all quarters presented
consisting of 13 weeks.
Segment Reporting
The Company manufactures, markets, and sells data storage devices
and solutions in the U.S. and in foreign countries through its
sales personnel, dealers, distributors, retailers, and
subsidiaries. The Company manages and reports under two reportable
segments: Flash and HDD.
The Company’s Chief Operating Decision Maker (“CODM”) evaluates
performance of the Company and makes decisions regarding allocation
of resources based on each operating segment’s net revenue and
gross margin. Because of the integrated nature of the Company’s
production and distribution activities, separate segment asset
measures are not available or reviewed by the CODM to evaluate the
performance of or to allocate resources to the
segments.
Use of Estimates
Company management has made estimates and assumptions relating to
the reporting of certain assets and liabilities in conformity with
U.S. GAAP. These estimates and assumptions have been applied using
methodologies that are consistent throughout the periods presented
with consideration given to the potential impacts of current
macroeconomic conditions. However, actual results could differ
materially from these estimates.
WESTERN DIGITAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 2. Recent Accounting
Pronouncements
Accounting Pronouncements Recently Adopted
In August 2020, the Financial Accounting Standards Board (“FASB”)
issued Accounting Standards Update (“ASU”) No. 2020-06, “Debt—Debt
with Conversion and Other Options (Subtopic 470-20) and Derivatives
and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40):
Accounting for Convertible Instruments and Contracts in an Entity’s
Own Equity” (“ASU 2020-06”). ASU 2020-06 reduces the number of
accounting models for convertible debt instruments and convertible
preferred stock and results in fewer instruments with embedded
conversion features being separately recognized from the host
contract as compared with prior standards. Those instruments that
do not have a separately recognized embedded conversion feature
will no longer recognize a debt issuance discount related to such a
conversion feature and would recognize less interest expense on a
periodic basis. Additionally, the ASU amends the calculation of the
share dilution impact related to a conversion feature and
eliminates the treasury method as an option.
The Company adopted the new standard effective July 2, 2022, the
first day of the year ending June 30, 2023, using the modified
retrospective method. On the date of adoption, the Company recorded
a reduction in Additional Paid-In Capital of $128 million, a
reduction of unamortized debt discount of $48 million, a reduction
of deferred income tax liabilities of $11 million, and an increase
to retained earnings of $91 million for the after-tax impact
of previously recognized amortization of the debt discount
associated with the Company’s
convertible senior notes.
In November 2021, the FASB issued ASU No. 2021-10, “Government
Assistance (Topic 832): Disclosures by Business Entities about
Government Assistance” (“ASU 2021-10”). ASU 2021-10 increases the
transparency of government assistance received by requiring most
business entities to disclose information about government
assistance received, including (1) the types of assistance, (2) the
entity’s accounting for the assistance, and (3) the effect of the
assistance on an entity’s financial statements. This ASU is
effective for fiscal years (and interim periods within those fiscal
years) beginning after December 15, 2021, which for the Company is
the first quarter of 2023. The Company adopted this ASU on July 2,
2022, the first day of the year ending June 30, 2023, and the
adoption did not have a material impact on its Condensed
Consolidated Financial Statements.
WESTERN DIGITAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 3. Business Segments, Geographic
Information, and Concentrations of Risk
The following table summarizes the operating performance of the
Company’s reportable segments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
September 30,
2022 |
|
October 1,
2021 |
|
|
|
|
|
(in millions, except percentages) |
|
|
|
Net revenue: |
|
|
|
|
|
|
|
|
Flash |
$ |
1,722 |
|
|
$ |
2,490 |
|
|
|
|
|
|
HDD |
2,014 |
|
|
2,561 |
|
|
|
|
|
|
Total net revenue |
$ |
3,736 |
|
|
$ |
5,051 |
|
|
|
|
|
|
Gross profit: |
|
|
|
|
|
|
|
|
Flash |
$ |
422 |
|
|
$ |
921 |
|
|
|
|
|
|
HDD |
574 |
|
|
792 |
|
|
|
|
|
|
Total gross profit for segments |
996 |
|
|
1,713 |
|
|
|
|
|
|
Unallocated corporate items: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation expense |
(14) |
|
|
(9) |
|
|
|
|
|
|
Amortization of acquired intangible assets |
(1) |
|
|
(39) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total unallocated corporate items |
(15) |
|
|
(48) |
|
|
|
|
|
|
Consolidated gross profit |
$ |
981 |
|
|
$ |
1,665 |
|
|
|
|
|
|
Gross margin: |
|
|
|
|
|
|
|
|
Flash |
24.5 |
% |
|
37.0 |
% |
|
|
|
|
|
HDD |
28.5 |
% |
|
30.9 |
% |
|
|
|
|
|
Consolidated gross margin |
26.3 |
% |
|
33.0 |
% |
|
|
|
|
Disaggregated Revenue
The Company’s broad portfolio of technology and products address
multiple end markets. Cloud represents a large and growing end
market comprised primarily of products for public or private cloud
environments and end customers, which the Company believes it is
uniquely positioned to address as the only provider of both
Flash and HDD. Through the Client end market, the Company provides
its original equipment manufacturer (“OEM”) and channel customers a
broad array of high-performance flash and hard drive solutions
across personal computer, mobile, gaming, automotive, virtual
reality headsets, at-home entertainment, and industrial spaces. The
Consumer end market is highlighted by the Company’s broad range of
retail and other end-user products, which capitalize on the
strength of the Company’s product brand recognition and vast points
of presence around the world.
WESTERN DIGITAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The Company’s disaggregated revenue information is as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
September 30,
2022 |
|
October 1,
2021 |
|
|
(in millions) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue by End Market |
|
|
|
|
|
Cloud |
$ |
1,829 |
|
|
$ |
2,225 |
|
|
|
Client |
1,229 |
|
|
1,853 |
|
|
|
Consumer |
678 |
|
|
973 |
|
|
|
Total Revenue |
$ |
3,736 |
|
|
$ |
5,051 |
|
|
|
|
|
|
|
|
|
Revenue by Geography |
|
|
|
|
|
Asia |
$ |
1,686 |
|
|
$ |
2,675 |
|
|
|
Americas |
1,423 |
|
|
1,614 |
|
|
|
Europe, Middle East and Africa |
627 |
|
|
762 |
|
|
|
Total Revenue |
$ |
3,736 |
|
|
$ |
5,051 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company’s top 10 customers accounted for 52% of its net revenue
for the three months ended September 30, 2022, and 43% of its
net revenue for the three months ended October 1, 2021. For
the three months ended September 30, 2022 and October 1,
2021, no single customer accounted for 10% or more of the Company’s
net revenue.
Goodwill
The following table provides a summary of goodwill activity for the
period:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Flash |
|
HDD |
|
Total |
|
(in millions) |
|
Balance at July 1, 2022 |
$ |
5,718 |
|
|
$ |
4,323 |
|
|
$ |
10,041 |
|
|
|
|
|
|
|
|
Foreign currency translation adjustment |
(2) |
|
|
(2) |
|
|
(4) |
|
|
|
|
|
|
|
|
Balance at September 30, 2022 |
$ |
5,716 |
|
|
$ |
4,321 |
|
|
$ |
10,037 |
|
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
As of September 30, 2022, management identified several factors,
including changes in macroeconomic conditions and a recent decline
of the Company’s market stock price, that warranted a quantitative
analysis of impairment for both the Flash and HDD reporting units
as of that date. The fair value of each operating segment was based
on a weighting of two valuation methodologies: an income approach
and a market approach.
The income approach was based on the present value of the projected
discounted cash flows (“DCF”) expected to be generated by the
operating segment. Those projections required the use of
significant estimates and assumptions specific to the reporting
unit as well as those based on general economic conditions, which
included, among other factors, revenue growth rates, gross margins,
operating costs, capital expenditures, assumed tax rates and other
assumptions deemed reasonable by management. The present value was
based on applying a weighted average cost of capital (“WACC”) which
considered long-term interest rates and cost of equity based on the
Company’s risk profile.
The market approach was based on a guideline company method, which
analyzed market multiples of revenue and earnings before interest,
taxes, depreciation and amortization (“EBITDA”) for a group of
comparable public companies.
WESTERN DIGITAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
We reconciled the aggregated estimated fair value of both operating
segments to the Company’s market capitalization, including
consideration of a control premium representing the estimated
amount a market participant would pay to obtain a controlling
interest in the Company.
As of September 30, 2022, the fair value derived from those
valuation methodologies exceeded the carrying value by 7% and 32%
for Flash and HDD, respectively, and no impairment was
recognized.
The Company is required to use judgment when applying the goodwill
impairment test, including the assignment of assets and liabilities
to reporting units, and determination of the fair value of each
reporting unit. In addition, the estimates used to determine the
fair value of reporting units may change based on future changes in
the Company’s results of operations, macroeconomic conditions or
other factors. Changes in these estimates could materially affect
the Company’s assessment of the fair value and goodwill impairment.
In addition, if negative macroeconomic conditions continue or
worsen or the Company’s stock price decreases for a sustained
period of time, goodwill could become impaired, which could result
in an impairment charge and materially adversely affect the
Company’s financial condition results of operations.
WESTERN DIGITAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 4. 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
September 30, 2022
or
July 1, 2022.
Contract liabilities relate to customers’ payments in advance of
performance under the contract and primarily relate to remaining
performance obligations under professional service and support and
maintenance contracts. Contract liabilities as of
September 30, 2022
and
July 1, 2022
and changes in contract liabilities for the
three months ended
September 30, 2022
and
October 1, 2021
were not material.
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. The Company had no direct incremental
costs to obtain contracts that have an expected benefit of greater
than one year.
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 intellectual property
(“IP”) license arrangements, which typically range longer than one
year. Remaining performance obligations are mainly attributed to
right-to-access patent license arrangements, professional service
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
September 30, 2022
was
$26 million,
which is mainly attributable to the functional IP license and
professional service arrangements. The Company expects to recognize
substantially all of this amount as revenue within the next twelve
months.
WESTERN DIGITAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 5. Supplemental Financial
Statement Data
Accounts receivable, net
From time to time, in connection with factoring agreements, the
Company sells trade accounts receivable without recourse to third
party purchasers in exchange for cash. During the three months
ended September 30, 2022, the Company sold trade accounts
receivable aggregating $291 million.
The Company did not sell any trade accounts receivable during the
three months ended October 1, 2021. The discounts on the trade
accounts receivable sold were not material and were recorded within
Other income (expense), net in the Condensed Consolidated
Statements of Operations. As of September 30, 2022 and
July 1, 2022, the amount of factored receivables that remained
outstanding was $291 million and $300 million,
respectively.
Inventories
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
2022 |
|
July 1,
2022 |
|
(in millions) |
|
Inventories: |
|
|
|
|
Raw materials and component parts |
$ |
1,809 |
|
|
$ |
1,603 |
|
|
Work-in-process |
1,130 |
|
|
1,162 |
|
|
Finished goods |
923 |
|
|
873 |
|
|
Total inventories |
$ |
3,862 |
|
|
$ |
3,638 |
|
Property, plant and equipment, net
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
2022 |
|
July 1,
2022 |
|
(in millions) |
|
Property, plant and equipment: |
|
|
|
|
Land |
$ |
269 |
|
|
$ |
269 |
|
|
Buildings and improvements |
1,945 |
|
|
1,920 |
|
|
Machinery and equipment |
8,734 |
|
|
8,642 |
|
|
Computer equipment and software |
499 |
|
|
494 |
|
|
Furniture and fixtures |
54 |
|
|
54 |
|
|
Construction-in-process |
642 |
|
|
591 |
|
|
Property, plant and equipment, gross |
12,143 |
|
|
11,970 |
|
|
Accumulated depreciation |
(8,425) |
|
|
(8,300) |
|
|
Property, plant and equipment, net |
$ |
3,718 |
|
|
$ |
3,670 |
|
Other Intangible assets
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
2022 |
|
July 1,
2022 |
|
(in millions) |
|
Other Intangible assets: |
|
|
|
|
Finite-lived intangible assets |
$ |
5,715 |
|
|
$ |
5,493 |
|
|
In-process research and development |
80 |
|
|
80 |
|
|
Accumulated amortization |
(5,621) |
|
|
(5,360) |
|
|
Other Intangible assets, net |
$ |
174 |
|
|
$ |
213 |
|
As part of prior acquisitions, the Company recorded at the time of
the acquisition acquired in-process research and development
(“IPR&D”) for projects in progress that had not yet reached
technological feasibility. IPR&D is initially accounted for as
an indefinite-lived intangible asset. Once a project reaches
technological feasibility, the Company reclassifies the balance to
existing technology and begins to amortize the intangible asset
over its estimated useful life.
WESTERN DIGITAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Product warranty liability
Changes in the warranty accrual were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
|
|
September 30,
2022 |
|
October 1,
2021 |
|
|
|
|
|
|
|
(in millions) |
|
Warranty accrual, beginning of period |
$ |
345 |
|
|
$ |
363 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charges to operations |
32 |
|
|
40 |
|
|
|
|
|
|
|
|
Utilization |
(34) |
|
|
(23) |
|
|
|
|
|
|
|
|
Changes in estimate related to pre-existing warranties |
(3) |
|
|
(10) |
|
|
|
|
|
|
|
|
Warranty accrual, end of period |
$ |
340 |
|
|
$ |
370 |
|
|
|
|
|
|
|
The current portion of the warranty accrual is classified in
Accrued expenses and the long-term portion is classified in Other
liabilities
as noted below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
2022 |
|
July 1,
2022 |
|
|
|
|
|
|
|
(in millions) |
|
Warranty accrual: |
|
|
|
|
|
|
|
|
|
|
Current portion (included in Accrued expenses) |
$ |
144 |
|
|
$ |
162 |
|
|
|
|
|
|
|
|
Long-term portion (included in Other liabilities) |
196 |
|
|
183 |
|
|
|
|
|
|
|
|
Total warranty accrual |
$ |
340 |
|
|
$ |
345 |
|
|
|
|
|
|
|
Other liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
2022 |
|
July 1,
2022 |
|
(in millions) |
|
Other liabilities: |
|
|
|
|
Non-current net tax payable |
$ |
460 |
|
|
$ |
659 |
|
|
Non-current portion of unrecognized tax benefits |
453 |
|
|
477 |
|
|
Other non-current liabilities |
629 |
|
|
643 |
|
|
Total other liabilities |
$ |
1,542 |
|
|
$ |
1,779 |
|
WESTERN DIGITAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Accumulated other comprehensive loss
Accumulated other comprehensive loss (“AOCI”), 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 AOCI:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actuarial Pension Losses |
|
Foreign Currency Translation Adjustment |
|
|
|
|
|
Unrealized Losses on Derivative Contracts |
|
Total Accumulated Comprehensive Loss |
|
(in millions) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at July 1, 2022 |
$ |
(11) |
|
|
$ |
(277) |
|
|
|
|
|
|
$ |
(266) |
|
|
$ |
(554) |
|
|
Other comprehensive loss before reclassifications |
— |
|
|
(80) |
|
|
|
|
|
|
(140) |
|
|
(220) |
|
|
Amounts reclassified from accumulated other comprehensive
loss |
— |
|
|
— |
|
|
|
|
|
|
64 |
|
|
64 |
|
|
Income tax benefit related to items of other comprehensive
loss |
— |
|
|
— |
|
|
|
|
|
|
16 |
|
|
16 |
|
|
Net current-period other comprehensive loss |
— |
|
|
(80) |
|
|
|
|
|
|
(60) |
|
|
(140) |
|
|
Balance at September 30, 2022 |
$ |
(11) |
|
|
$ |
(357) |
|
|
|
|
|
|
$ |
(326) |
|
|
$ |
(694) |
|
During the three months ended September 30, 2022, the amounts
reclassified out of AOCI were losses related to foreign exchange
contracts and interest rate swap contracts. Losses reclassified out
of AOCI related to foreign exchange contracts were $62 million for
the three months ended September 30, 2022 that were
substantially charged to Cost of revenue in the Condensed
Consolidated Statements of Operations. Losses reclassified out of
AOCI related to interest rate swap contracts were $2 million for
the three months ended September 30, 2022 that were charged to
Interest expense in the Condensed Consolidated Statements of
Operations.
As of September 30, 2022, substantially all of existing net
losses related to cash flow hedges recorded in AOCI are expected to
be reclassified to earnings within the next twelve months. In
addition, as of September 30, 2022, the Company did not have
any foreign exchange forward contracts with credit-risk-related
contingent features.
WESTERN DIGITAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 6. Fair Value Measurements and
Investments
Financial Instruments Carried at Fair Value
Financial assets and liabilities that are remeasured and reported
at fair value at each reporting period are classified and disclosed
in one of the following three levels:
Level 1. Quoted
prices in active markets for identical assets or
liabilities.
Level 2. Inputs
other than Level 1 that are observable, either directly or
indirectly, such as quoted prices for similar assets or
liabilities; quoted prices in markets that are not active; or other
inputs that are observable or can be corroborated by observable
market data for substantially the full term of the assets or
liabilities.
Level 3. Inputs
that are unobservable for the asset or liability and that are
significant to the fair value of the assets or
liabilities.
The following tables present information about the Company’s
financial assets and liabilities that are measured at fair value on
a recurring basis as of September 30, 2022 and July 1,
2022, and indicate the fair value hierarchy of the valuation
techniques utilized to determine such values:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2022 |
|
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
Total |
|
(in millions) |
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents - Money market funds |
$ |
322 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
322 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts |
— |
|
|
48 |
|
|
— |
|
|
48 |
|
|
Interest rate swap contracts |
— |
|
|
11 |
|
|
— |
|
|
11 |
|
|
|
|
|
|
|
|
|
|
Total assets at fair value |
$ |
322 |
|
|
$ |
59 |
|
|
$ |
— |
|
|
$ |
381 |
|
|
Liabilities: |
|
|
|
|
|
|
|
|
Foreign exchange contracts |
$ |
— |
|
|
$ |
329 |
|
|
$ |
— |
|
|
$ |
329 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities at fair value |
$ |
— |
|
|
$ |
329 |
|
|
$ |
— |
|
|
$ |
329 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 1, 2022 |
|
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
Total |
|
(in millions) |
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents - Money market funds |
$ |
266 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
266 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts |
— |
|
|
61 |
|
|
— |
|
|
61 |
|
|
Interest rate swap contracts |
— |
|
|
3 |
|
|
— |
|
|
3 |
|
|
|
|
|
|
|
|
|
|
Total assets at fair value |
$ |
266 |
|
|
$ |
64 |
|
|
$ |
— |
|
|
$ |
330 |
|
|
Liabilities: |
|
|
|
|
|
|
|
|
Foreign exchange contracts |
$ |
— |
|
|
$ |
316 |
|
|
$ |
— |
|
|
$ |
316 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities at fair value |
$ |
— |
|
|
$ |
316 |
|
|
$ |
— |
|
|
$ |
316 |
|
During the periods presented, the Company had no transfers of
financial assets and liabilities between levels and there were no
changes in valuation techniques or the inputs used in the fair
value measurement.
WESTERN DIGITAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Financial Instruments Not Carried at Fair Value
For financial instruments where the carrying value (which includes
principal adjusted for any unamortized issuance costs, and
discounts or premiums) differs from fair value (which is based on
quoted market prices), the following table represents the related
carrying value and fair value for each of the Company’s outstanding
financial instruments. Each of the financial instruments presented
below was categorized as Level 2 for all periods presented, based
on the frequency of trading immediately prior to the end of the
first quarter of 2023 and the fourth quarter of 2022,
respectively.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2022 |
|
July 1, 2022 |
|
Carrying
Value |
|
Fair
Value |
|
Carrying
Value |
|
Fair
Value |
|
(in millions) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.50% convertible notes due 2024
|
$ |
1,097 |
|
|
$ |
1,047 |
|
|
$ |
1,048 |
|
|
$ |
1,040 |
|
|
|
|
|
|
|
|
|
|
4.75% senior unsecured notes due 2026
|
2,291 |
|
|
2,134 |
|
|
2,291 |
|
|
2,205 |
|
|
Variable interest rate Term Loan A-2 maturing 2027 |
2,693 |
|
|
2,634 |
|
|
2,693 |
|
|
2,621 |
|
|
2.85% senior unsecured notes due 2029
|
495 |
|
|
389 |
|
|
495 |
|
|
412 |
|
|
3.10% senior unsecured notes due 2032
|
495 |
|
|
342 |
|
|
495 |
|
|
389 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
$ |
7,071 |
|
|
$ |
6,546 |
|
|
$ |
7,022 |
|
|
$ |
6,667 |
|
WESTERN DIGITAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 7. Derivative Instruments and
Hedging Activities
As of September 30, 2022, 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 through February 2023, on
a portion of its term loans.
Changes in fair values of the non-designated foreign exchange
contracts are recognized in Other income (expense), net and are
largely offset by corresponding changes in the fair values of the
foreign currency denominated monetary assets and liabilities. For
each of the three months ended September 30, 2022 and
October 1, 2021, total net realized and unrealized transaction
and foreign exchange contract currency gains and losses were not
material to the Company’s Condensed Consolidated Financial
Statements.
Unrealized gains or losses on designated cash flow hedges are
recognized in AOCI. For more information regarding cash flow
hedges, see Part I, Item 1, Note 5,
Supplemental Financial Statement Data - Accumulated other
comprehensive loss,
of the Notes to the Condensed Consolidated Financial Statements
included in this Quarterly Report on Form 10-Q.
Netting Arrangements
Under certain provisions and conditions within agreements with
counterparties to the Company’s foreign exchange forward contracts,
subject to applicable requirements, the Company has the right of
offset associated with the Company’s foreign exchange forward
contracts and is allowed to net settle transactions of the same
currency with a single net amount payable by one party to the
other. As of September 30, 2022 and July 1, 2022,
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.
WESTERN DIGITAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 8. Debt
Debt consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
2022 |
|
July 1,
2022 |
|
(in millions) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.50% convertible notes due 2024
|
$ |
1,100 |
|
|
$ |
1,100 |
|
|
|
|
|
|
4.75% senior unsecured notes due 2026
|
2,300 |
|
|
2,300 |
|
|
Variable interest rate Term Loan A-2 maturing 2027 |
2,700 |
|
|
2,700 |
|
|
2.85% senior unsecured notes due 2029
|
500 |
|
|
500 |
|
|
3.10% senior unsecured notes due 2032
|
500 |
|
|
500 |
|
|
|
|
|
|
Total debt |
7,100 |
|
|
7,100 |
|
|
Issuance costs and debt discounts |
(29) |
|
|
(78) |
|
|
|
|
|
|
|
|
|
|
Long-term debt |
$ |
7,071 |
|
|
$ |
7,022 |
|
During the three months ended September 30, 2022, the Company
drew and repaid $300 million principal amount under its
$2.25 billion revolving credit facility maturing in January
2027 (the “2027 Revolving Credit Facility”). The terms of the
credit agreement governing the 2027 Revolving Credit Facility and
Term Loan A-2 requires the Company to comply with a leverage ratio
financial covenant. As of September 30, 2022, the Company was
in compliance with this financial covenant.
As described in Note 2,
Recent Accounting Pronouncements
the Company adopted ASU 2020-06 effective July 2, 2022, using a
modified retrospective method, which resulted in the elimination of
the originally recorded debt discount associated with the
conversion feature on its 1.50% convertible notes due
2024.
WESTERN DIGITAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 9. Pension and Other Post-Retirement
Benefit Plans
The Company has pension and other post-retirement benefit plans in
various countries. The Company’s principal pension plans are in
Japan, Thailand and the Philippines. All pension and other
post-retirement benefit plans outside of the Company’s Japan,
Thailand and the Philippines defined benefit pension plans (the
“Pension Plans”) are immaterial to the Condensed Consolidated
Financial Statements. The expected long-term rate of return on the
Pension Plans assets is 2.5%.
Obligations and Funded Status
The following table presents the unfunded status of the benefit
obligations for the Pension Plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
2022 |
|
July 1,
2022 |
|
|
|
(in millions) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation at end of period |
$ |
275 |
|
|
$ |
294 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at end of period |
177 |
|
|
189 |
|
|
|
|
Unfunded status |
$ |
98 |
|
|
$ |
105 |
|
|
|
The following table presents the unfunded amounts related to the
Pension Plans as recognized on the Company’s Condensed Consolidated
Balance Sheets:
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
2022 |
|
July 1,
2022 |
|
(in millions) |
|
Current liabilities |
$ |
1 |
|
|
$ |
1 |
|
|
Non-current liabilities |
97 |
|
|
104 |
|
|
Net amount recognized |
$ |
98 |
|
|
$ |
105 |
|
Net periodic benefit costs were not material for the three months
ended September 30, 2022.
WESTERN DIGITAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 10. Related Parties and Related
Commitments and Contingencies
Flash Ventures
The Company’s business ventures with Kioxia Corporation (“Kioxia”)
consist of three separate legal entities: Flash Partners Ltd.
(“Flash Partners”), Flash Alliance Ltd. (“Flash Alliance”), and
Flash Forward Ltd. (“Flash Forward”), collectively referred to as
“Flash Ventures”.
The following table presents the notes receivable from, and equity
investments in, Flash Ventures:
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
2022 |
|
July 1,
2022 |
|
(in millions) |
|
Notes receivable, Flash Partners |
$ |
6 |
|
|
$ |
27 |
|
|
Notes receivable, Flash Alliance |
62 |
|
|
55 |
|
|
Notes receivable, Flash Forward |
658 |
|
|
793 |
|
|
Investment in Flash Partners |
158 |
|
|
166 |
|
|
Investment in Flash Alliance |
229 |
|
|
243 |
|
|
Investment in Flash Forward |
106 |
|
|
112 |
|
|
Total notes receivable and investments in Flash
Ventures |
$ |
1,219 |
|
|
$ |
1,396 |
|
During the three months ended September 30, 2022 and
October 1, 2021, the Company made net payments to Flash
Ventures of $1.0 billion, and $1.2 billion, respectively, for
purchased flash-based memory wafers and net loans.
The Company makes, or will make, loans to Flash Ventures to fund
equipment investments for new process technologies and additional
wafer capacity. The Company aggregates its Flash Ventures’ notes
receivable into one class of financing receivables due to the
similar ownership interest and common structure in each Flash
Venture entity. For all reporting periods presented, no loans were
past due and no loan impairments were recorded. The Company’s notes
receivable from each Flash Ventures entity, denominated in Japanese
yen, are secured by equipment owned by that Flash Ventures
entity.
As of September 30, 2022 and July 1, 2022, the Company
had account payable balances due to Flash Ventures of
$295 million and $320 million, respectively.
The Company’s maximum reasonably estimable loss exposure (excluding
lost profits) as a result of its involvement with Flash Ventures,
based upon the Japanese yen to U.S. dollar exchange rate at
September 30, 2022, is presented below. Investments in Flash
Ventures are denominated in Japanese yen, and the maximum estimable
loss exposure excludes any cumulative translation adjustment due to
revaluation from the Japanese yen to the U.S.
dollar.
|
|
|
|
|
|
|
September 30,
2022 |
|
(in millions) |
|
Notes receivable |
$ |
726 |
|
|
Equity investments |
493 |
|
|
Operating lease guarantees |
1,684 |
|
|
Inventory and prepayments |
1,022 |
|
|
Maximum estimable loss exposure |
$ |
3,925 |
|
WESTERN DIGITAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The Company is obligated to pay for variable costs incurred in
producing its share of Flash Ventures’ flash-based memory wafer
supply, based on its three-month forecast, which generally
equals 50% of Flash Ventures’ output. In addition, the
Company is obligated to pay for half of Flash Ventures’ fixed costs
regardless of the output the Company chooses to purchase. The
Company is not able to estimate its total wafer purchase commitment
obligation beyond its rolling three-month purchase commitment
because the price is determined by reference to the future cost of
producing the semiconductor wafers. In addition, the Company is
committed to fund 49.9% to 50.0% of each Flash Ventures entity’s
capital investments to the extent that each Flash Ventures entity’s
operating cash flow is insufficient to fund these
investments.
In January 2022, the Company entered into additional agreements
regarding Flash Ventures’ investment in a new wafer fabrication
facility currently under construction in Yokkaichi, Japan, referred
to as “Y7”. The primary purpose of Y7 is to provide clean room
space to continue the transition of existing flash-based wafer
capacity to newer flash technology nodes. The Company is committed
to pay, among other items, future building depreciation prepayments
aggregating approximately $203 million as follows:
$182 million for the remaining nine months of 2023 and
$21 million in 2024, to be credited against future wafer
charges.
Inventory Purchase Commitments with Flash
Ventures. Purchase
orders placed under Flash Ventures for up to three months are
binding and cannot be canceled.
Research and Development Activities.
The Company participates in common research and development
(“R&D”) activities with Kioxia and is contractually committed
to a minimum funding level. R&D commitments are immaterial to
the Condensed Consolidated Financial Statements.
Off-Balance Sheet Liabilities
Flash Ventures sells to and leases back from a consortium of
financial institutions a portion of its tools and has entered into
equipment lease agreements of which the Company guarantees half or
all of the outstanding obligations under each lease agreement. The
lease agreements are subject to customary covenants and
cancellation events related to Flash Ventures and each of the
guarantors. The occurrence of a cancellation event could result in
an acceleration of Flash Ventures’ obligations and a call on the
Company’s guarantees.
The following table presents the Company’s portion of the remaining
guarantee obligations under the Flash Ventures’ lease facilities in
both Japanese yen and U.S. dollar-equivalent, based upon the
Japanese yen to U.S. dollar exchange rate as of September 30,
2022.
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease Amounts |
|
(Japanese yen, in billions) |
|
(U.S. dollar, in millions) |
|
Total guarantee obligations |
¥ |
243 |
|
|
$ |
1,684 |
|
WESTERN DIGITAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The following table details the breakdown of the Company’s
remaining guarantee obligations between the principal amortization
and the purchase option exercise price at the end of the term of
the Flash Ventures lease agreements, in annual installments as
of September 30, 2022 in U.S. dollars, based upon
the Japanese yen to U.S. dollar exchange rate as
of September 30, 2022:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Annual Installments |
|
Payment of Principal Amortization |
|
Purchase Option Exercise Price at Final Lease Terms |
|
Guarantee Amount |
|
|
|
(in millions) |
|
Remaining nine months of 2023
|
|
$ |
371 |
|
|
$ |
50 |
|
|
$ |
421 |
|
|
2024 |
|
376 |
|
|
90 |
|
|
466 |
|
|
2025 |
|
203 |
|
|
82 |
|
|
285 |
|
|
2026 |
|
199 |
|
|
124 |
|
|
323 |
|
|
2027 |
|
53 |
|
|
106 |
|
|
159 |
|
|
2028 and thereafter |
|
3 |
|
|
27 |
|
|
30 |
|
|
Total guarantee obligations |
|
$ |
1,205 |
|
|
$ |
479 |
|
|
$ |
1,684 |
|
The Company and Kioxia have agreed to mutually contribute to, and
indemnify each other and Flash Ventures for, environmental
remediation costs or liability resulting from Flash Ventures’
manufacturing operations in certain circumstances. The Company has
not made any indemnification payments, nor recorded any
indemnification receivables, under any such agreements. As of
September 30, 2022, 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 the three months ended
September 30, 2022, the Company recognized approximately 3% of
its consolidated revenue on products distributed by the Unis
Venture. For the three months ended October 1, 2021, the
Company recognized approximately 5% of its consolidated revenue on
products distributed by the Unis Venture. The outstanding accounts
receivable due from the Unis Venture were 6% and
5%
of Accounts receivable, net for September 30, 2022 and
July 1, 2022, respectively.
WESTERN DIGITAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 11. 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 those options. Lease expense is recognized on a
straight-line basis over the lease term. The following table
summarizes supplemental balance sheet information related to
operating leases as of September 30, 2022:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease Amounts |
|
|
|
|
|
|
|
|
|
($ in millions) |
|
|
|
|
|
|
|
|
|
Minimum lease payments by year: |
|
|
|
|
|
|
|
|
|
|
Remaining nine months of 2023
|
$ |
36 |
|
|
|
|
|
|
|
|
|
|
2024 |
46 |
|
|
|
|
|
|
|
|
|
|
2025 |
44 |
|
|
|
|
|
|
|
|
|
|
2026 |
44 |
|
|
|
|
|
|
|
|
|
|
2027 |
39 |
|
|
|
|
|
|
|
|
|
|
Thereafter |
147 |
|
|
|
|
|
|
|
|
|
|
Total future minimum lease payments |
356 |
|
|
|
|
|
|
|
|
|
|
Less: Imputed interest |
51 |
|
|
|
|
|
|
|
|
|
|
Present value of lease liabilities |
305 |
|
|
|
|
|
|
|
|
|
|
Less: Current portion (included in
Accrued expenses)
|
40 |
|
|
|
|
|
|
|
|
|
|
Long-term operating lease liabilities (included in
Other liabilities )
|
$ |
265 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating lease right-of-use assets (included in
Other non-current assets)
|
$ |
288 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average remaining lease term in years |
8.2 |
|
|
|
|
|
|
|
|
|
Weighted average discount rate |
3.4 |
% |
|
|
|
|
|
|
|
|
The following table summarizes supplemental disclosures of
operating cost and cash flow information related to operating
leases:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
September 30,
2022 |
|
October 1,
2021 |
|
|
|
|
|
(in millions) |
|
Cost of operating leases |
$ |
14 |
|
|
$ |
13 |
|
|
|
|
|
|
Cash paid for operating leases |
14 |
|
|
12 |
|
|
|
|
|
|
Operating lease assets obtained in exchange for operating lease
liabilities |
4 |
|
|
112 |
|
|
|
|
|
WESTERN DIGITAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Purchase Agreements and Other Commitments
In the normal course of business, the Company enters into purchase
orders with suppliers for the purchase of components used to
manufacture its products. These purchase orders generally cover
forecasted component supplies needed for production during the next
quarter, are recorded as a liability upon receipt of the
components, and generally may be changed or canceled at any time
prior to shipment of the components. The Company also enters into
long-term agreements with suppliers that contain fixed future
commitments, which are contingent on certain conditions such as
performance, quality and technology of the vendor’s components. As
of September 30, 2022, the Company had the following minimum
long-term commitments:
|
|
|
|
|
|
|
|
|
|
|
Long-Term Commitments |
|
|
(in millions) |
|
Year: |
|
|
|
Remaining nine months of 2023
|
|
$ |
385 |
|
|
2024 |
|
325 |
|
|
2025 |
|
180 |
|
|
2026 |
|
53 |
|
|
2027 |
|
46 |
|
|
Thereafter |
|
150 |
|
|
Total |
|
$ |
1,139 |
|
WESTERN DIGITAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 12. Shareholders’
Equity
Stock-based Compensation Expense
The following tables present the Company’s stock-based compensation
for equity-settled awards by type (i.e., restricted stock units
(“RSUs”), restricted stock unit awards with performance conditions
or market conditions (“PSUs”), and rights to purchase shares of
common stock under the Company’s Employee Stock Purchase Plan
(“ESPP”)) and financial statement line as well as the related tax
benefit included in the Company’s Condensed Consolidated Statements
of Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
|
|
September 30,
2022 |
|
October 1,
2021 |
|
|
|
|
|
|
|
(in millions) |
|
|
|
|
|
|
|
|
|
|
|
RSUs and PSUs |
$ |
75 |
|
|
$ |
67 |
|
|
|
|
|
|
|
|
ESPP |
11 |
|
|
9 |
|
|
|
|
|
|
|
|
Total |
$ |
86 |
|
|
$ |
76 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
|
|
September 30,
2022 |
|
October 1,
2021 |
|
|
|
|
|
|
|
(in millions) |
|
Cost of revenue |
$ |
14 |
|
|
$ |
9 |
|
|
|
|
|
|
|
|
Research and development |
39 |
|
|
40 |
|
|
|
|
|
|
|
|
Selling, general and administrative |
33 |
|
|
27 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal |
86 |
|
|
76 |
|
|
|
|
|
|
|
|
Tax benefit |
(13) |
|
|
(15) |
|
|
|
|
|
|
|
|
Total |
$ |
73 |
|
|
$ |
61 |
|
|
|
|
|
|
|
Windfall tax benefits and tax deficiencies for shortfalls related
to the vesting and exercise of stock-based awards, which are
recognized as a component of the Company’s Income tax expense, were
not material for the periods presented.
Compensation cost related to unvested RSUs, PSUs, and rights to
purchase shares of common stock under the ESPP will generally be
amortized on a straight-line basis over the remaining average
service period. The following table presents the unamortized
compensation cost and weighted average service period of all
unvested outstanding awards as of September 30,
2022:
|
|
|
|
|
|
|
|
|
|
|
|
|
Unamortized Compensation Costs |
|
Weighted Average Service Period |
|
(in millions) |
|
(years) |
|
|
|
|
|
RSUs and PSUs
(1)
|
$ |
655 |
|
|
2.6 |
|
ESPP |
51 |
|
|
1.0 |
|
Total unamortized compensation cost |
$ |
706 |
|
|
|
(1) Weighted
average service period assumes the performance metrics are met for
the PSUs.
WESTERN DIGITAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Plan Activities
Stock Options
The following table summarizes stock option activity under the
Company’s incentive plans. All outstanding options were exercisable
at September 30, 2022:
|
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|
|
|
|
|
|
|
|
|
Number of Shares |
|
Weighted Average Exercise Price Per Share |
|
Weighted Average Remaining Contractual Life |
|
|
|
(in millions) |
|
|
|
(in years) |
|
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|
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|
|
|
|
|
|
Options outstanding at July 1, 2022 |
0.9 |
|
|
$ |
66.76 |
|
|
0.54 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Canceled or expired |
(0.5) |
|
|
84.39 |
|
|
|
|
|
|
Options outstanding at September 30, 2022 |
0.4 |
|
|
$ |
45.08 |
|
|
0.81 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RSUs and PSUs
The following table summarizes RSU and PSU activity under the
Company’s incentive plans:
|
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|
|
|
|
|
|
|
|
|
Number of Shares |
|
Weighted Average Grant Date Fair Value |
|
Aggregate Intrinsic Value at Vest Date |
|
(in millions) |
|
|
|
(in millions) |
|
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|
|
|
RSUs and PSUs outstanding at July 1, 2022 |
15.4 |
|
|
52.89 |
|
|
|
|
Granted |
4.5 |
|
|
43.79 |
|
|
|
|
|
|
|
|
|
|
Vested |
(4.3) |
|
|
53.28 |
|
|
$ |
186 |
|
|
Forfeited |
(0.6) |
|
|
62.12 |
|
|
|
|
RSUs and PSUs outstanding at September 30, 2022 |
15.0 |
|
|
49.71 |
|
|
|
|
|
|
|
|
|
RSUs and PSUs are generally settled in an equal number of shares of
the Company’s common stock at the time of vesting of the
units.
Stock Repurchase Program
The Company’s Board of Directors has authorized a stock repurchase
program for the repurchase of up to $5.0 billion of the Company’s
common stock, which authorization is effective through
July 25, 2023. The Company did not make any stock repurchases
during the three months ended September 30, 2022 and has not
repurchased any shares of its common stock pursuant to its stock
repurchase program since the first quarter of fiscal 2019. Although
the Company will reevaluate the repurchasing of common stock when
appropriate, there can be no assurance if, when or at what level
the Company may resume such activity. The remaining amount
available to be repurchased under the Company’s current stock
repurchase program as of September 30, 2022 was
$4.5 billion. Repurchases under the stock repurchase program
may be made in the open market or in privately negotiated
transactions and may be made under a Rule 10b5-1 plan.
WESTERN DIGITAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 13. Income Tax
Expense
The Tax Cuts and Jobs Act (the “2017 Act”), enacted on December 22,
2017, includes a broad range of tax reform proposals affecting
businesses. The Company completed its accounting for the tax
effects of the enactment of the 2017 Act during the second quarter
of fiscal 2019. However, the U.S. Treasury and the Internal Revenue
Service (“IRS”) have issued tax guidance on certain provisions of
the 2017 Act since the enactment date, and the Company anticipates
the issuance of additional regulatory and interpretive guidance.
The Company applied a reasonable interpretation of the 2017 Act
along with the then-available guidance in finalizing its accounting
for the tax effects of the 2017 Act. Any additional regulatory or
interpretive guidance would constitute new information, which may
require further refinements to the Company’s estimates in future
periods.
On August 16, 2022, President Biden signed into law the Inflation
Reduction Act of 2022, which contained significant law changes
related to tax, climate, energy, and health care. The tax measures
include, among other things, a corporate alternative minimum tax of
15% on corporations with three-year average annual adjusted
financial statement income exceeding $1 billion. The corporate
alternative minimum tax will not be effective for the Company until
fiscal year 2024 and the Company is currently evaluating the
potential effects of these legislative changes.
The following table presents the Company’s Income tax expense and
the effective tax rate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
September 30,
2022 |
|
October 1,
2021 |
|
|
|
|
|
($ in millions) |
|
Income before taxes |
$ |
84 |
|
|
$ |
704 |
|
|
|
|
|
|
Income tax expense |
57 |
|
|
94 |
|
|
|
|
|
|
Effective tax rate |
68 |
% |
|
13 |
% |
|
|
|
|
Beginning in fiscal year 2023, the 2017 Act requires the Company to
capitalize and amortize research and development expenses rather
than expensing them in the year incurred. The tax effects related
to the capitalization of research and development expenses are
included in the effective tax rate for the three months ended
September 30, 2022. This impact, together with the relative
mix of earnings and losses by jurisdiction, the deduction for
foreign derived intangible income, credits, and tax holidays in
Malaysia, the Philippines and Thailand that will expire at various
dates during fiscal years 2024 through 2031 are the primary drivers
of the difference between the effective tax rate for the three
months ended September 30, 2022 and the U.S. Federal statutory
rate of 21%.
The primary drivers of the difference between the effective tax
rate for the three months ended October 1, 2021 and the U.S.
Federal statutory rate of 21% are the relative mix of earnings and
losses by jurisdiction, the deduction for foreign derived
intangible income, credits, and tax holidays in Malaysia, the
Philippines and Thailand. In addition, the effective tax rate for
the three months ended October 1, 2021 included the discrete effect
of an increase to unrecognized tax benefits of $16 million as
a result of ongoing discussions with various taxing
authorities.
Uncertain Tax Positions
With the exception of certain unrecognized tax benefits that are
directly associated with the tax position taken, unrecognized tax
benefits are presented gross in the Condensed Consolidated Balance
Sheets.
WESTERN DIGITAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The following is a tabular reconciliation of the total amounts of
unrecognized tax benefits excluding accrued interest and penalties
for the three months ended September 30, 2022 (in
millions):
|
|
|
|
|
|
|
Accrual balance at July 1, 2022
|
$ |
1,047 |
|
|
Gross increases related to current year tax positions |
2 |
|
|
|
|
Gross decreases related to prior year tax positions |
(18) |
|
|
Settlements |
(2) |
|
|
Lapse of statute of limitations |
(3) |
|
|
Accrual balance at September 30, 2022
|
$ |
1,026 |
|
As of September 30, 2022, the liability for unrecognized tax
benefits (excluding accrued interest and penalties) was $1.03
billion. Interest and penalties related to unrecognized tax
benefits are recognized in liabilities recorded for uncertain tax
positions and are recorded in the provision for income taxes.
Accrued interest and penalties included in the Company’s liability
related to unrecognized tax benefits as of September 30, 2022
was $264 million. Of these amounts, approximately $1.15 billion
could result in potential cash payments.
As previously disclosed, the IRS issued statutory notices of
deficiency and notices of proposed adjustments with respect to
transfer pricing with the Company’s foreign subsidiaries and
intercompany payable balances for years 2008 through 2015. In
September 2018 and March 2019, the Company filed petitions with the
U.S. Tax Court covering years 2008 through 2012, for which it had
received statutory notices of deficiency, while years 2013 through
2015 remain in the jurisdiction of the IRS’s Examination function.
The IRS has filed various Amendments to Answer with the U.S. Tax
Court which, together with the notices of proposed adjustments,
would result in additional federal income tax liabilities totaling
approximately $1.6 billion and penalties totaling
$449 million with respect to years 2008 through 2015. In May
2022, the Company and the IRS tentatively reached a settlement for
resolving the statutory notices of deficiency and notices of
proposed adjustments with respect to years 2008 through 2015
subject to the parties entering into final stipulations and a
closing agreement. Based on the tentative settlement for
resolution, the Company expects to pay tax and interest totaling
approximately $600 million to $700 million, which the
Company expects to be partially offset by future reductions to its
mandatory deemed repatriation tax obligations and tax savings from
interest deductions aggregating to approximately $100 million
to $150 million. While the Company continues to work with the
IRS to come to a final agreement on the federal tax and interest
calculations, the Company is uncertain as to when a final agreement
will be reached and the exact timing of when any payments will be
made. However, the Company believes it is reasonably likely that
these payments may be made within the next twelve months and have
classified that portion of these unrecognized tax benefits,
including interest in Income taxes payable on its Condensed
Consolidated Balance Sheets as of September 30, 2022. This
classification and amount may be subject to change in the next
twelve months depending on when the Company is able to reach a
final agreement with the IRS.
The Company believes that adequate provision has been made for any
adjustments that may result from any other tax examinations.
However, the outcome of such tax examinations cannot be predicted
with certainty. If any issues addressed in the Company’s tax
examinations are resolved in a manner not consistent with
management’s expectations, the Company could be required to adjust
its provision for income taxes in the period such resolution
occurs. Any significant change in the amount of the Company’s
liability for unrecognized tax benefits would most likely result
from additional information or settlements relating to the
examination of the Company’s tax returns.
WESTERN DIGITAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 14. Net Income Per Common
Share
The following table presents the computation of basic and diluted
income per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
|
September 30,
2022 |
|
|
October 1,
2021 |
|
|
|
|
|
(in millions, except per share data) |
|
Net income |
$ |
27 |
|
|
|
$ |
610 |
|
|
|
|
|
|
Weighted average shares outstanding: |
|
|
|
|
|
|
|
|
|
Basic |
316 |
|
|
|
310 |
|
|
|
|
|
|
Employee stock options, RSUs, PSUs, and ESPP |
3 |
|
|
|
6 |
|
|
|
|
|
|
Diluted |
319 |
|
|
|
316 |
|
|
|
|
|
|
Income per common share |
|
|
|
|
|
|
|
|
|
Basic |
$ |
0.09 |
|
|
|
$ |
1.97 |
|
|
|
|
|
|
Diluted |
$ |
0.08 |
|
|
|
$ |
1.93 |
|
|
|
|
|
|
Anti-dilutive potential common shares excluded |
8 |
|
|
|
1 |
|
|
|
|
|
The Company computes basic income per common share using Net income
and the weighted average number of common shares outstanding during
the period. Diluted income per common share is computed using Net
income and the weighted average number of common shares and
potentially dilutive common shares outstanding during the period.
Potentially dilutive common shares include dilutive outstanding
employee stock options, RSUs and PSUs, and rights to purchase
shares of common stock under the Company’s ESPP. For the three
months ended September 30, 2022 and October 1, 2021, the
Company excluded common shares subject to outstanding equity awards
from the calculation of diluted shares because their impact would
have been anti-dilutive based on the Company’s average stock price
during the period.
WESTERN DIGITAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 15. Employee Termination, Asset
Impairment, and Other Charges
Business Realignment
The Company periodically incurs charges as part of the integration
process of recent acquisitions and to realign its operations with
anticipated market demand, primarily consisting of organization
rationalization designed to streamline its business, reduce its
cost structure and focus its resources. The Company recorded the
following charges related to these actions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
|
|
September 30,
2022 |
|
October 1,
2021 |
|
|
|
|
|
|
|
(in millions) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee termination benefits |
$ |
24 |
|
|
$ |
15 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset impairments and losses on disposal of assets |
— |
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total employee termination, asset impairment, and other
charges |
$ |
24 |
|
|
$ |
18 |
|
|
|
|
|
|
|
The following table presents an analysis of the components of these
activities against the reserve during the three months ended
September 30, 2022:
|
|
|
|
|
|
|
|
|
|
|
Employee Termination Benefits |
|
|
|
|
|
(in millions) |
|
|
|
|
|
Accrual balance at July 1, 2022 |
$ |
17 |
|
|
|
|
|
|
Charges |
24 |
|
|
|
|
|
|
Cash payments |
(28) |
|
|
|
|
|
|
|
|
|
|
|
|
Accrual balance at September 30, 2022 |
$ |
13 |
|
|
|
|
|
WESTERN DIGITAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 16. Legal Proceedings
Tax
For disclosures regarding statutory notices of deficiency issued by
the IRS on June 28, 2018 and December 10, 2018, petitions filed by
the Company with the U.S. Tax Court in September 2018 and March
2019, additional penalties asserted by the IRS in March 2021 and
further Amendments to Answers filed by the IRS in June 2021 and
January 2022, and a tentative resolution with respect to certain
matters, see Note 13,
Income Tax Expense.
Other Matters
In the normal course of business, the Company is subject to legal
proceedings, lawsuits and other claims. Although the ultimate
aggregate amount of probable monetary liability or financial impact
with respect to these other matters is subject to many
uncertainties, management believes that any monetary liability or
financial impact to the Company from these matters, individually
and in the aggregate, would not be material to the Company’s
financial condition, results of operations or cash flows. However,
any monetary liability and financial impact to the Company from
these matters could differ materially from the Company’s
expectations.
Item 2. Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
The following discussion and analysis contains forward-looking
statements within the meaning of the federal securities laws, and
should be read in conjunction with the disclosures we make
concerning risks and other factors that may affect our business and
operating results. You should read this information in conjunction
with the unaudited Condensed Consolidated Financial Statements and
the notes thereto included in this Quarterly Report on
Form 10-Q, and the audited Consolidated Financial Statements
and notes thereto included in Part II, Item 8 of our Annual
Report on Form 10‑K for the fiscal year ended July 1,
2022. See also “Forward-Looking Statements” immediately prior to
Part I, Item 1 in this Quarterly Report on Form 10-Q.
Unless otherwise indicated, references herein to specific years and
quarters are to our fiscal years and fiscal quarters. As used
herein, the terms “we,” “us,” “our,” and the “Company” refer to
Western Digital Corporation and its subsidiaries.
Our Company
We are on a mission to unlock the potential of data by harnessing
the possibility to use it. We are a leading developer,
manufacturer, and provider of data storage devices based on both
flash-based products (“Flash”) and hard disk drives (“HDD”)
technologies. With dedicated business units driving advancements in
NAND flash and magnetic recording technologies, we create and drive
innovations needed to help customers capture, preserve, access, and
transform an ever-increasing diversity of data.
Our fiscal year ends on the Friday nearest to June 30 and typically
consists of 52 weeks. Approximately every five to six years, we
report a 53-week fiscal year to align the fiscal year with the
foregoing policy. Fiscal years 2023, which ends on June 30,
2023, and 2022, which ended on July 1, 2022, are each
comprised of 52 weeks, with all quarters presented consisting of 13
weeks.
Key Developments
Strategic Alternatives
In June 2022, we announced that we are reviewing potential
strategic alternatives aimed at further optimizing long-term value
for stockholders. The Executive Committee of our Board of Directors
is overseeing the assessment process and evaluating a range of
alternatives, including options for separating our Flash and HDD
business units. In conjunction with that review process, we
announced that we had entered into a letter agreement with Elliott
Investment Management L.P., which had disclosed in May 2022 a $1
billion investment in our Company and called for a full strategic
review of our business. As of September 30, 2022, we are still
actively working with financial advisors and our legal counsel in
this strategic review process.
Tax Resolution
As previously disclosed, we have received statutory notices of
deficiency and notices of proposed adjustments from the Internal
Revenue Service (“IRS”) with respect to 2008 through 2015. During
2022, new information became available which required us to
re-measure our unrecognized tax benefits for this IRS matter.
Additionally, during 2022, we and the IRS tentatively reached a
settlement for resolving this matter. Additional information is
provided in our discussion of Income tax expense in our results of
operations below, as well as in Part I, Item 1, Note 13,
Income Tax Expense,
of the Notes to the Condensed Consolidated Financial Statements,
and in the “Short- and Long-Term Liquidity-Unrecognized Tax
Benefits” section below.
Operational and COVID-19 Pandemic Update
Macroeconomic factors such as inflation, higher interest rates and
recession concerns have softened demand for our products, with
certain customers reducing purchases as they adjust their
production levels and right-size their inventories. As a result, we
and our industry are experiencing a supply-demand imbalance, which
has negatively impacted pricing, particularly in Flash and is
expected to result in reduced shipments and increased absorption
charges in HDD in future quarters. However, we believe digital
transformation will continue to drive long-term growth for data
storage across all three of our end markets.
We believe we have made significant progress in strengthening our
product portfolio to meet our customers’ growing and evolving
storage needs. Our BiCS5 based products continue to play a
significant role in driving top line results across our end
markets. Additionally, hard drive products utilizing OptiNAND and
shingled magnetic recording (“SMR”) technologies have
commenced commercial shipments and our latest 26-terabyte SMR
drives are undergoing qualifications at multiple cloud and OEM
customers. We continued commercial shipment of consumer flash
devices based on our next generation 3D-flash technology, but are
pushing out our BiCS6 transition as compared to prior targets to
reduce our capital expenditures for 2023 in light of market
conditions. We are also aware of the ongoing trends in the HDD
Client market as PCs shift from using HDD to Flash technology and
as a result, we have and are still undergoing actions to
restructure our HDD manufacturing footprint to reflect this market
dynamic, including a sharp reduction in our client hard drive
production capacity of approximately 40%.
The COVID-19 environment remains dynamic with outbreaks in various
geographies. The responses to COVID-19 taken by ourselves and
others in the supply chain have contributed to increases in the
costs of their services which in turn impacted our operations, but
these costs have now been normalized in our operating
results.
We will continue to actively monitor the situation and may take
further actions altering our business operations that we determine
are in the best interests of our employees, customers, partners,
suppliers, and stakeholders, or as required by federal, state, or
local authorities. See “Adverse global or regional conditions could
harm our business,” “The COVID-19 pandemic could negatively affect
our business” and “We are dependent on a limited number of
qualified suppliers who provide critical services, materials or
components, and a disruption in our supply chain could negatively
affect our business” in Part I, Item 1A,
Risk Factors,
of our Annual Report on Form 10-K for the year ended July 1, 2022
for more information regarding the risks we face as a result of
macroeconomic conditions, the COVID-19 pandemic and supply chain
disruptions.
Russia Sanctions
In February 2022, the U.S. and other countries imposed sanctions on
Russia. In accordance with these sanctions, we have ceased
shipments to distributors for customers located in Russia. Our
revenue from distributors for customers in Russia have not been
significant. We have no material assets or operations in
Russia.
Results of Operations
First Quarter Overview
The following table sets forth, for the periods presented, selected
summary information from our Condensed Consolidated Statements of
Operations by dollars and percentage of net
revenue(1):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
September 30,
2022 |
|
October 1,
2021 |
|
$ Change |
|
% Change |
|
|
|
|
|
|
|
|
|
($ in millions) |
|
|
|
Revenue, net |
$ |
3,736 |
|
|
100.0 |
% |
|
$ |
5,051 |
|
|
100.0 |
% |
|
$ |
(1,315) |
|
|
(26) |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenue |
2,755 |
|
|
73.7 |
|
|
3,386 |
|
|
67.0 |
|
|
(631) |
|
|
(19) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
981 |
|
|
26.3 |
|
|
1,665 |
|
|
33.0 |
|
|
(684) |
|
|
(41) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development |
552 |
|
|
14.8 |
|
|
578 |
|
|
11.4 |
|
|
(26) |
|
|
(4) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative |
247 |
|
|
6.6 |
|
|
291 |
|
|
5.8 |
|
|
(44) |
|
|
(15) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee termination, asset impairment, and other
charges |
24 |
|
|
0.6 |
|
|
18 |
|
|
0.4 |
|
|
6 |
|
|
33 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
823 |
|
|
22.0 |
|
|
887 |
|
|
17.6 |
|
|
(64) |
|
|
(7) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
158 |
|
|
4.2 |
|
|
778 |
|
|
15.4 |
|
|
(620) |
|
|
(80) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
2 |
|
|
0.1 |
|
|
2 |
|
|
— |
|
|
— |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
(70) |
|
|
(1.9) |
|
|
(78) |
|
|
(1.5) |
|
|
8 |
|
|
(10) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense), net |
(6) |
|
|
(0.2) |
|
|
2 |
|
|
— |
|
|
(8) |
|
|
(400) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest and other expense, net |
(74) |
|
|
(2.0) |
|
|
(74) |
|
|
(1.5) |
|
|
— |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before taxes |
84 |
|
|
2.2 |
|
|
704 |
|
|
13.9 |
|
|
(620) |
|
|
(88) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense |
57 |
|
|
1.5 |
|
|
94 |
|
|
1.9 |
|
|
(37) |
|
|
(39) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
$ |
27 |
|
|
0.7 |
% |
|
$ |
610 |
|
|
12.1 |
% |
|
$ |
(583) |
|
|
(96) |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Percentages
may not total due to rounding.
The following table sets forth, for the periods presented, a
summary of our segment information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
September 30,
2022 |
|
October 1,
2021 |
|
|
|
|
|
($ in millions) |
|
Net revenue: |
|
|
|
|
|
|
|
|
Flash |
$ |
1,722 |
|
|
$ |
2,490 |
|
|
|
|
|
|
HDD |
2,014 |
|
|
2,561 |
|
|
|
|
|
|
Total net revenue |
$ |
3,736 |
|
|
$ |
5,051 |
|
|
|
|
|
|
Gross profit: |
|
|
|
|
|
|
|
|
Flash |
$ |
422 |
|
|
$ |
921 |
|
|
|
|
|
|
HDD |
574 |
|
|
792 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unallocated corporate items: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation expense |
(14) |
|
|
(9) |
|
|
|
|
|
|
Amortization of acquired intangible assets |
(1) |
|
|
(39) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total unallocated corporate items |
(15) |
|
|
(48) |
|
|
|
|
|
|
Consolidated gross profit |
$ |
981 |
|
|
$ |
1,665 |
|
|
|
|
|
|
Gross margin: |
|
|
|
|
|
|
|
|
Flash |
24.5 |
% |
|
37.0 |
% |
|
|
|
|
|
HDD |
28.5 |
% |
|
30.9 |
% |
|
|
|
|
|
Consolidated gross margin |
26.3 |
% |
|
33.0 |
% |
|
|
|
|
The following table sets forth for the periods presented, summary
information regarding our disaggregated revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
September 30,
2022 |
|
October 1,
2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions) |
|
|
|
Revenue by End Market |
|
|
|
|
|
|
Cloud |
$ |
1,829 |
|
|
$ |
2,225 |
|
|
|
|
Client |
1,229 |
|
|
1,853 |
|
|
|
|
Consumer |
678 |
|
|
973 |
|
|
|
|
Total Revenue |
$ |
3,736 |
|
|
$ |
5,051 |
|
|
|
|
|
|
|
|
|
|
|
Revenue by Geography |
|
|
|
|
|
|
Asia |
$ |
1,686 |
|
|
$ |
2,675 |
|
|
|
|
Americas |
1,423 |
|
|