Western Digital Corp 10-Q for FY2023 Q1

Western Digital Corp (WDC)

10-Q 2022-11-02 For: 2022-09-30

Added on April 11, 2026

About this 10-Q

Western Digital Corp filed this 10-Q on November 2, 2022, covering the quarter ended September 30, 2022 (FY2023 Q1).

Headline figures

Quarter ended September 30, 2022, as reported in this filing, compared with the same period a year earlier where the filing states it.

Revenue: $3.74B; down 26.0% from $5.05B a year earlier
Net income: $27M; down 95.6% from net income of $610M a year earlier
Diluted EPS: $0.08; down 95.9% from $1.93 a year earlier

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Title of each class	Trading symbol(s)	Name of each exchange on which registered
Common Stock, $0.01 Par Value Per Share	WDC	The Nasdaq Stock Market LLC
		(Nasdaq Global Select Market)


		PAGE NO.
PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements (unaudited)
	Condensed Consolidated Balance Sheets — As of September 30, 2022 and July 1, 2022	5
	Condensed Consolidated Statements of Operations — Three Months Ended September 30, 2022 and October 1, 2021	6
	Condensed Consolidated Statements of Comprehensive Income (Loss) — Three Months Ended September 30, 2022 and October 1, 2021	7
	Condensed Consolidated Statements of Cash Flows — Three Months Ended September 30, 2022 and October 1, 2021	8
	Condensed Consolidated Statements of Shareholders' Equity — Three Months Ended September 30, 2022 and October 1, 2021	9
	Notes to Condensed Consolidated Financial Statements	11
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	37
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	50
Item 4.	Controls and Procedures	50

PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	51
Item 1A.	Risk Factors	51




Item 6.	Exhibits	52


	September 30, 2022		July 1, 2022
ASSETS
Current assets:
Cash and cash equivalents	$	2,049	$	2,327
Accounts receivable, net	2,422		2,804
Inventories	3,862		3,638
Other current assets	738		684
Total current assets	9,071		9,453
Property, plant and equipment, net	3,718		3,670
Notes receivable and investments in Flash Ventures	1,219		1,396
Goodwill	10,037		10,041
Other intangible assets, net	174		213
Other non-current assets	1,467		1,486
Total assets	$	25,686	$	26,259
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	1,686	$	1,902
Accounts payable to related parties	295		320
Accrued expenses	1,592		1,636
Income taxes payable	986		869
Accrued compensation	407		510

Total current liabilities	4,966		5,237
Long-term debt	7,071		7,022
Other liabilities	1,542		1,779
Total liabilities	13,579		14,038
Commitments and contingencies (Notes 10, 11, 13 and 16)
Shareholders’ equity:

Common stock, $0.01 par value; authorized — 450 shares; issued — 318 shares and 315 shares, respectively; outstanding — 318 shares and 315 shares, respectively	3		3
Additional paid-in capital	3,641		3,733
Accumulated other comprehensive loss	(694)		(554)
Retained earnings	9,157		9,039

Total shareholders’ equity	12,107		12,221
Total liabilities and shareholders’ equity	$	25,686	$	26,259


	Three Months Ended
	September 30, 2022		October 1, 2021
Revenue, net	$	3,736	$	5,051
Cost of revenue	2,755		3,386
Gross profit	981		1,665
Operating expenses:
Research and development	552		578
Selling, general and administrative	247		291
Employee termination, asset impairment, and other charges	24		18
Total operating expenses	823		887
Operating income	158		778
Interest and other income (expense):
Interest income	2		2
Interest expense	(70)		(78)
Other income (expense), net	(6)		2
Total interest and other expense, net	(74)		(74)
Income before taxes	84		704
Income tax expense	57		94
Net income	$	27	$	610

Income per common share:
Basic	$	0.09	$	1.97
Diluted	$	0.08	$	1.93

Weighted average shares outstanding:
Basic	316		310
Diluted	319		316


	Three Months Ended
	September 30, 2022		October 1, 2021
Net income	$	27	$	610
Other comprehensive income (loss), before tax:
Actuarial pension gain	—		1
Foreign currency translation adjustment	(80)		4


Net unrealized gain (loss) on derivative contracts and available-for-sale securities	(76)		33
Total other comprehensive income (loss), before tax	(156)		38
Income tax benefit (expense) related to items of other comprehensive income (loss), before tax	16		(8)
Other comprehensive income (loss), net of tax	(140)		30
Total comprehensive income (loss)	$	(113)	$	640


☒			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 Loss		Retained Earnings		Total Shareholders’ Equity
	Shares	Amount		Shares	Amount
Balance at July 1, 2022	315	$	3	—	$	—	$	3,733	$	(554)	$	9,039	$	12,221
Net income	—	—		—	—		—		—		27		27
Adoption of new accounting standards	—	—		—	—		(128)		—		91		(37)
Employee stock plans	3	—		—	—		(50)		—		—		(50)
Stock-based compensation	—	—		—	—		86		—		—		86








Foreign currency translation adjustment	—	—		—	—		—		(80)		—		(80)
Net unrealized loss on derivative contracts	—	—		—	—		—		(60)		—		(60)
Balance at September 30, 2022	318	$	3	—	$	—	$	3,641	$	(694)	$	9,157	$	12,107


	Flash		HDD		Total
	(in millions)
Balance at July 1, 2022	$	5,718	$	4,323	$	10,041

Foreign currency translation adjustment	(2)		(2)		(4)

Balance at September 30, 2022	$	5,716	$	4,321	$	10,037


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















Balance at July 1, 2022	$	(11)	$	(277)	$	(266)	$	(554)
Other comprehensive loss before reclassifications	—		(80)		(140)		(220)
Amounts reclassified from accumulated other comprehensive loss	—		—		64		64
Income tax benefit related to items of other comprehensive loss	—		—		16		16
Net current-period other comprehensive loss	—		(80)		(60)		(140)
Balance at September 30, 2022	$	(11)	$	(357)	$	(326)	$	(694)


	September 30, 2022
	Level 1		Level 2		Level 3		Total
	(in millions)
Assets:

Cash equivalents - Money market funds	$	322	$	—	$	—	$	322


















Foreign exchange contracts	—		48		—		48
Interest rate swap contracts	—		11		—		11

Total assets at fair value	$	322	$	59	$	—	$	381
Liabilities:
Foreign exchange contracts	$	—	$	329	$	—	$	329


Total liabilities at fair value	$	—	$	329	$	—	$	329


	July 1, 2022
	Level 1		Level 2		Level 3		Total
	(in millions)
Assets:

Cash equivalents - Money market funds	$	266	$	—	$	—	$	266


















Foreign exchange contracts	—		61		—		61
Interest rate swap contracts	—		3		—		3

Total assets at fair value	$	266	$	64	$	—	$	330
Liabilities:
Foreign exchange contracts	$	—	$	316	$	—	$	316


Total liabilities at fair value	$	—	$	316	$	—	$	316


	September 30, 2022				July 1, 2022
	Carrying Value		Fair Value		Carrying Value		Fair Value
	(in millions)







1.50% convertible notes due 2024	$	1,097	$	1,047	$	1,048	$	1,040

4.75% senior unsecured notes due 2026	2,291		2,134		2,291		2,205
Variable interest rate Term Loan A-2 maturing 2027	2,693		2,634		2,693		2,621
2.85% senior unsecured notes due 2029	495		389		495		412
3.10% senior unsecured notes due 2032	495		342		495		389




Total	$	7,071	$	6,546	$	7,022	$	6,667


	September 30, 2022
	(in millions)
Notes receivable	$	726
Equity investments	493
Operating lease guarantees	1,684
Inventory and prepayments	1,022
Maximum estimable loss exposure	$	3,925


	Lease Amounts
	(Japanese yen, in billions)		(U.S. dollar, in millions)
Total guarantee obligations	¥	243	$	1,684


	Three Months Ended
	September 30, 2022			October 1, 2021
	(in millions, except percentages)
Net revenue:
Flash	$	1,722		$	2,490
HDD	2,014			2,561
Total net revenue	$	3,736		$	5,051
Gross profit:
Flash	$	422		$	921
HDD	574			792
Total gross profit for segments	996			1,713
Unallocated corporate items:

Stock-based compensation expense	(14)			(9)
Amortization of acquired intangible assets	(1)			(39)



Total unallocated corporate items	(15)			(48)
Consolidated gross profit	$	981		$	1,665
Gross margin:
Flash	24.5		%	37.0		%
HDD	28.5		%	30.9		%
Consolidated gross margin	26.3		%	33.0		%



	Three Months Ended
	September 30, 2022		October 1, 2021
	(in millions)





Revenue by End Market
Cloud	$	1,829	$	2,225
Client	1,229		1,853
Consumer	678		973
Total Revenue	$	3,736	$	5,051

Revenue by Geography
Asia	$	1,686	$	2,675
Americas	1,423		1,614
Europe, Middle East and Africa	627		762
Total Revenue	$	3,736	$	5,051


	September 30, 2022		July 1, 2022
	(in millions)
Inventories:
Raw materials and component parts	$	1,809	$	1,603
Work-in-process	1,130		1,162
Finished goods	923		873
Total inventories	$	3,862	$	3,638


	September 30, 2022		July 1, 2022
	(in millions)
Property, plant and equipment:
Land	$	269	$	269
Buildings and improvements	1,945		1,920
Machinery and equipment	8,734		8,642
Computer equipment and software	499		494
Furniture and fixtures	54		54
Construction-in-process	642		591
Property, plant and equipment, gross	12,143		11,970
Accumulated depreciation	(8,425)		(8,300)
Property, plant and equipment, net	$	3,718	$	3,670


Annual Installments	Payment of Principal Amortization		Purchase Option Exercise Price at Final Lease Terms		Guarantee Amount
	(in millions)
Remaining nine months of 2023	$	371	$	50	$	421
2024	376		90		466
2025	203		82		285
2026	199		124		323
2027	53		106		159
2028 and thereafter	3		27		30
Total guarantee obligations	$	1,205	$	479	$	1,684


	Lease Amounts
	($ in millions)
Minimum lease payments by year:
Remaining nine months of 2023	$	36
2024	46
2025	44
2026	44
2027	39
Thereafter	147
Total future minimum lease payments	356
Less: Imputed interest	51
Present value of lease liabilities	305
Less: Current portion (included in Accrued expenses)	40
Long-term operating lease liabilities (included in Other liabilities )	$	265

Operating lease right-of-use assets (included in Other non-current assets)	$	288

Weighted average remaining lease term in years	8.2
Weighted average discount rate	3.4		%


	Long-Term Commitments
	(in millions)
Year:
Remaining nine months of 2023	$	385
2024	325
2025	180
2026	53
2027	46
Thereafter	150
Total	$	1,139


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

RSUs and PSUs (1)	$	655	2.6
ESPP	51		1.0
Total unamortized compensation cost	$	706


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

























Options outstanding at July 1, 2022	0.9	$	66.76	0.54



Canceled or expired	(0.5)	84.39
Options outstanding at September 30, 2022	0.4	$	45.08	0.81


	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 1, 2022	15.4	52.89
Granted	4.5	43.79

Vested	(4.3)	53.28	$	186
Forfeited	(0.6)	62.12
RSUs and PSUs outstanding at September 30, 2022	15.0	49.71


Accrual balance at July 1, 2022	$	1,047
Gross increases related to current year tax positions	2

Gross decreases related to prior year tax positions	(18)
Settlements	(2)
Lapse of statute of limitations	(3)
Accrual balance at September 30, 2022	$	1,026


	Employee Termination Benefits
	(in millions)
Accrual balance at July 1, 2022	$	17
Charges	24
Cash payments	(28)

Accrual balance at September 30, 2022	$	13


	Total		1 Year (Remaining Nine Months of 2023)		2-3 Years (2024-2025)		4-5 Years (2026-2027)		More than 5 Years (Beyond 2027)
	(in millions)


Long-term debt, including current portion(1)	$	7,100	$	—	$	1,363	$	4,738	$	999
Interest on debt	1,157		169		541		341		106
Flash Ventures related commitments(2)	5,048		2,311		1,980		847		(90)
Operating leases	356		36		90		83		147
Purchase obligations and other commitments	3,588		2,380		959		99		150
Mandatory Deemed Repatriation Tax	659		—		404		255		—
Total	$	17,908	$	4,896	$	5,337	$	6,363	$	1,312


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 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 February 12, 2021)
10.1						Form of Notice of Grant of Performance Stock Units and Performance Stock Unit Award Agreement under the Western Digital Corporation 2021 Long-Term Incentive Plan†*
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


			WESTERN DIGITAL CORPORATION

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


Name of Participant:
Employee ID
Grant Date:
Grant Number
Target Number of PSUs:
Vesting Schedule:			The vesting date of the PSUs is [ ] (the “Vesting Date”). Vesting shall be subject to Participant’s Continuous Service from the Grant Date through the Vesting Date, unless provided otherwise under Section 2 of the Standard Terms and Conditions.
Performance Period and Measurement Periods:			The PSUs shall be eligible to vest based on performance during the three-year Performance Period, which spans the First, Second and Third Measurement Periods (the “Annual Measurement Periods”). The Performance Period begins on the first day of the First Measurement Period and ends on the last day of the Third Measurement Period. •First Measurement Period begins [ ] and ends [ ]. •Second Measurement Period begins [ ] and ends [ ]. •Third Measurement Period begins [ ] and ends [ ]. The actual number of PSUs that may become eligible to vest on the Vesting Date is based on the achievement of financial metrics over each Annual Measurement Period and may range from [0%] to [200%] of the Target Number of PSUs, subject to forfeiture as provided in the Standard Terms and Conditions. The achievement of certain Stock Price Incentive goals at the end of the Performance Period may increase the actual number of PSUs that become eligible to vest on the Vesting Date up to [300%] of the Target Number of PSUs in accordance with Exhibit B.


			/s/ David V. Goeckeler
			David V. Goeckeler
			Chief Executive Officer


			/s/ Wissam Jabre
			Wissam Jabre
			Executive Vice President and Chief Financial Officer (Principal Financial Officer)