Item 1. Condensed Combined Financial Statements (unaudited)

SANDISK CORPORATION

CONDENSED COMBINED BALANCE SHEETS

(in millions)

(Unaudited)

			December 27, 2024						June 28, 2024
ASSETS
Current assets:
Cash and cash equivalents			$	804					$	328
Accounts receivable, net			904						935
Inventories			2,172						1,955
Income tax receivable			8						7
Other current assets			568						221
Notes due from Parent			—						102
Total current assets			4,456						3,548
Property, plant and equipment, net			579						791
Notes receivable and investments in Flash Ventures			871						1,001
Goodwill			6,825						7,207
Deferred tax assets			96						96
Income tax receivable, non-current			13						11
Other non-current assets			1,394						852
Total assets			$	14,234					$	13,506
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable			$	320					$	357
Accounts payable to related parties			369						313
Accrued expenses			438						424
Accrued compensation			188						195
Income tax payables			5						20
Notes due to Parent			553						814
Total current liabilities			1,873						2,123
Deferred tax liabilities			53						15
Other liabilities			307						286
Total liabilities			2,233						2,424
Commitments and contingencies (Notes 9, 10, 12 and 14)
Parent company net investment
Parent company net investment			12,435						11,534
Accumulated other comprehensive loss			(434)						(452)
Total Parent company net investment			12,001						11,082
Total liabilities and Parent company net investment			$	14,234					$	13,506

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

SANDISK CORPORATION

CONDENSED COMBINED STATEMENTS OF OPERATIONS

(in millions)

(Unaudited)

			Three Months Ended												Six Months Ended
			December 27, 2024						December 29, 2023						December 27, 2024						December 29, 2023
Revenue, net			$	1,876					$	1,665					$	3,759					$	3,198
Cost of revenue			1,270						1,504						2,427						3,225
Gross profit (loss)			606						161						1,332						(27)
Operating expenses:
Research and development			279						246						562						486
Selling, general and administrative			142						113						272						231
Business separation costs			21						34						41						34
Employee termination and other			3						13						5						(46)
Gain on business divestiture			(34)						—						(34)						—
Total operating expenses			411						406						846						705
Operating income (loss)			195						(245)						486						(732)
Interest and other expense:
Interest income			2						3						5						6
Interest expense			(4)						(11)						(6)						(22)
Other expense, net			(20)						(7)						(45)						(6)
Total interest and other expense, net			(22)						(15)						(46)						(22)
Income (loss) before taxes			173						(260)						440						(754)
Income tax expense			69						41						125						65
Net income (loss)			$	104					$	(301)					$	315					$	(819)

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

SANDISK CORPORATION

CONDENSED COMBINED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(in millions)

(Unaudited)

			Three Months Ended												Six Months Ended
			December 27, 2024						December 29, 2023						December 27, 2024						December 29, 2023
Net income (loss)			$	104					$	(301)					$	315					$	(819)
Other comprehensive income (loss), before tax:
Foreign currency translation adjustment			(78)						24						(35)						8
Net unrealized gain (loss) on derivative contracts			(137)						74						74						25
Total other comprehensive income (loss), before tax			(215)						98						39						33
Income tax benefit (expense) related to items of other comprehensive income (loss), before tax			30						(15)						(15)						(5)
Other comprehensive income (loss), net of tax			(185)						83						24						28
Total comprehensive income (loss)			$	(81)					$	(218)					$	339					$	(791)

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

SANDISK CORPORATION

CONDENSED COMBINED STATEMENTS OF CASH FLOWS

(in millions)

(Unaudited)

			Six Months Ended
			December 27, 2024						December 29, 2023
Cash flows from operating activities
Net income (loss)			$	315					$	(819)
Adjustments to reconcile net income (loss) to net cash used in operations:
Depreciation and amortization			90						114
Stock-based compensation			89						77
Deferred income taxes			23						1
Gain on disposal of assets			(1)						(60)
Non-cash portion of impairment of cost method investments			1						—
Unrealized foreign exchange (gain) loss			(5)						26
Gain on business divestiture			(34)						—
Equity loss in investees, net of dividends received			59						4
Other non-cash operating activities, net			10						41
Settlement of accrued interest on Notes due to Parent			(96)						—
Changes in:
Accounts receivable, net			31						(145)
Inventories			(252)						657
Accounts payable			57						100
Accounts payable to related parties			(54)						(42)
Accrued expenses			13						(90)
Accrued compensation			6						7
Other assets and liabilities, net			(288)						(38)
Net cash used in operating activities			(36)						(167)
Cash flows from investing activities
Purchases of property, plant and equipment			(115)						(99)
Proceeds from the sale of property, plant and equipment			—						134
Proceeds from dispositions of business			191						—
Notes receivable issuances to Flash Ventures			(266)						(184)
Notes receivable proceeds from Flash Ventures			182						263
Distributions from Flash Ventures			176						—
Strategic investments and other, net			1						(1)
Net cash provided by investing activities			169						113
Cash flows from financing activities
Proceeds from borrowings on Notes due to Parent			550						—
Proceeds from principal repayments on Notes due from Parent			101						—
Repayments of principal on Notes due to Parent			(76)						(14)
Transfers from (to) Parent			(231)						274
Origination of Notes due from Parent			—						(74)
Net cash provided by financing activities			344						186
Effect of exchange rate changes on cash			(1)						1
Net increase in cash and cash equivalents			476						133
Cash and cash equivalents, beginning of year			328						292
Cash and cash equivalents, end of period			$	804					$	425
Supplemental disclosure of cash flow information:
Cash paid for interest			$	99					$	6
Cash received for interest			2						7
Non-cash transfers of Notes due to Parent transferred from Parent			673						—
Non-cash transfers of other assets and liabilities, net, from Parent			37						—
Non-cash transfers of property, plant and equipment from Parent			25						2
Non-cash transfers of strategic investments from Parent			7						—
Non-cash transfers of liability for unrecognized tax benefits transferred from Parent			(14)						—
Non-cash transfers of deferred taxes from Parent			—						8
Non-cash transfers of Notes due from Parent transferred to Parent			—						(113)

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

SANDISK CORPORATION

CONDENSED COMBINED STATEMENTS OF CHANGES IN PARENT COMPANY NET INVESTMENT

(in millions)

(Unaudited)

			Parent Company Net Investment						Accumulated Other Comprehensive Loss						Total
Balance at June 28, 2024			$	11,534					$	(452)					$	11,082
Net income			211						—						211
Foreign currency translation adjustment			—						43						43
Net unrealized gain on derivative contracts			—						166						166
Stock-based compensation			41						—						41
Net transfer from Parent			583						—						583
Balance at September 27, 2024			12,369						(243)						12,126
Net income			104						—						104
Foreign currency translation adjustment			—						(78)						(78)
Net unrealized loss on derivative contracts			—						(107)						(107)
Stock-based compensation			48						—						48
Net transfer to Parent			(86)						(6)						(92)
Balance at December 27, 2024			$	12,435					$	(434)					$	12,001

			Parent Company Net Investment						Accumulated Other Comprehensive Loss						Total
Balance at June 30, 2023			$	11,782					$	(343)					$	11,439
Net loss			(518)						—						(518)
Foreign currency translation adjustment			—						(16)						(16)
Net unrealized loss on derivative contracts			—						(39)						(39)
Stock-based compensation			40						—						40
Net transfer from Parent			19						—						19
Balance at September 29, 2023			11,323						(398)						10,925
Net loss			(301)						—						(301)
Foreign currency translation adjustment			—						24						24
Net unrealized gain on derivative contracts			—						59						59
Stock-based compensation			37						—						37
Net transfer from Parent			152						—						152
Balance at December 29, 2023			$	11,211					$	(315)					$	10,896

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

SANDISK CORPORATION

NOTES TO CONDENSED COMBINED FINANCIAL STATEMENTS

(Unaudited)

Note 1. Organization and Basis of Presentation

Description of the Company

Sandisk Corporation (“Company,” “we,” “us,” or “our”) is a leading developer, manufacturer and provider of data storage devices and solutions based on NAND flash technology. With a differentiated innovation engine driving advancements in storage and semiconductor technologies, our broad and ever-expanding portfolio delivers powerful 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. The Company operates primarily in the United States (“U.S.”) and internationally, with a significant concentration in the Asia Pacific region.

On October 30, 2023, our parent company, Western Digital Corporation (collectively “WDC” or “Parent”), announced that its board of directors (“WDC Board of Directors”) authorized management to pursue a plan to separate the Company into an independent public company. The separation received final approval by the WDC Board of Directors and was completed on February 21, 2025.

WDC executed the spin-off of the Company through WDC’s pro rata distribution of 80.1% of the outstanding shares of common stock of the Company to holders of WDC’s common stock. Each WDC stockholder received one-third (1/3) of one share of the Company’s common stock for each share of WDC’s common stock held by such WDC stockholder as of February 12, 2025, the record date of the distribution. Upon completion of the separation, WDC owned 19.9% of the shares of the Company’s common stock, which WDC is expected to retain for a period of up to 12 months following the distribution.

The completion of the spin-off was subject to certain conditions as described in our Registration Statement on Form 10, initially filed with the U.S. Securities and Exchange Commission (“SEC”) on November 25, 2024, and as further amended thereafter and declared effective on January 31, 2025 (as amended, the “Form 10”).

In connection with the spin-off, the Company entered into or adopted several agreements that provide a framework for the relationships between the Company and WDC. See Part 1, Item 1, Note 9, Related Parties and Related Commitments and Contingencies, of the Notes to the Combined Financial Statements included in this Quarterly Report on Form 10-Q.

The accounting policies followed by the Company are set forth in Note 1, Organization and Basis of Presentation, of the Notes to the Combined Financial Statements for the year ended June 28, 2024, included in Exhibit 99.1 to our Form 10.

Unaudited Interim Financial Information

The Company has prepared the accompanying Condensed Combined Financial Statements pursuant to the rules and regulations of the SEC for interim financial reporting. These Condensed Combined Financial Statements are unaudited and, in our opinion, include all adjustments, consisting of normal recurring adjustments and accruals necessary for a fair presentation of our operations, financial position, and cash flows for the periods presented. Operating results for the periods presented are not necessarily indicative of the results that may be expected for the full fiscal year due to seasonal and other factors. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) have been omitted in accordance with the rules and regulations of the SEC. These Condensed Combined Financial Statements should be read in conjunction with the Company’s audited Combined Financial Statements and accompanying notes for the year ended June 28, 2024, included in our Form 10.

Basis of Presentation

Throughout the periods covered by the Condensed Combined Financial Statements, the Company was an operating segment of WDC. Consequently, stand-alone interim financial statements were not historically prepared for the Company. The accompanying Condensed Combined Financial Statements have been prepared from WDC’s historical consolidated interim financial statements and accounting records and are presented on a stand-alone basis as if the Company’s operations had been conducted independently from WDC. The Company utilized allocations and carve-out methodologies to prepare these historic Condensed Combined Financial Statements. The Condensed Combined Financial Statements include the historical results of operations, financial position, and cash flows of the Company in accordance with GAAP, and the Company has adopted accounting policies and practices that are generally accepted in the industry in which it operates. As no single legal entity of the Company had a controlling financial interest in all other legal entities as of the reporting date, Condensed Combined Financial Statements have been prepared.

SANDISK CORPORATION

NOTES TO CONDENSED COMBINED FINANCIAL STATEMENTS

(Unaudited)

Intercompany transactions have been eliminated. With the exception of balances associated with lending arrangements reflected within Notes due to (from) Parent in the Condensed Combined Balance Sheets, transactions between the Company and WDC are generally considered to be effectively settled in the Condensed Combined Financial Statements at the time the transactions are recorded. The total net effect of the settlement of these transactions is reflected in the Condensed Combined Statements of Cash Flows as a financing activity and in the Condensed Combined Balance Sheets as Parent company net investment. General financing activities include the net impact of any cash movements resulting from WDC’s centralized treasury cash management.

The Condensed Combined Balance Sheets include all assets and liabilities that are specifically identifiable or otherwise attributable to the Company. Assets and liabilities shared between the Company and WDC are included in the stand-alone financial statements to the extent the asset is primarily used by the Company. If the Company is not the primary user of the asset, it is excluded entirely from the Condensed Combined Financial Statements. WDC has historically used a centralized approach to cash management and financing of its operations, as needed. Certain of our cash was transferred to WDC according to centrally managed cash programs by treasury, and WDC funded our operating and investing activities as needed. Cash transfers to and from WDC’s cash management accounts are reflected as a component of the Parent company net investment in the Condensed Combined Balance Sheets. Cash and cash equivalents in our Condensed Combined Balance Sheets primarily represent cash held locally by entities included in our Condensed Combined Financial Statements.

None of the debt obligations of WDC or corresponding interest expense have been included in the accompanying Condensed Combined Financial Statements, as the Company is neither the legal obligor nor transferee for any portion of such debt. WDC’s debt obligations were secured by a lien on substantially all assets and properties of WDC and certain key subsidiaries, which included assets and properties of the Company prior to the completion of the separation.

The Condensed Combined Statements of Operations and Comprehensive Income (Loss) include all revenues and costs directly attributable to the Company as well as an allocation of expenses related to facilities, functions and services provided by WDC. Allocation of general corporate expenses from WDC include, but are not limited to, executive management, finance, tax, legal, information technology, employee benefits administration, treasury, risk management, procurement, and other shared services. These corporate expenses have been allocated to the Company based on direct usage or benefit, where identifiable, with the remainder allocated based on headcount, revenue, or other relevant measures. The allocated costs are deemed to be settled between the Company and WDC in the period in which the expense was recorded in the Condensed Combined Statements of Operations. The Condensed Combined Statements of Cash Flows present these corporate expenses as cash flows from operating activities, as these costs were incurred by WDC on our behalf. We consider these allocations to be a reasonable reflection of the utilization of services by, or the benefits provided to, the Company. The allocations may not, however, reflect the expense the Company would have incurred as a stand-alone company for the periods presented. Additionally, these costs may not be indicative of the expenses that the Company will incur in the future or would have incurred if the Company had obtained these services from an unrelated third party. It is not practicable to estimate the actual costs that would have been incurred had the Company been a stand-alone company during the periods presented. The actual costs that may have been incurred would depend on a number of factors, including the chosen organizational structure, whether functions were outsourced or performed by employees, and decisions with respect to areas such as facilities, information technology, and operating infrastructure.

WDC maintains various stock-based compensation plans at a corporate level. Employees of the Company participated in those programs and a portion of the compensation cost associated with those plans is included in the Company’s Condensed Combined Statements of Operations for the periods presented in this Quarterly Report on Form 10-Q. Stock-based compensation expense has been included within Parent company net investment. The amounts presented in the Condensed Combined Financial Statements are not necessarily indicative of future awards and may not reflect the results that the Company would have experienced as a stand-alone entity.

Current and deferred income taxes and related tax expenses have been determined based on the stand-alone results of the Company by applying Accounting Standards Codification No. 740, Income Taxes, to the Company’s operations in each country as if it were a separate taxpayer (i.e., following the “Separate Return Methodology”).

Fiscal Year

The Company’s fiscal year ends on the Friday nearest to June 30 and typically consists of 52 weeks. Approximately every five to six years, we report a 53-week fiscal year to align the fiscal year with the foregoing policy. Fiscal year 2025, which will end on June 27, 2025, and fiscal year 2024, which ended on June 28, 2024, are each comprised of 52 weeks, with all quarters presented consisting of 13 weeks. Unless otherwise indicated, references herein to specific years and quarters are to fiscal years and fiscal quarters, and references to financial information are on a condensed combined basis.

SANDISK CORPORATION

NOTES TO CONDENSED COMBINED FINANCIAL STATEMENTS

(Unaudited)

Segment Reporting

Operating segments are components of an enterprise for which separate financial information is available and are evaluated regularly by the Company’s Chief Operating Decision Maker (“CODM”) in deciding how to allocate resources and in assessing performance. The Company currently operates as both a single operating and reportable segment.

Business Separation Costs

On October 30, 2023, WDC announced that its Board of Directors had completed its strategic review and, after evaluating a comprehensive range of alternatives, authorized WDC to pursue a plan to separate its flash business from its hard disk drive business to create two independent public companies. As a result of the plan, the Company has incurred separation and transition costs related to the completion of its separation from WDC. The separation and transition costs are recorded within Business separation costs in the Condensed Combined Statements of Operations.

Use of Estimates

Management has made estimates and assumptions relating to the reporting of certain assets and liabilities in conformity with U.S. GAAP. These estimates and assumptions have been applied using methodologies that are consistent throughout the periods presented, with consideration given to the potential impacts of current macroeconomic conditions. However, actual results could differ materially from these estimates.

Note 2. Recent Accounting Pronouncements

Accounting Pronouncements Recently Adopted

In September 2022, the Financial Accounting Standards Board (“FASB”) issued an accounting standards update (“ASU”) No. 2022-04, “Liabilities-Supplier Finance Programs (Subtopic 405-50): Disclosure of Supplier Finance Program Obligations,” which requires annual and interim disclosures for entities that use supplier finance programs in connection with the purchase of goods and services. The ASU requires the Company to provide disclosure of outstanding obligations to such suppliers for all balance sheet dates presented beginning with the Company’s first quarter of 2024 and to provide certain annual roll-forward information related to those obligations beginning with the Company’s first fiscal quarter of 2025. The ASU does not affect the recognition, measurement or financial statement presentation for supplier finance program obligations. The Company adopted the guidance on the first day of fiscal year 2024, and the adoption did not have a material impact on its Condensed Combined Financial Statements. As of December 27, 2024, none of the Company’s suppliers are utilizing these programs.

Recently Issued Accounting Pronouncements Not Yet Adopted

In November 2023, the FASB issued ASU No. 2023-07, “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures,” which expands on segment reporting requirements primarily through enhanced disclosures surrounding significant segment expenses. The ASU expands on existing segment reporting requirements to require that a public entity disclose, on an annual and interim basis, significant segment expenses that are regularly provided to an entity’s CODM, a description of other segment items by reportable segment, and any additional measures of a segment’s profit or loss used by the CODM when deciding how to allocate resources. These incremental disclosures will be required beginning with the Company’s financial statements for the year ending June 27, 2025. The Company is currently assessing these reporting requirements and expects to provide any required disclosures at that time.

In December 2023, the FASB issued ASU 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures.” The ASU calls for enhanced income tax disclosure requirements surrounding the tabular rate reconciliation and income taxes paid. The Company is currently compiling the information required for these disclosures. These incremental disclosures will be required beginning with the Company’s financial statements for the year ending June 26, 2026, with early adoption permitted. The Company expects to provide any required disclosures at that time.

SANDISK CORPORATION

NOTES TO CONDENSED COMBINED FINANCIAL STATEMENTS

(Unaudited)

In November 2024, the FASB issued ASU 2024-03, “Income Statement-Reporting Comprehensive Income-Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses,” which is intended to improve disclosures about the expenses of public entities. The new guidance requires more detailed information about the types of expenses in commonly presented expense captions (such as cost of sales and selling, general and administrative expenses) and requires public entities to disclose, on an annual and interim basis, the amounts of expenses included in each relevant expense caption presented on the face of the income statement within continuing operations, in a tabular format. Additionally, public entities will be required to disclose a qualitative description of the amounts remaining in relevant expense captions that are not separately disaggregated quantitatively, the total amount of selling expenses, and, in annual reporting periods, the definition of selling expenses. This standard is effective on either a prospective or retrospective basis for fiscal years beginning after December 15, 2026, and interim periods within fiscal years beginning after December 15, 2027, with early adoption permitted. The Company is currently compiling the information required for these disclosures and assessing the basis of adoption and expects to adopt the guidance for annual reporting periods included in the Company’s financial statements for the year ending June 30, 2028.

Note 3. Geographic Information and Concentrations of Risk

Disaggregated Revenue

The Company’s broad portfolio of technology and products addresses multiple end markets. Cloud represents a large and growing end market comprised primarily of products for public or private cloud environments and enterprise customers. Through the Client end market, the Company provides its original equipment manufacturer (“OEM”) and channel customers a broad array of high-performance flash solutions across personal computer, mobile, gaming, automotive, virtual reality headsets, at-home entertainment, and industrial spaces. The Consumer end market is highlighted by the Company’s broad range of retail and other end-user products, which capitalize on the strength of the Company’s product brand recognition and vast points of presence around the world.

The Company’s disaggregated revenue information was as follows:

			Three Months Ended												Six Months Ended
			December 27, 2024						December 29, 2023						December 27, 2024						December 29, 2023
			(in millions)
Revenue by end market
Cloud			$	250					$	40					$	550					$	58
Client			1,028						970						2,097						1,967
Consumer			598						655						1,112						1,173
Total revenue			$	1,876					$	1,665					$	3,759					$	3,198
Revenue by geography
Asia			$	1,086					$	1,112					$	2,236					$	2,173
Americas			389						257						832						487
Europe, Middle East and Africa			401						296						691						538
Total revenue			$	1,876					$	1,665					$	3,759					$	3,198

The Company’s top 10 customers accounted for 42% and 46% of its net revenue for the three and six months ended December 27, 2024, respectively, and 45% and 43% of its net revenue for the three and six months ended December 29, 2023, respectively. For the three and six months ended December 27, 2024, no customer accounted for more than 10% of the Company’s net revenue. For the three and six months ended December 29, 2023, one customer accounted for 10% of the Company’s net revenue.

SANDISK CORPORATION

NOTES TO CONDENSED COMBINED FINANCIAL STATEMENTS

(Unaudited)

Note 4. Revenues

Contract assets represent the Company’s rights to consideration where performance obligations are completed, but the customer payments are not due until another performance obligation is satisfied. The Company did not have any contract assets as of December 27, 2024, or June 28, 2024. Contract liabilities relate to customers’ payments in advance of performance under the contract and primarily relate to remaining performance obligations under professional service and support and maintenance contracts. Contract liabilities as of December 27, 2024 and June 28, 2024, and changes in contract liabilities for the three and six months ended December 27, 2024 and December 29, 2023, were not material.

The Company incurs sales commissions as direct incremental costs to obtain sales contracts. The Company has applied the practical expedient to recognize sales commissions as an expense when incurred if the amortization period is expected to be one year or less or the amount is not material, with these costs charged to Selling, general and administrative expenses. The Company had no other direct incremental costs to obtain contracts that have an expected benefit of greater than one year.

The Company applies the practical expedients and does not disclose the transaction price allocated to the remaining performance obligations for (i) arrangements with an original expected duration of one year or less, mainly consisting of professional service, support, and maintenance contracts, and (ii) variable consideration for sale-based or usage-based royalties for intellectual property license arrangements, which typically range longer than one year. The remaining performance obligations are mainly attributed to right-to-access patent license arrangements, professional service arrangements and customer support and service contracts, which will be recognized over their contract period. The transaction price allocated to the remaining performance obligations as of December 27, 2024, was not material.

Note 5. Supplemental Financial Statement Data

Goodwill

The following table provides a summary of goodwill activity for the period presented:

			(in millions)
Balance at June 28, 2024			$	7,207
Divestiture (1)			(382)
Balance at September 27, 2024			$	6,825

(1) On September 28, 2024, the Company sold its majority interest in a subsidiary. See further discussion in Part 1, Item 1, Note 9, Related Parties and Related Commitments and Contingencies.

Goodwill attributed to the Company represents the historical goodwill balances in WDC’s business arising from acquisitions specific to the Company.

The Company determined that its single operating segment was also its single reporting unit. Goodwill is not amortized. Instead, it is tested for impairment annually as of the beginning of the Company’s fourth quarter or more frequently if events or changes in circumstances indicate that goodwill may be impaired. The Company uses qualitative factors to determine whether goodwill is more likely than not impaired and whether a quantitative test for impairment is considered necessary. If the Company concludes from the qualitative assessment that goodwill is more likely than not impaired, the Company is required to perform a quantitative approach to determine the amount of impairment.

The Company is required to use judgment when assessing goodwill for impairment, including evaluating the impact of industry and macroeconomic conditions and the determination of the fair value of the reporting unit. In addition, the estimates and assumptions used to determine the fair value as well as the actual carrying value may change based on future changes in the Company’s results of operations, macroeconomic conditions or other factors. Changes in these estimates and assumptions could materially affect the Company’s assessment of the fair value and goodwill impairment. In addition, if negative macroeconomic conditions continue or worsen, goodwill could become impaired, which could result in an impairment charge and materially adversely affect the Company’s financial condition and results of operations.

For the three and six months ended December 29, 2023, there were no impairment charges recorded. In the three months ended December 27, 2024, the Company identified macroeconomic conditions and other qualitative factors indicating a potential impairment of goodwill at December 27, 2024. The Company conducted a quantitative analysis of the fair value of its sole reporting unit to determine the existence and magnitude of any potential goodwill impairment. The quantitative analysis employed a weighted valuation model, assessing the fair value of the reporting unit using both income and market approaches.

SANDISK CORPORATION

NOTES TO CONDENSED COMBINED FINANCIAL STATEMENTS

(Unaudited)

The income approach valued the projected discounted cash flows that are expected to be generated by the Company’s reporting unit and required judgments and estimates surrounding general economic conditions and company-specific performance inputs such as revenue growth rates, gross margins, operating costs, capital expenditures, assumed tax rates and other assumptions deemed reasonable by management. The market approach valued the reporting unit based upon financial performance and market multiples of comparable public companies, including consideration of a control premium representing the estimated amount a market participant would pay to obtain a controlling interest in the Company. After completion of the quantitative analysis, the Company determined that the fair value of its reporting unit exceeded its carrying value by 12%, resulting in no impairment charges recorded in the three and six months ended December 27, 2024. See Part 1, Item 1, Note 15, Subsequent Events, for information about a potential impairment of goodwill for the three months ending March 28, 2025.

Accounts receivable, net

From time to time, in connection with factoring agreements, WDC sells certain of our trade accounts receivable without recourse to third-party purchasers in exchange for cash. During the six months ended December 27, 2024, there were no trade accounts receivable of the Company sold by WDC. During the six months ended December 29, 2023, WDC sold trade accounts receivable of the Company and received cash proceeds of $272 million. The discounts on the trade accounts receivable sold during the period were not material and were recorded within Other expense, net in the Condensed Combined Statements of Operations. There were no factored receivables outstanding as of December 27, 2024 and June 28, 2024.

Inventories

			December 27, 2024						June 28, 2024
			(in millions)
Inventories:
Raw materials and component parts			$	1,661					$	1,398
Work-in-process			208						237
Finished goods			303						320
Total inventories			$	2,172					$	1,955

Property, plant and equipment, net

			December 27, 2024						June 28, 2024
			(in millions)
Property, plant and equipment:
Land			$	10					$	10
Machinery and equipment			1,463						2,340
Buildings and improvements			280						397
Computer equipment and software			153						123
Furniture and fixtures			18						16
Construction-in-process			114						108
Property, plant and equipment, gross			2,038						2,994
Accumulated depreciation			(1,459)						(2,203)
Property, plant and equipment, net			$	579					$	791

SANDISK CORPORATION

NOTES TO CONDENSED COMBINED FINANCIAL STATEMENTS

(Unaudited)

Product warranty liability

Changes in the warranty accrual were as follows:

			Three Months Ended												Six Months Ended
			December 27, 2024						December 29, 2023						December 27, 2024						December 29, 2023
			(in millions)
Warranty accrual, beginning of period			$	41					$	40					$	48					$	42
Charges to operations			8						8						9						15
Utilization			(9)						(7)						(17)						(17)
Changes in estimate related to pre-existing warranties			4						2						4						3
Warranty accrual, end of period			$	44					$	43					$	44					$	43

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

			December 27, 2024						June 28, 2024
			(in millions)
Warranty accrual:
Current portion			$	22					$	27
Long-term portion			22						21
Total warranty accrual			$	44					$	48

Other liabilities

			December 27, 2024						June 28, 2024
			(in millions)
Other liabilities:
Non-current lease liability			$	179					$	171
Non-current net tax payable			66						56
Other non-current liabilities			62						59
Total other liabilities			$	307					$	286

Accumulated other comprehensive loss

Accumulated other comprehensive loss (“AOCL”), net of tax, refers to expenses, gains, and losses that are recorded as an element of equity but are excluded from net income. The components of AOCL were as follows:

			Foreign Currency Translation Adjustment						Unrealized Income (Losses) on Derivative Contracts						Total Accumulated Comprehensive Loss
			(in millions)
Balance at June 28, 2024			$	(208)					$	(244)					$	(452)
Other comprehensive income (loss)			(35)						74						39
Income tax expense related to items of other comprehensive income			—						(15)						(15)
Net current-period other comprehensive income (loss)			(35)						59						24
Net transfer to Parent			—						(6)						(6)
Balance at December 27, 2024			$	(243)					$	(191)					$	(434)

SANDISK CORPORATION

NOTES TO CONDENSED COMBINED FINANCIAL STATEMENTS

(Unaudited)

During the three and six months ended December 27, 2024, the amounts reclassified out of AOCL were losses related to foreign exchange contracts, substantially all of which were charged to Cost of revenue in the Condensed Combined Statements of Operations.

As of December 27, 2024, substantially all existing net losses related to cash flow hedges recorded in AOCL are expected to be reclassified to earnings within the next twelve months.

Note 6. Fair Value Measurements and Investments

Financial Instruments Carried at Fair Value

Financial assets and liabilities that are remeasured and reported at fair value at each reporting period are classified and disclosed in one of the following three levels:

Level 1. Quoted prices in active markets for identical assets or liabilities.

Level 2. Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3. Inputs that are unobservable for the asset or liability and that are significant to the fair value of the assets or liabilities.

The following tables present information about the Company’s financial instruments that were measured at fair value on a recurring basis for the periods presented and indicate the fair value hierarchy of the valuation techniques utilized to determine such values:

			December 27, 2024
			Level 1						Level 2						Level 3						Total
			(in millions)
Assets:
Cash equivalents - Money market funds			$	232					$	—					$	—					$	232
Foreign exchange contracts (included in other current assets)			—						17						—						17
Total assets at fair value			$	232					$	17					$	—					$	249
Liabilities:
Foreign exchange contracts (included in accrued expenses)			$	—					$	145					$	—					$	145
Total liabilities at fair value			$	—					$	145					$	—					$	145

			June 28, 2024
			Level 1						Level 2						Level 3						Total
			(in millions)
Assets:
Cash equivalents - Money market funds			$	28					$	—					$	—					$	28
Foreign exchange contracts (included in other current assets)			—						7						—						7
Total assets at fair value			$	28					$	7					$	—					$	35
Liabilities:
Foreign exchange contracts (included in accrued expenses)			$	—					$	179					$	—					$	179
Total liabilities at fair value			$	—					$	179					$	—					$	179

During the periods presented, the Company had no transfers of financial instruments between levels and there were no changes in valuation techniques or the inputs used in the fair value measurement.

SANDISK CORPORATION

NOTES TO CONDENSED COMBINED FINANCIAL STATEMENTS

(Unaudited)

Note 7. Derivative Instruments and Hedging Activities

As of December 27, 2024, the Company had outstanding foreign exchange forward contracts that were designated as either cash flow hedges or non-designated hedges. Substantially all of the contract maturity dates of these foreign exchange forward contracts do not exceed twelve months.

Changes in the fair values of the non-designated foreign exchange contracts are recognized in Other expense, net and are largely offset by corresponding changes in the fair values of the foreign currency denominated monetary assets and liabilities. For the three months ended December 27, 2024 and December 29, 2023, total net realized and unrealized transactions and foreign exchange contract currency were a $10 million loss and $3 million loss, respectively. For the six months ended December 27, 2024 total net realized and unrealized transaction and foreign exchange contract currency were a $25 million loss and were not material for the six months ended December 29, 2023.

Unrealized gains or losses on designated cash flow hedges are recognized in AOCL. For more information regarding cash flow hedges, see Part 1, Item 1, Note 5, Supplemental Financial Statement Data—Accumulated other comprehensive loss.

Note 8. Employee Benefit Plans

Defined Benefit Plan

The Company sponsors a defined benefit pension plan that is solely available for employees located in South Korea. As of December 27, 2024, and June 28, 2024, the plan had a net unfunded status of $7 million and $6 million, respectively, classified as Other liabilities on the Condensed Combined Balance Sheets. Total pension expense included in Cost of revenue and Operating expenses in the Condensed Combined Statements of Operations was not material for the three and six months ended December 27, 2024 and December 29, 2023. No employees of the Company participate in defined benefit pension plans sponsored by WDC or its subsidiaries.

Note 9. Related Parties and Related Commitments and Contingencies

Flash Ventures

The Company procures substantially all of its flash-based memory wafers from its business ventures with Kioxia Corporation (“Kioxia”), which consists of three separate legal entities: Flash Partners Ltd. (“Flash Partners”), Flash Alliance Ltd. (“Flash Alliance”) and Flash Forward Ltd. (“Flash Forward”), collectively referred to as “Flash Ventures.”

The following table presents the notes receivable from, and equity investments in, Flash Ventures for the periods presented:

			December 27, 2024						June 28, 2024
			(in millions)
Notes receivable, Flash Partners			$	72					$	1
Notes receivable, Flash Alliance			35						5
Notes receivable, Flash Forward			476						485
Investment in Flash Partners			41						148
Investment in Flash Alliance			118						219
Investment in Flash Forward			129						143
Total notes receivable and investments in Flash Ventures			$	871					$	1,001

During the three and six months ended December 27, 2024, and December 29, 2023, the Company made net payments to Flash Ventures of $1.1 billion and $2.0 billion and $0.8 billion and $1.8 billion, respectively, for purchased flash-based memory wafers and net loans.

The Company makes, or will make, loans to Flash Ventures to fund equipment investments for new process technologies and additional wafer capacity. The Company aggregates its Flash Ventures’ notes receivable into one class of financing receivables due to the similar ownership interest and common structure in each Flash Ventures entity. For all reporting periods presented, no loans were past due, and no loan impairments were recorded. The Company’s notes receivable from each Flash Ventures entity, denominated in Japanese yen, are secured by equipment owned by that Flash Ventures entity.

As of December 27, 2024, and June 28, 2024, the Company had accounts payable balances due to Flash Ventures of $252 million and $313 million, respectively.

SANDISK CORPORATION

NOTES TO CONDENSED COMBINED FINANCIAL STATEMENTS

(Unaudited)

The Company’s maximum reasonably estimable loss exposure (excluding lost profits) as a result of its involvement with Flash Ventures, based upon the Japanese yen to U.S. dollar exchange rate at December 27, 2024, is presented below. Investments in Flash Ventures are denominated in Japanese yen, and the maximum estimable loss exposure excludes any cumulative translation adjustment due to revaluation from the Japanese yen to the U.S. dollar.

			December 27, 2024
			(in millions)
Notes receivable			$	583
Equity investments			288
Operating lease guarantees			1,343
Inventory and prepayments			1,393
Maximum estimable loss exposure			$	3,607

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

Flash Ventures has historically operated nearly 100% of its manufacturing capacity. During the three and six months ended December 29, 2023, as a result of flash market conditions, the Company temporarily reduced its utilization of its share of Flash Ventures’ manufacturing capacity to an abnormally low level to more closely align the Company’s flash-based wafer supply with projected demand. During the three and six months ended December 29, 2023, the Company incurred costs of $107 million and $249 million, respectively, associated with the reduction in utilization related to Flash Ventures, which was recorded as a charge to Cost of revenue. No such charges were incurred during the three and six months ended December 27, 2024.

The Company has facility agreements with Kioxia related to the construction and operation of Kioxia’s 300-millimeter wafer fabrication facility in Kitakami, Japan, referred to as “K1”, a wafer fabrication facility in Yokkaichi, Japan, referred to as “Y7”, and a wafer fabrication facility in Kitakami, Japan, referred to as “K2”. In connection with the construction of these facilities, the Company makes prepayments toward future building depreciation. In connection with the start-up of the K1, Y7 and K2 facilities, the Company has made prepayments over time, and as of December 27, 2024, $944 million, with $124 million recorded within Other current assets and $840 million recorded within Other non-current assets in the Condensed Combined Balance Sheets, remain to be credited against future building depreciation charges. As of December 27, 2024, the Company is also committed to making additional building depreciation prepayments of $303 million, based on the Japanese yen to U.S. dollars exchange rate of ¥157.86 as of such date, payable as follows: $60 million for the remaining of fiscal year 2025, $30 million in fiscal year 2026, $111 million in fiscal year 2027, $89 million in fiscal year 2028 and $13 million in fiscal year 2029. As of December 27, 2024, in addition to the requirements to make building depreciation prepayments, the Company will also make payments for building depreciation of approximately $107 million at varying dates through fiscal year 2035.

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

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

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

SANDISK CORPORATION

NOTES TO CONDENSED COMBINED FINANCIAL STATEMENTS

(Unaudited)

The following table presents the Company’s portion of the remaining guarantee obligations under the Flash Ventures’ lease facilities in both Japanese yen and U.S. dollar-equivalent, based upon the Japanese yen to U.S. dollar exchange rate as of December 27, 2024:

			Lease Amounts
			(Japanese yen, in billions)						(U.S. dollar, in millions)
Total guarantee obligations			¥	212					$	1,343

The following table details the breakdown of the Company’s remaining guarantee obligations between the principal amortization and the purchase option exercise price at the end of the term of the Flash Ventures lease agreements, in annual installments, in U.S. dollars, based upon the Japanese yen to U.S. dollar exchange rate as of December 27, 2024:

Annual Installments			Payment of Principal Amortization						Purchase Option Exercise Price at Final Lease Terms						Guarantee Amount
			(in millions)
Remaining six months of 2025			$	201					$	49					$	250
2026			406						113						519
2027			198						97						295
2028			83						93						176
2029			25						50						75
2030			4						24						28
Total guarantee obligations			$	917					$	426					$	1,343

The Company and Kioxia have agreed to mutually contribute to and indemnify each other and Flash Ventures for environmental remediation costs or liabilities resulting from Flash Ventures’ manufacturing operations in certain circumstances. The Company has not made any indemnification payments nor recorded any indemnification receivables under any such agreements. As of December 27, 2024, no amounts have been accrued in the Condensed Combined Financial Statements with respect to these indemnification agreements.

Unis Venture

WDC also has a venture with Unisplendour Corporation Limited and Unissoft (Wuxi) Group Co. Ltd. (“Unis”), referred to as the “Unis Venture,” to market and sell the Company’s products in China and to develop data storage systems for the Chinese market in the future. On January 24, 2025, the Company and WDC entered into an equity transfer agreement (the “Equity Transfer Agreement”) to transfer WDC’s entire equity interest in the Unis Venture to us. Therefore, subsequent to the end of the second quarter of fiscal 2025, the Unis Venture will be minority owned by the Company and majority-owned by Unis.

Prior to the execution of the Equity Transfer Agreement, the Unis Venture was not historically managed as a component of the Company and as such, the related equity method investment is not reflected within our Condensed Combined Financial Statements. For the three and six months ended December 27, 2024, and December 29, 2023, the Company recognized approximately 1% and 1%, respectively, of its combined revenue on products distributed by the Unis Venture. The outstanding accounts receivable due from the Unis Venture were 1% and 4% of Accounts receivable, net, as of December 27, 2024 and June 28, 2024, respectively.

Sale of a Majority Interest in a Subsidiary

In March 2024, SanDisk China Limited (“SanDisk China”), an indirect wholly-owned subsidiary of WDC, entered into an equity purchase agreement to sell 80% of its equity interest in SanDisk Semiconductor (Shanghai) Co. Ltd. (“SDSS”) an indirect wholly-owned subsidiary of WDC which holds one of the Company’s manufacturing facilities, to JCET Management Co., Ltd. (“JCET”), a wholly-owned subsidiary of JCET Group Co., Ltd., a Chinese publicly-listed company, thereby forming a venture between SanDisk China and JCET (the “Transaction”). The venture aims to provide independent semiconductor assembly, testing, and other related services in the People’s Republic of China for customers including, but not limited to, the Company and its affiliates.

SANDISK CORPORATION

NOTES TO CONDENSED COMBINED FINANCIAL STATEMENTS

(Unaudited)

The Transaction closed on September 28, 2024, and SanDisk China completed the sale of 80% of its equity interest in SDSS to JCET.

Proceeds from the sale, including working capital adjustments, were $659 million (pre-tax). On October 1, 2024, the Company received an initial pre-tax installment of $262 million. On January 6, 2025, the Company received a second pre-tax installment of $210 million and expects to receive remaining pre-tax proceeds of $187 million in five installments of approximately $37 million on September 28 of each year through September 28, 2029. As of December 27, 2024, the outstanding consideration receivable was recognized at its present value of $370 million, with $243 million classified as Other current assets and $127 million classified as Other non-current assets in the Condensed Combined Balance Sheets. The present value discount of $27 million as of December 27, 2024 will be recognized using the effective interest method over the next five years as Interest income in the Condensed Combined Statements of Operations.

The Company’s 20% retained interest in SDSS was determined to be valued at $158 million based on the fair value of the total pre-tax consideration received and receivable from JCET for its purchase of its 80% interest in SDSS. The Company accounts for its 20% interest in SDSS as an equity method investment within Other non-current assets in the Condensed Combined Balance Sheets. The Company’s 20% interest in the earnings of SDSS will be recognized one quarter in arrears and will be reported in Other expense, net in the Condensed Combined Statements of Operations.

The Transaction resulted in a pre-tax gain of $34 million, calculated as the difference between the total consideration for the sale, including the outstanding consideration receivable and the fair value of the Company’s 20% retained interest, less the carrying value of the net assets divested, which included, among other items, $71 million of cash and cash equivalents and $382 million of goodwill allocated to SDSS.

Subsequent to and in connection with the Transaction, Western Digital Technologies, Inc. (“WDT”) entered into a five-year supply agreement with SDSS (the “Supply Agreement”) to purchase certain flash-based products with a minimum annual commitment of $550 million (the “minimum annual commitment”). On January 10, 2025, the Company and WDT entered into an assignment agreement, pursuant to which, WDT assigned all of its rights and obligations under the Supply Agreement to the Company. The Supply Agreement contains specific penalties the Company must pay if SDSS fails to meet its minimum annual commitment. The Supply Agreement also provides that if SDSS purchases exceed the minimum annual commitment in any of the two years immediately succeeding any annual period where a shortfall penalty has been paid, SDSS shall reimburse the Company an amount not exceeding the previously paid penalty amount. The Supply Agreement expires on September 28, 2029, and automatically renews for additional one-year terms unless earlier terminated by either of the parties. The Company also entered into an agreement to grant SDSS certain intellectual property rights on a royalty-free basis for use in manufacturing products on the Company’s behalf for the term of and under the Supply Agreement. For the six months ended December 27, 2024, the Company made purchases of $111 million under the Supply Agreement and had an accounts payable balance due to SDSS of $117 million as of December 27, 2024.

The Company also entered into an arrangement to provide certain transition services for a limited period following the closing of the Transaction. Charges under this arrangement were not material.

SANDISK CORPORATION

NOTES TO CONDENSED COMBINED FINANCIAL STATEMENTS

(Unaudited)

Related Party Transactions

Notes Due to (from) Parent

Prior to the separation, the Company received financing from certain of WDC’s subsidiaries in the form of borrowings under revolving credit agreements and promissory notes to fund activities primarily related to Flash Ventures. Additionally, cash generated by the Company was lent from time to time via promissory notes to certain of WDC’s subsidiaries for use in general corporate purposes. Outstanding balances due under these financing arrangements are due on demand.

The following presents a summary of the outstanding borrowings between the Company and subsidiaries of WDC for the periods presented, inclusive of any associated interest payable or interest receivable:

						Interest Rate						December 27, 2024						June 28, 2024
												(in millions)
Notes due from Parent
Revolving Credit Agreement due from Parent $101M - Oct. 3, 2019						AFR Rate (USD) or TIBOR + .35% (YEN)						$	—					$	(102)
Total Notes due from Parent												—						(102)
Notes due to Parent
Revolving Credit Agreement due to Parent $1B - Sep. 27, 2024						SOFR + 1.6%						553						—
Notes due to Parent $500M - Nov. 25, 2014						1-year swap + 2%						—						475
Notes Due to Parent $42B Yen - Apr. 29, 2014						TIBOR + .35%						—						262
Revolving Credit Agreement due to Parent $100M - Aug. 20, 2021						LIBOR Rate + 150 basis points						—						77
Total Notes due to Parent												553						814
						Total Notes due to Parent, net						$	553					$	712

The following presents interest expense and interest income on notes due to (from) Parent, which have been recorded within Interest expense and Interest income in the Condensed Combined Statements of Operations for the periods presented:

			Three Months Ended												Six Months Ended
			December 27, 2024						December 29, 2023						December 27, 2024						December 29, 2023
			(in millions)
Interest expense on notes due to Parent			$	2					$	9					$	4					$	20
Interest income on notes due from Parent			$	—					$	(1)					$	(1)					$	(3)

Allocation of Corporate Expenses

WDC has provided various corporate services to the Company in the ordinary course of business, including executive management, finance, tax, legal, information technology, employee benefits administration, treasury, risk management, procurement and other shared services. These corporate expenses have been allocated to the Company based on direct usage or benefit, where identifiable, with the remainder allocated based on headcount, revenue or other relevant measures. Management believes the basis on which the expenses have been allocated to be a reasonable reflection of the utilization of services provided to or the benefit received by us.

Effective at the beginning of the second quarter of fiscal year 2025, the Company was operationally separated from the operations that were ultimately retained by WDC following completion of the spin-off transaction. In connection with this operational separation, personnel serving the Company in shared service functions were transferred into legal entities dedicated to the Company, and substantially all assets, liabilities, and contracts pertaining to operations of the Company were transferred to legal entities dedicated to the Company as well. Accordingly, there was a substantial reduction in the pool of shared corporate overhead costs of WDC that were subject to allocation in the second quarter of fiscal year 2025.

SANDISK CORPORATION

NOTES TO CONDENSED COMBINED FINANCIAL STATEMENTS

(Unaudited)

The table below summarizes the impact of expense allocations from WDC within the Condensed Combined Statements of Operations for the periods presented:

			Three Months Ended												Six Months Ended
			December 27, 2024						December 29, 2023						December 27, 2024						December 29, 2023
			(in millions)
Research and development			$	2					$	161					$	189					$	330
Selling general, and administrative			35						107						148						219
Business separation costs			21						34						41						34
Employee termination and other charges			3						13						5						(46)
Total allocation of Corporate Expenses			$	61					$	315					$	383					$	537

Our historical financial statements do not purport to reflect what results of operations, financial position, equity or cash flows would have been if we had operated as a stand-alone company during the periods presented.

Cash Management

Prior to the separation, WDC provided funding for our operating and investing activities, including pooled cash managed by WDC’s treasury, to fund operating expenses and capital expenditures. WDC also directly collected certain of our receivables. These activities are reflected as a component of the Parent’s net investment, and this arrangement is not reflective of the manner in which we would operate on a stand-alone company separate from WDC during the periods presented.

Parent Company Net Investment

Parent company net investment on the Condensed Combined Balance Sheets represents WDC’s historical investment in the Company, the net effect of transactions with and allocations from WDC, the Company’s retained earnings and the allocation to the Company of cumulative effect adjustments from the adoption of new accounting standards.

Net Transfers from (to) Parent

A reconciliation of Net transfers from (to) Parent on the Condensed Combined Statements of Changes in Parent Company Net Investment to the corresponding amounts on the Condensed Combined Statements of Cash Flows is as follows:

			Six Months Ended
			December 27, 2024						December 29, 2023
			(in millions)
Net transfers from Parent per Condensed Combined Statements of Changes in Parent Company Net Investment			$	491					$	171
Liability for unrecognized tax benefits transferred from Parent			14						—
Accumulated other comprehensive loss transferred from Parent			6						—
Strategic investments transferred from Parent			(7)						—
Other assets and liabilities, net transferred from Parent			(37)						—
Property, plant and equipment, net transferred from Parent			(25)						(2)
Notes due to Parent transferred from Parent			(673)						—
Notes due from Parent transferred to Parent			—						113
Deferred taxes, net transferred from Parent			—						(8)
Net transfers from (to) Parent per Condensed Combined Statements of Cash Flows			$	(231)					$	274

SANDISK CORPORATION

NOTES TO CONDENSED COMBINED FINANCIAL STATEMENTS

(Unaudited)

Note 10. Leases and Other Commitments

Leases

The Company leases certain domestic and international facilities and data center space under long-term, non-cancelable operating leases that expire at various dates through fiscal year 2039. These leases include no material variable or contingent lease payments. Operating lease assets and liabilities are recognized based on the present value of the remaining lease payments discounted using the Company’s incremental borrowing rate. Operating lease assets also include prepaid lease payments minus any lease incentives. Extension or termination options present in the Company’s lease agreements are included in determining the right-of-use asset and lease liability when it is reasonably certain the Company will exercise those options. Lease expense is recognized on a straight-line basis over the lease term.

The following table presents right-of-use lease assets and lease liabilities included in the Company’s Condensed Combined Balance Sheets:

			December 27, 2024						June 28, 2024
			(in millions)
Operating lease right-of-use assets (included in other non-current assets)			$	191					$	179
Operating lease liabilities:
Current portion of long-term operating lease liabilities (included in accrued expenses)			17						11
Long-term operating lease liabilities (included in other liabilities)			179						171
Total operating lease liabilities			$	196					$	182

The following table summarizes supplemental disclosures of operating cost and cash flow information related to operating leases:

			Three Months Ended												Six Months Ended
			December 27, 2024						December 29, 2023						December 27, 2024						December 29, 2023
			(in millions)
Cost of operating leases			$	8					$	7					$	16					$	13
Cash paid for operating leases			7						8						14						14
Operating lease assets obtained in exchange for operating lease liabilities			4						—						4						167

The weighted average remaining lease term and discount rate for the Company’s operating leases were as follows:

			December 27, 2024						June 28, 2024
Weighted average remaining lease term in years			12.6						13.7
Weighted average discount rate			7.4		%				7.5		%

SANDISK CORPORATION

NOTES TO CONDENSED COMBINED FINANCIAL STATEMENTS

(Unaudited)

As of December 27, 2024, minimum lease payments were as follows:

			Lease Amounts
			(in millions)
Minimum lease payments by fiscal year:
Remaining six months of 2025			$	14
2026			30
2027			28
2028			20
2029			20
Thereafter			198
Total future minimum lease payments			310
Less: Imputed interest			114
Present value of lease liabilities			$	196

Sale-Leaseback

In September 2023, WDC completed a sale and leaseback of its facility in Milpitas, California and received net proceeds of $191 million in cash. A substantial majority of these assets are associated with the Company, and as a result, $134 million of the net proceeds from the sale-leaseback transaction has been allocated to us on a relative square footage basis and reflected as a cash inflow from investing activities within the Condensed Combined Statements of Cash Flows for the six months ended December 29, 2023. In connection with the sale and leaseback, the Company recorded a gain of $60 million upon the closing of the transaction. For more information, see Part 1, Item 1, Note 13, Employee Termination and Other Charges of the Notes to Condensed Combined Financial Statements included in this Quarterly Report on Form 10-Q.

The property is being leased back to the Company at a total annual rate of $16 million for the first year and increasing by 3% per year thereafter through January 1, 2039. The lease includes three five-year renewal options and one four-year renewal option for the ability to extend through December 2057. The associated operating lease liability and right-of-use asset for this facility has been included in the Condensed Combined Balance Sheets as of December 27, 2024 and June 28, 2024. This facility is utilized in the Company’s operations, and the total lease expense has been allocated to the Company based on the continued usage of the facility.

Purchase Agreements and Other Commitments

In the normal course of business, the Company enters into purchase orders with suppliers for the purchase of components used to manufacture its products. These purchase orders generally cover forecasted component supplies needed for production during the coming months, are recorded as a liability upon receipt of the components, and generally may be changed or canceled at any time prior to shipment of the components. The Company also enters into long-term agreements with suppliers that contain fixed future commitments, which are contingent upon certain conditions such as performance, quality and technology of the vendor’s components. As of December 27, 2024, the Company had the following minimum long-term commitments:

			Long-term commitments
			(in millions)
Fiscal year:
Remaining six months of 2025			$	26
2026			496
2027			586
2028			570
2029			570
Thereafter			660
Total			$	2,908

SANDISK CORPORATION

NOTES TO CONDENSED COMBINED FINANCIAL STATEMENTS

(Unaudited)

Note 11. Stock-based Compensation Expense

The table below summarizes the total costs charged to the Company related to the Company’s employees’ participation in WDC’s equity incentive plan during the periods presented:

			Three Months Ended												Six Months Ended
			December 27, 2024						December 29, 2023						December 27, 2024						December 29, 2023
			(in millions)
Cost of revenue			$	3					$	5					$	9					$	10
Research and development			20						17						40						35
Selling general, and administrative			25						15						40						32
Total			$	48					$	37					$	89					$	77

The total unrecognized stock-based compensation expense associated with our employees was $303 million as of December 27, 2024. The total unrecognized stock-based expense relates to employees of WDC who will be employees of the Company after the separation.

Note 12. Income Tax Expense

The Tax Cuts and Jobs Act (the “2017 Act”), enacted on December 22, 2017, includes a broad range of tax reform proposals affecting businesses. WDC completed its accounting for the tax effects of the enactment of the 2017 Act during the second quarter of 2019. However, the U.S. Treasury and the Internal Revenue Service have issued tax guidance on certain provisions of the 2017 Act since the enactment date, and the Company anticipates the issuance of additional regulatory and interpretive guidance. WDC applied a reasonable interpretation of the 2017 Act along with the then-available guidance in finalizing its accounting for the tax effects of the 2017 Act. Any additional regulatory or interpretive guidance would constitute new information, which may require further refinements to the Company’s estimates in future periods.

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 was effective for the Company beginning with fiscal year 2024. The Company does not expect to be subject to the CAMT of 15% for fiscal year 2025 as its average annual 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 (“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 the Company in fiscal year 2025. For fiscal year 2025, the Company currently expects to be able to meet certain transitional safe harbors and does not expect any material Pillar Two taxes. As more jurisdictions adopt this legislation in fiscal year 2026, there may be material increases in the Company’s future tax obligations in certain jurisdictions.

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

			Three Months Ended												Six Months Ended
			December 27, 2024						December 29, 2023						December 27, 2024						December 29, 2023
			($ in millions)
Income (loss) before taxes			$	173					$	(260)					$	440					$	(754)
Income tax expense			69						41						125						65
Effective tax rate			40		%				(16)		%				28		%				(9)		%

Beginning in fiscal year 2023, the 2017 Act requires the Company 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 the effective tax rate for the three and six months ended December 27, 2024 and December 29, 2023.

SANDISK CORPORATION

NOTES TO CONDENSED COMBINED FINANCIAL STATEMENTS

(Unaudited)

The relative mix of earnings and losses by jurisdiction, the deduction for foreign-derived intangible income, credits and tax holidays in Malaysia that have or will expire at various dates during years 2025 through 2031 resulted in decreases to the effective tax rate below the U.S. 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 the effective tax rate being closer to the U.S. Federal statutory rate for the three and six months ended December 27, 2024.

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% are the relative mix of earnings and losses by jurisdiction, the deduction for foreign-derived intangible income, credits and tax holidays in Malaysia.

Uncertain Tax Positions

With the exception of certain unrecognized tax benefits that are directly associated with the tax position taken, unrecognized tax benefits are presented gross in the Condensed Combined Balance Sheets.

The following is a tabular reconciliation of the total amounts of unrecognized tax benefits, excluding accrued interest and penalties for the six months ended December 27, 2024:

			(in millions)
Accrual balance at June 28, 2024			$	47
Gross increases related to prior year tax positions			17
Gross increases related to current year tax positions			3
Gross decrease related to prior year tax positions			(7)
Accrual balance at December 27, 2024			$	60

As of December 27, 2024 and June 28, 2024, the liability for unrecognized tax benefits (excluding accrued interest and penalties) was $60 million and $47 million, respectively. Interest and penalties related to unrecognized tax benefits are recognized in liabilities recorded for uncertain tax positions and are recorded in the provision for income taxes. Accrued interest and penalties included in the Company’s liability related to unrecognized tax benefits as of December 27, 2024 and June 28, 2024 was $6 million and $9 million, respectively.

The Company believes that adequate provision has been made for any adjustments that may result from any other tax examinations. However, the outcome of such tax examinations cannot be predicted with certainty. If any issues addressed in the Company’s tax examinations are resolved in a manner not consistent with management’s expectations, the Company could be required to adjust its provision for income taxes in the period such resolution occurs. Any significant change in the amount of the Company’s liability for unrecognized tax benefits would most likely result from additional information relating to the examination of the Company’s tax returns.

Note 13. Employee Termination and Other Charges

Business Realignment

The Company periodically incurs charges to realign its operations with anticipated market demand, primarily consisting of organization rationalization designed to streamline its business, reduce its cost structure and focus its resources. The Company has taken actions to reduce the amount of capital invested in facilities, including the sale-leaseback of its facility in Milpitas, California, in September 2023, as discussed in Part 1, Item 1, Note 10, Leases and Other Commitments of the Notes to Condensed Combined Financial Statements included in this Quarterly Report on Form 10-Q.

The Company recorded the following net charges related to these actions for the periods presented:

			Three Months Ended												Six Months Ended
			December 27, 2024						December 29, 2023						December 27, 2024						December 29, 2023
			(in millions)
Employee termination benefits			$	2					$	13					$	2					$	14
Contract termination and other			1						—						3						—
Gain on sale-leaseback of facility			—						—						—						(60)
Total employee termination and other charges			$	3					$	13					$	5					$	(46)

SANDISK CORPORATION

NOTES TO CONDENSED COMBINED FINANCIAL STATEMENTS

(Unaudited)

The termination benefits accrual balance as of December 27, 2024 and the periodic activity during the three and six months ended December 27, 2024 were not material.

Note 14. Legal Proceedings

In the normal course of business, the Company is subject to legal proceedings, lawsuits and other claims. Although the ultimate aggregate amount of reasonably possible monetary liability or financial impact with respect to these other matters is subject to many uncertainties, management believes that any monetary liability or financial impact to the Company from these matters, individually and in the aggregate, would not be material to the Company’s financial condition, results of operations or cash flows. However, any monetary liability and financial impact to the Company from these matters could differ materially from the Company’s expectations.

Note 15. Subsequent Events

Completion of the spin-off

On January 31, 2025, the Company’s Form 10 was declared effective by the SEC.

On February 21, 2025, the Company completed its spin-off from WDC (the “Spin-Off”) through WDC’s pro rata distribution of 80.1% of the outstanding shares of common stock of the Company to WDC’s existing stockholders. Each of WDC’s stockholders received one-third (1/3) of one share of the Company’s common stock for each share of WDC’s common stock held by such WDC stockholder as of February 12, 2025, the record date of the distribution. Upon completion of the Spin-Off, WDC owned 19.9% of the outstanding shares of the Company’s common stock, which WDC is expected to retain for a period of up to 12 months following the separation. The Company is also subject to various agreements with WDC in connection with the separation. On February 24, 2025, the Company began trading as an independent, publicly traded company under the stock symbol “SNDK” on the Nasdaq Stock Market LLC (“Nasdaq”).

In connection with, and as of the closing date of the Spin-Off, on February 21, 2025, the Company entered into definitive agreements with WDC that set forth the terms and conditions of the Spin-Off and provide a framework for WDC’s relationship with the Company following the Spin-Off. These agreements include the Separation and Distribution Agreement (as described below), which contains certain key provisions related to the Spin-Off, as well as a Transition Services Agreement, a Tax Matters Agreement, an Employee Matters Agreement, an Intellectual Property Cross-License Agreement, a Transitional Trademark License Agreement, and a Stockholder and Registration Rights Agreement, as described in and filed as Exhibits to the Company’s Current Report on Form 8-K on February 24, 2025. Additionally, the Company adopted certain compensation plans, which were filed as Exhibits to our Form 10.

Loan Agreement

On February 21, 2025, the Company entered into a Loan Agreement (the “Loan Agreement”) by and among the Company, the lenders party thereto, JPMorgan Chase Bank, N.A., as administrative agent and collateral agent and the other parties party thereto. The Loan Agreement comprises a term loan B facility in the principal amount of $2 billion (the “Term Loan Facility”) and a revolving credit facility in the principal amount of $1.5 billion (the “Revolving Credit Facility” and together with the Term Loan Facility, the “Facilities”). The Term Loan Facility bears interest, at the Company’s option, at (x) the Adjusted Term SOFR Rate (as defined in the Loan Agreement) plus an interest rate margin of 3.00% per annum or (y) a base rate plus an interest rate margin of 2.00% per annum. The Term Loan Facility will mature on February 20, 2032, and amortizes at 1.00% per annum.

Borrowings under the Revolving Credit Facility, for U.S. dollar borrowings, will bear interest, at the Company’s option, at (x) the Adjusted Term SOFR Rate (as defined in the Loan Agreement), which rate includes a credit spread adjustment of 0.10%, plus an interest rate margin of 2.00% per annum (subject to step-ups based on the Company’s Leverage Ratio (as defined in the Loan Agreement)), or (y) a base rate plus an interest rate margin of 1.00% per annum (subject to step-ups based on the Company’s Leverage Ratio (as defined in the Loan Agreement)). The Company will pay a commitment fee of 0.30% per annum (subject to step-ups based on the Company’s Leverage Ratio (as defined in the Loan Agreement)) in respect of undrawn revolving commitments under the Revolving Credit Facility. The Revolving Credit Facility will also provide for borrowings in Euros, Yen and additional currencies agreed to by the lenders under the Revolving Credit Facility. The Revolving Credit Facility will mature on February 21, 2030, at which time the commitments thereunder shall be terminated and will not have any amortization.

SANDISK CORPORATION

NOTES TO CONDENSED COMBINED FINANCIAL STATEMENTS

(Unaudited)

The obligations under the Loan Agreement are guaranteed by the Company’s wholly owned subsidiary, Sandisk Technologies, Inc. (“SDT”) and are required to be guaranteed by any of the Company’s future material U.S. wholly owned subsidiaries, subject to certain exceptions outlined in the Loan Agreement. The obligations under the Loan Agreement are secured by the Company’s assets and SDT’s assets and are required to be secured by the assets of any of the Company’s future material U.S. wholly owned subsidiaries, subject, in each case, to certain exceptions outlined in the Loan Agreement.

The Loan Agreement includes certain restrictions (subject to certain exceptions outlined in the Loan Agreement) on the ability of the Company and its subsidiaries to undertake certain activities, including to incur indebtedness and liens, merge or consolidate with other entities, dispose or transfer their assets, pay dividends or make distributions, make investments, make payments on junior or subordinated debt, enter into burdensome agreements or transact with affiliates. The Loan Agreement also includes a financial covenant, which is solely for the benefit of the lenders under the Revolving Credit Facility, that requires the Company to maintain a maximum Leverage Ratio (as defined in the Loan Agreement).

On February 21, 2025, the Company borrowed $2 billion under its Term Loan Facility. The Company used a portion of the proceeds of the borrowing to pay a dividend to WDC in the amount of approximately $1.5 billion, with the remainder to be used for general corporate purposes of the Company. The Revolving Credit Facility may be borrowed by the Company from time to time for general corporate purposes.

In connection with the Loan Agreement, the Company and SDT entered into a security agreement (the “Security Agreement”) to secure the obligations under the Facilities on a first-priority basis (subject to permitted liens) by a lien on substantially all the assets and properties of the Company and SDT, subject to certain exceptions.

In connection with the Loan Agreement, the Company (solely with respect to obligations of any additional Borrower under the Loan Agreement) and SDT entered into a guaranty agreement (the “Guaranty Agreement”) to secure and unconditionally guarantee the obligations under the Loan Agreement, respectively, in each case subject to certain exceptions.

The foregoing description of the Loan Agreement, Security Agreement and Guaranty Agreement do not purport to be complete and are subject to, and qualified in its entirety by, the full text of the Loan Agreement, Security Agreement and Guaranty Agreement, copies of which are filed as Exhibits 10.7 to 10.9 hereto and are incorporated herein by reference.

Potential Impairment of Goodwill and Long-lived Assets

Subsequent to the completion of the separation, the Company identified potential impairment indicators related to the trading price of the Company’s common stock and a resulting market capitalization that was below its December 27, 2024 net book value. In accordance with Accounting Standards Codification No. 350, Intangibles - Goodwill and Other, the Company initiated a quantitative analysis of potential impairment of goodwill and long-lived assets. That analysis is ongoing, and the Company believes it is more likely than not that it will record an impairment charge in the three months ending March 28, 2025. See Part 1, Item 1, Note 5, Supplemental Financial Statement Data, for information about how goodwill is tested for impairment.

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