Western Digital · 10-Q · Item 2 MD&A

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 2025 Annual Report on Form 10-K. 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 based on HDD technology. We leverage our capability in the HDD industry primarily for the cloud and hyperscale data center markets. HDDs are critical components in the worldwide data infrastructure market, powering the digital economy. HDDs provide reliable, cost-effective, high-capacity storage needs for a wide range of applications, ranging from cloud data centers, enterprise storage systems, edge computing, smart video, to client and consumer.

Our broad portfolio of technology and products addresses our customers’ storage needs through multiple end markets: Cloud, Client and Consumer. Cloud is comprised primarily of products for public or private cloud environments and enterprise customers. Through the Client end market, we provide our OEM and channel customers a broad array of high-performance HDD solutions across desktop and notebooks. The Consumer end market provides a 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.

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 2026, which will end on July 3, 2026, will be comprised of 53 weeks, with the first quarter consisting of 14 weeks and the remaining quarters consisting of 13 weeks each. Fiscal year 2025, which ended on June 27, 2025, was comprised of 52 weeks, with all quarters presented consisting of 13 weeks.

Key Developments

Separation of Business Units and Monetization of Sandisk Shares

On February 21, 2025, T1we completed the Separation to create two independent public companies, with Western Digital continuing our existing HDD business and Sandisk, formerly a wholly-owned subsidiary of the Company, holding the Flash business. We believe the Separation has better positioned us as a pure-play HDD company that can execute innovative technology and product development, capitalize on unique growth opportunities, extend our leadership position, operate more efficiently, and pursue capital allocation strategies to maximize long-term shareholder value. As part of the Separation, we initially retained 28.8 million shares of Sandisk common stock. In June 2025, T2we used 21.3 million shares of Sandisk in a tax-free exchange to reduce approximately $800 million principal amount of our term loan A-3.

In February 2026, we executed a series of transactions to monetize additional Sandisk shares and further reduce our outstanding debt. Initially, we entered into a $1.50 billion Bridge Loan, which was utilized to fully redeem all of our Senior Notes and consolidate the broad creditor base to two holders to facilitate a debt-for-equity exchange. Following the redemptions of the Senior Notes, we retired the Bridge Loan and our existing Term Loan A-3 through a tax-free exchange for 5.8 million shares of Sandisk common stock. As of April 3, 2026, we still held 1.7 million shares of Sandisk common stock, which we expect to monetize by the end of 2026 in one or more subsequent exchanges for our outstanding common stock.

Prior period information provided herein is presented on a continuing operations basis to reflect the impact of the Separation. See Part I, Item 1, Note 4, Discontinued Operations, of the Notes to Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q for additional information regarding the Separation.

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Conversion of Preferred Shares

On February 17, 2026, we converted all remaining outstanding Preferred Shares into 7 million shares of our common stock in accordance with the Certificate of Designations, Preferences and Rights of the Preferred Shares.

Macroeconomic Conditions and Outlook

The increasing long-term demand for data storage in the cloud is benefiting our HDD business. T3The adoption of artificial intelligence (“AI”) and workloads driven by hybrid data is driving additional growth in data storage as well. This creates an accelerated demand for high-capacity drives, resulting in greater manufacturing complexity and longer production lead times. In response, customers are partnering with us earlier to support their future growth requirements and are extending the duration of their commercial arrangements.

T4Recent changes to U.S. trade policy, in particular with regard to tariffs, have caused substantial market uncertainty and, in certain cases, retaliatory measures by trading partners. Our business and results of operations have not been materially impacted through the third quarter of 2026 as a result of these actions, but we are actively monitoring developments and assessing options to mitigate potential future actions. For additional information, please see Part I, Item 1A, Risk Factors, included in our 2025 Annual Report on Form 10-K.

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Results of Operations

Third Quarter and Nine Month 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

April 3,

$ Change

% Change

($ in millions)

Revenue, net

$

%

$

%

$

%

Cost of revenue

Gross profit

Operating expenses:

Research and development

Selling, general and administrative

Litigation matter

—

—

Business realignment charges

—

—

n/a

Total operating expenses

Operating income

Interest and other income (expense):

Interest income

2

Interest expense

Gain (loss) on retained interest in Sandisk

Costs in connection with debt-for-equity exchange

—

—

n/a

Other income, net

6

1

—

5

Total interest and other income (expense), net

Income before taxes

Income tax expense (benefit)

Net income from continuing operations

$

%

$

%

$

%

(1) Percentages may not total due to rounding.

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Nine Months Ended

April 3,

$ Change

% Change

($ in millions)

Revenue, net

$

%

$

%

$

%

Cost of revenue

Gross profit

Operating expenses:

Research and development

Selling, general and administrative

(7)

Litigation matter

—

—

Business realignment charges

(7)

Total operating expenses

Operating income

Interest and other income (expense):

Interest income

Interest expense

Gain (loss) on retained interest in Sandisk

Costs in connection with debt-for-equity exchange

—

—

n/a

Other expense, net

(7)

Total interest and other income (expense), net

Income before taxes

Income tax expense (benefit)

Net income from continuing operations

$

%

$

%

$

%

(1) Percentages may not total due to rounding.

The following table sets forth for the periods presented, summary information regarding our disaggregated revenue:

Three Months Ended

Nine Months Ended

April 3,

April 3,

(in millions)

Revenue by end market

Cloud

$

$

$

$

Client

Consumer

Total revenue

$

$

$

$

Revenue by geography(1)

Americas

$

$

$

$

Asia

Europe, Middle East and Africa

Total revenue

$

$

$

$

(1) Net revenue is attributed to geographic regions based on the ship-to location of the customer.

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Comparison of Three and Nine Months Ended April 3, 2026 to Three and Nine Months Ended March 28, 2025

Net Revenue

Net revenue increased by 45% for the three months ended April 3, 2026 from the comparable period in the prior year, driven by a 34% increase in exabytes sold and a 9% increase in average selling price per exabyte, both of which were driven by strong demand across all of our end markets. Net revenue increased by 33% for the nine months ended April 3, 2026 from the comparable period in the prior year, driven by a 26% increase in exabytes sold and a 5% increase in average selling price per exabyte. The increase in exabytes sold and increase in average selling price per exabyte were attributable to the same factors noted for the three-month period above.

T5Cloud revenue, representing 89% of total revenue, increased by 48% for the three months ended April 3, 2026 from the comparable period in the prior year, driven by a 36% increase in exabytes sold and a 9% increase in average selling price per exabyte. The increase in exabytes sold was driven by strong demand for our high-capacity enterprise products. The increase in average selling price per exabyte was due to an improved pricing environment. Cloud revenue, representing 89% of total revenue, increased by 36% for the nine months ended April 3, 2026 from the comparable period in the prior year, driven by a 29% increase in exabytes sold and a 5% increase in average selling price per exabyte. The increase in exabytes sold and increase in average selling price per exabyte were attributable to the same factors noted for the three-month period above.

Client revenue, representing 5% of total revenue, increased by 31% for the three months ended April 3, 2026 from the comparable period in the prior year, driven by a 19% increase in exabytes sold and a 10% increase in average selling price per exabyte. The increase in exabytes sold and average selling price per exabyte are driven by dynamics largely consistent with our other end markets. Client revenue, representing 5% of total revenue, increased by 20% for the nine months ended April 3, 2026 from the comparable period in the prior year, driven by a 4% increase in exabytes sold and a 16% increase in average selling price per exabyte. The increase in exabytes sold and increase in average selling price per exabyte were attributable to the same factors noted for the three-month period above.

Consumer revenue, representing 6% of total revenue, increased by 24% for the three months ended April 3, 2026 from the comparable period in the prior year, driven by a 6% increase in exabytes sold and a 17% increase in average selling price per exabyte. The increase in exabytes sold and average selling price per exabyte are driven by dynamics largely consistent with our other end markets. Consumer revenue, representing 6% of total revenue, increased by 6% for the nine months ended April 3, 2026 from the comparable period in the prior year, driven by a 1% increase in exabytes sold and a 4% increase in average selling price per exabyte. The increase in exabytes sold and increase in average selling price per exabyte were attributable to the same factors noted for the three-month period above.

The change in mix of net revenue by geography for the three and nine months ended April 3, 2026 from the comparable periods in the prior year reflects larger percentage increases in the Asia and Europe, Middle East and Africa regions as customers are ramping up data center capacity in these regions.

Our top 10 customers accounted for 71% and 74%, respectively, of our net revenue for the three and nine months ended April 3, 2026, compared to 73% and 68%, respectively, of our net revenue for the three and nine months ended March 28, 2025. For the three months ended April 3, 2026, three customers accounted for 17%, 15%, and 11%, respectively, of our net revenue, and for the three months ended March 28, 2025, three customers accounted for 18%, 16% and 13%, respectively, of our net revenue. For the nine months ended April 3, 2026, three customers accounted for 16%, 15%, and 13%, respectively, of our net revenue, and for the nine months ended March 28, 2025, two customers accounted for 18% and 11%, respectively, of our net revenue.

Gross Profit and Gross Margin

Gross profit increased by $764 million for the three months ended April 3, 2026 from the comparable period in the prior year, due to an increased volume of shipments, a lower cost structure on our newer generation products and improved pricing. T6Gross margin increased by 10 percentage points year over year, primarily due to a lower cost structure on our newer generation products and improved pricing. Gross profit increased by $1.66 billion for the nine months ended April 3, 2026 from the comparable period in the prior year and gross margin increased by 9 percentage points during the same year-over-year period, primarily due to the same factors noted for the three-month period above.

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Operating Expenses

Research and development (“R&D”) expense increased by $49 million for the three months ended April 3, 2026 from the comparable period in the prior year. The increase was attributable to $25 million of incremental product development related costs as we continue to execute on our innovative technology and product roadmap along with $20 million higher compensation-related costs aligned with the improved financial performance during the current year. R&D expense increased by $145 million for the nine months ended April 3, 2026 from the comparable period in the prior year. The increase was attributable to $95 million of higher compensation-related costs and $50 million of higher incremental product development related costs, driven by the same factors noted for the three-month period above.

Selling, general and administrative (“SG&A”) expense increased by $39 million for the three months ended April 3, 2026 from the comparable period in the prior year. The increase was primarily attributable to higher compensation-related expense, as a result of our improved financial performance. SG&A expense decreased by $31 million for the nine months ended April 3, 2026 from the comparable period in the prior year, as that period included substantial costs associated with the final planning and execution of the Separation, including duplicative personnel costs and higher outside service fees.

For information regarding litigation matters, see Part I, Item 1, Note 14, Legal Proceedings, of the Notes to Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q.

For information regarding Business realignment charges, see Part I, Item 1, Note 10, Business Realignment Charges, of the Notes to Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q.

Interest and Other Income (Expense)

Total interest and other income (expense), changed by $2.86 billion for the three months ended April 3, 2026 from the comparable period in the prior year. The change reflects a gain of $2.73 billion on our retained interest in Sandisk in the current period based on the mark-to-market value as of April 3, 2026, compared to a loss of $606 million in the prior year, and lower interest expense of $53 million, which reflects the reduction in our debt. These changes were partially offset by $545 million of costs incurred in connection with our debt-for-equity exchange, which reflects the discount provided on the monetization of Sandisk shares. Total interest and other income (expense), changed by $4.64 billion for the nine months ended April 3, 2026 from the comparable period in the prior year.

The change primarily reflects an unrealized gain of $4.45 billion on our retained interest in Sandisk in the current period based on the mark-to-market value as of April 3, 2026, compared to a loss of $606 million in the prior year, and lower interest expense of $132 million, which reflects the reduction in our debt. These changes were partially offset by $545 million of costs incurred in connection with the debt-for-equity exchange as described above.

Income Taxes

Previously, the Tax Cuts and Jobs Act of 2017 (“TCJA”) eliminated the ability to deduct R&D expenditures in the year incurred, requiring capitalization and amortization under Internal Revenue Code Section 174. On July 4, 2025, the One Big Beautiful Bill Act of 2025 (“OBBBA”) was signed into law, which includes broad tax reform provisions that extend and modify key elements of the TCJA. Notably, the new legislation now allows an option for the immediate expensing of domestic R&D expenditures, beginning with 2026. The legislation also includes favorable modifications to international tax provisions, including changes to the Global Intangible Low-Taxed Income regime and enhancements to the Foreign-Derived Deduction Eligible Income (“FDDEI”) deduction that will become effective for us in 2027.

On August 16, 2022, the Inflation Reduction Act of 2022 was signed into law, which contained, among other things, a corporate alternative minimum tax (“CAMT”) of 15% on corporations with three-year average annual adjusted financial statement income (“AFSI”) exceeding $1.0 billion. Although CAMT became effective for us beginning with 2024, we were not subject to CAMT for 2024 or 2025. We do not expect to be subject to CAMT in 2026 as our annual average AFSI did not exceed $1.0 billion for the preceding three-year period.

On December 20, 2021, the Organization for Economic Co-operation and Development G20 (“OECD/G20”) Inclusive Framework on Base Erosion and Profit Shifting released Model Global Anti-Base Erosion rules under Pillar Two. Several non-U.S. jurisdictions have either enacted legislation or announced their intention to enact future legislation to adopt certain or all components of Pillar Two, also known as Global Minimum Tax (“GMT”). For 2026, we are subject to GMT in Malaysia, Thailand, and the Philippines.

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The following table presents our Income tax expense (benefit) and the effective tax rate:

Three Months Ended

Nine Months Ended

April 3,

April 3,

($ in millions)

Income before taxes

$

$

$

$

Income tax expense (benefit)

Effective tax rate

5%

6%

The primary drivers of the difference between the effective tax rate for the three and nine months ended April 3, 2026 and the U.S. Federal statutory rate of 21% are the relative mix of earnings and losses by jurisdiction, the deduction for FDDEI, tax credits, and the gain on the retained interest in Sandisk being tax-free due to the Separation. These resulted in decreases to our effective tax rate below the U.S. Federal statutory rate for the three and nine months ended April 3, 2026. Our income tax provision for the three and nine months ended April 3, 2026 includes GMT for Malaysia as well as Thailand and the Philippines, countries for which we maintain tax holidays.

The primary drivers of the difference between the effective tax rate for the three and nine months ended March 28, 2025 and the U.S. Federal statutory rate of 21% were the relative mix of earnings and losses by jurisdiction, credits, and tax holidays in the Philippines and Thailand that will expire at various dates between 2026 and 2033. These tax holidays resulted in decreases to our effective tax rate below the U.S. Federal statutory rate for the three and nine months ended March 28, 2025. However, the tax effects of the mandatory capitalization of R&D expenses offset these decreases, resulting in our effective tax rate being close to the U.S.

Federal statutory rate for the three and nine months ended March 28, 2025. In anticipation of us operating as a standalone HDD business in a GMT environment, we executed an inter-entity asset transfer in conjunction with the Separation. This resulted in the recognition of one-time deferred tax benefits to continuing operations of $711 million for the three and nine months ended March 28, 2025.

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Liquidity and Capital Resources

The following table summarizes our statements of cash flows. Cash flows for the prior year period are presented on a consolidated basis and activity related to discontinued operations has not been segregated. See Part I, Item 1, Note 4, Discontinued Operations, of the Notes to Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q for additional cash flow information related to our discontinued operations.

Nine Months Ended

April 3,

(in millions)

Net cash provided by (used in):

Operating activities

$

$

Investing activities

Financing activities

Effect of exchange rate changes on cash

(3)

3

Net increase (decrease) in cash and cash equivalents

$

$

In August 2024, we filed a shelf registration statement (the “Shelf Registration Statement”) with the Securities and Exchange Commission that expires in August 2027. The Shelf Registration Statement 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.

We expect our capital expenditures generally to be approximately 4% to 6% of our net revenue.

We believe our cash and cash equivalents and our available 2027 Revolving Credit Facility (as defined below) will be sufficient to meet our working capital, debt, dividend and capital expenditure needs for at least the next twelve months and for the foreseeable future thereafter. We believe we can also access the various debt and equity capital markets to further supplement our liquidity position if necessary. Our ability to sustain our working capital position is subject to a number of risks that we discuss in Part II, Item 1A, Risk Factors, in this Quarterly Report on Form 10-Q and in Part I, Item 1A, Risk Factors, in our 2025 Annual Report on Form 10-K.

A total of $1.31 billion and $984 million of our cash and cash equivalents was held by our foreign subsidiaries as of April 3, 2026 and June 27, 2025, respectively. There are no material tax consequences that were not previously accrued for on the repatriation of this cash.

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 also invest directly in certificates of deposit, asset-backed securities and corporate and municipal notes and bonds.

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Operating Activities

Net cash provided by operating activities primarily consists of net income, adjusted for non-cash charges, plus or minus changes in operating assets and liabilities. Net cash used for changes in operating assets and liabilities was $368 million for the nine months ended April 3, 2026, compared to $1.15 billion for the nine months ended March 28, 2025. The year over year improvement largely reflects a $365 million reduction in inventory as a result of increased shipments to customers, a $345 million improvement from accrued expenses resulting from a significant reduction in our derivative hedging activities since the Separation, a $225 million improvement from accrued compensation resulting from amount and timing of payment of variable compensation, and a $883 million improvement in other assets and liabilities driven by the timing of recognition and realization of income taxes receivable.

These were partially offset by a $504 million increase in accounts receivable driven by the growth in our business volume and a $518 million increase in cash used driven by the timing of recognition and payment of income taxes.

Investing Activities

Net cash used in investing activities for the nine months ended April 3, 2026 primarily consisted of $310 million in capital expenditures. Net cash provided by investing activities for the nine months ended March 28, 2025 primarily consisted of $401 million in net proceeds from our sale of a majority interest in one of our subsidiaries and $148 million in net proceeds from activity related to Flash Ventures, partially offset by $336 million in capital expenditures, net of proceeds from disposals of assets.

Financing Activities

T7Net cash used in financing activities for the nine months ended April 3, 2026 primarily consisted of $1.92 billion for share repurchases, $1.56 billion for repayments of our debt, $197 million for taxes paid on vested stock awards under employee stock plans, and $130 million for dividends on our common stock and Preferred Shares. These uses were partially offset by $1.50 billion of net proceeds from a bridge loan and $32 million of proceeds from the issuance of stock under employee stock plans. Net cash provided by financing activities for the nine months ended March 28, 2025 primarily consisted of $2.15 billion of proceeds from drawing on the Sandisk credit facilities in connection with the Separation as well as the 2027 Revolving Credit Facility and $69 million of proceeds from the issuance of stock under employee stock plans, partially offset by $1.37 billion of cash transferred to Sandisk in connection with the Separation, $257 million for repayment of amounts borrowed under the 2027 Revolving Credit Facility and scheduled repayments on the Term Loan A-3 and prior Term Loan A-2, $92 million for taxes paid on vested stock awards under employee stock plans, and $74 million paid for debt issuance costs.

Off-Balance Sheet Arrangements

Other than certain indemnification provisions (see “Short- and Long-term Liquidity – Purchase Obligations and Other 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, we do not have an interest in, or relationships with, any variable interest entities.

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Short- and Long-term Liquidity

Material Cash Requirements

The following is a summary of our known material cash requirements as of April 3, 2026. In addition, see the discussions further below related to liability for unrecognized tax benefits, litigation matters, cash dividend program, global minimum tax, foreign exchange contracts and indemnifications.

Total

1 Year (Remaining Three Months of 2026)

(in millions)

Debt, including interest

$

$

$

$

—

$

—

Operating leases

Purchase obligations and other commitments

—

—

Total

$

$

$

$

$

Liability for Unrecognized Tax Benefits

As of April 3, 2026, the liability for unrecognized tax benefits (excluding accrued interest and penalties) was $603 million. Accrued interest and penalties related to unrecognized tax benefits are recognized in liabilities for uncertain tax positions and are recorded in the provision for income taxes. Accrued interest and penalties included in our liability related to unrecognized tax benefits as of April 3, 2026 was $123 million. Of these amounts, approximately $133 million could result in potential cash payments to be made within the next twelve months.

Litigation Matters

For additional information on our litigation matters, see Part I, Item 1, Note 14, Legal Proceedings, of the Notes to Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q.

Cash Dividend Program

On April 29, 2025, our Board of Directors authorized the adoption of a cash dividend program. Under the cash dividend program, holders of our common stock will receive dividends when and as declared by our Board of Directors. During the three months ended April 3, 2026, we paid cash dividends of $0.125 per share of our outstanding common stock, totaling $43 million. During the nine months ended April 3, 2026, we paid aggregate cash dividends of $0.350 per share of our outstanding common stock, totaling $120 million, plus $2 million paid to holders of our Preferred Shares in accordance with their participation rights.

Subsequent to quarter-end, on April 29, 2026, our Board of Directors declared a cash dividend of $0.15 per share of our common stock, which will be paid on June 17, 2026 to our shareholders of record as of the close of business on June 5, 2026.

We may modify, suspend, or cancel our cash dividend program in any manner and at any time. The amount of future dividends under our cash dividend program, and the declaration and payment thereof, will be based upon all relevant factors, including our financial position, results of operations, cash flows, capital requirements and restrictions under our Loan Agreement and other financing agreements, and shall be in compliance with applicable law.

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Debt

As described in Part I, Item 1, Note 7, Debt, of the Notes to Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q, we issued $1.60 billion aggregate principal amount of convertible senior notes in November 2023, which bear interest at an annual rate of 3.00% and mature on November 15, 2028 (the “2028 Convertible Notes”). The 2028 Convertible Notes are convertible at the option of any holder beginning August 15, 2028 at a conversion price of approximately $37.72 per share of common stock as of April 3, 2026. Prior to August 15, 2028, if the trading price of our common stock remains above 130% of the conversion price for at least 20 trading days (whether or not consecutive) during the 30 consecutive trading-day period prior to the end of a calendar quarter, holders of the 2028 Convertible Notes would have the right to convert the 2028 Convertible Notes during the next succeeding calendar quarter.

The 2028 Convertible Notes are also convertible prior to August 15, 2028 upon the occurrence of certain corporate events. Upon any conversion of the 2028 Convertible Notes, we will pay cash for the aggregate principal amount of the notes to be converted and pay or deliver, as the case may be, cash, shares of our common stock or a combination thereof, at our election, in respect of the remainder, if any, of our conversion obligation in excess of the aggregate principal amount of the notes being converted. On or after November 15, 2026, we may redeem for cash, at par plus accrued interest, all or any portion of the 2028 Convertible Notes, at our option, if the last reported sale price of our common stock has been at least 130% of the conversion price then in effect for at least 10 trading days during any 20 consecutive trading day period immediately preceding the date of our redemption notice.

During the three months ended April 3, 2026, holders of $32 million aggregate principal amount of the 2028 Convertible Notes tendered them for conversion (the “Tendered Notes”). We made an irrevocable election to settle in cash the conversion obligation in excess of the principal amount of the Tendered Notes, as permitted by the Indenture. Settlement is scheduled for June 2026. We still retain the right to settle any conversion obligation in excess of the principal amount of the remaining 2028 Convertible Notes in cash or shares or a combination thereof, at its election.

The sale price conditional conversion feature of the 2028 Convertible Notes was triggered during the calendar quarter ended March 31, 2026 and, accordingly, the holders of the 2028 Convertible Notes have the right to convert the notes during the succeeding calendar quarter ending June 30, 2026. As a result, the 2028 Convertible Notes have been classified in Current portion of long-term debt in the Condensed Consolidated Financial Statements as of April 3, 2026. We will continue to evaluate the conversion feature quarterly to determine if the 2028 Convertible Notes remain convertible in future periods.

In addition to our outstanding debt, as of April 3, 2026, we had $1.25 billion available for borrowing under our revolving credit facility maturing in January 2027 (the “2027 Revolving Credit Facility”), subject to customary conditions under the Loan Agreement. The agreements governing our credit facilities each include limits on secured indebtedness and certain types of unsecured subsidiary indebtedness and require us and certain of our subsidiaries to provide guarantees and collateral to the extent the conditions providing for such guarantees and collateral are met. During the three months ended April 3, 2026, the Company obtained investment grade ratings from two rating agencies and therefore, pursuant to the terms of the Loan Agreement, the guarantees and collateral on the 2027 Revolving Credit Facility were released.

The Loan Agreement requires us to comply with a financial leverage ratio covenant. As of April 3, 2026, we were in compliance with the financial covenant. Additional information regarding our indebtedness, including information about availability under our 2027 Revolving Credit Facility and the principal repayment terms, interest rates, covenants, collateral and other key terms of our outstanding indebtedness, is included in Part II, Item 8, Note 8, Debt, of the Notes to Consolidated Financial Statements included in our 2025 Annual Report on Form 10-K and Note 7, Debt, of the Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

We may issue additional debt securities in the future that may 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 financial information for the Obligor Group is presented on combined basis, excluding intercompany balances and transactions between the Company and the Guarantor, excluding net intercompany balances between the Obligor Group and non-guarantor subsidiaries, 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.

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

April 3,

(in millions)

Current assets

$

$

Non-current assets

Net intercompany payables to non-guarantor subsidiaries

Current liabilities

Non-current liabilities

The operating results of the Obligor Group include the following:

Nine Months Ended

Year Ended

April 3,

(in millions)

Net sales

$

$

Gross profit

Operating income

Net income (loss)

Results for the Obligor Group include the following transactions with non-guarantor subsidiaries:

Nine Months Ended

Year Ended

April 3,

(in millions)

Intercompany revenue

$

$

Net intercompany interest income (expense)

4

Intercompany dividend income

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.

Global Minimum Tax

As of April 3, 2026, we have accrued GMT liabilities of $62 million that are not expected to be paid until the second quarter of 2028.

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. See Part I, Item 3, Quantitative and Qualitative Disclosures About Market Risk, included in this Quarterly Report on Form 10-Q for additional information.

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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 intellectual property infringement claims made by third parties. In addition, we have entered into indemnification agreements with our directors and certain of our officers that 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.

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.

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 2025 Annual Report on Form 10‑K. Please refer to Part II, Item 7 of our 2025 Annual Report on Form 10‑K for a discussion of our critical accounting policies and estimates.

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