UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~January~~October 1, 2021


☐			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)

Delaware

33-0956711

(State or other jurisdiction of
incorporation or organization)

(I.R.S. Employer Identification No.)

5601 Great Oaks Parkway

San Jose,

California

95119

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code: (408) 717-6000

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading symbol(s)	Name of each exchange on which registered
Common Stock, $.01 Par Value Per Share	WDC	The Nasdaq Stock Market LLC
		(Nasdaq Global Select Market)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ¨

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

☒

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ý

As of the close of business on ~~January 29,~~October 28, 2021, ~~306,097,179~~311,622,921 shares of common stock, par value $0.01 per share, were outstanding.

WESTERN DIGITAL CORPORATION

INDEX


		PAGE NO.
PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements (unaudited)
	Condensed Consolidated Balance Sheets — As of ~~January~~October 1, 2021 and July ~~3, 2020~~2, 2021	65
	Condensed Consolidated Statements of Operations — Three ~~and Six~~ Months Ended ~~January~~October 1, 2021 and ~~January 3,~~October 2, 2020	76
	Condensed Consolidated Statements of Comprehensive Income (Loss) — Three ~~and Six~~ Months Ended ~~January~~October 1, 2021 and ~~January 3,~~October 2, 2020	7
	Condensed Consolidated Statements of Cash Flows — Three Months Ended October 1, 2021 and October 2, 2020	8
	Condensed Consolidated Statements of ~~Cash Flows~~Shareholders' Equity — ~~Six~~Three Months Ended ~~January~~October 1, 2021 and ~~January 3,~~October 2, 2020	9
	~~Condensed Consolidated Statements of Shareholders' Equity — Six Months Ended January 1, 2021 and January 3, 2020~~	10
	Notes to Condensed Consolidated Financial Statements	1211
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	36
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	49
Item 4.	Controls and Procedures	49

PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	50
Item 1A.	Risk Factors	50




Item 6.	Exhibits	51

Unless otherwise indicated, references herein to specific years and quarters are to our fiscal years and fiscal quarters, and references to financial information are on a consolidated basis. As used herein, the terms “we,” “us,” “our,” the “Company,” “WDC” and “Western Digital” refer to Western Digital Corporation and its subsidiaries, unless we state, or the context indicates, otherwise.

WDC, a Delaware corporation, is the parent company of our data storage business. Our principal executive offices are located at 5601 Great Oaks Parkway, San Jose, California 95119. Our telephone number is (408) 717-6000.

Western Digital, the Western Digital logo, G-Technology, SanDisk and WD are registered trademarks or trademarks of Western Digital or its affiliates in the U.S. and/or other countries. All other trademarks, registered trademarks and/or service marks, indicated or otherwise, are the property of their respective owners.

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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 effects of the COVID-19 pandemic and measures intended to reduce its spread;

• expectations regarding supply chain conditions and constraints; expectations regarding demand trends and market conditions for our products and ~~the ramp of our new products;~~

•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 ~~the flash industry and our flash wafer output plans;~~

•~~expectations regarding the outcome of legal proceedings in which we are involved;~~

•~~our reinvestment in the business and ongoing deleveraging efforts;~~

•~~our beliefs regarding tax benefits and the timing of future payments, if any, relating to the unrecognized tax benefits, and the adequacy of our tax provisions;~~

•~~expectations regarding capital investments~~(“Kioxia”), and sources of funding for those ~~investments;~~expenditures; and

•our beliefs regarding the sufficiency of our available liquidity to meet our working capital, debt and capital expenditure ~~needs as well as our dividend plans.~~needs.

These forward-looking statements are based on information available to the Company as of the date of this Quarterly Report on Form 10-Q and are based on management’s current views and assumptions. They are conditioned upon and involve 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:

•future responses to and effects of the COVID-19 pandemic;

•volatility in global economic conditions;

•impact of business and market conditions;

•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 ~~high~~substantial level of debt and other financial obligations;

•changes to our relationships with key customers;

•disruptions in operations from cyberattacks 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 fiscal year ended July ~~3, 2020~~2, 2021 (the ~~“2020~~“2021 Annual Report on Form 10-K”).

~~Table of Contents~~

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 ~~2020~~2021 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 ~~2020~~2021 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 events or circumstances after the date of this document or to reflect the occurrence of unanticipated events, except as required by law.

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements (unaudited)

WESTERN DIGITAL CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(in millions, except par value)

(Unaudited)


	October 1, 2021		July 2, 2021
ASSETS
Current assets:
Cash and cash equivalents	$	3,290	$	3,370
Accounts receivable, net	2,446		2,257
Inventories	3,544		3,616
Other current assets	576		514
Total current assets	9,856		9,757
Property, plant and equipment, net	3,260		3,188
Notes receivable and investments in Flash Ventures	1,646		1,586
Goodwill	10,066		10,066
Other intangible assets, net	364		442
Other non-current assets	1,199		1,093
Total assets	$	26,391	$	26,132
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	1,896	$	1,934
Accounts payable to related parties	378		398
Accrued expenses	1,617		1,653
Accrued compensation	567		634
Current portion of long-term debt	251		251
Total current liabilities	4,709		4,870
Long-term debt	8,270		8,474
Other liabilities	2,051		2,067
Total liabilities	15,030		15,411
Commitments and contingencies (Notes 9, 10, 12 and 16)	0		0
Shareholders’ equity:
Preferred stock, $0.01 par value; authorized — 5 shares; issued and outstanding — none	—		—
Common stock, $0.01 par value; authorized — 450 shares; issued — 312 shares; outstanding — 311 shares and 308 shares, respectively	3		3
Additional paid-in capital	3,401		3,608
Accumulated other comprehensive loss	(167)		(197)
Retained earnings	8,149		7,539
Treasury stock — common shares at cost; 1 shares and 4 shares, respectively	(25)		(232)
Total shareholders’ equity	11,361		10,721
Total liabilities and shareholders’ equity	$	26,391	$	26,132

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

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WESTERN DIGITAL CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in millions, except per share amounts)

(Unaudited)

January 1,
2021 July 3,
2020
ASSETS
Current assets:
Cash and cash equivalents $ 2,956 $ 3,048
Accounts receivable, net 1,833 2,379
Inventories 3,576 3,070
Other current assets 744 551
Total current assets 9,109 9,048
Property, plant and equipment, net 2,918 2,854
Notes receivable and investments in Flash Ventures 1,858 1,875
Goodwill 10,071 10,067
Other intangible assets, net 596 941
Other non-current assets 1,000 877
Total assets $ 25,552 $ 25,662
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable $ 1,939 $ 1,945
Accounts payable to related parties 393 407
Accrued expenses 1,420 1,296
Accrued compensation 523 472
Current portion of long-term debt 251 286
Total current liabilities 4,526 4,406
Long-term debt 8,882 9,289
Other liabilities 2,315 2,416
Total liabilities 15,723 16,111
Commitments and contingencies (Notes 9, 10, 12 and 15) 0 0
Shareholders’ equity:
Preferred stock, $0.01 par value; authorized — 5 shares; issued and outstanding — NaN 0 0
Common stock, $0.01 par value; authorized — 450 shares; issued — 312 shares; outstanding — 306 shares and 302 shares, respectively 3 3
Additional paid-in capital 3,546 3,717
Accumulated other comprehensive loss (50) (157)
Retained earnings 6,720 6,725
Treasury stock — common shares at cost; 6 shares and 10 shares, respectively (390) (737)
Total shareholders’ equity 9,829 9,551
Total liabilities and shareholders’ equity $ 25,552 $ 25,662


	Three Months Ended
	October 1, 2021		October 2, 2020
Revenue, net	$	5,051	$	3,922
Cost of revenue	3,386		3,018
Gross profit	1,665		904
Operating expenses:
Research and development	578		555
Selling, general and administrative	291		256
Employee termination, asset impairment, and other charges	18		23
Total operating expenses	887		834
Operating income	778		70
Interest and other income (expense):
Interest income	2		2
Interest expense	(78)		(84)
Other income, net	2		9
Total interest and other expense, net	(74)		(73)
Income (loss) before taxes	704		(3)
Income tax expense	94		57
Net income (loss)	$	610	$	(60)

Income (loss) per common share
Basic	$	1.97	$	(0.20)
Diluted	$	1.93	$	(0.20)

Weighted average shares outstanding:
Basic	310		303
Diluted	316		303

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

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WESTERN DIGITAL CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF ~~OPERATIONS~~COMPREHENSIVE INCOME (LOSS)

(in ~~millions, except per share amounts)~~millions)

(Unaudited)

Three Months Ended Six Months Ended
January 1,
2021 January 3,
2020 January 1,
2021 January 3,
2020
Revenue, net $ 3,943 $ 4,234 $ 7,865 $ 8,274
Cost of revenue 2,983 3,299 6,001 6,581
Gross profit 960 935 1,864 1,693
Operating expenses:
Research and development 535 578 1,090 1,152
Selling, general and administrative 265 298 521 603
Employee termination, asset impairment, and other charges 2 9 25 17
Total operating expenses 802 885 1,636 1,772
Operating income (loss) 158 50 228 (79)
Interest and other income (expense):
Interest income 2 8 4 20
Interest expense (81) (105) (165) (227)
Other income, net 6 7 15 9
Total interest and other expense, net (73) (90) (146) (198)
Income (loss) before taxes 85 (40) 82 (277)
Income tax expense 23 99 80 138
Net income (loss) $ 62 $ (139) $ 2 $ (415)
Income (loss) per common share
Basic $ 0.20 $ (0.47) $ 0.01 $ (1.40)
Diluted $ 0.20 $ (0.47) $ 0.01 $ (1.40)
Weighted average shares outstanding:
Basic 305 298 304 297
Diluted 307 298 305 297
Cash dividends declared per share $ 0 $ 0.50 $ 0 $ 1.00


	Three Months Ended
	October 1, 2021		October 2, 2020
Net income (loss)	$	610	$	(60)
Other comprehensive income, before tax:
Actuarial pension gain	1		1
Foreign currency translation adjustment	4		32


Net unrealized gain on derivative contracts and available-for-sale securities	33		30
Total other comprehensive income, before tax	38		63
Income tax expense related to items of other comprehensive income, before tax	(8)		(7)
Other comprehensive income, net of tax	30		56
Total comprehensive income (loss)	$	640	$	(4)

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

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WESTERN DIGITAL CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF ~~COMPREHENSIVE INCOME (LOSS)~~CASH FLOWS

(in millions)

(Unaudited)

Three Months Ended Six Months Ended
January 1,
2021 January 3,
2020 January 1,
2021 January 3,
2020
Net income (loss) $ 62 $ (139) $ 2 $ (415)
Other comprehensive income (loss), before tax:
Actuarial pension gain 1 2 2 3
Foreign currency translation adjustment 34 (15) 66 (10)
Net unrealized gain (loss) on derivative contracts and available-for-sale securities 20 (6) 50 (39)
Total other comprehensive income (loss), before tax 55 (19) 118 (46)
Income tax benefit (expense) related to items of other comprehensive income (loss), before tax (4) (1) (11) 4
Other comprehensive income (loss), net of tax 51 (20) 107 (42)
Total comprehensive income (loss) $ 113 $ (159) $ 109 $ (457)


	Three Months Ended
	October 1, 2021		October 2, 2020
Cash flows from operating activities
Net income (loss)	$	610	$	(60)
Adjustments to reconcile net income (loss) to net cash provided by operations:
Depreciation and amortization	250		374
Stock-based compensation	76		76
Deferred income taxes	27		11
Loss on disposal of assets	—		1

Amortization of debt discounts	10		10

Other non-cash operating activities, net	(12)		(6)
Changes in:
Accounts receivable, net	(188)		282
Inventories	73		(285)
Accounts payable	(41)		99
Accounts payable to related parties	(20)		(3)

Accrued expenses	(36)		(23)
Accrued compensation	(67)		26
Other assets and liabilities, net	(161)		(139)
Net cash provided by operating activities	521		363
Cash flows from investing activities
Purchases of property, plant and equipment	(245)		(337)
Proceeds from the sale of property, plant and equipment	—		7





Notes receivable issuances to Flash Ventures	(165)		(114)
Notes receivable proceeds from Flash Ventures	113		277
Strategic investments and other, net	(15)		1
Net cash used in investing activities	(312)		(166)
Cash flows from financing activities
Issuance of stock under employee stock plans	2		1
Taxes paid on vested stock awards under employee stock plans	(78)		(41)




Repayment of debt	(213)		(213)



Net cash used in financing activities	(289)		(253)
Effect of exchange rate changes on cash	—		3
Net decrease in cash and cash equivalents	(80)		(53)
Cash and cash equivalents, beginning of year	3,370		3,048
Cash and cash equivalents, end of period	$	3,290	$	2,995
Supplemental disclosure of cash flow information:
Cash paid for income taxes	$	221	$	144
Cash paid for interest	$	99	$	104��

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

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WESTERN DIGITAL CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF ~~CASH FLOWS~~

~~(in millions)~~

~~(Unaudited)~~

Six Months Ended
January 1,
2021 January 3,
2020
Cash flows from operating activities
Net income (loss) $ 2 $ (415)
Adjustments to reconcile net income (loss) to net cash provided by operations:
Depreciation and amortization 710 805
Stock-based compensation 156 154
Deferred income taxes (5) (42)
Loss on disposal of assets 1 (12)
Amortization of debt discounts 20 20
Other non-cash operating activities, net (18) (20)
Changes in:
Accounts receivable, net 546 (587)
Inventories (505) 155
Accounts payable 70 170
Accounts payable to related parties (13) 33
Accrued expenses 78 327
Accrued compensation 51 191
Other assets and liabilities, net (305) (269)
Net cash provided by operating activities 788 510
Cash flows from investing activities
Purchases of property, plant and equipment (576) (305)
Proceeds from the sale of property, plant and equipment 39 0
Acquisitions, net of cash acquired 0 (22)
Notes receivable issuances to Flash Ventures (252) (224)
Notes receivable proceeds from Flash Ventures 346 690
Strategic investments and other, net 7 21
Net cash provided by (used in) investing activities (436) 160
Cash flows from financing activities
Issuance of stock under employee stock plans 63 72
Taxes paid on vested stock awards under employee stock plans (43) (54)
Dividends paid to shareholders 0 (296)
Repayment of debt (461) (707)
Other (9) 0
Net cash used in financing activities (450) (985)
Effect of exchange rate changes on cash 6 (3)
Net decrease in cash and cash equivalents (92) (318)
Cash and cash equivalents, beginning of year 3,048 3,455
Cash and cash equivalents, end of period $ 2,956 $ 3,137
Supplemental disclosure of cash flow information:
Cash paid for income taxes $ 251 $ 181
Cash paid for interest $ 144 $ 206

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

~~Table of Contents~~

~~WESTERN DIGITAL CORPORATION~~

~~CONDENSED CONSOLIDATED STATEMENTS OF~~ SHAREHOLDERS’ EQUITY

(in millions)

Common Stock Treasury Stock Additional Paid-In Capital Accumulated Other Comprehensive Income (Loss) Retained Earnings Total Shareholders’ Equity
Shares Amount Shares Amount
Balance at July 3, 2020 312 $ 3 (10) $ (737) $ 3,717 $ (157) $ 6,725 $ 9,551
Net loss — — — — — — (60) (60)
Adoption of new accounting standards — — — — — — (7) (7)
Employee stock plans — — 2 216 (256) — — (40)
Stock-based compensation — — — — 76 — — 76
Actuarial pension gain — — — — — 1 — 1
Foreign currency translation adjustment — — — — — 32 — 32
Net unrealized gain on derivative contracts — — — — — 23 — 23
Balance at October 2, 2020 312 3 (8) (521) 3,537 (101) 6,658 9,576
Net income — — — — — — 62 62
Employee stock plans — — 2 131 (71) — — 60
Stock-based compensation — — — — 80 — — 80
Actuarial pension gain — — — — — 1 — 1
Foreign currency translation adjustment — — — — — 34 — 34
Net unrealized loss on derivative contracts — — — — — 16 — 16
Balance at January 1, 2021 312 $ 3 (6) $ (390) $ 3,546 $ (50) $ 6,720 $ 9,829


	Common Stock			Treasury Stock			Additional Paid-In Capital		Accumulated Other Comprehensive Income (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







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

109

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WESTERN DIGITAL CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(in millions)


	Common Stock			Treasury Stock			Additional Paid-In Capital		Accumulated Other Comprehensive Income (Loss)		Retained Earnings		Total Shareholders’ Equity			Common Stock			Treasury Stock			Additional Paid-In Capital		Accumulated Other Comprehensive Income (Loss)		Retained Earnings		Total Shareholders’ Equity
	Shares	Amount		Shares	Amount											Shares	Amount		Shares	Amount

Balance at June 28, 2019	312	$	3	(17)	$	(1,268)	$	3,851	$	(68)	$	7,449	$	9,967
Net loss	—	—		—	—		—		—		(276)		(276)
Adoption of new accounting standards	—	—		—	—		—		—		(5)		(5)
Employee stock plans	—	—		3	181		(207)		—		—		(26)
Stock-based compensation	—	—		—	—		77		—		—		77

Dividends to shareholders	—	—		—	—		7		—		(156)		(149)
Actuarial pension gain	—	—		—	—		—		1		—		1
Foreign currency translation adjustment	—	—		—	—		—		4		—		4
Net unrealized loss on derivative contracts	—	—		—	—		—		(27)		—		(27)
Balance at October 4, 2019	312	3		(14)	(1,087)		3,728		(90)		7,012		9,566
Net loss	—	—		—	—		—		—		(139)		(139)

Employee stock plans	—	—		1	125		(81)		—		—		44
Stock-based compensation	—	—		—	—		77		—		—		77

Dividends to shareholders	—	—		—	—		7		—		(156)		(149)
Actuarial pension gain	—	—		—	—		—		1		—		1
Foreign currency translation adjustment	—	—		—	—		—		(13)		—		(13)
Net unrealized loss on derivative contracts	—	—		—	—		—		(8)		—		(8)
Balance at January 3, 2020	312	$	3	(13)	$	(962)	$	3,731	$	(110)	$	6,717	$	9,379

Balance at July 3, 2020															Balance at July 3, 2020	312	$	3	(10)	$	(737)	$	3,717	$	(157)	$	6,725	$	9,551
Net income															Net income	—	—		—	—		—		—		(60)		(60)
Adoption of new accounting standards															Adoption of new accounting standards	—	—		—	—		—		—		(7)		(7)
Employee stock plans															Employee stock plans	—	—		2	216		(256)		—		—		(40)
Stock-based compensation															Stock-based compensation	—	—		—	—		76		—		—		76

Actuarial pension gain															Actuarial pension gain	—	—		—	—		—		1		—		1
Foreign currency translation adjustment															Foreign currency translation adjustment	—	—		—	—		—		32		—		32
Net unrealized loss on derivative contracts															Net unrealized loss on derivative contracts	—	—		—	—		—		23		—		23
Balance at October 2, 2020															Balance at October 2, 2020	312	$	3	(8)	$	(521)	$	3,537	$	(101)	$	6,658	$	9,576

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

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WESTERN DIGITAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1. Organization and Basis of Presentation

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

The Company’s broad portfolio of technology and products address the following key end markets: Client Devices; Data Center Devices and Solutions; and Client Solutions. The Company also generates license and royalty revenue from its extensive intellectual property (“IP”), which is included in each of these three end market categories.

The accounting policies followed by the Company are set forth in Part II, Item 8, Note 1, Organization and Basis of Presentation, of the Notes to Consolidated Financial Statements included in the Company’s Annual Report on Form 10‑K for the fiscal year ended July ~~3, 2020.~~2, 2021. In the opinion of management, all adjustments necessary to fairly state the Condensed Consolidated Financial Statements have been made. All such adjustments are of a normal, recurring nature. Certain information and footnote disclosures normally included in the Consolidated Financial Statements prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). These Condensed Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and the notes thereto included in the Company’s Annual Report on Form 10‑K for the fiscal year ended July ~~3, 2020.~~2, 2021. The results of operations for interim periods are not necessarily indicative of results to be expected for the full year.

Fiscal Year

The Company’s fiscal year ends on the Friday nearest to June 30 and typically consists of 52 weeks. Approximately every five to six years, the Company reports a 53-week fiscal year to align the fiscal year with the foregoing policy. Fiscal ~~year 2021,~~years 2022, which ends on July 1, 2022, and 2021, which ended on July 2, 2021, ~~will be~~are each comprised of 52 weeks, with all quarters presented consisting of 13 weeks. ~~Fiscal year 2020, which ended on July 3, 2020, was comprised of 53 weeks, with the first quarter consisting of 14 weeks and the remaining quarters consisting of 13 weeks each.~~

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 the ~~coronavirus disease 2019 (“COVID-19”)~~ongoing COVID-19 pandemic. However, actual results could differ materially from these estimates and be significantly affected by the severity and duration of the pandemic, the extent of actions to contain or treat COVID-19, the timing, distribution, efficacy and public acceptance of vaccines around the world, any possible resurgence of COVID-19, including the ~~effects~~emergence of ~~ongoing vaccination efforts,~~more contagious or vaccine-resistant variants and how quickly and to what extent normal economic and operating activity can ~~resume, and the severity and duration of the global economic downturn that results from the pandemic.~~resume.

~~Segment Information~~

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. Historically, the Company has managed and reported under a single operating segment. Late in the first quarter of fiscal 2021, the Chief Executive Officer, who is the Company’s Chief Operating Decision Maker (“CODM”), announced a decision to reorganize the Company’s business by forming 2 separate product business units: flash-based products and hard disk drives (“HDD”). The Company is in the process of transitioning to this new operating model and discrete information has not yet been established to align with the new business structure. Management expects to finalize its assessment of its operating segments when the transition is completed, which is expected to be by the end of fiscal 2021.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Note 2. Recent Accounting Pronouncements

Accounting Pronouncements Recently Adopted

In ~~June 2016,~~December 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards ~~Updates~~Update (“ASU”) No. 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” (“ASU 2016-13”). ASU 2016-13 seeks to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments, including trade receivables, and other commitments to extend credit held by a reporting entity at each reporting date. The amendments require an entity to replace the incurred loss impairment methodology in current U.S. GAAP with a methodology that reflects current expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The amendments are effective for fiscal years (and interim periods within those fiscal years) beginning after December 15, 2019, which for the Company is the first quarter of fiscal 2021. The Company adopted this standard effective July 4, 2020 (the beginning of fiscal 2021) with no material impact on its Condensed Consolidated Financial Statements.

In November 2018, the FASB issued ASU No. 2018-18, “Collaborative Arrangements (Topic 808): Clarifying the Interaction between Topic 808 and Topic 606” (“ASU 2018-18”). ASU 2018-18 clarifies that certain transactions between collaborative arrangement participants should be accounted for as revenue when the collaborative arrangement participant is a customer in the context of a unit of account and precludes recognizing as revenue consideration received from a collaborative arrangement participant if the participant is not a customer. This ASU requires retrospective adoption to the date the Company adopted Accounting Standards Codification (ASC) 606 by recognizing a cumulative-effect adjustment to the opening balance of retained earnings of the earliest annual period presented. The Company adopted this standard effective July 4, 2020 (the beginning of fiscal 2021) with no material impact on its Condensed Consolidated Financial Statements.

~~Recently Issued Accounting Pronouncements Not Yet Adopted~~

~~In December 2019, the FASB issued ASU~~ No. 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes” (“ASU 2019-12”). ASU 2019-12 removes certain exceptions for recognizing deferred taxes for investments, performing intraperiod allocation and calculating income taxes in interim periods. The ASU also adds guidance to reduce complexity in certain areas, including recognizing deferred taxes for tax goodwill and allocating taxes to members of a consolidated group. ~~This~~The Company adopted this ASU on July 3, 2021, which is ~~effective~~the beginning of fiscal 2022, and its adoption did not have a material impact on the Company’s Condensed Consolidated Financial Statements.

Recently Issued Accounting Pronouncements Not Yet Adopted

In August 2020, the FASB issued 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 ~~fiscal years (and interim periods within those fiscal years) beginning after December 15, 2020, which~~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 current 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. For instruments that do not have a component mandatorily settled in cash, the change will likely result in a higher amount of share dilution in the calculation of earnings per share. The Company isexpects to adopt this ASU in the first quarter of fiscal ~~2022. Early adoption~~2023, and is ~~permitted. The Company does not expect this update to have a material~~currently assessing the impact ~~on its Condensed Consolidated Financial Statements.~~of adoption.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Note 3. Segment Information

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. Historically, the Company had been managed and reported under a single operating segment. Late in the first quarter of fiscal 2021, the Chief Executive Officer, who is the Company’s Chief Operating Decision Maker (“CODM”), announced a decision to reorganize the Company’s business by forming 2 separate product business units: hard disk drives (“HDD”) and flash-based products (“Flash”). To align with the new operating model and business structure, the Company made management organizational changes and implemented new reporting modules and processes to provide discrete information to manage the business. Effective July 3, 2021, the Company’s management finalized its assessment of the Company’s operating segments and concluded that the Company now has 2 reportable segments: HDD and Flash.

The CODM evaluates performance of the Company and makes decisions regarding allocation of resources based on each operating segment’s net revenue and gross margin, which are summarized below. 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.

The following table summarizes the operating performance of the Company’s reportable segments:


	Three Months Ended
	October 1, 2021			October 2, 2020
	(in millions)
Net revenue:
HDD	$	2,561		$	1,844



Flash	2,490			2,078



Total net revenue	$	5,051		$	3,922
Gross profit
HDD	$	792		$	483



Flash	921			548



Total gross profit for segments	1,713			1,031
Unallocated corporate items:
Amortization of acquired intangible assets	39			145
Stock-based compensation expense	9			12


Charges related to a power outage incident and related recovery	—			(30)

Total unallocated corporate items	(48)			(127)
Consolidated gross profit	$	1,665		$	904
Gross margin:
HDD	30.9		%	26.2		%
Flash	37.0		%	26.4		%

Consolidated gross margin	33.0		%	23.0		%

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WESTERN DIGITAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Disaggregated Revenue

The Company’s broad portfolio of technology and products address multiple end markets. In the fiscal first quarter of 2022, the Company refined the end markets it reports to be Cloud, Client and Consumer. 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 hard drive and flash products. 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.

The Company’s disaggregated revenue information is as follows:



	Three Months Ended
	October 1, 2021		October 2, 2020
	(in millions)





Revenue by End Market
Cloud	$	2,225	$	1,291
Client	1,853		1,750
Consumer	973		881
Total Revenue	$	5,051	$	3,922

Revenue by Geography
Americas	$	1,614	$	1,079
Europe, Middle East and Africa	762		629
Asia	2,675		2,214
Total Revenue	$	5,051	$	3,922

The Company’s top 10 customers accounted for 43% of its net revenue for the three months ended October 1, 2021, and 44% of its net revenue for the three months ended October 2, 2020. For the three months ended October 1, 2021 and October 2, 2020, no single customer accounted for 10% or more of the Company’s net revenue.

Goodwill

In connection with the Company’s determination of its reportable segments, effective July 3, 2021, the Company allocated its goodwill between its segments based on the estimated relative fair values of the business units. In addition, management performed a goodwill impairment assessment for each segment and concluded no impairment indicators as of both the beginning and end of the three months ended October 1, 2021. The following table provides a summary of goodwill activity for the period.


	HDD		Flash		Total
	(in millions)



















Balance at July 3, 2021	$	4,328	$	5,738	$	10,066


Foreign currency translation adjustment	—		—		—
Balance at October 1, 2021	$	4,328	$	5,738	$	10,066

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WESTERN DIGITAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Note 3.4. 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 ~~January~~October 1, 2021 or July ~~3, 2020.~~2, 2021.

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. Other direct incremental costs to obtain contracts that have an expected benefit of greater than one year are amortized over the period of expected cash flows from the related contracts, and the amortization expense is recorded as a reduction to revenue. Total capitalized contract costs as of ~~January~~October 1, 2021 and July ~~3, 2020~~2, 2021 as well as the related amortization for the three ~~and six~~ months ended ~~January~~October 1, 2021 and ~~January 3,~~October 2, 2020 were not material.

Contract liabilities relate to customers’ payments in advance of performance under the contract and primarily relate to remaining performance obligations under support and maintenance contracts. As of ~~January~~October 1, 2021 and July ~~3, 2020,~~2, 2021, contract liabilities were not material.

The Company applies the practical expedients and does not disclose transaction price allocated to the remaining performance obligations for (i) arrangements that have an original expected duration of one year or less, which mainly consist of support and maintenance contracts, and (ii) variable consideration amounts for sale-based or usage-based royalties for IP license arrangements, which typically range longer than one year. Remaining performance obligations are mainly attributed to right-to-access patent license arrangements and customer support and service contracts, which will be recognized over the remaining contract period. The transaction price allocated to the remaining performance obligations as of ~~January~~October 1, 2021 was ~~$91~~$61 million, which is mainly attributable to the functional IP license and service arrangements. The Company expects to recognize this amount as revenue as follows: ~~$20~~$30 million during the remainder of fiscal ~~2021, $40 million in fiscal~~ 2022, ~~and $31~~$30 million in fiscal 2023, and $1 million in fiscal 2024 and thereafter.

~~Table of Content~~

~~WESTERN DIGITAL CORPORATION~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~

~~The Company’s disaggregated revenue information is as follows:~~

Three Months Ended Six Months Ended
January 1,
2021 January 3,
2020 January 1,
2021 January 3,
2020
(in millions)
Revenue by Product
HDD $ 1,909 $ 2,396 $ 3,753 $ 4,804
Flash-based 2,034 1,838 4,112 3,470
Total Revenue $ 3,943 $ 4,234 $ 7,865 $ 8,274
Revenue by End Market
Client Devices $ 2,131 $ 1,797 $ 4,077 $ 3,413
Data Center Devices & Solutions 807 1,489 1,936 3,021
Client Solutions 1,005 948 1,852 1,840
Total Revenue $ 3,943 $ 4,234 $ 7,865 $ 8,274
Revenue by Geography
Americas $ 945 $ 1,296 $ 2,024 $ 2,609
Europe, Middle East and Africa 725 811 1,354 1,590
Asia 2,273 2,127 4,487 4,075
Total Revenue $ 3,943 $ 4,234 $ 7,865 $ 8,274

The Company’s top 10 customers accounted for 43% and 41% of its net revenue for the three and six months ended January 1, 2021, respectively, and 44% and 43% of its net revenue for the three and six months ended January 3, 2020, respectively. For the three and six months ended January 1, 2021 and January 3, 2020, no single customer accounted for 10% or more of the Company’s net revenue.

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WESTERN DIGITAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Note 4.5. 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. The Company did not sell any trade accounts receivable during the three months ended October 1, 2021. During the ~~six~~three months ended ~~January 1, 2021 and January 3,~~October 2, 2020, the Company sold trade accounts receivable ~~and received~~for cash proceeds of ~~$173 million and $198 million, respectively.~~$128 million. The discounts on the trade accounts receivable sold ~~during the periods~~ were not material and were recorded within Other income, net in the Condensed Consolidated Statements of Operations. AsThere were no factored receivables outstanding as of ~~January~~October 1, 2021 and July ~~3, 2020, the amount of factored receivables that remained outstanding was $45 million and $113 million, respectively.~~2, 2021.

Inventories

January 1,
2021 July 3,
2020
(in millions)
Inventories:
Raw materials and component parts $ 1,466 $ 1,306
Work-in-process 1,110 956
Finished goods 1,000 808
Total inventories $ 3,576 $ 3,070


	October 1, 2021		July 2, 2021
	(in millions)
Inventories:
Raw materials and component parts	$	1,720	$	1,623
Work-in-process	1,036		1,088
Finished goods	788		905
Total inventories	$	3,544	$	3,616

Property, plant and equipment, net

January 1,
2021 July 3,
2020
(in millions)
Property, plant and equipment:
Land $ 278 $ 294
Buildings and improvements 1,793 1,837
Machinery and equipment 7,684 7,391
Computer equipment and software 436 429
Furniture and fixtures 52 52
Construction-in-process 321 297
Property, plant and equipment, gross 10,564 10,300
Accumulated depreciation (7,646) (7,446)
Property, plant and equipment, net $ 2,918 $ 2,854

~~Goodwill~~


	~~Carrying Amount~~
	~~(in millions)~~















~~Balance at July 3, 2020~~	$	~~10,067~~


~~Foreign currency translation adjustment~~	4
~~Balance at January 1, 2021~~	$	~~10,071~~


	October 1, 2021		July 2, 2021
	(in millions)
Property, plant and equipment:
Land	$	278	$	278
Buildings and improvements	1,875		1,854
Machinery and equipment	8,102		7,860
Computer equipment and software	455		440
Furniture and fixtures	52		51
Construction-in-process	419		476
Property, plant and equipment, gross	11,181		10,959
Accumulated depreciation	(7,921)		(7,771)
Property, plant and equipment, net	$	3,260	$	3,188

~~Table of Content~~

~~WESTERN DIGITAL CORPORATION~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~

Intangible assets

January 1,
2021 July 3,
2020
(in millions)
Finite-lived intangible assets $ 5,526 $ 5,541
In-process research and development 80 80
Accumulated amortization (5,010) (4,680)
Intangible assets, net $ 596 $ 941


	October 1, 2021		July 2, 2021
	(in millions)
Finite-lived intangible assets	$	5,508	$	5,508
In-process research and development	80		80
Accumulated amortization	(5,224)		(5,146)
Intangible assets, net	$	364	$	442

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.

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WESTERN DIGITAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Product warranty liability

Changes in the warranty accrual were as follows:

Three Months Ended Six Months Ended
January 1,
2021 January 3,
2020 January 1,
2021 January 3,
2020
(in millions)
Warranty accrual, beginning of period $ 391 $ 357 $ 408 $ 350
Charges to operations 24 50 59 99
Utilization (24) (35) (55) (83)
Changes in estimate related to pre-existing warranties (25) 6 (46) 12
Warranty accrual, end of period $ 366 $ 378 $ 366 $ 378


	Three Months Ended
	October 1, 2021		October 2, 2020
	(in millions)
Warranty accrual, beginning of period	$	363	$	408

Charges to operations	40		35
Utilization	(23)		(31)
Changes in estimate related to pre-existing warranties	(10)		(21)
Warranty accrual, end of period	$	370	$	391

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


		January 1, 2021		July 3, 2020				October 1, 2021		July 2, 2021
		(in millions)				(in millions)
Warranty accrual	Warranty accrual						Warranty accrual
Current portion (included in Accrued expenses)	Current portion (included in Accrued expenses)	$	166	$	205		Current portion (included in Accrued expenses)	$	175	$	175
Long-term portion (included in Other liabilities)	Long-term portion (included in Other liabilities)	200		203			Long-term portion (included in Other liabilities)	195		188
Total warranty accrual	Total warranty accrual	$	366	$	408		Total warranty accrual	$	370	$	363

Other liabilities

January 1,
2021 July 3,
2020
(in millions)
Other liabilities:
Non-current net tax payable $ 698 $ 815
Payables related to unrecognized tax benefits 724 720
Other non-current liabilities 893 881
Total other liabilities $ 2,315 $ 2,416


	October 1, 2021		July 2, 2021
	(in millions)
Other liabilities:
Non-current net tax payable	$	575	$	684
Payables related to unrecognized tax benefits	758		750
Other non-current liabilities	718		633
Total other liabilities	$	2,051	$	2,067

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WESTERN DIGITAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Accumulated other comprehensive income (loss)

Accumulated other comprehensive income (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 Gains (Losses) Foreign Currency Translation Adjustment Unrealized Gains (Losses) on Derivative Contracts Total Accumulated Comprehensive Income (Loss)
(in millions)
Balance at July 3, 2020 $ (58) $ (2) $ (97) $ (157)
Other comprehensive loss before reclassifications 2 66 43 111
Amounts reclassified from accumulated other comprehensive loss 0 0 7 7
Income tax expense related to items of other comprehensive loss 0 0 (11) (11)
Net current-period other comprehensive loss 2 66 39 107
Balance at January 1, 2021 $ (56) $ 64 $ (58) $ (50)


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















Balance at July 2, 2021	$	(35)	$	(38)	$	(124)	$	(197)
Other comprehensive income (loss) before reclassifications	1		4		(17)		(12)
Amounts reclassified from accumulated other comprehensive income	—		—		50		50
Income tax benefit related to items of other comprehensive income	—		—		(8)		(8)
Net current-period other comprehensive income	1		4		25		30
Balance at October 1, 2021	$	(34)	$	(34)	$	(99)	$	(167)

During the three ~~and six~~ months ended ~~January~~October 1, 2021, the amounts reclassified out of AOCI were losses related to foreign exchange contracts of $37 million that were substantially all charged to Cost of revenue and ~~January 3,~~losses related to interest rate swap contracts of $12 million that were charged to Interest expense in the Condensed Consolidated Statements of Operations. During the three months ended October 2, 2020, the amounts reclassified out of AOCI primarily related to ~~derivative~~foreign exchange contracts and were substantially all charged to Cost of revenue in the Condensed Consolidated Statements of Operations.

As of October 1, 2021, the amount of existing net losses related to cash flow hedges recorded in AOCI included $19 million related to the Company’s interest rate swaps that is expected to be reclassified to earnings after twelve months. In addition, as of October 1, 2021, the Company did not have any foreign exchange forward contracts with credit-risk-related contingent features.

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WESTERN DIGITAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Note 5.6. 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 ~~January~~October 1, 2021 and July ~~3, 2020,~~2, 2021, and indicate the fair value hierarchy of the valuation techniques utilized to determine such values:


	October 1, 2021
	Level 1		Level 2		Level 3		Total
	(in millions)
Assets:

Cash equivalents - Money market funds	$	388	$	—	$	—	$	388


















Foreign exchange contracts	—		14		—		14


Total assets at fair value	$	388	$	14	$	—	$	402
Liabilities:
Foreign exchange contracts	$	—	$	47	$	—	$	47
Interest rate swap contract	—		69		—		69

Total liabilities at fair value	$	—	$	116	$	—	$	116

January 1, 2021
Level 1 Level 2 Level 3 Total
(in millions)
Assets:
Cash equivalents - Money market funds $ 806 $ 0 $ 0 $ 806
Foreign exchange contracts 0 33 0 33
Total assets at fair value $ 806 $ 33 $ 0 $ 839
Liabilities:
Foreign exchange contracts $ 0 $ 16 $ 0 $ 16
Interest rate swap contract 0 109 0 109
Total liabilities at fair value $ 0 $ 125 $ 0 $ 125


		July 3, 2020									July 2, 2021
		Level 1		Level 2		Level 3		Total			Level 1		Level 2		Level 3		Total
		(in millions)									(in millions)
Assets:	Assets:									Assets:

Cash equivalents - Money market funds	Cash equivalents - Money market funds	$	1,079	$	0	$	0	$	1,079	Cash equivalents - Money market funds	$	1,283	$	—	$	—	$	1,283

Foreign exchange contracts	Foreign exchange contracts	0		28		0		28		Foreign exchange contracts	—		14		—		14

Total assets at fair value	Total assets at fair value	$	1,079	$	28	$	0	$	1,107	Total assets at fair value	$	1,283	$	14	$	—	$	1,297
Liabilities:	Liabilities:									Liabilities:
Foreign exchange contracts	Foreign exchange contracts	$	0	$	9	$	0	$	9	Foreign exchange contracts	$	—	$	65	$	—	$	65
Interest rate swap contract	Interest rate swap contract	0		133		0		133		Interest rate swap contract	—		80		—		80

Total liabilities at fair value	Total liabilities at fair value	$	0	$	142	$	0	$	142	Total liabilities at fair value	$	—	$	145	$	—	$	145

During the three ~~and six~~ months ended ~~January~~October 1, 2021 and ~~January 3,~~October 2, 2020, 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.

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WESTERN DIGITAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Financial Instruments Not Carried at Fair Value

~~The carrying value of the Company’s revolving credit facility approximates its fair value given the revolving nature of the balance and the variable market interest rate.~~ For financial instruments where the carrying value (which includes principal adjusted for any unamortized issuance costs, and discounts or premiums) differs from fair value (which is based on quoted market prices), the following table represents the related carrying value and fair value for each of the Company’s outstanding financial instruments. Each of the financial instruments presented below was categorized as Level 2 for all periods presented, based on the frequency of trading immediately prior to the end of the ~~second~~first quarter of ~~2021~~fiscal 2022 and the fourth quarter of ~~2020,~~fiscal 2021, respectively.

January 1, 2021 July 3, 2020
Carrying
Value Fair
Value Carrying
Value Fair
Value
(in millions)
0.50% convertible senior notes due 2020 $ 0 $ 0 $ 34 $ 30
Variable interest rate Term Loan A-1 maturing 2023 4,451 4,443 4,576 4,474
Variable interest rate Term Loan B-4 maturing 2023 1,393 1,393 1,692 1,656
1.50% convertible notes due 2024 1,002 1,095 987 1,036
4.75% senior unsecured notes due 2026 2,287 2,553 2,286 2,428
Total $ 9,133 $ 9,484 $ 9,575 $ 9,624


	October 1, 2021				July 2, 2021
	Carrying Value		Fair Value		Carrying Value		Fair Value
	(in millions)


Variable interest rate Term Loan A-1 maturing 2023	$	4,264	$	4,282	$	4,327	$	4,346


Variable interest rate Term Loan B-4 maturing 2023	943		944		1,093		1,094

1.50% convertible notes due 2024	1,025		1,112		1,017		1,173

4.75% senior unsecured notes due 2026	2,289		2,550		2,288		2,556





Total	$	8,521	$	8,888	$	8,725	$	9,169

Table of ~~Content~~Contents

WESTERN DIGITAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Note 6.7. Derivative Instruments and Hedging Activities

As of ~~January~~October 1, 2021, the Company had outstanding foreign exchange forward contracts that were designated as either cash flow hedges or non-designated hedges. Substantially all of the contract maturity dates of these foreign exchange forward contracts do not exceed 12 months. In addition, the Company had outstanding pay-fixed interest rate swaps that were designated as cash flow hedges of variable rate interest payments on a portion of its term loans through February 2023.

As of January 1, 2021, the amount of existing net losses related to cash flow hedges recorded in AOCI included $57 million related to the Company’s interest rate swaps that is expected to be reclassified to earnings after twelve months. In addition, as of January 1, 2021, the Company did not have any foreign exchange forward contracts with credit-risk-related contingent features.

Changes in fair values of the non-designated foreign exchange contracts are recognized in Other income, net and are largely offset by corresponding changes in the fair values of the foreign currency denominated monetary assets and liabilities. For each of the three ~~and six~~ months ended ~~January~~October 1, 2021 and ~~January 3,~~October 2, 2020, 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, Item1, Note 5. Supplemental Information - Accumulated other comprehensive income (losses), of the Notes to 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 ~~January~~October 1, 2021 and July ~~3, 2020,~~2, 2021, 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.

Table of ~~Content~~Contents

WESTERN DIGITAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Note 7.8. Debt

Debt consisted of the following as of ~~January~~October 1, 2021 and July ~~3, 2020:~~

January 1,
2021 July 3,
2020
(in millions)
0.50% convertible senior notes due 2020 $ 0 $ 35
Variable interest rate Term Loan A-1 maturing 2023 4,457 4,583
Variable interest rate Term Loan B-4 maturing 2023 1,393 1,693
1.50% convertible notes due 2024 1,100 1,100
4.75% senior unsecured notes due 2026 2,300 2,300
Total debt 9,250 9,711
Issuance costs and debt discounts (117) (136)
Subtotal 9,133 9,575
Less current portion of long-term debt (251) (286)
Long-term debt $ 8,882 $ 9,289
2, 2021:


	October 1, 2021		July 2, 2021
	(in millions)



Variable interest rate Term Loan A-1 maturing 2023	$	4,269	$	4,332




Variable interest rate Term Loan B-4 maturing 2023	943		1,093




1.50% convertible notes due 2024	1,100		1,100

4.75% senior unsecured notes due 2026	2,300		2,300

Total debt	8,612		8,825
Issuance costs and debt discounts	(91)		(100)
Subtotal	8,521		8,725
Less current portion of long-term debt	(251)		(251)
Long-term debt	$	8,270	$	8,474

The credit agreement governing the revolving credit facility and Term Loan A-1 requires the Company to comply with certain financial covenants, consisting of a leverage ratio and an interest coverage ratio. As of ~~January~~October 1, 2021, the Company was in compliance with these financial covenants.

During the ~~six~~three months ended ~~January~~October 1, 2021, the Company made a voluntary ~~prepayments totaling $300~~prepayment of $150 million on its Term Loan B-4. InOn October ~~2020,~~22, 2021, the ~~0.50% convertible senior notes due 2020 were settled in full in accordance with their terms.~~Company voluntarily prepaid the remaining principal balance of $943 million on its Term Loan B-4.

Table of ~~Content~~Contents

WESTERN DIGITAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Note 8.9. 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 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:

January 1,
2021 July 3,
2020
(in millions)
Benefit obligation at end of period $ 387 $ 366
Fair value of plan assets at end of period 227 215
Unfunded status $ 160 $ 151


	October 1, 2021		July 2, 2021
	(in millions)











Benefit obligation at end of period	$	359	$	359









Fair value of plan assets at end of period	229		227
Unfunded status	$	130	$	132

The following table presents the unfunded amounts related to the Pension Plans as recognized on the Company’s Condensed Consolidated Balance Sheets:

January 1,
2021 July 3,
2020
(in millions)
Current liabilities $ 1 $ 1
Non-current liabilities 159 150
Net amount recognized $ 160 $ 151


	October 1, 2021		July 2, 2021
	(in millions)
Current liabilities	$	1	$	1
Non-current liabilities	129		131
Net amount recognized	$	130	$	132

Net periodic benefit costs were not material for the three ~~and six~~ months ended ~~January~~October 1, 2021.

Table of ~~Content~~Contents

WESTERN DIGITAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Note 9.10. Related Parties and Related Commitments and Contingencies

Flash Ventures

The ~~Company’s~~Company��s business ventures with Kioxia Corporation (“Kioxia”) consist of ~~three~~3 separate legal entities: Flash Partners Ltd. (“Flash Partners”), Flash Alliance Ltd. (“Flash Alliance”), and Flash Forward Ltd. (“Flash Forward”), collectively referred to as “Flash Ventures”.

The following table presents the notes receivable from, and equity investments in, Flash Ventures as of ~~January~~October 1, 2021 and July ~~3, 2020:~~

January 1,
2021 July 3,
2020
(in millions)
Notes receivable, Flash Partners $ 330 $ 273
Notes receivable, Flash Alliance 197 301
Notes receivable, Flash Forward 666 670
Investment in Flash Partners 214 203
Investment in Flash Alliance 315 300
Investment in Flash Forward 136 128
Total notes receivable and investments in Flash Ventures $ 1,858 $ 1,875
2, 2021:


	October 1, 2021		July 2, 2021
	(in millions)
Notes receivable, Flash Partners	$	145	$	191
Notes receivable, Flash Alliance	194		213
Notes receivable, Flash Forward	681		561
Investment in Flash Partners	201		199
Investment in Flash Alliance	294		293
Investment in Flash Forward	131		129
Total notes receivable and investments in Flash Ventures	$	1,646	$	1,586

During the three ~~and six~~ months ended ~~January~~October 1, 2021 and ~~during the three and six months ended January 3,~~October 2, 2020, the Company made net payments to Flash Ventures of ~~$1.21~~$1.19 billion and ~~$2.19 billion, and $648~~$981 million, ~~and $1.33 billion,~~ respectively, for purchased flash-based memory wafers and net ~~loans and investments.~~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 ~~January~~October 1, 2021 and July ~~3, 2020,~~2, 2021, the Company had Accounts payable balances due to Flash Ventures of ~~$393~~$378 million and ~~$407~~$398 million, respectively.

The Company’s maximum reasonably estimable loss exposure (excluding lost profits) as a result of its involvement with Flash Ventures, based upon the Japanese yen to U.S. dollar exchange rate at ~~January~~October 1, 2021, is presented below. Investments in Flash Ventures are denominated in Japanese yen, and the maximum estimable loss exposure excludes any cumulative translation adjustment due to revaluation from the Japanese yen to the U.S. dollar.


	~~January~~October 1, 2021
	(in millions)
Notes receivable	$	~~1,193~~1,020
Equity investments	~~665~~626
Operating lease guarantees	~~2,107~~1,985
Inventory and prepayments	~~662~~790
Maximum estimable loss exposure	$	~~4,627~~4,421

Table of ~~Content~~Contents

WESTERN DIGITAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The Company is obligated to pay for variable costs incurred in producing its share of Flash Ventures’ flash-based memory wafer supply, based on its three-month forecast, which generally equals 50% of Flash Ventures’ output. In addition, the Company is obligated to pay for half of Flash Ventures’ fixed costs regardless of the output the Company chooses to purchase. The Company is not able to estimate its total wafer purchase commitment obligation beyond its rolling three-month purchase commitment because the price is determined by reference to the future cost of producing the semiconductor wafers. In addition, the Company is committed to fund 49.9% to 50.0% of each Flash Ventures entity’s capital investments to the extent that each Flash Ventures entity’s operating cash flow is insufficient to fund these investments.

In June 2019, an unexpected power outage incident occurred at the flash-based memory manufacturing facilities operated in Yokkaichi, Japan. The power outage incident impacted the facilities and process tools and resulted in damage to flash wafers in production and a reduction in the Company’s flash wafer availability. ~~As a result of this incident,~~During the ~~Company incurred charges of $68 million for the six~~three months ended ~~January 3,~~October 2, 2020, ~~which were recorded in Cost of revenue and primarily consisted of unabsorbed manufacturing overhead costs. During the six months ended January 1, 2021,~~ the Company recovered ~~$75~~$30 million related to this incident from its insurance carriers, which was recorded in Cost of revenue.

In May 2019, the Company entered into additional agreements with Kioxia to extend Flash Ventures to a new wafer fabrication facility, known as “K1,” located in Kitakami, Japan. The primary purpose of K1 is to provide clean room space to continue the transition of existing flash-based wafer capacity to newer technology nodes. K1 is now fully operational. In connection with the start-up of this facility, the Company agreed to prepay an aggregate of approximately $360 million over a 3-year period beginning in the first half of fiscal year 2020 toward K1 building depreciation, to be credited against future wafer charges. As of January 1, 2021, remaining committed prepayments totaled $149 million.

Inventory Purchase Commitments with Flash Ventures. Purchase orders placed under Flash Ventures for up to three months are binding and cannot be canceled.

Research and Development Activities. The Company participates in common research and development (“R&D”) activities with Kioxia and is contractually committed to a minimum funding level. R&D commitments are immaterial to the Condensed Consolidated Financial Statements.

Off-Balance Sheet Liabilities

Flash Ventures sells to and leases back from a consortium of financial institutions a portion of its tools and has entered into equipment lease agreements of which the Company guarantees half or all of the outstanding obligations under each lease agreement. The lease agreements are subject to customary covenants and cancellation events related to Flash Ventures and each of the guarantors. The occurrence of a cancellation event could result in an acceleration of Flash Ventures’ obligations and a call on the Company’s guarantees.

The following table presents the Company’s portion of the remaining guarantee obligations under the Flash Ventures’ lease facilities in both Japanese yen and U.S. dollar-equivalent, based upon the Japanese yen to U.S. dollar exchange rate as of ~~January~~October 1, 2021.

Lease Amounts
(Japanese yen, in billions) (U.S. dollar, in millions)
Total guarantee obligations ¥ 217 $ 2,107


	Lease Amounts
	(Japanese yen, in billions)		(U.S. dollar, in millions)
Total guarantee obligations	¥	220	$	1,985

~~Table of Content~~

~~WESTERN DIGITAL CORPORATION~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~

The following table details the breakdown of the Company’s remaining guarantee obligations between the principal amortization and the purchase option exercise price at the end of the term of the Flash Ventures lease agreements, in annual installments as of ~~January~~October 1, 2021 in U.S. dollars, based upon the Japanese yen to U.S. dollar exchange rate as of ~~January~~October 1, 2021:

Annual Installments Payment of Principal Amortization Purchase Option Exercise Price at Final Lease Terms Guarantee Amount
(in millions)
Remaining six months of 2021 $ 294 $ 63 $ 357
2022 524 52 576
2023 409 70 479
2024 238 126 364
2025 77 116 193
Thereafter 28 110 138
Total guarantee obligations $ 1,570 $ 537 $ 2,107


Annual Installments	Payment of Principal Amortization		Purchase Option Exercise Price at Final Lease Terms		Guarantee Amount
	(in millions)
Remaining nine months of 2022	$	443	$	22	$	465
2023	481		65		546
2024	325		117		442
2025	138		107		245
2026	91		162		253
Thereafter	4		30		34
Total guarantee obligations	$	1,482	$	503	$	1,985

Table of Contents

WESTERN DIGITAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The Company and Kioxia have agreed to mutually contribute to, and indemnify each other and Flash Ventures for, environmental remediation costs or liability resulting from Flash Ventures’ manufacturing operations in certain circumstances. The Company has not made any indemnification payments, nor recorded any indemnification receivables, under any such agreements. As of ~~January~~October 1, 2021, no amounts have been accrued in the Condensed Consolidated Financial Statements with respect to these indemnification agreements.

Unis Venture

The Company has a joint venture with Unisplendour Corporation Limited and Unissoft (Wuxi) Group Co. Ltd. (“Unis”), referred to as the “Unis Venture”, to market and sell the Company’s products in China and to develop data storage systems for the Chinese market in the future. The Unis Venture is 49% owned by the Company and 51% owned by Unis. The Company accounts for its investment in the Unis Venture under the equity method of accounting. Revenue on products distributed by the Unis Venture is recognized upon sell through to third-party customers. For ~~both~~ the three ~~and six~~ months ended ~~January~~October 1, 2021 ~~the Company recognized approximately 3% of its consolidated revenue on products distributed by the Unis Venture. For both the three~~ and ~~six months ended January 3,~~October 2, 2020, the Company recognized approximately 1%5% and 2%, respectively, of its consolidated revenue on products distributed by the Unis Venture. The outstanding accounts receivable due from and investment in the Unis Venture were 7% and 4%6% of Accounts receivable, net as of ~~January~~October 1, 2021 and July ~~3, 2020,~~2, 2021, respectively.

Table of ~~Content~~Contents

WESTERN DIGITAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Note ~~10.~~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 ~~January~~October 1, 2021:

Lease Amounts
Minimum lease payments by fiscal year: ($ in millions)
Remaining six months of 2021 $ 25
2022 40
2023 33
2024 33
2025 31
Thereafter 147
Total future minimum lease payments 309
Less: Imputed Interest (55)
Present value of lease liabilities 254
Less: Current portion (included in Accrued expenses) 38
Long-term operating lease liabilities (included in Other liabilities) $ 216
Operating lease right-of-use assets (included in Other non-current assets) $ 239
Weighted average remaining lease term in years 8.8
Weighted average discount rate 4.2 %


	Lease Amounts
Minimum lease payments by fiscal year:	($ in millions)
Remaining nine months of 2022	$	33
2023	43
2024	43
2025	41
2026	42
Thereafter	187
Total future minimum lease payments	389
Less: Imputed Interest	60
Present value of lease liabilities	329
Less: Current portion (included in Accrued expenses)	35
Long-term operating lease liabilities (included in Other liabilities)	$	294

Operating lease right-of-use assets (included in Other non-current assets)	$	316

Weighted average remaining lease term in years	8.9
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 Six Months Ended
January 1,
2021 January 3,
2020 January 1,
2021 January 3,
2020
(in millions)
Cost of operating leases $ 12 $ 18 $ 25 $ 30
Cash paid for operating leases 14 13 26 29
Operating lease assets obtained in exchange for operating lease liabilities 20 1 27 50


	Three Months Ended
	October 1, 2021		October 2, 2020
	(in millions)
Cost of operating leases	$	13	$	13
Cash paid for operating leases	12		12
Operating lease assets obtained in exchange for operating lease liabilities	112		7

Table of ~~Content~~Contents

WESTERN DIGITAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Purchase Agreements and Other Commitments

In the normal course of business, the Company enters into purchase orders with suppliers for the purchase of components used to manufacture its products. These purchase orders generally cover forecasted component supplies needed for production during the next quarter, are recorded as a liability upon receipt of the components, and generally may be changed or canceled at any time prior to shipment of the components. The Company also enters into long-term agreements with suppliers that contain fixed future commitments, which are contingent on certain conditions such as performance, quality and technology of the vendor’s components. As of ~~January~~October 1, 2021, the Company had the following minimum long-term commitments:

Long-term commitments
(in millions)
Fiscal year:
Remaining six months of 2021 $ 226
2022 613
2023 562
2024 350
2025 148
Thereafter 190
Total $ 2,089


	Long-term commitments
	(in millions)
Fiscal year:
Remaining nine months of 2022	$	423
2023	534
2024	306
2025	148
2026	20
Thereafter	170
Total	$	1,601

Table of ~~Content~~Contents

WESTERN DIGITAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Note ~~11.~~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., stock options, 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 Six Months Ended
January 1,
2021 January 3,
2020 January 1,
2021 January 3,
2020
(in millions)
Options $ 0 $ 2 $ 0 $ 4
RSUs and PSUs 72 70 139 136
ESPP 8 5 17 14
Total $ 80 $ 77 $ 156 $ 154


	Three Months Ended
	October 1, 2021		October 2, 2020
	(in millions)

RSUs and PSUs	$	67	$	67
ESPP	9		9
Total	$	76	$	76


		Three Months Ended				Six Months Ended						Three Months Ended
		January 1, 2021		January 3, 2020		January 1, 2021		January 3, 2020				October 1, 2021		October 2, 2020
		(in millions)								(in millions)
Cost of revenue	Cost of revenue	$	15	$	13	$	27	$	25		Cost of revenue	$	9	$	12
Research and development	Research and development	40		41		79		82			Research and development	40		39
Selling, general and administrative	Selling, general and administrative	25		23		50		47			Selling, general and administrative	27		25

Subtotal	Subtotal	80		77		156		154			Subtotal	76		76
Tax benefit	Tax benefit	(9)		(11)		(20)		(23)			Tax benefit	(15)		(11)
Total	Total	$	71	$	66	$	136	$	131		Total	$	61	$	65

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 stock options, 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 ~~January~~October 1, 2021:

Unamortized Compensation Costs Weighted Average Service Period
(in millions) (years)
RSUs and PSUs (1)
$ 663 2.8
ESPP 22 0.7
Total unamortized compensation cost $ 685


	Unamortized Compensation Costs		Weighted Average Service Period
	(in millions)		(years)

RSUs and PSUs (1)	$	755	2.8
ESPP	56		1.6
Total unamortized compensation cost	$	811

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

Table of ~~Content~~Contents

WESTERN DIGITAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Plan Activities

Stock Options

The following table summarizes stock option activity under the Company’s incentive ~~plans:~~

Number of Shares Weighted Average Exercise Price Per Share Weighted Average Remaining Contractual Life Aggregate Intrinsic Value
(in millions) (in years) (in millions)
Options outstanding at July 3, 2020 2.7 $ 69.16 2.1 $ 0
Exercised (0.2) 44.09 $ 2
Canceled or expired (0.7) 74.66
Options outstanding at January 1, 2021 1.8 69.75 1.74 $ 9
Exercisable at January 1, 2021 1.8 $ 69.75 1.74 $ 9
plans. All outstanding options were exercisable at October 1, 2021:


	Number of Shares	Weighted Average Exercise Price Per Share		Weighted Average Remaining Contractual Life	Aggregate Intrinsic Value
	(in millions)			(in years)	(in millions)




















Options outstanding at July 2, 2021	1.5	$	72.84	1.2	$	15


Exercised	—	44.78			$	1
Canceled or expired	(0.4)	99.71
Options outstanding at October 1, 2021	1.1	$	64.61	1.2	$	7

RSUs and PSUs

The following table summarizes RSU and PSU activity under the Company’s incentive plans:

Number of Shares Weighted Average Grant Date Fair Value Aggregate Intrinsic Value at Vest Date
(in millions) (in millions)
RSUs and PSUs outstanding at July 3, 2020 13.3 $ 60.92
Granted 8.1 37.97
Vested (3.9) 61.33 $ 158
Forfeited (0.9) 60.23
RSUs and PSUs outstanding at January 1, 2021 16.6 49.45


	Number of Shares	Weighted Average Grant Date Fair Value		Aggregate Intrinsic Value at Vest Date
	(in millions)			(in millions)




















RSUs and PSUs outstanding at July 2, 2021	16.1	$	50.12
Granted	4.9	63.68

Vested	(4.5)	53.99		$	277
Forfeited	(0.6)	52.62
RSUs and PSUs outstanding at October 1, 2021	15.9	$	53.17

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 ~~six~~three months ended ~~January~~October 1, 2021 and has not repurchased any shares of its common stock pursuant to its stock repurchase program since the first quarter of fiscal 2019. The remaining amount available to be repurchased under the Company’s current stock repurchase program as of ~~January~~October 1, 2021 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. The Company expects stock repurchases to be funded principally by operating cash flows.

~~Dividends to Shareholders~~

The Company issued a quarterly cash dividend from the first quarter of fiscal 2013 up to the third quarter of fiscal 2020. In April 2020, the Company suspended its dividend to reinvest in the business and to support its ongoing deleveraging efforts.

Table of ~~Content~~Contents

WESTERN DIGITAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Note ~~12.~~13. Income Tax Expense

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was enacted in response to the COVID-19 pandemic in the U.S. The CARES Act, among other things, allows net operating losses arising in tax years 2018, 2019, and 2020 to be carried back to each of the five preceding taxable years to generate a refund of previously paid income taxes and increases the business interest expense limitation from 30% to 50% of adjusted taxable income for tax years 2019 and 2020. Additionally, countries around the world continue to implement emergency tax measures to provide relief similar to the CARES Act. The Company at present does not expect that any of the provisions of the CARES Act or the emergency tax measures around the world would result in a material cash benefit.

On December 27, 2020, the Consolidated Appropriations Act (the “Appropriations Act”) was enacted to fund the federal government through their fiscal year, extend certain expiring tax provisions and provide additional emergency relief to individuals and businesses related to the COVID-19 pandemic in the U.S. The Company at present does not expect any of the provisions of the Appropriations Act to have a material impact on its financial statements. The Company continues to monitor and evaluate the regulatory and interpretive guidance related to the CARES Act and the Appropriations Act, as well as legislation in other jurisdictions.

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.

The following table presents the Company’s Income tax expense and the effective tax rate:

Three Months Ended Six Months Ended
January 1,
2021 January 3,
2020 January 1,
2021 January 3,
2020
($ in millions)
Income (loss) before taxes $ 85 $ (40) $ 82 $ (277)
Income tax expense 23 99 80 138
Effective tax rate 27 % (248) % 98 % (50) %


	Three Months Ended
	October 1, 2021			October 2, 2020
	($ in millions)
Income (loss) before taxes	$	704		$	(3)
Income tax expense	94			57
Effective tax rate	13		%	(1,900)		%

The primary drivers of the difference between the effective tax rate for the three ~~and six~~ months ended ~~January~~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 that will expire at various dates during fiscal years ~~2021~~2024 through ~~2030.~~2031. In addition, the effective tax rate for the three ~~and six~~ months ended ~~January~~October 1, 2021 includes the discrete ~~effects~~effect of ~~favorable adjustments proposed by~~an increase to unrecognized tax ~~authorities~~benefits of ~~$8 million. The effective tax rate for the six months ended January 1, 2021 also includes the discrete effects~~$16 million as a result of net tax deficiencies from shortfalls of $12 million related to the vesting of stock-based awards and additional tax expense of $10 million from the re-measurement of deferred tax liabilities due to restructuring activities, which have no impact on the amount of income taxes paid by the Company.ongoing discussions with various taxing authorities.

The primary drivers of the difference between the effective tax rate for the three ~~and six~~ months ended ~~January 3,~~October 2, 2020 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, Philippines and ~~Thailand that expired or will expire at various dates during fiscal years~~Thailand. In addition, the effective tax rate for the three months ended October 2, 2020 ~~through 2030.~~includes the discrete effects of net tax deficiencies from shortfalls of $11 million related to the vesting of stock-based awards and additional tax expense of $10 million from the re-measurement of purchase accounting deferred tax liabilities due to restructuring activities. The discrete items had no impact on the amount of income taxes paid by the Company.

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~~WESTERN DIGITAL CORPORATION~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~

~~The IRS previously completed its field examination of the Company’s federal income tax returns for fiscal years 2008 through 2012 and proposed certain adjustments.~~ As previously disclosed, the ~~Company received Revenue Agent Reports from the~~ IRS ~~for fiscal years 2008 through 2009, proposing~~issued statutory notices of deficiency with respect to adjustments relating to transfer pricing with the Company’s foreign subsidiaries and intercompany payable balances. The Company disagrees with the proposed adjustments and in September 2015, filed a protest with the IRS Appeals Office and received the IRS rebuttal in July 2016. The Company and the IRS Appeals Office did not reach a settlement on the disputed matters. On June 28, 2018, the IRS issued a statutory notice of deficiency with respect to the disputed mattersbalances for fiscal years 2008 through 2009 ~~seeking to increase the Company’s U.S. taxable income by an amount that would result in additional federal tax~~and fiscal years 2010 through ~~fiscal year 2009 totaling approximately $516 million, subject to interest and penalties.~~2012. The Company filed ~~a petition~~petitions with the U.S. Tax Court ~~in September 2018. On December 10, 2018,~~with respect to the ~~IRS issued a~~ statutory ~~notice~~notices of deficiency ~~with respect to~~for fiscal years 2008 through 2009 and the fiscal years 2010 through 2012, seeking to increase the Company’s U.S. taxable income by an amount that would result in additional federal tax for fiscal years 2010 through 2012 totaling approximately $549 million, subject to interest and penalties. Approximately $535 million of the total additional federal tax for fiscal years 2010 through 2012 relates to proposed adjustments for transfer pricing with the Company’s foreign subsidiaries, intercompany payable balances and the utilization of certain tax attributes. The Company filed a petition with the U.S. Tax Court in March 2019.2012. The U.S. Tax Court consolidated the case for fiscal years 2008 through 2009 with the case for fiscal years 2010 through 2012. OnIn May 4, 2020, the IRS filed with the U.S. Tax Court Amendments to Answer to assert penalties totaling $340 million on the proposed adjustments relating to transfer pricing with respect to fiscal years 2008 through 2012. In June 2021, the IRS filed with the U.S. Tax Court Second Amendments to Answer to assert additional adjustments relating to transfer pricing with the Company’s foreign subsidiaries for fiscal years 2008 through 2009 and fiscal years 2010 through 2012. The Second Amendments to Answer replace the amounts asserted in the statutory notices of deficiency. With its Second Amendments to Answer, the IRS seeks to increase the Company’s U.S. taxable income by amounts that would result in additional federal income tax liabilities totaling approximately $335 million for fiscal years 2008 through 2009 and approximately $922 million for fiscal years 2010 through 2012, subject to interest and the IRS’s claim for penalties. In September 2020 and December 2020, the IRS proposed adjustments relating to transfer pricing with the Company’s foreign subsidiaries and intercompany payable balances for fiscal years 2013 through 2015 that, if sustained, would result in additional federal income tax liabilities totaling approximately $343 ~~million.~~million for those fiscal years. In March 2021, the IRS asserted penalties totaling $109 million on the proposed adjustments relating to transfer pricing with respect to fiscal years 2013 through 2015. The Company disagrees with the proposed adjustments relating to transfer pricing and related penalties, and continues to believe that its tax positions are properly supported and will vigorously contest the position taken by the IRS. Also in March 2021, the Company and the IRS tentatively reached a basis for resolving the

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WESTERN DIGITAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

intercompany payable balances matter for all fiscal years at issue and the impact was not material to the Consolidated Financial Statements.

The Company believes that adequate provision has been made for any adjustments that may result from tax examinations. However, the outcome of 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. As of ~~January~~October 1, 2021, it was not possible to estimate the amount of change, if any, in the unrecognized tax benefits that is reasonably possible within the next twelve months. 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.

As of ~~January~~October 1, 2021, the liability for unrecognized tax benefits (excluding accrued interest and penalties) was approximately ~~$715~~$762 million. Accrued interest and penalties related to unrecognized tax benefits as of ~~January~~October 1, 2021 was approximately ~~$146~~$132 million. Of these amounts, approximately ~~$724~~$758 million could result in potential cash payments. The Company is not able to provide a reasonable estimate of the timing of future tax payments related to these obligations.

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WESTERN DIGITAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Note ~~13.~~14. Net Income (Loss) Per Common Share

The following table presents the computation of basic and diluted income (loss) per common share:

Three Months Ended Six Months Ended
January 1,
2021 January 3,
2020 January 1,
2021 January 3,
2020
(in millions, except per share data)
Net income (loss) $ 62 $ (139) $ 2 $ (415)
Weighted average shares outstanding:
Basic 305 298 304 297
Employee stock options, RSUs, PSUs and ESPP 2 0 1 0
Basic and diluted 307 298 305 297
Income (loss) per common share
Basic $ 0.20 $ (0.47) $ 0.01 $ (1.40)
Diluted $ 0.20 $ (0.47) $ 0.01 $ (1.40)
Anti-dilutive potential common shares excluded 8 15 10 15


	Three Months Ended
	October 1, 2021		October 2, 2020
	(in millions, except per share data)
Net income (loss)	$	610	$	(60)
Weighted average shares outstanding:
Basic	310		303
Employee stock options, RSUs, PSUs and ESPP	6		—
Basic and diluted	316		303
Income (loss) per common share
Basic	$	1.97	$	(0.20)
Diluted	$	1.93	$	(0.20)
Anti-dilutive potential common shares excluded	1		16

The Company computes basic income (loss) per common share using Net income (loss) and the weighted average number of common shares outstanding during the period. Diluted income (loss) per common share is computed using Net income (loss) 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 ~~and six~~ months ended ~~January 3,~~October 2, 2020, the Company recorded net loss, and all shares subject to outstanding equity awards have been excluded for ~~those periods~~this period because including them would be anti-dilutive.

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WESTERN DIGITAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Note ~~14.~~15. Employee Termination, Asset Impairment and Other Charges

The Company recorded the following charges related to employee termination benefits, asset impairment, and other charges:

Three Months Ended Six Months Ended
January 1,
2021 January 3,
2020 January 1,
2021 January 3,
2020
(in millions)
Employee termination and other charges:
Closure of Foreign Manufacturing Facilities $ 0 $ 0 $ 0 $ 4
Business Realignment 2 26 25 30
Total employee termination and other charges 2 26 25 34
Business Realignment 0 (17) 0 (17)
Total employee termination, asset impairment, and other charges $ 2 $ 9 $ 25 $ 17


	Three Months Ended
	October 1, 2021		October 2, 2020
	(in millions)
Employee termination and other charges:


Business Realignment	$	15	$	23
Total employee termination and other charges	15		23
Asset impairment:


Business Realignment	3		—






Total employee termination, asset impairment, and other charges	$	18	$	23

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 following table presents an analysis of the components of ~~the activity~~these activities against the reserve during the ~~six~~three months ended ~~January~~October 1, 2021:

Employee Termination Benefits Contract Termination and Other Total
(in millions)
Accrual balance at July 3, 2020 $ 13 $ 0 $ 13
Charges 22 3 25
Cash payments (28) (3) (31)
Accrual balance at January 1, 2021 $ 7 $ 0 $ 7


	Employee Termination Benefits
	(in millions)








Accrual balance at July 2, 2021	$	2
Charges	15
Cash payments	(4)

Accrual balance at October 1, 2021	$	13

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WESTERN DIGITAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Note ~~15.~~16. Legal Proceedings

Tax

For disclosures regarding statutory notices of deficiency issued by the IRS on June 28, 2018 and December 10, 2018, ~~and~~ 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 a tentative resolution with respect to certain matters, see Note ~~12,~~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.

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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 ~~3, 2020.~~2, 2021. 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 a leading developer, manufacturer and provider of data storage devices and solutions that address the evolving needs of ~~the~~ information technology (“IT”) ~~industry~~ and the infrastructure that enables the proliferation of data in virtually every ~~other~~ industry. We create environments for data to thrive. We ~~drive~~are driving the innovation needed to help customers capture, preserve, access and transform an ever-increasing diversity of data. Everywhere data lives, from advanced data centers to mobile sensors to personal devices, our industry-leading solutions deliver the possibilities of data.

Our broad portfolio of technology and products address the following key end markets: Client Devices; Data Center Devices and Solutions; and Client Solutions. We also generate license and royalty revenue from our extensive intellectual property (“IP”), which is included in each of these three end market categories.

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 ~~year 2021,~~years 2022, which ends on July 1, 2022, and 2021, which ended on July 2, 2021, ~~will be~~are each comprised of 52 weeks, with all quarters presented consisting of 13 weeks. ~~Fiscal year 2020, which ended on July 3, 2020, was comprised of 53 weeks, with the first quarter consisting of 14 weeks and the remaining quarters consisting of 13 weeks each.~~

Key Developments

Business Structure

Historically, our company had been managed and reported under a single operating segment. Late in the first quarter of fiscal 2021, wethe Chief Executive Officer, who is our Chief Operating Decision Maker (“CODM”), announced a decision to reorganize our business by forming two separate product business units: hard disk drives (“HDD”) and flash-based products ~~and hard disk drive~~ (“~~HDD”~~Flash”). The new structure is intended to provide each business unit with focus and responsibility for identifying current and future customer requirements while driving the strategy, roadmap, pricing and overall profitability for their respective product areas. ~~Beginning in~~To align with the ~~second fiscal quarter, we are in the process of transitioning to this~~ new operating model and business structure, we made management organizational changes and implemented new reporting modules and processes to provide discrete information ~~has not yet been established~~ to ~~align with~~manage the ~~new business structure. We~~business. Effective July 3, 2021, management finalized its assessment of our operating segments and concluded that we now have two reportable segments: HDD and Flash.

Our broad portfolio of technology and products address multiple end markets. In the fiscal first quarter of 2022, we refined the end markets we report to be Cloud, Client and Consumer. Cloud represents a large and growing end market comprised primarily of products for public or private cloud environments and end customers, which we believe we are ~~developing new reporting processes~~uniquely positioned to ~~support~~address as the ~~new business structure~~only provider of both hard drive and ~~evaluating~~flash products. Through the ~~impact~~Client end market, we provide our OEM and channel customers a broad array of ~~these changes~~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 our broad range of retail and other end-user products, which capitalize on the strength of our product brand recognition and vast points of presence around the world.

The discussion and analysis included under Results of Operations below reflects our ~~financial condition~~new business unit structure and ~~results of operations in the future.~~end markets discussed above.

COVID-19 Pandemic and Operational Update

As ~~a result of~~ the ongoing COVID-19 pandemic governments and other authorities around the world, including federal, state and local authorities in the United States, have imposed measures intended to reduce its spread, including restrictions on freedom of movement and business operations such as travel bans, border closings, business limitations and closures (subject to exceptions for essential operations and businesses), quarantines and shelter-in-place orders. Although some of these governmental restrictions have since been lifted or scaled back, periodic surges of COVID-19 infections have resulted in the re-imposition of certain restrictions and may lead to other restrictions being re-implemented in response to efforts to reduce the spread of COVID-19. These measures may remain in place for a significant amount of time, and the effects of ongoing vaccination efforts and the emergence of new strains of the virus remain uncertain. In light of these events,has evolved, we have ~~taken actions to protect the health~~implemented and ~~safety of our employees while continuing to serve our global customers as an essential business. We have implemented~~maintained more thorough sanitation practices as outlined by health organizations and ~~instituted social distancing policies at~~supported vaccination efforts. As we begin to phase in a return to site for more employees, we are monitoring and adopting practices recommended by health organizations to ensure the continued safety of our ~~locations around the world, including working from home, limiting the number of~~ employees ~~attending meetings, reducing the number of people in our sites at any one time,~~ and ~~suspending employee travel.~~business partners. In addition, the responses to COVID-19 taken by others in the supply chain have increased the costs of their services which have in turn impacted our operations. ~~As a result, we have~~We incurred incremental charges primarily

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~~charges~~related to logistics, absorption and other factory-related costs of approximately ~~$61~~$56 million and $28 million during the ~~six~~three months ended ~~January~~October 1, 2021 ~~primarily related to higher logistics costs,~~and October 2, 2020, respectively, which were recorded in ~~cost~~Cost of revenue.

~~As an essential business,~~The technology hardware and semiconductor industries faced supply chain disruptions during the quarter that negatively impacted both our and our customers’ ability to manufacture products, which collectively reduced revenues across all of our end markets. While these supply disruptions may continue for the near term, we ~~continue to provide products and solutions~~ultimately expect that ~~enable the proliferation of data and facilitate the sharing of information remotely, which has become more critical~~they will be transitory as ~~much of the world is interacting from areas of self-isolation. Generally,~~ demand for our products ~~remains solid. During~~has remained solid during the ~~six months ended January 1, 2021, we experienced lower sales in some of our capacity enterprise~~pandemic, with work-from-home, distance learning, and Client Devices products as customers absorbed purchases made in recent quarters, but we also experienced increased sales in retail as COVID-19 restrictions eased, more brick and mortar businesses resumed operations, the work and learn fromat home ~~trend increased hard drive~~entertainment driving demand for ~~desktops~~cloud environments, new devices, and ~~notebooks, and gaming increased. Looking forward, we see positive indications of the progression of 5G ramp and the growth of gaming. We also currently expect~~ retail ~~demand to be solid in the near term and HDD to improve as customers absorb recent purchases and we ramp sales of new~~ products. ~~However, the~~

The COVID-19 environment remains dynamic and we ~~cannot predict the duration of the pandemic and how demand may change as it develops.~~

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 ~~“The~~“The COVID-19 pandemic could ~~adversely~~negatively affect our ~~business, results~~business” and “We are dependent on a limited number of ~~operations~~qualified suppliers who provide critical services, materials or components, and ~~financial condition”~~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 fiscal year ended July ~~3, 2020~~2, 2021 for more information regarding the risks we face as a result of the COVID-19 ~~pandemic.~~pandemic and supply chain disruptions.

Flash Ventures

Through our three business ventures with Kioxia Corporation (“Kioxia”), referred to as “Flash Ventures”, we and Kioxia operate flash-based memory wafer manufacturing facilities in Japan. We are obligated to pay for variable costs incurred in producing our share of Flash Ventures’ flash-based memory wafer supply, based on our three-month forecast, which generally equals 50% of Flash Ventures’ output. In addition, we are obligated to pay for half of Flash Ventures’ fixed costs regardless of the output we choose to purchase. We are also obligated to fund 49.9% to 50% of each Flash Ventures entity’s capital investments to the extent that Flash Ventures entity’s operating cash flow is insufficient to fund these investments. We also co-develop flash technologies (including process technology and memory design) with Kioxia and contribute IP for Flash Ventures’ use.

Since its inception, Flash Ventures’ primary manufacturing site has been located in Yokkaichi, Japan, which currently includes five wafer fabrication facilities. Production levels at the Yokkaichi site were temporarily reduced as a result of an unexpected power outage incident that occurred in the Yokkaichi region on June 15, 2019. The power outage incident impacted the facilities and process tools and resulted in damage to flash wafers in production. The incident resulted in a reduction of our flash wafer availability by approximately 4 exabytes. As a result of this power outage incident, we incurred aggregate charges of $68 million recorded in Cost of revenue in the six months ended January 3, 2020, which primarily consisted of unabsorbed manufacturing overhead costs. During the six months ended January 1, 2021, we recovered $75 million related to this incident from our insurance carriers, which was recorded in Cost of revenue.

In May 2019, we entered into additional agreements with Kioxia to extend Flash Ventures to a new wafer fabrication facility, known as “K1,” located in Kitakami, Japan. The primary purpose of K1 is to provide clean room space to continue the transition of existing flash-based wafer capacity to newer technology nodes. K1 is now fully operational. In connection with the start-up of this facility, we agreed to prepay an aggregate of approximately $360 million over a 3-year period beginning in the first half of fiscal year 2020 toward K1 building depreciation, to be credited against future wafer charges. As of January 1, 2021, remaining committed prepayments totaled $149 million.

In October 2020, Kioxia announced the start of construction of the shell for a new fabrication facility in Yokkaichi, Japan, referred to as “Y7”. We expect to continue Flash Ventures investments into Y7 in due course, following the completion of agreements with Kioxia governing the construction and operation of the new facility and according to the then-prevailing market trends.

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Results of Operations

~~Second~~First Quarter ~~and First Half~~ 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
January 1,
2021 January 3,
2020 $ Change % Change
($ in millions)
Revenue, net $ 3,943 100.0 % $ 4,234 100.0 % $ (291) (7) %
Cost of revenue 2,983 75.7 3,299 77.9 (316) (10)
Gross profit 960 24.3 935 22.1 25 3
Operating Expenses:

Research and development 535 13.6 578 13.7 (43) (7)
Selling, general and administrative 265 6.7 298 7.0 (33) (11)
Employee termination, asset impairment, and other charges 2 0.1 9 0.2 (7) (78)
Total operating expenses 802 20.3 885 20.9 (83) (9)
Operating income 158 4.0 50 1.2 108 216
Interest and other income (expense):

Interest income 2 0.1 8 0.2 (6) (75)
Interest expense (81) (2.1) (105) (2.5) 24 (23)
Other income, net 6 0.2 7 0.2 (1) (14)
Total interest and other expense, net (73) (1.9) (90) (2.1) 17 (19)
Income (loss) before taxes 85 2.2 (40) (0.9) 125 (313)
Income tax expense 23 0.6 99 2.3 (76) (77)
Net income (loss) $ 62 1.6 $ (139) (3.3) 201 (145)


	Three Months Ended
	October 1, 2021				October 2, 2020				$ Change		% Change
	($ in millions)
Revenue, net	$	5,051	100.0	%	$	3,922	100.0	%	$	1,129	29	%
Cost of revenue	3,386		67.0		3,018		77.0		368		12
Gross profit	1,665		33.0		904		23.0		761		84
Operating Expenses:
Research and development	578		11.4		555		14.2		23		4
Selling, general and administrative	291		5.8		256		6.5		35		14
Employee termination, asset impairment, and other charges	18		0.4		23		0.6		(5)		(22)
Total operating expenses	887		17.6		834		21.3		53		6
Operating income	778		15.4		70		1.8		708		1,011
Interest and other income (expense):
Interest income	2		—		2		0.1		—		—
Interest expense	(78)		(1.5)		(84)		(2.1)		6		(7)
Other income, net	2		—		9		0.2		(7)		(78)
Total interest and other expense, net	(74)		(1.5)		(73)		(1.9)		(1)		1
Income before taxes	704		13.9		(3)		(0.1)		707		(23,567)
Income tax expense	94		1.9		57		1.5		37		65
Net income	$	610	12.1		$	(60)	(1.5)		670		(1,117)

(1) Percentages may not total due to rounding.

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Six Months Ended
January 1,
2021 January 3,
2020 $ Change % Change
($ in millions)
Revenue, net $ 7,865 100.0 % $ 8,274 100.0 % $ (409) (5) %
Cost of revenue 6,001 76.3 6,581 79.5 (580) (9)
Gross profit 1,864 23.7 1,693 20.5 171 10
Operating Expenses:
Research and development 1,090 13.9 1,152 13.9 (62) (5)
Selling, general and administrative 521 6.6 603 7.3 (82) (14)
Employee termination, asset impairment, and other charges 25 0.3 17 0.2 8 47
Total operating expenses 1,636 20.8 1,772 21.4 (136) (8)
Operating income (loss) 228 2.9 (79) (1.0) 307 (389)
Interest and other income (expense):
Interest income 4 0.1 20 0.2 (16) (80)
Interest expense (165) (2.1) (227) (2.7) 62 (27)
Other income, net 15 0.2 9 0.1 6 67
Total interest and other expense, net (146) (1.9) (198) (2.4) 52 (26)
Income (loss) before taxes 82 1.0 (277) (3.3) 359 (130)
Income tax expense 80 1.0 138 1.7 (58) (42)
Net income (loss) $ 2 — $ (415) (5.0) 417 (100)

The following table sets forth, for the periods presented, a summary ~~information regarding~~of our ~~revenue:~~segment information:


	Three Months Ended
	October 1, 2021			October 2, 2020
	(in millions)
Net revenue:
HDD	$	2,561		$	1,844



Flash	2,490			2,078



Total net revenue	$	5,051		$	3,922
Gross profit
HDD	$	792		$	483



Flash	921			548




Unallocated corporate items:
Amortization of acquired intangible assets	39			145
Stock-based compensation expense	9			12


Charges related to a power outage incident and related recovery	—			(30)

Total unallocated corporate items	(48)			(127)
Consolidated gross profit	$	1,665		$	904
Gross margin:
HDD	30.9		%	26.2		%
Flash	37.0		%	26.4		%

Consolidated gross margin	33.0		%	23.0		%



	Three Months Ended
	October 1, 2021		October 2, 2020
	(in millions)





Revenue by End Market
Cloud	$	2,225	$	1,291
Client	1,853		1,750
Consumer	973		881
Total Revenue	$	5,051	$	3,922

Revenue by Geography
Americas	$	1,614	$	1,079
Europe, Middle East and Africa	762		629
Asia	2,675		2,214
Total Revenue	$	5,051	$	3,922

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Net Revenue

~~Net~~Comparison of Three Months Ended October 1, 2021 to Three Months Ended October 2, 2020

Consolidated net revenue ~~decreased 7%~~increased 29% for the three months ended ~~January~~October 1, 2021 compared to the three months ended ~~January 3,~~October 2, 2020, which reflects an ~~approximate 11 percentage point~~increase in exabytes of HDD and flash sold as discussed below. The revenue increase driven by exabytes was partially offset by a decline in ~~revenue related to pricing~~the average price per gigabyte of ~~memory~~storage for both HDD and ~~flash products and an approximate 6 percentage point decline in exabyte volume of HDD memory sold, primarily in Data Center Devices and Solutions~~Flash as ~~discussed further below. These declines were largely offset by higher volumes of flash memory sold.~~product mix shifted.

~~Client Devices~~HDD revenue increased ~~19%~~39% year over ~~year.~~year, primarily driven by a 52% increase in exabytes sold. Higher ~~volumes of flash memory contributed 28 percentage points of growth, as work-, school- and game-from-home trends~~volume was due to continued ~~to drive~~ demand for our ~~solutions for notebook~~latest generation energy assisted drives among our public and ~~desktop applications. Western Digital’s industry leading NVMe-based client SSDs~~private cloud customers. The strong demand in Cloud was partly offset by a decline in HDD exabytes sold in our Client and ~~strong relationships with major PC OEMs drove~~Consumer end markets due to pressure in the commercial channel related to component issues impacting our customers’ ability to ship product, greater component sourcing constraints within our own operations and uneven geographic demand due to COVID lockdowns. The revenue increase driven by exabytes was partially offset by a ~~record level of exabyte shipments. These increases were slightly offset,~~decline in ~~relatively equal portions, by lower~~the average ~~pricing~~price per gigabyte ~~of memory on both HDD and flash products and lower volumes of HDD.~~as noted above.

~~Data Center Devices and Solutions~~Flash revenue ~~declined 46%~~increased 20% year over year, primarily driven by a 30% increase in exabytes sold. The growth in volume was due to ~~ongoing cloud digestion, one ongoing qualification delay~~strong demand in Cloud for our latest generation of enterprise SSD products and ~~China shipment restrictions. Revenue from~~the ramp of new 5G-based mobile phones incorporating our latest BiCS5 flash solutions. Higher volume was also driven by strong demand in gaming along with a growing brand recognition of WD_Black based products. The revenue increase driven by exabytes was partially offset by a decline in the average price per gigabyte as noted above.

The increase in Cloud revenue compared to the prior year was led by growth in both capacity enterprise hard drives and enterprise SSDs ~~were down year over year. We believe cloud digestion is abating~~as we ramped sales of latest generation products after another successful quarter of qualifications with customers. In Client, we experienced growth–specifically in mobile, gaming, automotive, IOT and ~~are seeing stabilization of OEM demand. Should these demand trends continue, we believe capacity enterprise hard drive revenue bottomed~~industrial applications. Our strength in the second quarter and anticipate a rebound in the third quarter. Within our enterprise SSD product line, we completed the qualification process at a cloud titan for our second-generation product and began shipping to this ~~customer in the third quarter.~~

Client Solutions revenue increased 6% year over year with approximately 12 percentage points driven by volume growth. The work-, school- and gaming-from-home trends benefited both hard drive and flash-based products. This growthend market was partially offset by ~~more competitive pricing.~~

~~Net~~pressure in desktop and notebook hard drives due to supply disruptions at our customers and within our own operations. In Consumer, revenue decreased 5% for the six months ended January 1, 2021 from the comparable period in the prior year, reflecting an approximate 11 percentage point decline related to pricing per gigabyte of memory for both HDD and flash products and an approximate 8 percentage point decline in HDD memory sold, primarily in Data Center Devices and Solutions. These declines were largely offset by higher volumes of memory, predominantly in flash products. Client Devices revenue increased 19% year over year, with approximately 25 percentage points of growth ~~coming from higher volumes of memory,~~was driven by strong demand in gaming along with a growing brand recognition of WD_Black. In the current year quarter, we experienced some supply disruptions, in addition to uneven geographic demand due to COVID lockdowns, which tempered revenue growth in ~~flash products for the same reasons noted above for the quarter. This increase was partially offset by lower average selling prices per gigabyte~~each of memory in both flash and HDD products. Revenue for Data Center Devices and Solutions declined 36% year over year, which also reflects the drivers noted for the quarter above. Client Solutions revenue was essentially flat year over year, with relatively stable retail demand and pricing in both HDD and flash products.our end-markets. However, we expect these impacts to be transitory.

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The changes in net revenue by geography reflect an increase in the Americas driven by higher sales of HDD capacity enterprise products to cloud customers in the region and an increase in Asia ~~due to~~primarily driven by our increased sales of Flash mobility products to manufacturers in the ~~Asia region, and a decrease in the Americas driven by lower sales of capacity enterprise products.~~region.

Our top 10 customers accounted for 43% and ~~41%~~44% of our net revenue for the three ~~and six~~ months ended ~~January~~October 1, 2021 ~~respectively,~~ and ~~44% and 43% for the three and six months ended January 3,~~October 2, 2020, respectively. For the three ~~and six~~ months ended ~~January~~October 1, 2021 and ~~January 3,~~October 2, 2020, no single customer accounted for 10% or more of our net revenue.

Consistent with standard industry practice, we have sales incentive and marketing programs that provide customers with price protection and other incentives or reimbursements that are recorded as a reduction to gross revenue. For both the three ~~and six~~ months ended ~~January~~October 1, 2021 and ~~January 3,~~October 2, 2020, ~~these~~the programs represented ~~20% and 19% and 17% and 16%, respectively,~~18% of gross revenues, and adjustments ~~to revenue~~ due to changes in accruals for these programs have generally averaged less than 1% of gross revenue year over year. ~~The increase in adjustments year over year reflects the current competitive environment.~~ The amounts attributed to our sales incentive and marketing programs generally vary according to several factors including industry conditions, list pricing strategies, seasonal demand, competitor actions, channel mix and overall availability of products. Changes in future customer demand and market conditions may require us to adjust our incentive programs as a percentage of gross revenue.

We believe future revenues will be supported by the introduction of our new 20TB HDD, which we are moving forward in qualifications with public and private cloud customers. Within Cloud, our enterprise SSDs are now qualified with three cloud titans and we have made progress on the qualification process with public and private cloud customers and distribution channels. We expect these qualifications to drive accelerated growth in 2022 as customers begin to deploy these products into their networks. We also expect the migration to 5G, combined with a continued increase in the amount of storage per phone, to drive revenue growth in our Client end market in the near term. In Consumer, we also expect to see near term revenue growth due to continued growth in the brand recognition of our WD_Black-based products in the channel and retail.

Gross Profit and Gross Margin

~~Gross~~Consolidated gross profit increased by ~~$25~~$761 million for the three months ended January 1, 2021 from the comparable period in the prior year, which reflects a $48 million decrease in charges in the current year related to amortization expense on acquired intangible assets and the $45 million insurance recovery in the current year related to the power outage incident, partially offset by lower revenues.

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Gross margin increased approximately 3 percentage points for the three months ended January 1, 2021 from the comparable period in the prior year, substantially all of which is attributed to the impacts of the lower charges for amortization of acquired intangible assets and the insurance recovery noted above.

~~Gross profit increased by $171 million for the six months ended January~~October 1, 2021 from the comparable period in the prior year, which reflects the ~~power outage charges of $68 million incurred~~increase in ~~the prior year compared to the $75 million partial recovery~~revenue in ~~the current year,~~both HDD and Flash, as well as a ~~$67~~$106 million decrease in charges in the current ~~year~~period related to amortization expense on acquired intangible assets, ~~and reduced manufacturing costs.~~some of which became fully amortized.

~~Gross~~Consolidated gross margin increased ~~approximately 10~~10.0 percentage points for the ~~six~~three months ended ~~January~~October 1, 2021 from the comparable period in the prior year, ~~substantially all of~~ which ~~is attributed to the impacts of the charges related to the power outage incident~~reflects higher gross margin in ~~the prior year, the insurance recovery in the current year~~both HDD and Flash and the lower charges for amortization of acquired intangible assets noted above. ~~Over the near term, we expect flash~~HDD and Flash gross margin ~~to benefit from improved pricing~~increased by 4.7 and 10.6 percentage points year over year, respectively, reflecting cost reductions ~~while HDD gross margin is expected to be constrained by the pricing environment for 16-terabyte drives, but we expect improved gross margins over the longer term~~ as we ~~ramp~~ramped production on higher capacity drives.

Operating Expenses

Research and development (“R&D”) expense ~~decreased $43~~increased $23 million for the three months ended ~~January~~October 1, 2021 from the comparable period in the prior year. The ~~decrease~~increase was driven ~~in comparable amounts,~~ by ~~lower~~higher compensation costs ~~lower travel and entertainment expenses~~ due to ~~the COVID-19 restrictions,~~merit increases and a decline in outside services. R&D expense decreased $62 million for the six months ended January 1, 2021 from the comparable period in the prior year, reflecting the drivers noted above for the quarter,increased headcount, as well as ~~the impact of additional expense in the prior year for the additional week in the prior year.~~higher variable compensation cost due to improved earnings.

Selling, general and administrative (“SG&A”) expense ~~decreased $33~~increased $35 million for the three months ended ~~January~~October 1, 2021 from the comparable period in the prior year. The ~~decrease~~increase was driven ~~in comparable amounts,~~ by ~~lower compensation costs, lower~~ ~~travel and entertainment as a result of COVID-19 restrictions and lower consulting and marketing expenses due to event cancellations. SG&A expense decreased $82~~ approximately $20 million for ~~the six months ended January 1, 2021 from the comparable period in the prior year. Similar to the quarter, the decline was driven, in comparable amounts, by~~ ~~lower compensation costs, lower~~ ~~travel~~professional services and ~~entertainment as a result of COVID-19 restrictions and lower consulting and marketing expenses due to event cancellations, as well as~~ approximately $10 million of ~~additional expense in the prior year related~~higher compensation costs due to ~~the additional week.~~merit increases and increased headcount, as well as higher variable compensation cost due to improved earnings.

Employee termination, asset impairment and other charges ~~increased~~decreased from the comparable period in the prior year as wesome of the actions initiated ~~incremental actions to align our operations with current market demand~~. in the prior year have been substantially completed. For information regarding ~~employee~~Employee termination, asset impairment and other charges, see Part I, Item 1, Note ~~14,~~15, Employee Termination, Asset Impairment and Other Charges, of the Notes to Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q.

Interest and Other Income (Expense)

~~The decreases in total~~Total interest and other expense, net for the three ~~and six~~ months ended ~~January~~October 1, 2021 ~~reflect~~was relatively flat with the prior year, reflecting lower interest expense resulting from ~~lower index rates and~~ the pay-down of principal on our ~~debt.~~debt, partially offset by a lower impact from foreign exchange rates and other gains.

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Income Tax Expense

The Tax Cuts and Jobs Act (the “2017 Act”) includes a broad range of tax reform proposals affecting businesses. We completed our 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 we anticipate the issuance of additional regulatory and interpretive guidance. We applied a reasonable interpretation of the 2017 Act along with the then-available guidance in finalizing our 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 our estimates in future periods.

The following table sets forth income tax information from our Condensed Consolidated Statements of Operations by dollar and effective tax rate:


	Three Months Ended
	October 1, 2021			October 2, 2020
	($ in millions)
Income (loss) before taxes	$	704		$	(3)
Income tax expense	94			57
Effective tax rate	13		%	(1,900)		%

The primary drivers of the difference between the effective tax rate for the three ~~and six~~ months ended ~~January~~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 that will expire at various dates during fiscal years ~~2021~~2024 through ~~2030.~~2031. In addition, the effective tax rate for the three ~~and six~~ months ended ~~January~~October 1, 2021 includes the discrete ~~effects~~effect of ~~favorable adjustments proposed by~~an increase to unrecognized tax ~~authorities~~benefits of ~~$8 million. The effective tax rate for the six months ended January 1, 2021 also includes the discrete effects~~$16 million as a result of net tax deficiencies from shortfalls of $12 million related to the vesting of stock-based awards and additional tax expense of $10 million from the re-measurement of deferred tax liabilities due to restructuring activities, which have no impact on the amount of income taxes paid by us.ongoing discussions with various taxing authorities.

The primary ~~driver~~drivers of the difference between the effective tax rate for the three ~~and six~~ months ended ~~January 3,~~October 2, 2020 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, Philippines and ~~Thailand that expired or will expire at various dates during fiscal years~~Thailand. In addition, the effective tax rate for the three months ended October 2, 2020 ~~through 2030.~~includes the discrete effects of net tax deficiencies from shortfalls of $11 million related to the vesting of stock-based awards and additional tax expense of $10 million from the re-measurement of purchase accounting deferred tax liabilities due to restructuring activities. The discrete items had no impact on the amount of income taxes paid.

Our future effective tax rate is subject to future regulatory developments and changes in the mix of our U.S. earnings compared to foreign earnings. Our total tax expense in future fiscal years may also vary as a result of discrete items such as excess tax benefits or deficiencies.

For additional information regarding Income tax expense (benefit), see Part I, Item 1, Note ~~12,~~13, Income Tax Expense, of the Notes to Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q.

Liquidity and Capital Resources

The following table summarizes our statements of cash flows:

Six Months Ended
January 1,
2021 January 3,
2020
(in millions)
Net cash provided by (used in):
Operating activities $ 788 $ 510
Investing activities (436) 160
Financing activities (450) (985)
Effect of exchange rate changes on cash 6 (3)
Net decrease in cash and cash equivalents $ (92) $ (318)



	Three Months Ended
	October 1, 2021		October 2, 2020
	(in millions)
Net cash provided by (used in):
Operating activities	$	521	$	363
Investing activities	(312)		(166)
Financing activities	(289)		(253)
Effect of exchange rate changes on cash	—		3
Net decrease in cash and cash equivalents	$	(80)	$	(53)

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We believe our cash, cash equivalents and cash generated from operations as well as our available credit facilities will be sufficient to meet our working capital, debt and capital expenditure needs for at least the next twelve months. Our ability to sustain our working capital position is subject to a number of risks that we discuss in Part I, Item 1A, Risk Factors, in our Annual Report on Form 10-K for the fiscal year ended July ~~3, 2020.~~2, 2021.

We have also filed a shelf registration statement (the “Shelf Registration Statement”) with the Securities and Exchange Commission that expires in August 2024, which allows us to offer and sell shares of common stock, preferred stock, warrants, and debt securities. We may use the Shelf Registration Statement or other capital sources, including other offerings of equity or debt securities or the credit markets, to satisfy future financing needs, including planned or unanticipated capital expenditures, investments, debt repayments or other expenses. Any such additional financing will be subject to market conditions and may not be available on terms acceptable to us or at all.

During fiscal ~~2021,~~2022, we expect expenditures for property, plant and equipment for our company plus our portion of the capital expenditures by our Flash Ventures joint venture with Kioxia for its operations to aggregate approximately $3.1 billion. After consideration of the Flash Ventures’ lease financing of its capital expenditures and net operating cash flow, we expect net cash used for our purchases of property, plant and equipment and net activity in notes receivable relating to Flash Ventures to be a cash outflow of approximately ~~$1.0~~$2.0 billion during fiscal ~~2021.~~2022. The total expected cash to be used could vary depending on the timing and completion of various capital projects and the availability, timing and terms of related financing.

During fiscal 2019, we determined that it was our intention to repatriate all of our foreign undistributed earnings as a result of the 2017 Act, except a portion of our foreign undistributed earnings, which could result in additional federal taxes based on interpretive guidance issued by the IRS. After consideration of this interpretative guidance affecting the taxation of a certain portion of our foreign undistributed earnings, we determined that we do not intend to repatriate this portion of our foreign undistributed earnings and did not establish an accrual for this liability.

A total of ~~$1.91~~$2.41 billion and ~~$2.28~~$1.97 billion of our Cash and cash equivalents was held outside of the U.S. as of ~~January~~October 1, 2021 and ~~January 3,~~October 2, 2020, respectively. ~~As a result of the change in our permanent reinvestment assertion, there~~There are no material tax consequences that were not previously accrued for on the repatriation of this cash.

Operating Activities

Cash flow from operating activities primarily consists of net income, adjusted for non-cash charges, plus or minus changes in operating assets and liabilities. This represents our principal source of cash. Net cash used for changes in operating assets and liabilities was ~~$78~~$440 million for the ~~six~~three months ended ~~January~~October 1, 2021, as compared to ~~$20~~$43 million of net cash used for changes in operating assets and liabilities for the ~~six~~three months ended ~~January 3,~~October 2, 2020. Changes in our operating assets and liabilities are largely affected by our working capital requirements, which are dependent on the effective management of our cash conversion cycle as well as timing of payments for taxes. Our cash conversion cycle measures how quickly we can convert our products into cash through sales. The cash conversion cycles were as follows:

Six Months Ended
January 1,
2021 January 3,
2020
(in days)
Days sales outstanding 42 38
Days in inventory 109 86
Days payables outstanding (71) (58)
Cash conversion cycle 80 66


	Three Months Ended
	October 1, 2021	October 2, 2020
	(in days)
Days sales outstanding	44	49
Days in inventory	95	101
Days payables outstanding	(61)	(71)
Cash conversion cycle	78	79

Changes in days sales outstanding (“DSO”) are generally due to the timing of shipments. Changes in days in inventory (“DIO”) are generally related to the timing of inventory builds. Changes in days payables outstanding (“DPO”) are generally related to production volume and the timing of purchases during the period. From time to time, we negotiate to modify the timing of payments to our ~~vendors. We make modifications primarily~~vendors to manage our vendor relationships and to manage our cash flows, including our cash balances. ~~Generally, we make the payment term modifications through negotiations with our vendors or by granting to, or receiving from, our vendors’ payment term accommodations.~~

For the three months ended ~~January~~October 1, 2021, DSO ~~increased~~decreased by 45 days ~~over~~from the comparable period in the prior year, primarily reflecting the timing of shipments and customer collections. We have seen no significant deterioration in our receivables as a result of COVID-19. DIO ~~increased~~and DPO decreased by 236 days ~~over~~and 10 days, respectively, from the comparable period in the prior year primarily reflecting ~~higher stocking levels of~~improved supply chain management in the HDD inventory and delays in new product qualifications. With supply chains experiencing disruptions as a result of COVID-19, we are taking actions to ensure that we have the components we need to build products and are stocking higher levels of inventory so that we can ship by ocean and reduce higher cost air freight. DPO increased by 13 days over the prior year, primarily reflecting resumptions of flash production volumesbusiness, as well as routine variations in the timing of purchases and payments during the period.

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Investing Activities

Net cash used in investing activities for the ~~six~~three months ended ~~January~~October 1, 2021 primarily consisted of ~~$576~~$245 million in capital expenditures ~~partially offset by~~and a ~~$94~~$52 million net ~~decrease~~increase in notes receivable issuances to Flash Ventures. Net cash ~~provided by~~used in investing activities for the ~~six~~three months ended ~~January 3,~~October 2, 2020 primarily consisted of $337 million in capital expenditures partially offset by a ~~$466~~$163 million net decrease in notes receivable issuances to Flash Ventures to fund its capital ~~expansion, partially offset by $305 million of capital expenditures.~~expansion.

Our cash equivalents are primarily invested in money market funds that invest in U.S. Treasury securities and U.S. Government agency securities. In addition, from time to time, we invest directly in U.S. Treasury securities, U.S. and international government agency securities, certificates of deposit, asset backed securities and corporate and municipal notes and bonds.

Financing Activities

During the ~~six~~three months ended ~~January~~October 1, 2021, net cash used in financing activities primarily consisted of ~~$461~~$213 million for repayment of debt, which included a ~~$300~~$150 million voluntary prepayment on our Term Loan ~~B-4.~~B-4, and $78 million for taxes paid on vested stock awards under employee stock plans. Net cash used in financing activities for the ~~six~~three months ended ~~January 3,~~October 2, 2020 primarily consisted of ~~$707~~$213 million for the repayment of our debt, ~~and $296~~which included a $150 million ~~to pay dividends~~voluntary prepayment on our ~~common stock.~~Term Loan B-4, and $41 million for taxes paid on vested stock awards under employee stock plans.

~~In April 2020,~~On October 22, 2021, we ~~suspended~~voluntarily prepaid the remaining principal balance of $943 million on our ~~dividend to reinvest in the business and to support our ongoing deleveraging efforts. We will reevaluate our dividend policy as our leverage ratio improves.~~Term Loan B-4.

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Off-Balance Sheet Arrangements

Other than the commitments related to Flash Ventures incurred in the normal course of business and certain indemnification provisions (see “Short and Long-term Liquidity-Contractual Obligations and Commitments” below), we do not have any other material off-balance sheet financing arrangements or liabilities, guarantee contracts, retained or contingent interests in transferred assets, or any other obligation arising out of a material variable interest in an unconsolidated entity. We do not have any majority-owned subsidiaries that are not included in the Condensed Consolidated Financial Statements. Additionally, with the exception of Flash Ventures and our joint venture with Unisplendour Corporation Limited and Unissoft (Wuxi) Group Co. Ltd., we do not have an interest in, or relationships with, any variable interest entities. For additional information regarding our off-balance sheet arrangements, see Part I, Item 1, Note 9,10, Related Parties and Related Commitments and Contingencies, of the Notes to Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q.

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Short- and Long-term Liquidity

Contractual Obligations and Commitments

The following is a summary of our known contractual cash obligations and commercial commitments as of ~~January~~October 1, 2021:

Total Remaining six months of 2021 2022-2023 2024-2025 Beyond 2025
(in millions)
Long-term debt, including current portion(1)
$ 9,250 $ 126 $ 5,724 $ 1,100 $ 2,300
Interest on debt 992 141 507 235 109
Flash Ventures related commitments(2)
6,189 1,839 2,950 1,166 234
Operating leases 309 25 73 64 147
Purchase obligations and other commitments 4,513 2,426 1,356 541 190
Mandatory Deemed Repatriation Tax 925 — 210 417 298
Total $ 22,178 $ 4,557 $ 10,820 $ 3,523 $ 3,278


	Total		Remaining nine months of 2022		2023-2024		2025-2026		Beyond 2026
	(in millions)


Long-term debt, including current portion(1)	$	8,612	$	251	$	6,061	$	2,300	$	—
Interest on debt	733		169		345		219		—
Flash Ventures related commitments(2)	6,122		2,553		2,379		1,024		166
Operating leases	389		33		86		83		187
Purchase obligations and other commitments	3,703		2,368		997		168		170
Mandatory Deemed Repatriation Tax	819		—		284		535		—
Total	$	20,378	$	5,374	$	10,152	$	4,329	$	523

(1)Principal portion of debt, excluding discounts and issuance costs. On October 22, 2021, we voluntarily prepaid the remaining principal balance of $943 million on our Term Loan B-4, which was scheduled to mature in 2023.

(2)Includes reimbursement for depreciation and lease payments on owned and committed equipment, funding commitments for loans and equity investments and payments for other committed expenses, including R&D and building depreciation. Funding commitments assume no additional operating lease guarantees. Additional operating lease guarantees can reduce funding commitments.

Debt

In addition to our existing debt, we have $2.25 billion available for borrowing under our revolving credit facility, subject to customary conditions under the credit agreement. Additional information regarding our indebtedness, including information about availability under our revolving credit facility and the principal repayment terms, interest rates, covenants and other key terms of our outstanding indebtedness, is included in Part I, Item 1, Note 7, Debt, of the Notes to Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q and in Part II, Item 8, Note 6, Debt, of the Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended July ~~3, 2020.~~2, 2021. The credit agreement governing our revolving credit facility and Term Loan A-1 requires us to comply with certain financial covenants, consisting of a leverage ratio and an interest coverage ratio. As of ~~January~~October 1, 2021, we were in compliance with these financial covenants.

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We may issue additional debt securities in the future that may also be guaranteed by our 100% owned domestic subsidiary, Western Digital Technologies, Inc. (“Guarantor” and, together with Western Digital Corporation, the “Obligor Group”). Such guarantees may be full and unconditional, joint and several, on a secured or unsecured, subordinated or unsubordinated basis, and may be subject to certain customary guarantor release conditions. We conduct operations almost entirely through our subsidiaries. Accordingly, the Obligor Group’s cash flow and ability to service any guaranteed registered debt securities will depend on the earnings of our subsidiaries and the distribution of those earnings to the Obligor Group, including the earnings of the non-guarantor subsidiaries, whether by dividends, loans or otherwise. Holders of such guaranteed registered debt securities would have a direct claim only against the Obligor Group.

The following tables include summarized financial information for the Obligor Group. The information for the Obligor Group is presented on combined basis, excluding intercompany balances and transactions between the Company and the Guarantor and excluding investments in and equity in the earnings of non-guarantor subsidiaries. The Obligor Group’s amounts due from, amounts due to, and transactions with non-guarantor subsidiaries have been presented in separate line items in the tables below.

The assets and liabilities of the Obligor Group include the following:


	October 1, 2021		July 2, 2021
	(in millions)
Current assets (excluding net intercompany receivable from non-guarantor subsidiaries)	$	2,458	$	2,898
Non-current assets	1,855		1,903
Net intercompany payable to non-guarantor subsidiaries	(275)		(463)
Current liabilities	2,217		2,325
Non-current liabilities	9,409		9,726

The operating results and transactions with non-guarantor subsidiaries of the Obligor Group include the following:


	Three Months Ended		Year Ended
	October 1, 2021		July 2, 2021
	(in millions)
Net sales	$	2,220	$	12,378
Gross profit	572		1,861
Operating income	39		142
Net income	27		377
Intercompany revenue	626		5,190
Net intercompany interest expense	22		23
Intercompany dividends	76		528

Flash Ventures

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 we guarantee half or all of the outstanding obligations under each lease agreement. The leases are subject to customary covenants and cancellation events that relate to Flash Ventures and each of the guarantors. The occurrence of a cancellation event could result in an acceleration of the lease obligations and a call on our guarantees. As of ~~January~~October 1, 2021, we were in compliance with all covenants under these Japanese lease facilities. See Part I, Item 1, Note 9,10, Related Parties and Related Commitments and Contingencies, of the Notes to Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q for information regarding Flash Ventures.

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Purchase Obligations and Other Commitments

In the normal course of business, we enter into purchase orders with suppliers for the purchase of components used to manufacture our 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. We also enter 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. These arrangements are included under “Purchase obligations and other commitments” in the table above.

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Mandatory Deemed Repatriation Tax

The following is a summary of our estimated mandatory deemed repatriation tax obligations that are payable in the following fiscal years (in millions):

January 1,
2021
2022 $ 106
2023 104
2024 179
2025 238
2026 298
Total $ 925


	October 1, 2021

2023	$	106
2024	178
2025	238
2026	297



Total	$	819

For additional information regarding our estimate of the total tax liability for the mandatory deemed repatriation tax, see Part II, Item 8, Note ~~13,~~14, Income Tax Expense, of the Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended ~~June 28, 2019.~~July 2, 2021.

Unrecognized Tax Benefits

As of ~~January~~October 1, 2021, the liability for unrecognized tax benefits (excluding accrued interest and penalties) was approximately ~~$715~~$762 million. Accrued interest and penalties related to unrecognized tax benefits as of ~~January~~October 1, 2021 was approximately ~~$146~~$132 million. Of these amounts, approximately ~~$724~~$758 million could result in potential cash payments. We are not able to provide a reasonable estimate of the timing of future tax payments related to these obligations.

Interest Rate Swap

We have generally held a balance of fixed and variable rate debt. At ~~January~~October 1, 2021, we had ~~$5.85~~$5.21 billion of variable rate debt, comprising ~~63%~~61% of the par value of our debt. To balance the portfolio and moderate our exposure to fluctuations in interest rates underlying our variable debt, we entered into pay-fixed interest rate swaps on $2.00 billion notional amount, which effectively converts a portion of our term loan to fixed rates through February 2023. After giving effect to the $2.00 billion of interest rate swaps, we effectively had ~~$3.85~~$3.21 billion of Long-term debt subject to variations in interest rates and a one percent increase in the variable rate of interest would increase annual interest expense by ~~$39~~$32 million.

Foreign Exchange Contracts

We purchase foreign exchange contracts to hedge the impact of foreign currency fluctuations on certain underlying assets, liabilities and commitments for Operating expenses and product costs denominated in foreign currencies. For a description of our current foreign exchange contract commitments, see Part I, Item 1, Note 6,7, Derivative Instruments and Hedging Activities, of the Notes to Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q.

Indemnifications

In the ordinary course of business, we may provide indemnifications of varying scope and terms to customers, vendors, lessors, business partners and other parties with respect to certain matters, including, but not limited to, losses arising out of our breach of agreements, products or services to be provided by us, environmental compliance or from IP infringement claims made by third parties. In addition, we have entered into indemnification agreements with our directors and certain of our officers that will require us, among other things, to indemnify them against certain liabilities that may arise by reason of their status or service as directors or officers. We maintain director and officer insurance, which may cover certain liabilities arising from our obligation to indemnify our directors and officers in certain circumstances.

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It is not possible to determine the maximum potential amount under these indemnification agreements due to the limited history of prior indemnification claims and the unique facts and circumstances involved in each particular agreement. Such indemnification agreements may not be subject to maximum loss clauses. Historically, we have not incurred material costs as a result of obligations under these agreements.

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Stock Repurchase Program

Our Board of Directors has authorized a stock repurchase program for the repurchase of up to $5.0 billion of our common stock, which authorization is effective through July 25, 2023. We did not make any stock repurchases during the ~~six~~three months ended ~~January~~October 1, 2021 and have not repurchased any shares of our common stock pursuant to our stock repurchase program since the first quarter of fiscal 2019. Although we will reevaluate the repurchasing of our common stock when appropriate, there can be no assurance if, when or at what level we may resume such activity. The remaining amount available to be repurchased under our current stock repurchase program as of ~~January~~October 1, 2021 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.

~~Cash Dividend~~

We issued a quarterly cash dividend from the first quarter of fiscal 2013 through the third quarter of fiscal 2020. In April 2020, we suspended our dividend to reinvest in the business and to support our ongoing deleveraging efforts. We will reevaluate our dividend policy as our leverage ratio improves.

Recent Accounting Pronouncements

For a description of recently issued and adopted accounting pronouncements, including the respective dates of adoption and expected effects on our results of operations and financial condition, see Part I, Item 1, Note 2, Recent Accounting Pronouncements, of the Notes to Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q.

Critical Accounting Policies and Estimates

We have prepared the accompanying unaudited Condensed Consolidated Financial Statements in accordance with accounting principles generally accepted in the United States (U.S. GAAP). The preparation of the financial statements requires the use of judgments and estimates that affect the reported amounts of revenues, expenses, assets, liabilities and shareholders’ equity. We have adopted accounting policies and practices that are generally accepted in the industry in which we operate. If these estimates differ significantly from actual results, the impact to the Condensed Consolidated Financial Statements may be material.

There have been no material changes in our critical accounting policies and estimates from those disclosed in our Annual Report on Form 10‑K for the fiscal year ended July ~~3, 2020.~~2, 2021. Please refer to Part II, Item 7 of our Annual Report on Form 10‑K for the fiscal year ended July ~~3, 2020~~2, 2021 for a discussion of our critical accounting policies and estimates.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

~~There~~Except as disclosed below, there have been no material changes toto our market risk during the ~~six~~three months ended ~~January~~October 1, ~~2021. For a discussion of our exposure to market risk, see~~2021. See Part II, Item 7A, ~~“Quantitative~~Quantitative and Qualitative Disclosures About Market ~~Risk”~~Risks in our Annual Report on Form 10-K for the fiscal year ended July ~~3, 2020.~~2, 2021 for further information about our exposure to market risk.

Foreign Currency Risk

We performed sensitivity analyses as of October 1, 2021 and July 2, 2021 using a modeling technique that measures the change in the fair values arising from a hypothetical 10% adverse movement in the levels of foreign currency exchange rates relative to the U.S. dollar, with all other variables held constant. The analyses cover all of our foreign currency derivative contracts used to offset the underlying exposures. The foreign currency exchange rates used in performing the sensitivity analyses were based on market rates in effect at October 1, 2021 and July 2, 2021. The sensitivity analyses indicated that a hypothetical 10% adverse movement in foreign currency exchange rates relative to the U.S. dollar would result in a foreign exchange fair value loss of $296 million and $183 million at October 1, 2021 and July 2, 2021, respectively.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

As required by Rule 13a-15(b) promulgated by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as such term is defined in Rule 13a-15(e) under the Exchange Act) as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered by this Quarterly Report on Form 10-Q, our disclosure controls and procedures were effective.

~~There were~~Changes in Internal Control over Financial Reporting

In the first quarter of fiscal 2022, we implemented new reporting modules and processes to provide more discrete information to support our new business unit organizational structure. After considering these changes, our management has determined that there has been no ~~changes~~change in our internal control over financial reporting during the first quarter of fiscal 2022 that ~~occurred during our most recently completed fiscal quarter that have~~has materially affected, or ~~are~~is reasonably likely to materially affect, ~~our internal control over financial reporting.~~

We are implementing an enterprise resource planning (“ERP”) system on a worldwide basis, which is expected to improve the efficiency of certain financial and related transactional processes. The gradual implementation is expected to occur in phases over the next several years. We have completed the implementation of certain processes, including the financial consolidation and reporting, fixed assets, supplier management and indirect procure-to-pay processes, and have revised and updated the related controls. These changes did not materially affect our internal control over financial reporting. As we implement the remaining functionality under this ERP system over the next several years, we will continue to assess the impact on our internal control over financial reporting.

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PART II. OTHER INFORMATION

Item 1. Legal Proceedings

~~None.~~See Note 13, Income Tax Expense, of the Notes to Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q 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 a tentative resolution with respect to certain matters.

Item 1A. Risk Factors

We have described under the heading “Risk Factors” in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended July ~~3, 2020~~2, 2021 risks and uncertainties that could cause our actual results of operations and financial condition to vary materially from past, or from anticipated future, results of operations and financial condition. There have been no material changes from these risk factors previously described in our Annual Report on Form 10-K for the fiscal year ended July ~~3, 2020.~~2, 2021. These risks and uncertainties are not the only risks facing us. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also adversely affect our business, financial condition, results of operations or the market price of our common stock.

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Item 6. Exhibits

The exhibits listed in the Exhibit Index below are filed with, or incorporated by reference in, this Quarterly Report on Form 10-Q, as specified in the Exhibit List, from exhibits previously filed with the Securities and Exchange Commission. Certain agreements listed in the Exhibit Index that we have filed or incorporated by reference may contain representations and warranties by us or our subsidiaries. These representations and warranties have been made solely for the benefit of the other party or parties to such agreements and (i) may have been qualified by disclosures made to such other party or parties, (ii) were made only as of the date of such agreements or such other date(s) as may be specified in such agreements and are subject to more recent developments, which may not be fully reflected in our public disclosures, (iii) may reflect the allocation of risk among the parties to such agreements and (iv) may apply materiality standards different from what may be viewed as material to investors. Accordingly, these representations and warranties may not describe the actual state of affairs at the date hereof and should not be relied upon.

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EXHIBIT INDEX


Exhibit Number						Description
3.1						Amended and Restated Certificate of Incorporation of Western Digital Corporation, as amended to date (Filed as Exhibit 3.1 to the Company’s Quarterly Report on Form 10-Q (File No. 1-08703) with the Securities and Exchange Commission on February 8, 2006)
3.2						Amended and Restated By-Laws of Western Digital Corporation, as amended effective as of ~~May 2, 2018~~February 10, 2021 (Filed as Exhibit 3.1 to the Company’s Current Report on Form 8-K (File No. 1-08703) with the Securities and Exchange Commission on ~~May 7, 2018)~~February 12, 2021)
10.1						Western Digital Corporation Amended and Restated 2017 Performance Incentive Plan†*
~~10.2~~						Form of Notice ofand Grant of Performance Stock Units and Performance Stock Unit Award ~~Agreement~~ – Agreement- Financial Measure, under the Amended and Restated Western Digital Corporation 2017 Performance Incentive Plan†*
~~10.3~~10.2						Form of Notice ofand Grant of Performance Stock Units and Performance Stock Unit Award ~~Agreement –~~Agreement- TSR Measure, under the Amended and Restated Western Digital Corporation 2017 Performance Incentive Plan†*
~~10.4~~10.3						Form of Notice of Grant of Restricted Stock Units and Restricted Stock Unit Award ~~Agreement –~~Agreement- Vice President and Above, under the Amended and Restated Western Digital Corporation 2017 Performance Incentive Plan†*
10.4						Western Digital Corporation Amended and Restated 2017 Performance Incentive Plan Non-Employee Director Restricted Stock Unit Grant Program, amended and restated as of August 16, 2021†*
31.1						Certification of Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002†
31.2						Certification of Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002†
32.1						Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002**
32.2						Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002**
101.INS						XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document
101.SCH						XBRL Taxonomy Extension Schema Document†
101.CAL						XBRL Taxonomy Extension Calculation Linkbase Document†
101.LAB						XBRL Taxonomy Extension Label Linkbase Document†
101.PRE						XBRL Taxonomy Extension Presentation Linkbase Document†
101.DEF						XBRL Taxonomy Extension Definition Linkbase Document†
104						Cover Page Interactive Data File - formatted in Inline XBRL and contained in Exhibit 101

† Filed with this report.

* Management contract or compensatory plan or arrangement required to be filed as an exhibit pursuant to applicable rules of the Securities and Exchange Commission.

** Furnished with this report.

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Quarterly Report on Form 10-Q to be signed on its behalf by the undersigned thereunto duly authorized.


			WESTERN DIGITAL CORPORATION

			By:			/s/ Gene Zamiska
						Gene Zamiska
						Senior Vice President, Global Accounting and Chief Accounting Officer
						(Principal Accounting Officer)

Dated: ~~February 9,~~November 4, 2021


	January 1, 2021
	Level 1		Level 2		Level 3		Total
	(in millions)
Assets:

Cash equivalents - Money market funds	$	806	$	0	$	0	$	806


















Foreign exchange contracts	0		33		0		33


Total assets at fair value	$	806	$	33	$	0	$	839
Liabilities:
Foreign exchange contracts	$	0	$	16	$	0	$	16
Interest rate swap contract	0		109		0		109

Total liabilities at fair value	$	0	$	125	$	0	$	125


	Employee Termination Benefits		Contract Termination and Other		Total
	(in millions)








Accrual balance at July 3, 2020	$	13	$	0	$	13
Charges	22		3		25
Cash payments	(28)		(3)		(31)

Accrual balance at January 1, 2021	$	7	$	0	$	7


	Total		Remaining six months of 2021		2022-2023		2024-2025		Beyond 2025
	(in millions)


Long-term debt, including current portion(1)	$	9,250	$	126	$	5,724	$	1,100	$	2,300
Interest on debt	992		141		507		235		109
Flash Ventures related commitments(2)	6,189		1,839		2,950		1,166		234
Operating leases	309		25		73		64		147
Purchase obligations and other commitments	4,513		2,426		1,356		541		190
Mandatory Deemed Repatriation Tax	925		—		210		417		298
Total	$	22,178	$	4,557	$	10,820	$	3,523	$	3,278


	January 1, 2021

2022	$	106
2023	104
2024	179
2025	238
2026	298


Total	$	925