Western Digital Corp 10-Q for FY2020 Q3

Western Digital Corp (WDC)

10-Q 2020-05-08 For: 2020-04-03

Added on April 11, 2026

About this 10-Q

Western Digital Corp filed this 10-Q on May 8, 2020, covering the quarter ended April 3, 2020 (FY2020 Q3).

Headline figures

Quarter ended April 3, 2020, as reported in this filing, compared with the same period a year earlier where the filing states it.

Revenue: $4.18B; up 13.6% from $3.67B a year earlier
Net income: $17M; compared with a net loss of $581M a year earlier
Diluted EPS: $0.06; compared with -$1.99 a year earlier

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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)


	April 3, 2020		June 28, 2019
ASSETS
Current assets:
Cash and cash equivalents	$	2,943	$	3,455
Accounts receivable, net	1,978		1,204
Inventories	3,091		3,283
Other current assets	541		535
Total current assets	8,553		8,477
Property, plant and equipment, net	2,735		2,843
Notes receivable and investments in Flash Ventures	2,157		2,791
Goodwill	10,066		10,076
Other intangible assets, net	1,126		1,711
Other non-current assets	872		472
Total assets	$	25,509	$	26,370
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	1,786	$	1,567
Accounts payable to related parties	397		331
Accrued expenses	1,569		1,296
Accrued compensation	433		347
Current portion of long-term debt	286		276
Total current liabilities	4,471		3,817
Long-term debt	9,343		10,246
Other liabilities	2,452		2,340
Total liabilities	16,266		16,403
Commitments and contingencies (Notes 9, 10, 12 and 15)
Shareholders’ equity:
Preferred stock, $0.01 par value; authorized — 5 shares; issued and outstanding — none	—		—
Common stock, $0.01 par value; authorized — 450 shares; issued — 312 shares; outstanding — 300 shares and 295 shares, respectively	3		3
Additional paid-in capital	3,743		3,851
Accumulated other comprehensive loss	(183)		(68)
Retained earnings	6,578		7,449
Treasury stock — common shares at cost; 12 shares and 17 shares, respectively	(898)		(1,268)
Total shareholders’ equity	9,243		9,967
Total liabilities and shareholders’ equity	$	25,509	$	26,370


	Three Months Ended						Nine Months Ended
	April 3, 2020		March 29, 2019		April 3, 2020		March 29, 2019
Revenue, net	$	4,175	$	3,674	$	12,449	$	12,935
Cost of revenue	3,170		3,095		9,751		9,648
Gross profit	1,005		579		2,698		3,287
Operating expenses:
Research and development	563		544		1,715		1,659
Selling, general and administrative	281		353		884		1,018
Employee termination, asset impairment, and other charges	8		76		25		142
Total operating expenses	852		973		2,624		2,819
Operating income (loss)	153		(394)		74		468
Interest and other income (expense):
Interest income	6		13		26		43
Interest expense	(99)		(118)		(326)		(352)
Other income (expense), net	(14)		22		(5)		28
Total interest and other expense, net	(107)		(83)		(305)		(281)
Income (loss) before taxes	46		(477)		(231)		187
Income tax expense	29		104		167		744
Net income (loss)	$	17	$	(581)	$	(398)	$	(557)

Income (loss) per common share
Basic	$	0.06	$	(1.99)	$	(1.34)	$	(1.91)
Diluted	$	0.06	$	(1.99)	$	(1.34)	$	(1.91)
Weighted average shares outstanding:
Basic	299		292		298		291
Diluted	303		292		298		291

Cash dividends declared per share	$	0.50	$	0.50	$	1.50	$	1.50


	Three Months Ended						Nine Months Ended
	April 3, 2020		March 29, 2019		April 3, 2020		March 29, 2019
Net income (loss)	$	17	$	(581)	$	(398)	$	(557)
Other comprehensive loss, before tax:
Actuarial pension gain	1		—		4		1
Foreign currency translation adjustment	(11)		(2)		(21)		(8)


Net unrealized loss on derivative contracts and available-for-sale securities	(76)		(24)		(115)		(18)
Total other comprehensive loss, before tax	(86)		(26)		(132)		(25)
Income tax benefit related to items of other comprehensive loss, before tax	13		6		17		9
Other comprehensive loss, net of tax	(73)		(20)		(115)		(16)
Total comprehensive loss	$	(56)	$	(601)	$	(513)	$	(573)


	Nine Months Ended
	April 3, 2020		March 29, 2019
Cash flows from operating activities
Net loss	$	(398)	$	(557)
Adjustments to reconcile net loss to net cash provided by operations:
Depreciation and amortization	1,189		1,396
Stock-based compensation	232		242
Deferred income taxes	(53)		253
Loss (gain) on disposal of assets	(9)		4

Amortization of debt discounts	30		28

Other non-cash operating activities, net	(8)		19
Changes in:
Accounts receivable, net	(774)		975
Inventories	179		(496)
Accounts payable	131		(549)
Accounts payable to related parties	66		53

Accrued expenses	331		373
Accrued compensation	87		(78)
Other assets and liabilities, net	(351)		(285)
Net cash provided by operating activities	652		1,378
Cash flows from investing activities
Purchases of property, plant and equipment	(432)		(722)
Proceeds from the sale of property, plant and equipment	—		3
Acquisitions, net of cash acquired	(22)		—
Purchases of investments	—		(69)
Proceeds from sale of investments	—		49
Proceeds from maturities of investments	—		7

Notes receivable issuances to Flash Ventures	(353)		(858)
Notes receivable proceeds from Flash Ventures	980		570
Strategic investments and other, net	19		(22)
Net cash provided by (used in) investing activities	192		(1,042)
Cash flows from financing activities
Issuance of stock under employee stock plans	79		66
Taxes paid on vested stock awards under employee stock plans	(69)		(109)
Repurchases of common stock	—		(563)
Dividends paid to shareholders	(445)		(438)


Repayment of debt	(919)		(113)

Repayment of revolving credit facility	—		(500)

Net cash used in financing activities	(1,354)		(1,657)
Effect of exchange rate changes on cash	(2)		(2)
Net decrease in cash and cash equivalents	(512)		(1,323)
Cash and cash equivalents, beginning of year	3,455		5,005
Cash and cash equivalents, end of period	$	2,943	$	3,682
Supplemental disclosure of cash flow information:
Cash paid for income taxes	$	303	$	323
Cash paid for interest	$	327	$	355


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


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


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


























































































































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






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

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






Dividends to shareholders	—	—		—	—			7		—		(156)		(149)
Actuarial pension gain	—	—		—	—			—		1		—		1
Foreign currency translation adjustment	—	—		—	—			—		(13)		—		(13)
Net unrealized loss on derivative contracts	—	—		—	—			—		(8)		—		(8)
Balance at January 3, 2020	312	3		(13)	(962)			3,731		(110)		6,717		9,379
Net income	—	—		—	—			—		—		17		17

Employee stock plans	—	—		1	64			(72)		—		—		(8)
Stock-based compensation	—	—		—	—			78		—		—		78






Dividends to shareholders	—	—		—	—			6		—		(156)		(150)
Actuarial pension gain	—	—		—	—			—		1		—		1
Foreign currency translation adjustment	—	—		—	—			—		(12)		—		(12)
Net unrealized loss on derivative contracts	—	—		—	—			—		(62)		—		(62)
Balance at April 3, 2020	312	$	3	(12)	$	(898)		$	3,743	$	(183)	$	6,578	$	9,243


	April 3, 2020		June 28, 2019
	(in millions)
Inventories:
Raw materials and component parts	$	1,302	$	1,142
Work-in-process	842		968
Finished goods	947		1,173
Total inventories	$	3,091	$	3,283


	Carrying Amount
	(in millions)















Balance at June 28, 2019	$	10,076
Goodwill recorded in connection with an acquisition	14
Reduction in goodwill in connection with disposition of business	(21)
Foreign currency translation adjustment	(3)
Balance at April 3, 2020	$	10,066


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





Balance at June 28, 2019	$	(53)	$	4	$	(19)	$	(68)
Other comprehensive income (loss) before reclassifications	4		(21)		(98)		(115)
Amounts reclassified from accumulated other comprehensive income (loss)	—		—		(17)		(17)
Income tax benefit (expense) related to items of other comprehensive income (loss)	(1)		1		17		17
Net current-period other comprehensive income (loss)	3		(20)		(98)		(115)
Balance at April 3, 2020	$	(50)	$	(16)	$	(117)	$	(183)


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

Cash equivalents - Money market funds	$	1,028	$	—	$	—	$	1,028


















Foreign exchange contracts	—		38		—		38


Total assets at fair value	$	1,028	$	38	$	—	$	1,066
Liabilities:
Foreign exchange contracts	$	—	$	28	$	—	$	28
Interest rate swap contract	—		132		—		132

Total liabilities at fair value	$	—	$	160	$	—	$	160


	June 28, 2019
	Level 1		Level 2		Level 3		Total
	(in millions)
Assets:
Cash equivalents:
Money market funds	$	1,388	$	—	$	—	$	1,388
Certificates of deposit	—		17		—		17
Total cash equivalents	1,388		17		—		1,405
















Foreign exchange contracts	—		44		—		44
Interest rate swap contracts	—		2		—		2

Total assets at fair value	$	1,388	$	63	$	—	$	1,451
Liabilities:
Foreign exchange contracts	$	—	$	40	$	—	$	40
Interest rate swap contract	—		65		—		65

Total liabilities at fair value	$	—	$	105	$	—	$	105


	April 3, 2020						June 28, 2019
	Carrying Value		Fair Value		Carrying Value		Fair Value
	(in millions)
0.50% convertible senior notes due 2020	$	34	$	33	$	33	$	31

Variable interest rate Term Loan A-1 maturing 2023	4,637		4,413		4,824		4,780


Variable interest rate U.S. Term Loan B-4 maturing 2023	1,693		1,640		2,424		2,370

1.50% convertible notes due 2024	980		966		958		986

4.75% senior unsecured notes due 2026	2,285		2,256		2,283		2,263





Total	$	9,629	$	9,308	$	10,522	$	10,430


	April 3, 2020
	(in millions)
Notes receivable	$	1,535
Equity investments	622
Operating lease guarantees	1,827
Inventory and prepayments	468
Maximum estimable loss exposure	$	4,452



	Three Months Ended						Nine Months Ended
	April 3, 2020		March 29, 2019		April 3, 2020		March 29, 2019
	(in millions)
Revenue by Product
Hard disk drives (“HDD”)	$	2,114	$	2,064	$	6,918	$	6,618
Flash-based	2,061		1,610		5,531		6,317
Total Revenue	$	4,175	$	3,674	$	12,449	$	12,935

Revenue by End Market
Client Devices	$	1,831	$	1,625	$	5,244	$	6,489
Data Center Devices & Solutions	1,523		1,245		4,544		3,765
Client Solutions	821		804		2,661		2,681
Total Revenue	$	4,175	$	3,674	$	12,449	$	12,935

Revenue by Geography
Americas	$	1,325	$	1,070	$	3,934	$	3,367
Europe, Middle East and Africa	770		748		2,360		2,394
Asia	2,080		1,856		6,155		7,174
Total Revenue	$	4,175	$	3,674	$	12,449	$	12,935


	April 3, 2020		June 28, 2019
	(in millions)
Warranty accrual
Current portion (included in Accrued expenses)	$	185	$	188
Long-term portion (included in Other liabilities)	198		162
Total warranty accrual	$	383	$	350


	Lease Amounts
	(Japanese yen, in billions)		(U.S. dollar, in millions)
Total guarantee obligations	¥	198	$	1,827


Annual Installments	Payment of Principal Amortization		Purchase Option Exercise Price at Final Lease Terms		Guarantee Amount
	(in millions)
Remaining three months of 2020	$	128	$	20	$	148
2021	450		108		558
2022	370		49		419
2023	259		67		326
2024	123		120		243
Thereafter	23		110		133
Total guarantee obligations	$	1,353	$	474	$	1,827


	Lease Amounts
Minimum lease payments by fiscal year:	(in millions)
Remaining three months of 2020	$	12
2021	43
2022	30
2023	26
2024	28
Thereafter	170
Total future minimum lease payments	309
Less: Imputed Interest	(61)
Present value of lease liabilities	248
Less: Current portion (included in Accrued expenses)	34
Long-term operating lease liabilities (included in Other liabilities)	$	214

Operating lease right-of-use assets (included in Other non-current assets)	$	233

Weighted average remaining lease term in years	9.3
Weighted average discount rate	4.2		%


	Long-term commitments
	(in millions)
Fiscal year:
Remaining three months of 2020	$	61
2021	320
2022	510
2023	563
2024	260
Thereafter	338
Total	$	2,052


	Unamortized Compensation Costs		Weighted Average Service Period
	(in millions)		(years)
Options	$	2	0.3
RSUs and PSUs ⁽¹⁾	610		2.6
ESPP	41		1.2
Total unamortized compensation cost	$	653


	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 June 28, 2019	3.9	$	65.72


Exercised	(0.8)	43.39			$	11
Canceled or expired	(0.3)	92.67
Options outstanding at April 3, 2020	2.8	68.97		2.3	$	—
Exercisable at April 3, 2020	2.6	70.89		2.2	$	—


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










RSUs and PSUs outstanding at June 28, 2019	11.6	$	62.07
Granted	7.0	56.08

Vested	(4.2)	58.21		$	243
Forfeited	(1.1)	63.28
RSUs and PSUs outstanding at April 3, 2020	13.3	61.56


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




Accrual balance at June 28, 2019	$	30	$	2	$	32
Charges	3		2		5
Cash payments	(26)		(4)		(30)

Accrual balance at April 3, 2020	$	7	$	—	$	7


	Total		Remaining three months of 2020		2021-2022		2023-2024		Beyond 2024
	(in millions)


Long-term debt, including current portion⁽¹⁾	$	9,774	$	63	$	537	$	6,874	$	2,300
Interest on debt	1,296		50		644		383		219
Flash Ventures related commitments⁽²⁾	5,977		991		3,505		1,239		242
Operating leases	309		12		73		54		170
Purchase obligations and other commitments	3,309		1,146		994		831		338
Mandatory Deemed Repatriation Tax	1,039		—		198		285		556
Total	$	21,704	$	2,262	$	5,951	$	9,666	$	3,825


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 (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)
10.1						Offer Letter, dated February 18, 2020, to David Goeckeler†*
10.2						Notice of Grant of Restricted Stock Units and Restricted Stock Unit Award Agreement – CEO Sign-On Award†*
10.3						Notice of Grant of Performance Stock Units and Performance Stock Unit Award Agreement – TSR Measure (CEO Sign-On Award)†*
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 - formatted in Inline XBRL†
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


			WESTERN DIGITAL CORPORATION

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