WESTERN DIGITAL CORP

Previous wording

We are a leading developer, manufacturer, and provider of data storage devices based on both hard disk drive and NAND flash technologies. With a differentiated innovation engine driving advancements in storage and semiconductor technologies, our broad and ever-expanding portfolio delivers powerful HDD and Flash storage solutions for everyone from students, gamers, and home offices to the largest enterprises and public clouds to capture, preserve, access, and transform an ever-increasing diversity of data.

Current wording

We are a leading developer, manufacturer, and provider of data storage devices and solutions based on both hard disk drive and NAND flash technologies. With a differentiated innovation engine driving advancements in storage and semiconductor technologies, our broad and ever-expanding portfolio delivers powerful hard disk drives (“HDD”) and flash-based products (“Flash”) solutions for everyone from students, gamers, and home offices to the largest enterprises and public clouds to capture, preserve, access, and transform an ever-increasing diversity of data.

Previous wording

On October 30, 2023, we announced that our Board of Directors had completed its strategic review of our business and, after evaluating a comprehensive range of alternatives, authorized us to pursue a plan to separate our HDD and Flash business units to create two independent, public companies. We believe the separation will better position each business unit to execute innovative technology and product development, capitalize on unique growth opportunities, extend respective leadership positions, and operate more efficiently with distinct capital structures. The completion of the planned separation is subject to certain conditions, including final approval by our Board of Directors. At the beginning of our second quarter of fiscal 2025, we entered the soft-spin phase of our separation plan. The soft-spin phase represents the period when we begin testing critical processes and systems for each future HDD and Flash company to ensure that both are ready to operate independently at legal separation. We continue to make progress on the work required to execute the separation, which we expect will occur after we close the second quarter of fiscal 2025.

Current wording

On October 30, 2023, we announced that our Board of Directors had completed its strategic review of our business and, after evaluating a comprehensive range of alternatives, authorized us to pursue a plan to separate our HDD and Flash business units to create two independent, public companies, with Sandisk Corporation, currently a wholly owned subsidiary of the Company, holding our Flash business, and Western Digital focusing on our existing HDD business. We believe the separation will better position each business unit to execute innovative technology and product development, capitalize on unique growth opportunities, extend respective leadership positions, and operate more efficiently with distinct capital structures. At the beginning of our second quarter of fiscal year 2025, we entered the soft-spin phase of our separation plan. The soft-spin phase represents the period when we begin testing critical processes and systems for each future HDD and Flash company to ensure that both are ready to operate independently at legal separation. We continue to make progress on the work required to execute the separation. The separation will be effected through a pro rata distribution of 80.1% of the outstanding shares of Sandisk Corporation to holders of the Company’s common stock as of February 12, 2025, the record date for the distribution. We expect the distribution to occur on or about February 21, 2025. However, completion of the planned separation is subject to certain conditions, and no assurance can be provided as to the timing of the distribution or that all conditions to the distribution will be met.

Previous wording

Macroeconomic factors such as inflation, changes in interest rates, and recession concerns softened demand for our products during 2023 and the first half of 2024. As a result, we and our industry experienced a supply-demand imbalance, which resulted in reduced shipments and negatively impacted pricing during those periods. To adapt to these conditions, since the beginning of 2023, we implemented measures to reduce operating expenses and proactively manage supply and inventory to align with demand and improve our capital efficiency while continuing to deploy innovative products. These actions enabled us to scale back on capital expenditures, consolidate production lines, and reduce production. During the first quarter of 2024, these actions resulted in incremental charges for employee termination, asset impairment, and charges for unabsorbed manufacturing overhead costs in HDD and Flash due to the underutilization of facilities as we temporarily scaled back production.

Current wording

Macroeconomic factors such as inflation, changes in interest rates, and recession concerns softened demand for our products during the first half of 2024. As a result, we and our industry experienced a supply-demand imbalance, which resulted in reduced shipments and negatively impacted pricing during those periods. To adapt to these conditions, we implemented measures to reduce operating expenses and proactively manage supply and inventory to align with demand and improve our capital efficiency while continuing to deploy innovative products. These actions enabled us to scale back on capital expenditures, consolidate production lines, and reduce production, which resulted in incremental charges for employee termination, asset impairment, and charges for unabsorbed manufacturing overhead costs in HDD and Flash due to the underutilization of facilities as we temporarily scaled back production.

Previous wording

As a result of this transaction, we expect to incur a modest reduction in annual operating expenses and a reduction in annual capital expenditures related to assembly and testing of Flash-based products. We also anticipate that the transition to a contract manufacturing model through SDSS will result in a small increase in our annual cost of revenue for Flash-based products.

Current wording

Subsequent to and in connection with the SDSS sale, we entered into a five-year Supply Agreement with SDSS to purchase certain flash-based products with a minimum annual commitment of $550 million. As a result of this transaction, we expect to incur a modest reduction in annual operating expenses and a reduction in annual capital expenditures related to assembly and testing of flash-based products. We also anticipate that the transition to a contract manufacturing model through SDSS will result in a small increase in our annual cost of revenue for flash-based products.

Previous wording

As previously disclosed, we had previously reached a final agreement with the IRS and received notices of deficiency with respect to years 2008 through 2012 and in February 2024, also reached a final agreement for resolving the notices of proposed adjustments with respect to years 2013 through 2015. During the three months ended September 27, 2024, we made payments aggregating $153 million for tax and interest with respect to all years 2008 through 2015 and have a remaining liability of $10 million as of September 27, 2024 related to all years from 2008 through 2015. We expect to pay any remaining balance with respect to this matter within the next twelve months. Additional information regarding these settlements and our assessment of the potential tax and interest payments we expect to pay in connection with the settlements is provided in our discussion of Income tax expense in our “Results of Operations” below, as well as in Part I, Item 1, Note 12, Income Tax Expense, of the Notes to Condensed Consolidated Financial Statements, and in the “Short- and Long-term Liquidity –Unrecognized Tax Benefits” section below.

Current wording

As previously disclosed, we had previously reached a final agreement with the IRS and received notices of deficiency with respect to years 2008 through 2012 and in February 2024, also reached a final agreement for resolving the notices of proposed adjustments with respect to years 2013 through 2015. During the six months ended December 27, 2024, we made payments aggregating $162 million for tax and interest with respect to years 2008 through 2015 and have no remaining liability as of December 27, 2024 related to all years from 2008 through 2015. Additional information regarding these settlements and our assessment of the potential tax and interest payments we expect to pay in connection with the settlements is provided in our discussion of Income tax expense in our “Results of Operations” below, as well as in Part I, Item 1, Note 12, Income Tax Expense, of the Notes to Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q, and in the “Short- and Long-term Liquidity –Unrecognized Tax Benefits” section below.

Previous wording

Comparison of Three Months Ended September 27, 2024 to Three Months Ended September 29, 2023

Current wording

Comparison of Three and Six Months Ended December 27, 2024 to Three and Six Months Ended December 29, 2023

Previous wording

The increase in consolidated net revenue for the three months ended September 27, 2024 from the comparable period in the prior year reflected increases in both HDD and Flash revenue as discussed in more detail below.

Current wording

The increase in consolidated net revenue for the three and six months ended December 27, 2024 from the comparable periods in the prior year reflected increases in both HDD and Flash revenue as discussed in more detail below.

Previous wording

HDD revenue increased by 85% for the three months ended September 27, 2024 from the comparable period in the prior year, as a result of a 107% increase in exabytes sold, primarily from higher shipments of our high capacity enterprise drives, partially offset by a 10% decline in average selling prices per gigabyte primarily due to a shift in the product mix to larger capacity drives.

Current wording

HDD revenue increased by 76% for the three months ended December 27, 2024 from the comparable period in the prior year, as a result of a 93% increase in exabytes sold, primarily from higher shipments of our high capacity enterprise drives, partially offset by an 8% decline in average selling prices per gigabyte primarily due to a shift in the product mix to larger capacity drives. HDD revenue increased by 80% for the six months ended December 27, 2024 from the comparable period in the prior year, as a result of a 99% increase in exabytes sold, partially offset by a 9% decline in average selling prices per gigabyte, driven by the same factors described for the three-month period.

Previous wording

Flash revenue increased by 21% for the three months ended September 27, 2024 from the comparable period in the prior year, reflecting a 39% increase in average selling prices per gigabyte primarily due to improved pricing as the supply-demand balance improved, partially offset by a 12% decrease in exabytes sold. The decrease in exabytes sold was primarily due to the near-term drop in demand in the Client and Consumer end markets, partially offset by increased demand in the Cloud end market.

Current wording

Flash revenue increased by 13% for the three months ended December 27, 2024 from the comparable period in the prior year, reflecting a 14% increase in average selling prices per gigabyte primarily due to improved pricing as the supply-demand balance improved. Flash revenue increased by 17% for the six months ended December 27, 2024 from the comparable period in the prior year, resulting from a 26% increase in average selling prices per gigabyte, partially offset by a 7% decline in exabytes sold. The increase in average selling prices per gigabyte was attributable to the same factors described above for the three-month period while the decrease in exabytes sold for the period was driven by softer demand in the Client and Consumer end markets in the first three months of the year.

Previous wording

Cloud revenue increased by 153% for the three months ended September 27, 2024 from the comparable period in the prior year, reflecting a 140% increase in exabytes sold and a 7% increase in average selling prices per gigabyte. The increase in exabytes sold was driven by higher shipments of our high capacity enterprise HDD products stemming from new data center builds. The increase in average selling prices per gigabyte was primarily due to improved pricing in Flash as the supply-demand balance improved.

Current wording

Cloud revenue increased by 119% for the three months ended December 27, 2024 from the comparable period in the prior year, reflecting a 114% increase in exabytes sold and a 4% increase in average selling prices per gigabyte. The increase in exabytes sold was driven by higher shipments of our high capacity enterprise HDD products stemming from new data center builds. The increase in average selling prices per gigabyte was primarily due to improved pricing in Flash as the supply-demand balance improved. Cloud revenue increased by 134% for the six months ended December 27, 2024 from the comparable period in the prior year, reflecting a 126% increase in exabytes sold and a 5% increase in average selling prices per gigabyte. The increase in exabytes sold and average selling prices per gigabyte are attributed to the same factors described for the three-month period.

Previous wording

Client revenue increased by 5% for the three months ended September 27, 2024 from the comparable period in the prior year, reflecting a 33% increase in average selling prices per gigabyte, partially offset by a 20% decrease in exabytes sold. The increase in average selling prices per gigabyte over the prior year period was primarily due to improved pricing in Flash. The decline in exabytes sold reflected the near-term drop in demand for Flash products.

Current wording

Client revenue increased by 4% for the three months ended December 27, 2024 from the comparable period in the prior year, reflecting a 15% increase in average selling prices per gigabyte, partially offset by an 11% decrease in exabytes sold. The increase in average selling prices per gigabyte over the prior year period was primarily due to improved pricing in Flash, partially offset by a decline in pricing in HDD. The decline in exabytes sold reflected a near-term drop in demand for Flash products. Client revenue increased by 5% for the six months ended December 27, 2024 from the comparable period in the prior year, reflecting a 24% increase in average selling prices per gigabyte, partially offset by a 16% decrease in exabytes sold. The increase in average selling prices per gigabyte and the decline in exabytes sold over the prior year are attributed to the same factors described for the three-month period.

Previous wording

Consumer revenue declined 7% for the three months ended September 27, 2024 from the comparable period in the prior year, reflecting a 15% decrease in exabytes sold, partially offset by a 10% increase in average selling prices per gigabyte. The decrease in exabytes sold was due to lower shipments of both HDD and Flash products. The increase in average selling prices per gigabyte was driven by improved pricing in both HDD and Flash .

Current wording

Consumer revenue declined by 8% for the three months ended December 27, 2024 from the comparable period in the prior year, reflecting a 5% decrease in exabytes sold and a 3% decline in average selling prices per gigabyte, which were driven by softer demand and pricing declines in both HDD and Flash products. Consumer revenue declined by 8% for the six months ended December 27, 2024 from the comparable period in the prior year, reflecting a 10% decrease in exabytes sold, partially offset by a 3% increase in average selling prices per gigabyte. The decrease in exabytes sold was primarily driven by softer demand in both HDD and Flash products in this end market. The increase in average selling prices per gigabyte was primarily due to improved pricing in both HDD and Flash from the improvement in the supply-demand balance in the first quarter of the year.

Previous wording

The changes in net revenue by geography for the three months ended September 27, 2024 from the comparable period in the prior year reflected higher revenue in the Americas region from Cloud customers as noted above.

Current wording

The changes in net revenue by geography for the three and six months ended December 27, 2024 from the comparable period in the prior year reflected higher revenue in the Americas region from Cloud customers as noted above.

Previous wording

Our top 10 customers accounted for 51% of our net revenue for the three months ended September 27, 2024, compared to 44% of our net revenue for the three months ended September 29, 2023. For the three months ended September 27, 2024, one customer accounted for 14% of our net revenue. No customer accounted for 10% or more of the Company’s net revenue for the three months ended September 29, 2023.

Current wording

Our top 10 customers accounted for 51% and 50% of our net revenue for the three and six months ended December 27, 2024, respectively, compared to 39% of our net revenue for both the three and six months ended December 29, 2023. For the three and six months ended December 27, 2024, one customer accounted for 14% of our net revenue. For the three and six months ended December 29, 2023, no single customer accounted for 10% or more of our net revenue.

Previous wording

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. These programs represented 13% and 20% of gross revenue for the three months ended September 27, 2024 and September 29, 2023, respectively. 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. The decrease in program amounts in the current period reflects the improved demand and pricing environment. Changes in future customer demand and market conditions may require us to adjust our incentive programs as a percentage of gross revenue.

Current wording

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. These programs represented 15% and 14% of gross revenue for the three and six months ended December 27, 2024 and 18% and 19% for the three and six months ended December 29, 2023, respectively. 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. The decrease in program amounts in the current period reflects the improved demand and pricing environment. Changes in future customer demand and market conditions may require us to adjust our incentive programs as a percentage of gross revenue.

Previous wording

Consolidated gross profit increased by $1.45 billion for the three months ended September 27, 2024 from the comparable period in the prior year, primarily due to higher product shipments, improved pricing, and favorable product mix. In addition, the prior year period included charges for unabsorbed manufacturing overhead costs as a result of the reduced utilization of our manufacturing capacity of $225 million ($83 million in HDD and $142 million in Flash), which were not incurred in the current period. Consolidated gross margin increased by 34 percentage points year over year, mainly due to improved pricing and favorable product mix with approximately 8 percentage points of the increase due to the underutilization charges incurred in the prior year period but not incurred in the current period.

Current wording

Consolidated gross profit increased by $1.02 billion for the three months ended December 27, 2024 from the comparable period in the prior year, primarily due to higher product shipments, improved pricing, and favorable product mix. In addition, the prior year period included charges for unabsorbed manufacturing overhead costs as a result of the reduced utilization of our manufacturing capacity of $156 million ($49 million in HDD and $107 million in Flash), which were not incurred in the current period. Consolidated gross margin increased by 19 percentage points year over year, mainly due to improved pricing and favorable product mix with approximately 5 percentage points of the increase due to the unabsorbed manufacturing overhead costs incurred in the prior year period but not incurred in the current period.

Previous wording

HDD gross margin increased by 15 percentage points year over year, primarily due to higher product shipments with approximately 7 percentage points of the increase due to the manufacturing underutilization charges incurred in the prior year period but not incurred in the current period.

Current wording

HDD gross margin for the six months ended December 27, 2024 increased by approximately 15 percentage points year over year, primarily due to higher product shipments with approximately 5 percentage points of the increase due to the unabsorbed manufacturing overhead costs incurred in the prior year period but not incurred in the current period.

Previous wording

Research and development (“R&D”) expense increased by $88 million for the three months ended September 27, 2024 from the comparable period in the prior year. The increase was driven by a $56 million increase in compensation and benefits due to higher variable compensation and increased headcount, a $10 million increase in material purchases, and modest increases in spending for R&D projects as we continue to invest in innovation.

Current wording

Research and development (“R&D”) expense increased by $58 million for the three months ended December 27, 2024 from the comparable period in the prior year. The increase was driven by a $39 million increase in compensation and benefits due to higher variable compensation and increased headcount and modest increases in spending for R&D projects as we continue to invest in innovation. R&D expense increased by $146 million for the six months ended December 27, 2024 from the comparable period in the prior year. The increase was primarily driven by a $95 million increase in compensation and benefits due to the same factors as the three-month period and a $36 million increase in material purchases, outside services, hardware and equipment spending due to an increase in spending for R&D projects as we continue to invest in innovation.

Previous wording

Selling, general and administrative (“SG&A”) expense increased by $35 million for the three months ended September 27, 2024 from the comparable period in the prior year. The increase was primarily driven by a $26 million increase in compensation and benefits due to higher variable compensation and increased headcount, a $10 million increase in legal fees, and an $8 million increase in dis-synergy costs as we prepare for the business separation, partially offset by a $17 million decrease in strategic review costs.

Current wording

Selling, general and administrative (“SG&A”) expense increased by $40 million for the three months ended December 27, 2024 from the comparable period in the prior year. The increase was primarily driven by a $27 million increase in compensation and benefits, which was driven by higher variable compensation and increased headcount, a $9 million increase in legal fees, and a $5 million increase in material purchases, partially offset by a $20 million decrease in strategic review costs. SG&A expense increased by $75 million for the six months ended December 27, 2024 from the comparable period in the prior year. The increase was primarily driven by a $53 million increase in compensation and benefits, which was driven by higher variable compensation and increased headcount, a $19 million increase in legal fees, a $12 million increase in material purchases, and a modest increase in spending due to higher business volume, partially offset by a $37 million decrease in strategic review costs.

Previous wording

Employee termination, asset impairment and other charges decreased by $55 million for the three months ended September 27, 2024 from the comparable period in the prior year, reflecting fewer restructuring actions taken in the current period. For information regarding Employee termination, asset impairment and other, see Part I, Item 1, Note 14, Employee Termination, Asset Impairment, and Other of the Notes to Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q.

Current wording

Employee termination, asset impairment and other was a gain of $7 million for the three months ended December 27, 2024 compared to a loss of $24 million in the prior year. The change was primarily due to a recovery from previously accrued contract termination charges and fewer restructuring actions taken in the current period. Employee termination, asset impairment and other was a gain of $5 million for the six months ended December 27, 2024 compared to a loss of $81 million in the prior year. The change was due to fewer restructuring actions taken in the current period. For information regarding Employee termination, asset impairment and other, see Part I, Item 1, Note 14, Employee Termination, Asset Impairment and Other, of the Notes to Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q.

Previous wording

Business separation costs were $43 million for the three months ended September 27, 2024, primarily reflecting outside service fees to support the planned separation of our HDD and Flash businesses.

Current wording

Business separation costs increased by $8 million for the three months ended December 27, 2024 and by $51 million for the six months ended December 27, 2024 from the comparable periods in the prior year. The increases for the three- and six-month periods primarily reflected the increase in outside service fees to support the planned separation of our HDD and Flash businesses.

Previous wording

Beginning in 2023, the 2017 Act has required us to capitalize and amortize R&D expenses rather than expensing them in the year incurred. The tax effects related to the capitalization of R&D expenses are included in our effective tax rate for the three months ended September 27, 2024 and September 29, 2023. The tax effects related to the capitalization of R&D expenses had a material impact on our effective tax rate for the three months ended September 27, 2024 but did not have a material impact on the effective tax rate for the three months ended September 29, 2023.

Current wording

Beginning in 2023, the Tax Cuts and Jobs Act (the “2017 Act”) has required us to capitalize and amortize R&D expenses rather than expensing them in the year incurred. The tax effects related to the capitalization of R&D expenses are included in our effective tax rate for the three and six months ended December 27, 2024 and December 29, 2023. The tax effects related to the capitalization of R&D expenses had a material impact on our effective tax rate for the three and six months ended December 27, 2024 but did not have a material impact on the effective tax rate for the three and six months ended December 29, 2023.

Previous wording

On August 16, 2022, President Biden signed into law the Inflation Reduction Act of 2022, which contained significant legal changes related to tax, climate, energy, and health care. The tax measures include, 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. The CAMT is effective for us beginning with fiscal year 2024. We do not expect to be subject to the CAMT of 15% for fiscal year 2025 as our annual average AFSI did not exceed $1.0 billion for the preceding three-year period.

Current wording

On August 16, 2022, President Biden signed into law the Inflation Reduction Act of 2022, which contained significant changes to laws related to tax, climate, energy, and health care. The tax measures include, 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. The CAMT is effective for us beginning with fiscal year 2024. We do not expect to be subject to the CAMT of 15% for fiscal year 2025 as our annual average AFSI did not exceed $1.0 billion for the preceding three-year period.

Previous wording

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-US jurisdictions have either enacted legislation or announced their intention to enact future legislation to adopt certain or all components of the Pillar Two, some which are effective for us in fiscal year 2025. For fiscal year 2025, we currently expect to be able to meet certain transitional safe harbors and do not expect any material Pillar Two taxes. As more jurisdictions adopt this legislation in fiscal year 2026, there may be material increases in our future tax obligations in certain jurisdictions.

Current wording

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 the Pillar Two, some of which are effective for us in fiscal year 2025. For fiscal year 2025, we currently expect to be able to meet certain transitional safe harbors and do not expect any material Pillar Two taxes. As more jurisdictions adopt this legislation in fiscal year 2026, there may be material increases in our future tax obligations in certain jurisdictions.

Previous wording

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 have or will expire at various dates during years 2025 through 2031 resulted in decreases to our effective tax rate below the U.S. Federal statutory rate three months ended September 27, 2024. However, the tax effects of the mandatory capitalization of R&D expenses offset these decreases, resulting in our effective tax rate being closer to the U.S. Federal statutory rate for the three months ended September 27, 2024.

Current wording

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 have or will expire at various dates during years 2025 through 2031 resulted in decreases to our effective tax rate below the U.S. Federal statutory rate for the three and six months ended December 27, 2024. However, the tax effects of the mandatory capitalization of R&D expenses offset these decreases, resulting in our effective tax rate being closer to the U.S. Federal statutory rate for the three and six months ended December 27, 2024.

Previous wording

The primary drivers of the difference between the effective tax rate for the three months ended September 29, 2023 and the U.S. Federal statutory rate of 21% were 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 years 2024 through 2031. In addition, the effective tax rate for the three months ended September 29, 2023 includes the discrete effect of a net decrease of $30 million to the liability for unrecognized tax benefits, which includes interest and offsetting tax benefits, as a result of adjustments to align with IRS calculations.

Current wording

The primary drivers of the difference between the effective tax rate for the three and six months ended December 29, 2023 and the U.S. Federal statutory rate of 21% were 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 years 2024 through 2031. In addition, the effective tax rate for the six months ended December 29, 2023 includes the discrete effect of a net decrease of $30 million to the liability for unrecognized tax benefits, which includes interest and offsetting tax benefits, as a result of adjustments to align with IRS calculations.

Previous wording

We had previously reached a final agreement with the IRS and received notices of deficiency with respect to years 2008 through 2012 and in February 2024, also reached a final agreement for resolving the notices of proposed adjustments with respect to years 2013 through 2015. During the three months ended September 27, 2024, the Company made payments of $130 million for interest with respect to years 2008 through 2012 and $23 million for tax and interest with respect to years 2013 through 2015, resulting in a remaining liability of $10 million as of September 27, 2024, related to all years from 2008 through 2015. The Company expects to pay any remaining balance with respect to this matter within the next twelve months.

Current wording

We had previously reached a final agreement with the IRS and received notices of deficiency with respect to years 2008 through 2012 and in February 2024 also reached a final agreement for resolving the notices of proposed adjustments with respect to years 2013 through 2015. During the six months ended December 27, 2024, the Company made payments of $130 million for interest with respect to years 2008 through 2012 and $32 million for tax and interest with respect to years 2013 through 2015, resulting in no remaining liability as of December 27, 2024 related to all years from 2008 through 2015.

Previous wording

In connection with settlements for the years 2008 through 2015, we expect to realize reductions to our mandatory deemed repatriation tax obligations and tax savings from interest deductions in future years aggregating to $162 million. Of this amount, $31 million of interest savings from the interest paid with respect to years 2008 through 2012 is classified as a deferred tax asset due to interest expense limitation rules. See Part I, Item 1, Note 12, Income Tax Expense, of the Notes to Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q for further details.

Current wording

In connection with settlements for the years 2008 through 2015, we expect to realize reductions to our mandatory deemed repatriation tax obligations and tax savings from interest deductions in future years aggregating to $166 million. Of this amount, $65 million of interest savings from the interest paid with respect to years 2008 through 2015 is classified as a deferred tax asset due to interest expense limitation rules. See Part I, Item 1, Note 12, Income Tax Expense, of the Notes to Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q for further details.

Previous wording

A total of $1.43 billion of our Cash and cash equivalents was held by our foreign subsidiaries as of September 27, 2024 and June 28, 2024, respectively. There are no material tax consequences that were not previously accrued for on the repatriation of this cash.

Current wording

A total of $1.60 billion of our Cash and cash equivalents was held by our foreign subsidiaries as of December 27, 2024 and June 28, 2024, respectively. There are no material tax consequences that were not previously accrued for on the repatriation of this cash.

Previous wording

Net cash provided by or used in operating activities primarily consists of net income or loss, 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 $753 million for the three months ended September 27, 2024, as compared to $132 million for the three months ended September 29, 2023, which largely reflects an increase in the volume of our business, as discussed above.

Current wording

Net cash provided by or used in operating activities primarily consists of net income or loss, 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 $1.04 billion for the six months ended December 27, 2024, as compared to $102 million for the six months ended December 29, 2023, which largely reflects an increase in the volume of our business, as discussed above.

Previous wording

For the three months ended September 27, 2024, DSO increased by 7 days from the comparable period in the prior year, of which 5 days reflected an increase from lower trade accounts receivable factoring and the remainder reflected the timing of shipments and customer collections. DIO increased by 1 day from the comparable period in the prior year, primarily reflecting higher production volume in the current period. DPO increased by 15 days from the comparable period in the prior year primarily due to more favorable payment terms and routine variations in the timing of purchases and payments during the period.

Current wording

For the three months ended December 27, 2024, DSO increased by 9 days from the comparable period in the prior year, of which 3 days reflected an increase from lower trade accounts receivable factoring and the remainder reflected the timing of shipments and customer collections. DIO decreased by 3 days from the comparable period in the prior year, primarily reflecting higher consumption of inventory driven by strong demand in HDD, partially offset by weaker shipments in Flash, in the current period. DPO increased by 3 days from the comparable period in the prior year primarily due to more favorable payment terms and routine variations in the timing of purchases and payments during the period.

Previous wording

Net cash used in investing activities for the three months ended September 27, 2024 primarily consisted of $96 million in capital expenditures, partially offset by $47 million in net proceeds from activity related to Flash Ventures. Net cash provided by investing activities for the three months ended September 29, 2023 primarily consisted of $193 million in proceeds from disposals of assets, which includes the proceeds from our sale-leaseback of our Milpitas, California facility and $13 million in net proceeds from activity related to Flash Ventures, partially offset by $124 million in capital expenditures.

Current wording

Net cash provided by investing activities for the six months ended December 27, 2024 primarily consisted of $191 million in net proceeds from our sale of a majority interest in one of our subsidiaries and $92 million in net proceeds from activity related to Flash Ventures, partially offset by $208 million in capital expenditures, net of proceeds from disposals of assets. Net cash provided by investing activities for the six months ended December 29, 2023 primarily consisted of $79 million in proceeds from net activity related to Flash Ventures and $26 million of proceeds from net activity related to strategic investments, partially offset by $81 million in capital expenditures, net of proceeds from disposals of assets, which includes the proceeds from the sale-leaseback of our Milpitas, California facility.

Previous wording

During the three months ended September 27, 2024, net cash used in financing activities primarily consisted of $188 million for repayment of amounts borrowed under the revolving credit facility and scheduled repayments on the Term Loan A-2, and $64 million for taxes paid on vested stock awards under employee stock plans, partially offset by $150 million of proceeds from drawing on the revolving credit facility. During the three months ended September 29, 2023, net cash provided by financing activities primarily consisted of $600 million of proceeds from the drawdown of our delayed draw term loan, partially offset by $43 million used for taxes paid on vested stock awards under employee stock plans.

Current wording

During the six months ended December 27, 2024, net cash used in financing activities primarily consisted of $225 million for repayment of amounts borrowed under the revolving credit facility and scheduled repayments on the Term Loan A-2 and $80 million for taxes paid on vested stock awards under employee stock plans, partially offset by $150 million of proceeds from drawing on the revolving credit facility and $52 million of proceeds from the issuance of stock under employee stock plans. During the six months ended December 29, 2023, net cash provided by financing activities primarily consisted of $2.20 billion in proceeds from the issuance of the 2028 Convertible Notes and the drawdown of our delayed draw term loan, partially offset by $505 million used to repurchase a portion of the 2024 Convertible Notes, $338 million in repayments of our delayed draw term loan and Term Loan A-2 maturing 2027, and $155 million for the purchase of capped calls to hedge the potential dilution impact of the conversion feature of the 2028 Convertible Notes.

Previous wording

Other than the Flash Ventures related commitments incurred in the normal course of business and 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, with the exception of Flash Ventures and our 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, Related Parties and Related Commitments and Contingencies, of the Notes to Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q.

Current wording

Other than the Flash Ventures related commitments incurred in the normal course of business and 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, with the exception of Flash Ventures, our venture with SDSS, and our 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, Related Parties and Related Commitments and Contingencies, of the Notes to Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q.

Previous wording

As of September 27, 2024, the liability for unrecognized tax benefits (excluding accrued interest and penalties) was $692 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 September 27, 2024 was $70 million. Of these amounts, approximately $597 million could result in potential cash payments. As of September 27, 2024, with the exception of the IRS matter discussed above, 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 our liability for unrecognized tax benefits would most likely result from additional information or settlements relating to the examination of our tax returns.

Current wording

As of December 27, 2024, the liability for unrecognized tax benefits (excluding accrued interest and penalties) was $688 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 December 27, 2024 was $72 million. Of these amounts, approximately $594 million could result in potential cash payments. As of December 27, 2024, 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 our liability for unrecognized tax benefits would most likely result from additional information or settlements relating to the examination of our tax returns.

Previous wording

As noted above, we had previously reached a final agreement with the IRS regarding notices of deficiency with respect to years 2008 through 2012 and in February 2024, also reached a final agreement for resolving the notices of proposed adjustments with respect to years 2013 through 2015. During the three months ended September 27, 2024, we made payments of $130 million for interest with respect to years 2008 through 2012 and $23 million for tax and interest with respect to years 2013 through 2015, resulting in a remaining liability of $10 million as of September 27, 2024 related to all years from 2008 through 2015. We expect to pay any remaining balance with respect to this matter within the next twelve months.

Current wording

As noted above, we had previously reached a final agreement with the IRS regarding notices of deficiency with respect to years 2008 through 2012 and in February 2024 also reached a final agreement for resolving the notices of proposed adjustments with respect to years 2013 through 2015. During the six months ended December 27, 2024, we made payments of $130 million for interest with respect to years 2008 through 2012 and $32 million for tax and interest with respect to years 2013 through 2015, resulting in no remaining liability as of December 27, 2024 related to all years from 2008 through 2015.

Previous wording

In connection with settlements for the years 2008 through 2015, we expect to realize reductions to our mandatory deemed repatriation tax obligations and tax savings from interest deductions in future years aggregating to approximately $162 million. Of this amount, $31 million of interest savings from the interest paid with respect to years 2008 through 2012 is classified as a deferred tax asset due to interest expense limitation rules.

Current wording

In connection with settlements for the years 2008 through 2015, we expect to realize reductions to our mandatory deemed repatriation tax obligations and tax savings from interest deductions in future years aggregating to approximately $166 million. Of this amount, $65 million of interest savings from the interest paid with respect to years 2008 through 2015 is classified as a deferred tax asset due to interest expense limitation rules.

Previous wording

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, the Company 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 Note”). The 2028 Convertible Notes are convertible at the option of any holder at an initial conversion price of approximately $52.20 per share of common stock beginning August 15, 2028. Prior to that date, 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 that date 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.

Current wording

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, the Company 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 at an initial conversion price of approximately $52.20 per share of common stock beginning August 15, 2028. Prior to that date, 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 that date 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.

Previous wording

During the calendar quarter ended June 30, 2024, the sale price conditional conversion feature of the notes mentioned above was triggered. As a result, the holder of the 2028 Convertible Notes had the right to convert the 2028 Convertible Notes during the calendar quarter ended September 30, 2024. Consequently, we classified the 2028 Convertible Notes in the Current portion of long-term debt in the Condensed Consolidated Financial Statements as of September 27, 2024. During the calendar quarter ended September 30, 2024, the sale price conditional conversion feature of the notes mentioned above was not triggered. As a result, the 2028 Convertible Notes are not convertible from October 1, 2024 through December 31, 2024. We will re-evaluate in each subsequent calendar quarter to determine if the 2028 Convertible Notes have become convertible.

Current wording

The sale price conditional conversion feature of the 2028 Convertible Notes was not triggered during the calendar quarter ended December 31, 2024 and, accordingly, the holders of the 2028 Convertible Notes no longer have the right to convert the notes during the succeeding calendar quarter ending March 31, 2025. As a result, the 2028 Convertible Notes were classified as Long-term debt in the Condensed Consolidated Financial Statements as of December 27, 2024. The Company will continue to evaluate the conversion feature quarterly to determine if the 2028 Convertible Notes become convertible in future periods.

Previous wording

In addition to our existing debt, as of September 27, 2024, we had $2.20 billion available for borrowing under our revolving credit facility until January 2027, 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. Additional information regarding our indebtedness, including information about availability under our 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 7, Debt, of the Notes to the Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended June 28, 2024 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.

Current wording

In addition to our outstanding debt, as of December 27, 2024, we had $2.25 billion available for borrowing under our revolving credit facility maturing in January 2027, 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. The loan agreements governing our revolving credit facility and our Term Loan A-2 maturing 2027 require us to comply with a financial leverage ratio covenant. As of December 27, 2024, we were in compliance with the financial covenant. Additional information regarding our indebtedness, including information about availability under our 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 7, Debt, of the Notes to the Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended June 28, 2024 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.