Item 1. Financial Statements (unaudited)

WESTERN DIGITAL CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(in millions, except par value)

(Unaudited)

			January 2, 2026						June 27, 2025
ASSETS
Current assets:
Cash and cash equivalents			$	1,975					$	2,114
Accounts receivable, net			1,685						1,486
Inventories			1,349						1,291
Retained interest in Sandisk			2,068						354
Other current assets			454						611
Total current assets			7,531						5,856
Property, plant and equipment, net			2,352						2,343
Goodwill			4,319						4,319
Other non-current assets			1,409						1,484
Total assets			$	15,611					$	14,002
LIABILITIES, CONVERTIBLE PREFERRED STOCK AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable			$	1,497					$	1,266
Accrued expenses			771						719
Accrued compensation			459						407
Income taxes payable			223						800
Current portion of long-term debt			2,226						2,226
Total current liabilities			5,176						5,418
Long-term debt			2,429						2,485
Other liabilities			666						559
Total liabilities			8,271						8,462
Commitments and contingencies (Notes 8 and 14)
Convertible preferred stock, $0.01 par value; authorized — 5 shares; issued and outstanding — 0.2 shares as of both January 2, 2026 and June 27, 2025; aggregate liquidation preference of $265 as of both January 2, 2026 and June 27, 2025			229						229
Shareholders’ equity:
Common stock, $0.01 par value; authorized — 750 shares; issued — 349 shares as of both January 2, 2026 and June 27, 2025; issued and outstanding — 340 shares and 347 shares as of January 2, 2026 and June 27, 2025, respectively			3						3
Additional paid-in capital			4,502						4,621
Accumulated other comprehensive income			18						20
Retained earnings			3,697						762
Treasury stock — common shares at cost; 9 shares and 2 shares			(1,109)						(95)
Total shareholders’ equity			7,111						5,311
Total liabilities, convertible preferred stock and shareholders’ equity			$	15,611					$	14,002

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

WESTERN DIGITAL CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in millions, except per share amounts)

(Unaudited)

			Three Months Ended												Six Months Ended
			January 2, 2026						December 27, 2024						January 2, 2026						December 27, 2024
Revenue, net			$	3,017					$	2,409					$	5,835					$	4,621
Cost of revenue			1,637						1,502						3,228						2,908
Gross profit			1,380						907						2,607						1,713
Operating expenses:
Research and development			289						225						583						487
Selling, general and administrative			128						132						266						336
Litigation matter			—						—						—						3
Business realignment charges			55						(10)						58						(7)
Total operating expenses			472						347						907						819
Operating income			908						560						1,700						894
Interest and other income (expense):
Interest income			12						9						29						16
Interest expense			(54)						(93)						(113)						(192)
Gain on retained interest in Sandisk			1,103						—						1,714						—
Other income (expense), net			(7)						(10)						(31)						(9)
Total interest and other income (expense), net			1,054						(94)						1,599						(185)
Income before taxes			1,962						466						3,299						709
Income tax expense			120						—						275						90
Net income from continuing operations			1,842						466						3,024						619
Net income from discontinued operations, net of taxes			—						128						—						468
Net income			$	1,842					$	594					$	3,024					$	1,087
Net income per common share:
Basic:
Continuing operations			$	5.27					$	1.32					$	8.60					$	1.74
Discontinued operations			—						0.36						—						1.34
Net income per common share			5.27						1.68						8.60						3.08
Diluted:
Continuing operations			4.73						1.27						7.82						1.69
Discontinued operations			—						0.36						—						1.29
Net income per common share			4.73						1.63						7.82						2.98

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

WESTERN DIGITAL CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in millions)

(Unaudited)

			Three Months Ended												Six Months Ended
			January 2, 2026						December 27, 2024						January 2, 2026						December 27, 2024
Net income			$	1,842					$	594					$	3,024					$	1,087
Other comprehensive income (loss), before tax:
Foreign currency translation adjustment			—						(100)						—						21
Net unrealized gain (loss) on derivative contracts			3						(169)						(4)						74
Total other comprehensive income (loss), before tax			3						(269)						(4)						95
Income tax benefit (expense) related to items of other comprehensive income (loss), before tax			1						36						2						(16)
Other comprehensive income (loss), net of tax			4						(233)						(2)						79
Total comprehensive income			$	1,846					$	361					$	3,022					$	1,166

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

WESTERN DIGITAL CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in millions)

(Unaudited)

			Six Months Ended
			January 2, 2026						December 27, 2024
Cash flows from operating activities
Net income			$	3,024					$	1,087
Adjustments to reconcile net income to net cash provided by operations:
Depreciation and amortization			180						255
Stock-based compensation			106						161
Deferred income taxes			84						26
Gain on business divestiture			—						(113)
Gain on retained interest in Sandisk			(1,714)						—
Other non-cash operating activities, net			12						62
Changes in:
Accounts receivable, net			(199)						(431)
Inventories			(55)						(112)
Accounts payable			219						242
Accounts payable to related parties			—						(54)
Accrued expenses			42						109
Accrued compensation			51						(76)
Income taxes payable			(577)						(57)
Other assets and liabilities, net			244						(662)
Net cash provided by operating activities			1,417						437
Cash flows from investing activities
Purchases of property, plant and equipment			(165)						(212)
Proceeds from the sale of property, plant and equipment			—						4
Net proceeds from business divestiture			—						191
Notes receivable issuances to Flash Ventures			—						(266)
Notes receivable proceeds from Flash Ventures			—						182
Distribution from Flash Ventures			—						176
Strategic investments and other, net			(8)						3
Net cash provided by (used in) investing activities			(173)						78
Cash flows from financing activities
Issuance of stock under employee stock plans			32						52
Taxes paid on vested stock awards under employee stock plans			(95)						(80)
Repurchases of common stock			(1,168)						—
Dividends paid to common shareholders			(77)						—
Dividends paid to preferred shareholders			(10)						—
Repayments of debt			(63)						(225)
Proceeds from debt			—						150
Net cash used in financing activities			(1,381)						(103)
Effect of exchange rate changes on cash			(2)						—
Net increase (decrease) in cash and cash equivalents			(139)						412
Cash and cash equivalents, beginning of period			2,114						1,879
Cash and cash equivalents, end of period			$	1,975					$	2,291
Supplemental disclosure of cash flow information:
Cash paid for income taxes			$	524					$	673
Cash paid for interest			$	104					$	177

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

WESTERN DIGITAL CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CONVERTIBLE PREFERRED STOCK AND SHAREHOLDERS’ EQUITY

(in millions)

(Unaudited)

			Convertible Preferred Stock															Common Stock												Treasury Stock												Additional Paid-In Capital						Accumulated Other Comprehensive Income						Retained Earnings						Total Shareholders’ Equity
			Shares						Amount									Shares						Amount			Shares						Amount
Balance at June 27, 2025			0.2						$	229								349						$	3					(2)						$	(95)					$	4,621					$	20					$	762					$	5,311
Net income			—						—									—						—						—						—						—						—						1,182						1,182
Employee stock plans			—						—									—						—						1						69						(125)						—						—						(56)
Stock-based compensation			—						—									—						—						—						—						53						—						—						53
Repurchases of common stock			—						—									—						—						(6)						(557)						—						—						—						(557)
Common stock dividends			—						—									—						—						—						—						1						—						(35)						(34)
Preferred stock dividends			—						—									—						—						—						—						—						—						(5)						(5)
Net unrealized loss on derivative contracts, net of taxes			—						—									—						—						—						—						—						(6)						—						(6)
Balance at October 3, 2025			0.2						229									349						3						(7)						(583)						4,550						14						1,904						5,888
Net income			—						—									—						—						—						—						—						—						1,842						1,842
Employee stock plans			—						—									—						—						2						93						(102)						—						—						(9)
Stock-based compensation			—						—									—						—						—						—						53						—						—						53
Repurchases of common stock			—						—									—						—						(4)						(619)						—						—						—						(619)
Common stock dividends			—						—									—						—						—						—						1						—						(44)						(43)
Preferred stock dividends			—						—									—						—						—						—						—						—						(5)						(5)
Net unrealized gain on derivative contracts, net of taxes			—						—									—						—						—						—						—						4						—						4
Balance at January 2, 2026			0.2						$	229								349						$	3					(9)						$	(1,109)					$	4,502					$	18					$	3,697					$	7,111

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

WESTERN DIGITAL CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CONVERTIBLE PREFERRED STOCK AND SHAREHOLDERS’ EQUITY

(in millions)

(Unaudited)

			Convertible Preferred Stock															Common Stock																		Additional Paid-In Capital						Accumulated Other Comprehensive Loss						Retained Earnings						Total Shareholders’ Equity
			Shares						Amount									Shares						Amount
Balance at June 28, 2024			0.2						$	229								343						$	3																	$	4,752					$	(712)					$	6,775					$	10,818
Net income			—						—									—						—																		—						—						493						493
Employee stock plans			—						—									3						—																		(64)						—						—						(64)
Stock-based compensation			—						—									—						—																		84						—						—						84
Foreign currency translation adjustment			—						—									—						—																		—						121						—						121
Net unrealized gain on derivative contracts, net of taxes			—						—									—						—																		—						191						—						191
Balance at September 27, 2024			0.2						229									346						3																		4,772						(400)						7,268						11,643
Net income			—						—									—						—																		—						—						594						594
Employee stock plans			—						—									2						—																		36						—						—						36
Stock-based compensation			—						—									—						—																		77						—						—						77
Foreign currency translation adjustment			—						—									—						—																		—						(100)						—						(100)
Net unrealized loss on derivative contracts, net of taxes			—						—									—						—																		—						(133)						—						(133)
Balance at December 27, 2024			0.2						$	229								348						$	3																	$	4,885					$	(633)					$	7,862					$	12,117

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

WESTERN DIGITAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1. Organization and Basis of Presentation

Western Digital Corporation (“Western Digital” or the “Company”) is a leading developer, manufacturer, and provider of data storage devices and solutions based on hard disk drives (“HDD”) technologies.

The Company manufactures, markets, and sells data storage devices and solutions globally through its sales personnel, dealers, distributors, retailers, and subsidiaries. Its extensive portfolio of technology and products addresses the following key end markets: Cloud, Client, and Consumer. Cloud is comprised primarily of products for public or private cloud environments and enterprise customers. Through the Client end market, the Company provides its original equipment manufacturer (“OEM”) and channel customers a broad array of high-performance HDD solutions across desktop and notebooks. The Consumer end market provides a wide range of retail and other end-user products, which capitalize on the strength of the Company’s product brand recognition and vast presence around the world.

The accounting policies followed by the Company are set forth in Part II, Item 8, Note 1, Organization and Basis of Presentation, of the Notes to Consolidated Financial Statements included in the Company’s Annual Report on Form 10‑K for the year ended June 27, 2025 (the “2025 Annual Report on Form 10-K”). In the opinion of management, all adjustments necessary to fairly state the Condensed Consolidated Financial Statements prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) have been made. Such adjustments consist of items of a normal, recurring nature. Certain information and disclosures normally included in the Consolidated Financial Statements have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). These Condensed Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and the notes thereto included in the 2025 Annual Report on Form 10‑K. The results of operations for interim periods are not necessarily indicative of results to be expected for the full year.

Information provided herein for the three and six months ended December 27, 2024 is presented on a continuing operations basis to reflect the impact of the Separation of the Company’s Flash business as discussed in further detail in Note 4, Discontinued Operations.

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, the Company reports a 53-week fiscal year to align the fiscal year with the foregoing policy. Fiscal year 2026, which will end on July 3, 2026, will be comprised of 53 weeks, with the first quarter consisting of 14 weeks and the remaining quarters consisting of 13 weeks each. Fiscal year 2025, which ended on June 27, 2025, was comprised of 52 weeks, with all quarters presented consisting of 13 weeks. 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 consolidated continuing operations basis.

Segment Reporting

The Company’s Chief Executive Officer is the Company’s Chief Operating Decision Maker (“CODM”). The CODM manages the business as a provider of data storage devices based on HDD technology. The CODM evaluates the performance of the Company and makes decisions regarding the allocation of resources based on the Company’s Net income from continuing operations and Total assets. The Company has therefore determined that it has one reportable segment.

Use of Estimates

Company 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; however, actual results could differ materially.

WESTERN DIGITAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 2. Recent Accounting Pronouncements

Recently Issued Accounting Pronouncements Not Yet Adopted

In December 2025, the Financial Accounting Standards Board (“FASB”) issued accounting standards update (“ASU”) No. 2025-10, “Government Grants (Topic 832): Accounting for Government Grants Received by Business Entities” (“ASU 2025-10”), which establishes guidance on the recognition, measurement, and presentation of government grants. The standard may be adopted using a full retrospective, modified retrospective, or modified prospective transition method. ASU 2025-10 is effective for the year beginning June 30, 2029, and interim periods within that year, with early adoption permitted. The Company is currently assessing the impact of this guidance on its condensed consolidated financial statements and related disclosures.

In November 2025, the FASB issued ASU No. 2025-09, “Derivatives and Hedging (Topic 815): Hedge Accounting Improvements” (“ASU 2025-09”), which introduces targeted improvements to better align hedge accounting with entities’ risk management activities. ASU 2025-09 is effective for the year beginning July 3, 2027, and interim periods within that year, with early adoption permitted. The Company is currently assessing the impact of this guidance on its condensed consolidated financial statements and related disclosures.

In September 2025, the FASB issued ASU No. 2025-07, “Derivatives and Hedging (Topic 815) and Revenue from Contracts with Customers (Topic 606): Derivatives Scope Refinements and Scope Clarification for Share-Based Noncash Consideration from a Customer in a Revenue Contract” (“ASU 2025-07”), which (i) expands the scope exception of Topic 815 to exclude certain contracts with a variable that is based on operations or activities specific to one of the parties to the contract and (ii) clarifies the scope of share-based payments from a customer in a revenue contract. ASU 2025-07 is effective for the year beginning July 3, 2027, and interim periods within that year. Early adoption is permitted and must be applied as of the beginning of the fiscal year that includes the interim period. The Company currently does not expect this standard to have a material impact on its condensed consolidated financial statements and related disclosures.

In September 2025, the FASB issued ASU No. 2025-06, “Intangibles – Goodwill and Other – Internal-Use Software (Topic 350): Targeted Improvements to the Accounting for Internal-Use Software” (“ASU 2025-06”). ASU 2025-06 amends existing references to prescriptive and sequential software development stages to better align with current software development methods, such as agile development. Under the new standard, entities will begin to capitalize eligible software costs when (i) management has authorized and committed to funding the software project, and (ii) it is probable that the project will be completed and the software will be used to perform the function intended. ASU 2025-06 is effective for the year beginning July 1, 2028, and interim periods within that year, with early adoption permitted. The Company is currently assessing the impact of this standard on its condensed consolidated financial statements and related disclosures.

In November 2024, the FASB issued ASU No. 2024-03, “Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses” (“ASU 2024-03”), 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 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 in its annual report for the year ending June 30, 2028.

WESTERN DIGITAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

In December 2023, the FASB issued ASU No. 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures” (“ASU 2023-09”). ASU 2023-09 calls for enhanced income tax disclosure requirements surrounding the tabular rate reconciliation and income taxes paid. This standard is effective on either a prospective or retrospective basis. These incremental disclosures will be required beginning with the Company’s financial statements for the year ending July 3, 2026. The Company is currently compiling the information required for these disclosures and expects to provide any required disclosures in its annual report for the year ending July 3, 2026.

WESTERN DIGITAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 3. Disaggregated Revenue, Geographic Information, Concentrations of Risk, and Segment Reporting

The following table summarizes the Company’s disaggregated revenue:

			Three Months Ended												Six Months Ended
			January 2, 2026						December 27, 2024						January 2, 2026						December 27, 2024
			(in millions)
Revenue by end market
Cloud			$	2,673					$	2,096					$	5,183					$	4,005
Client			176						140						322						279
Consumer			168						173						330						337
Total revenue			$	3,017					$	2,409					$	5,835					$	4,621
Revenue by geography(1)
Americas			$	1,291					$	1,039					$	2,391					$	2,286
Asia			1,117						910						2,292						1,596
Europe, Middle East and Africa			609						460						1,152						739
Total revenue			$	3,017					$	2,409					$	5,835					$	4,621

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

The Company’s top 10 customers accounted for 76% and 77%, respectively, of its net revenue for the three and six months ended January 2, 2026, compared to 67% and 65%, respectively, of its net revenue for the three and six months ended December 27, 2024. For the three months ended January 2, 2026, three customers accounted for 15%, 14%, and 14%, respectively, of the Company’s net revenue, and for the six months ended January 2, 2026, three customers accounted for 17%, 15%, and 14%, respectively, of the Company’s net revenue. For the three months ended December 27, 2024, two customers accounted for 18% and 13%, respectively, of the Company’s net revenue, and for the six months ended December 27, 2024, two customers accounted for 18% and 11%, respectively, of the Company’s net revenue.

As of January 2, 2026 and June 27, 2025, net accounts receivable were $1.69 billion and $1.49 billion, respectively, and reserves for potential credit losses were not material. As of January 2, 2026, three customers accounted for 24%, 14%, and 14%, respectively, of the Company’s net accounts receivable, and as of June 27, 2025, three customers accounted for 20%, 19%, and 12%, respectively, of the Company’s net accounts receivable.

WESTERN DIGITAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The following table is a reconciliation of the Company’s measure of segment profit or loss, significant segment expenses and other segment items:

			Three Months Ended												Six Months Ended
			January 2, 2026						December 27, 2024						January 2, 2026						December 27, 2024
			(in millions)
Revenue, net			$	3,017					$	2,409					$	5,835					$	4,621
Less: Significant expenses and other segment items
Cost of revenue(1)			1,626						1,483						3,207						2,869
Research and development(1)			265						209						535						452
Selling, general and administrative(1)			107						126						218						302
Litigation matter			—						14						—						28
Business realignment charges			52						(10)						55						(7)
Stock-based compensation			53						30						106						87
Interest expense, net			42						84						84						176
Gain on retained interest in Sandisk			(1,103)						—						(1,714)						—
Other expense, net			3						6						5						2
Other segment items(2)			10						1						40						3
Income tax expense			120						—						275						90
Net income from continuing operations			$	1,842					$	466					$	3,024					$	619

(1) Excludes amounts related to stock-based compensation and other segment items which are presented separately in the table above.

(2) Other segment items include activity from strategic investments and other charges.

WESTERN DIGITAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 4. Discontinued Operations

On October 30, 2023, the Company announced that its Board of Directors had completed its strategic review of the business and, after evaluating a comprehensive range of alternatives, authorized the Company to pursue a plan to separate its HDD and Flash business units to create two independent, public companies. In connection with the Separation (as defined below), the Company incurred separation and transition costs, which are recorded as Business separation costs within discontinued operations in the Company’s Condensed Consolidated Financial Statements, as further detailed in the summary of Net income from discontinued operations, net of taxes, below.

On February 21, 2025, the Company completed the separation of its Flash business (the “Separation”) through a pro rata distribution of 80.1% of the outstanding shares of Sandisk Corporation (“Sandisk”) to Western Digital stockholders. The Separation is intended to be tax-free for U.S. federal income tax purposes. To reflect the completion of the Separation, the Company recorded a decrease in shareholders’ equity for the net book value of applicable assets and liabilities derecognized in connection with the Separation, net of the Company’s retained ownership interest, which was initially 19.9% and was based on the net book value of the applicable assets and liabilities derecognized. As a result of the Separation, Sandisk became an independent public company and Western Digital no longer consolidates Sandisk into the Company’s financial results. The historical results of operations of Sandisk are now reported in the Company’s Condensed Consolidated Financial Statements as discontinued operations for all periods prior to the Separation on February 21, 2025. Following the Separation, as the Company no longer controls or has the ability to exert significant influence over Sandisk, the Company measures, at fair value on a recurring basis, its retained ownership interest in Sandisk common stock (see additional information in Note 6, Fair Value Measurements and Investments). In June 2025, the Company disposed of 21.3 million shares of Sandisk common stock, along with $4 million in cash, in a tax-free exchange for $800 million principal amount of the Company’s Term Loan A-3 maturing in January 2027 (the “Term Loan A-3”). The Company expects to monetize its remaining stake in Sandisk to further reduce its debt within one year from the Separation date.

The Company entered into various agreements to effect the Separation and provide for the temporary framework of the relationship between Western Digital and Sandisk following the Separation, including, among others, a separation and distribution agreement, a tax matters agreement, and a transition services agreement. The transition services agreement provides for transition service support to be provided for various periods of time ranging up to 15 months. The amounts involved under these agreements are not expected to be material.

WESTERN DIGITAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The following table provides a summary of the historical results of Sandisk for the three and six months ended December 27, 2024 which have been reflected as Net income from discontinued operations, net of taxes in the Condensed Consolidated Statements of Operations:

						Three Months Ended						Six Months Ended
Net Income from Discontinued Operations, Net of Taxes						December 27, 2024
						(in millions)
Revenue, net						$	1,876					$	3,759
Cost of revenue						1,267						2,405
Operating expenses:
Research and development						277						534
Selling, general and administrative						106						144
Gain on business divestiture						(113)						(113)
Business separation costs						44						87
Business realignment charges						3						2
Operating income						292						700
Total interest and other expense, net						17						40
Income before taxes						275						660
Income tax expense						147						192
Net income from discontinued operations, net of taxes						$	128					$	468

Cash flows related to discontinued operations have not been segregated and are included in the Condensed Consolidated Statements of Cash Flows for all periods presented. The following table provides selected financial information related to cash flows from discontinued operations:

												Six Months Ended
Select Cash Flow Information from Discontinued Operations												December 27, 2024
												(in millions)
Purchases of property, plant and equipment												$	115
Depreciation and amortization												91
Stock-based compensation												74

WESTERN DIGITAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 5. Supplemental Financial Statement Data

Inventories

			January 2, 2026						June 27, 2025
			(in millions)
Inventories:
Raw materials and component parts			$	207					$	227
Work-in-process			785						785
Finished goods			357						279
Total inventories			$	1,349					$	1,291

Property, plant and equipment, net

			January 2, 2026						June 27, 2025
			(in millions)
Property, plant and equipment:
Land and improvements			$	225					$	225
Buildings and improvements			1,586						1,550
Machinery and equipment			6,649						6,488
Computer equipment and software			272						257
Furniture and fixtures			36						33
Construction-in-process			446						532
Property, plant and equipment, gross			9,214						9,085
Accumulated depreciation			(6,862)						(6,742)
Property, plant and equipment, net			$	2,352					$	2,343

Non-current assets

			January 2, 2026						June 27, 2025
			(in millions)
Non-current assets:
Deferred tax assets			$	925					$	1,007
Other non-current assets			484						477
Total non-current assets			$	1,409					$	1,484

WESTERN DIGITAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Product warranty accrual

Changes in the warranty accrual were as follows:

			Three Months Ended												Six Months Ended
			January 2, 2026						December 27, 2024						January 2, 2026						December 27, 2024
			(in millions)
Warranty accrual, beginning of period			$	160					$	119					$	152					$	142
Charges to operations			29						25						56						49
Utilization			(13)						(13)						(37)						(43)
Changes in estimate related to pre-existing warranties			1						(10)						6						(27)
Warranty accrual, end of period			$	177					$	121					$	177					$	121

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:

			January 2, 2026						June 27, 2025
			(in millions)
Warranty accrual:
Current portion			$	49					$	57
Long-term portion			128						95
Total warranty accrual			$	177					$	152

Other liabilities

			January 2, 2026						June 27, 2025
			(in millions)
Other liabilities:
Non-current portion of unrecognized tax benefits			$	207					$	163
Other non-current liabilities			459						396
Total other liabilities			$	666					$	559

Goodwill

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. Management performed goodwill impairment assessments and concluded there were no impairments for each of the three or six months ended January 2, 2026 and December 27, 2024. The carrying amount of goodwill was $4.32 billion as of both January 2, 2026 and June 27, 2025.

WESTERN DIGITAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Accumulated other comprehensive income

Accumulated other comprehensive income refers to expenses, gains, and losses that are recorded as an element of shareholders’ equity but are excluded from net income. The components of Accumulated other comprehensive income were as follows:

			Actuarial Pension Gains						Foreign Currency Translation Adjustment												Unrealized Gains on Derivative Contracts						Total Accumulated Other Comprehensive Income
			(in millions)
Balance at June 27, 2025			$	16					$	(2)											$	6					$	20
Other comprehensive loss before reclassifications			—						—												(1)						(1)
Amounts reclassified from accumulated other comprehensive income			—						—												(3)						(3)
Income tax benefit related to items of other comprehensive loss			—						—												2						2
Net current-period other comprehensive loss			—						—												(2)						(2)
Balance at January 2, 2026			$	16					$	(2)											$	4					$	18

During the three and six months ended January 2, 2026, the amounts reclassified from Accumulated other comprehensive income were losses related to foreign exchange contracts that were substantially charged to Cost of revenue in the Condensed Consolidated Statements of Operations.

As of January 2, 2026, all existing net gains related to cash flow hedges recorded in Accumulated other comprehensive income are expected to be reclassified to earnings within the next twelve months.

WESTERN DIGITAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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:

			January 2, 2026
			Level 1						Level 2						Level 3						Total
			(in millions)
Assets:
Retained interest in Sandisk			$	2,068					$	—					$	—					$	2,068
Cash equivalents - Money market funds			133						—						—						133
Foreign exchange contracts			—						13						—						13
Total assets at fair value			$	2,201					$	13					$	—					$	2,214
Liabilities:
Foreign exchange contracts			$	—					$	7					$	—					$	7
Total liabilities at fair value			$	—					$	7					$	—					$	7

			June 27, 2025
			Level 1						Level 2						Level 3						Total
			(in millions)
Assets:
Retained interest in Sandisk			$	354					$	—					$	—					$	354
Cash equivalents - Money market funds			285						—						—						285
Foreign exchange contracts			—						10						—						10
Total assets at fair value			$	639					$	10					$	—					$	649
Liabilities:
Foreign exchange contracts			$	—					$	4					$	—					$	4
Total liabilities at fair value			$	—					$	4					$	—					$	4

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.

WESTERN DIGITAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Financial Instruments Not Carried at Fair Value

For financial instruments where the carrying value (which includes principal adjusted for any unamortized issuance costs and discounts or premiums) differs from fair value (which is based on quoted market prices), the following table represents the related carrying value and fair value for each of the Company’s outstanding financial instruments. Each of the financial instruments presented below were categorized as Level 2 for all periods presented, based on the frequency of trading immediately prior to the end of the second quarter of 2026 and the fourth quarter of 2025, respectively.

			January 2, 2026												June 27, 2025
			Carrying Value						Fair Value						Carrying Value						Fair Value
			(in millions)
4.75% senior unsecured notes due 2026			$	500					$	500					$	500					$	499
Variable interest rate Term Loan A-3 maturing 2027			1,582						1,593						1,642						1,655
3.00% convertible notes due 2028			1,579						7,993						1,575						2,849
2.85% senior notes due 2029			498						478						498						463
3.10% senior notes due 2032			496						462						496						442
Total			$	4,655					$	11,026					$	4,711					$	5,908

WESTERN DIGITAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 7. Debt

Debt consisted of the following:

			January 2, 2026						June 27, 2025
			(in millions)
4.75% senior unsecured notes due 2026			$	500					$	500
Variable interest rate Term Loan A-3 maturing 2027			1,586						1,649
3.00% convertible notes due 2028			1,600						1,600
2.85% senior notes due 2029			500						500
3.10% senior notes due 2032			500						500
Total debt			4,686						4,749
Issuance costs			(31)						(38)
Subtotal			4,655						4,711
Less: current portion of long-term debt			(2,226)						(2,226)
Long-term debt			$	2,429					$	2,485

During the three and six months ended January 2, 2026, the Company made scheduled repayments of $32 million and $63 million, respectively, under Term Loan A-3. The Company intends to redeem or repay the outstanding $500 million aggregate principal amount of 4.75% senior unsecured notes due 2026 on or before the scheduled maturity date of February 15, 2026.

The Term Loan A-3 bears interest, at the Company’s option, at a base rate plus an applicable margin (as defined in the loan agreement governing the Term Loan A-3, which the Company refers to as the “Loan Agreement”). The all-in interest rate for Term Loan A-3 as of January 2, 2026 was 5.300%.

As of January 2, 2026, the Company had no outstanding standby letters of credit and the available capacity under the revolving credit facility maturing in January 2027 was $1.25 billion as of that date.

The Loan Agreement requires the Company to comply with a financial leverage ratio covenant. As of January 2, 2026, the Company was in compliance with the financial covenant.

As of January 2, 2026, the Company had outstanding $1.60 billion aggregate principal amount of convertible senior notes pursuant to an indenture dated as of November 3, 2023 (the “Indenture”), which bear interest at an annual rate of 3.00% and mature on November 15, 2028, unless earlier repurchased, redeemed or converted (the “2028 Convertible Notes”).

The 2028 Convertible Notes are convertible at the option of any holder beginning August 15, 2028, at a conversion price of approximately $37.74 per share of common stock (as of January 2, 2026, as adjusted in accordance with the Indenture as a result of the Separation and dividends paid on the Company’s common stock). Prior to August 15, 2028, if the trading price of the Company’s common stock remains above 130% of the conversion price for at least 20 trading days (whether or not consecutive) during the 30 consecutive trading-day period prior to the end of a calendar quarter, holders of the 2028 Convertible Notes would have the right to convert the 2028 Convertible Notes during the next succeeding calendar quarter. The 2028 Convertible Notes are also convertible prior to August 15, 2028 upon the occurrence of certain corporate events. Upon any conversion of the 2028 Convertible Notes, the Company 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 the Company’s common stock or a combination thereof, at the Company’s election, in respect of the remainder, if any, of its conversion obligation in excess of the aggregate principal amount of the notes being converted. On or after November 15, 2026, the Company may redeem for cash, at par plus accrued interest, all or any portion of the 2028 Convertible Notes, at its option, if the last reported sale price of the Company’s common stock has been at least 130% of the conversion price then in effect for at least 10 trading days during any 20 consecutive trading day period immediately preceding the date of the Company’s redemption notice.

WESTERN DIGITAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

During the calendar quarter ended December 31, 2025, the sale price conditional conversion feature of the 2028 Convertible Notes was triggered, which provides the holders of those notes with the right to convert during the succeeding calendar ending March 31, 2026. Similarly, during the calendar quarter ended June 30, 2025, the sale price conditional conversion feature of the 2028 Convertible Notes was also triggered, which then provided the holders with the right to convert during the succeeding calendar quarter ended September 30, 2025. Consequently, the Company classified the 2028 Convertible Notes in the Current portion of long-term debt in the Condensed Consolidated Financial Statements as of each of January 2, 2026 and June 27, 2025. The Company will continue to evaluate the conversion feature quarterly to determine if the 2028 Convertible Notes remain convertible in future periods.

In connection with the issuance of the 2028 Convertible Notes, the Company also entered into privately negotiated capped call transactions with certain counterparties (the “Capped Calls”). As of January 2, 2026, the Capped Calls each have a strike price of approximately $37.74 per share, as adjusted in accordance with the terms of the agreements and corresponds to the current conversion price of the 2028 Convertible Notes. The Capped Calls are subject to the same adjustments applicable to the conversion price of the 2028 Convertible Notes, which the Company expects will result in adjusted cap prices of approximately $50.43 per share, subject to certain adjustments. The Capped Calls are generally intended to reduce or offset the potential dilution to the Company’s common stock upon any conversion of the 2028 Convertible Notes with such reduction or offset, as the case may be, subject to a cap based on the cap price. If the market price per share of the Company’s common stock, as measured under the terms of the Capped Calls, exceeds the cap prices of the Capped Calls, there would not be an offset for the excess. The Capped Calls are separate transactions and not part of the terms of the 2028 Convertible Notes. As these transactions meet certain accounting criteria, the Capped Calls are recorded in shareholders’ equity and are not accounted for as derivatives.

WESTERN DIGITAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 8. 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 2034. 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 Consolidated Balance Sheets:

			January 2, 2026						June 27, 2025
			(in millions)
Operating lease right-of-use assets (included in Other non-current assets)			$	132					$	123
Operating lease liabilities:
Current portion of long-term operating lease liabilities (included in Accrued expenses)			33						31
Long-term operating lease liabilities (included in Other liabilities)			115						110
Total operating lease liabilities			$	148					$	141

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

			Three Months Ended												Six Months Ended
			January 2, 2026						December 27, 2024						January 2, 2026						December 27, 2024
			(in millions)
Cost of operating leases			$	9					$	7					$	18					$	17
Cash paid for operating leases			9						9						19						20
Operating lease assets obtained in exchange for operating lease liabilities			23						7						23						12

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

			January 2, 2026						June 27, 2025
Weighted average remaining lease term in years			5.9						6.1
Weighted average discount rate			5.1		%				5.0		%

WESTERN DIGITAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

As of January 2, 2026, minimum lease payments were as follows:

			Lease Amounts
			(in millions)
Remaining six months of 2026			$	19
2027			36
2028			28
2029			22
2030			17
Thereafter			49
Total future minimum lease payments			171
Less: imputed interest			23
Present value of lease liabilities			$	148

Purchase Obligations 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 next quarter, are recorded as a liability upon receipt of the components, and generally may be changed or canceled at any time prior to shipment of the components. The Company also enters into long-term agreements with suppliers that contain fixed future commitments, which are contingent on certain conditions, such as performance, quality and technology of the vendor’s components. As of January 2, 2026, the Company had the following minimum long-term commitments:

			Long-Term Commitments
			(in millions)
Remaining six months of 2026			$	32
2027			56
Total			$	88

WESTERN DIGITAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 9. Income Taxes

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

On August 16, 2022, the Inflation Reduction Act of 2022 was signed into law, which contained, among other things, a corporate alternative minimum tax (“CAMT”) of 15% on corporations with three-year average annual adjusted financial statement income (“AFSI”) exceeding $1.0 billion. Although CAMT became effective for the Company beginning with 2024, the Company was not subject to CAMT in 2024 and 2025. The Company does not expect to be subject to CAMT in 2026 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. Several non-U.S. jurisdictions have either enacted legislation or announced their intention to enact future legislation to adopt certain or all components of Pillar Two, also known as Global Minimum Tax (“GMT”). For 2026, the Company is subject to GMT in Malaysia, Thailand, and the Philippines.

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

			Three Months Ended												Six Months Ended
			January 2, 2026						December 27, 2024						January 2, 2026						December 27, 2024
			($ in millions)
Income before taxes			$	1,962					$	466					$	3,299					$	709
Income tax expense			120						—						275						90
Effective tax rate			6%						—%						8%						13%

The primary drivers of the difference between the effective tax rate for the three and six months ended January 2, 2026 and the U.S. Federal statutory rate of 21% are the relative mix of earnings and losses by jurisdiction, the deduction for FDDEI, tax credits, and the gain on the retained interest in Sandisk being tax-free due to the Separation of the Flash business. These resulted in decreases to the Company’s effective tax rate below the U.S. Federal statutory rate for the three and six months ended January 2, 2026. The Company’s income tax provision for the three and six months ended January 2, 2026 includes GMT for Malaysia as well as Thailand and the Philippines, countries for which the Company maintains tax holidays.

The primary drivers of the difference between the effective tax rate for the three and six months ended December 27, 2024 and the U.S. Federal statutory rate of 21% were the relative mix of earnings and losses by jurisdiction, tax credits, and tax holidays in Thailand and the Philippines. In addition, the effective tax rate for the six months ended December 27, 2024 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 U.S. Internal Revenue Service (“IRS”) calculations.

Liability for 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 Consolidated Balance Sheets.

WESTERN DIGITAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The following is a reconciliation of the total amounts of unrecognized tax benefits excluding accrued interest and penalties for the six months ended January 2, 2026 (in millions):

Accrual balance as of June 27, 2025			$	569
Gross increases related to current year tax positions			6
Gross increases related to prior year tax positions			34
Settlements			(1)
Lapse of statute of limitations			(1)
Accrual balance as of January 2, 2026			$	607

In addition to the amounts noted above, 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 January 2, 2026 was $97 million. Of the aggregate unrecognized tax benefits, including interest and penalties, approximately $130 million could result in potential cash payments to be made within the next twelve months.

The Company believes that an 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.

WESTERN DIGITAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 10. Business Realignment Charges

The Company periodically incurs charges to realign its business operations with anticipated market demand, primarily consisting of organization rationalization designed to streamline its business, reduce its cost structure, and focus its resources. These actions may result in charges for employee termination benefits or charges from the impairment of intangible assets and other long-lived assets.

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

			Three Months Ended												Six Months Ended
			January 2, 2026						December 27, 2024						January 2, 2026						December 27, 2024
			(in millions)
Cash-based employee termination benefits			$	52					$	—					$	55					$	—
Stock-based employee termination benefits			3						—						3						—
Contract termination and other			—						(10)						—						(7)
Total business realignment charges			$	55					$	(10)					$	58					$	(7)

In addition, in January 2026, the Company implemented additional actions to further streamline functions and expects to record incremental employee termination costs of approximately $50 million in the remainder of 2026.

The following table presents an analysis of the components of these activities against the reserve (included in Accrued expenses) during the six months ended January 2, 2026:

			Employee Termination Benefits						Contract Termination and Other						Total
			(in millions)
Accrual balance as of June 27, 2025			$	1					$	9					$	10
Charges			55						—						55
Cash payments			(10)						(2)						(12)
Accrual balance as of January 2, 2026			$	46					$	7					$	53

WESTERN DIGITAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 11. Pension and Other Post-Retirement Benefit Plans

The Company has pension and other post-retirement benefit plans in various countries. The Company’s principal pension plans are in Japan, Thailand, and the Philippines. All pension and other post-retirement benefit plans outside of the Company’s Japan, Thailand, and the Philippines defined benefit pension plans (the “Pension Plans”) are immaterial to the Condensed Consolidated Financial Statements. The expected long-term rate of return on the Pension Plans’ assets is 2.5%.

Obligations and Funded Status

The following table presents the unfunded status of the benefit obligations for the Pension Plans:

			January 2, 2026						June 27, 2025
			(in millions)
Benefit obligation at end of period			$	257					$	272
Less: Fair value of plan assets at end of period			179						204
Unfunded status			$	78					$	68

The following table presents the unfunded amounts related to the Pension Plans as recognized on the Company’s Condensed Consolidated Balance Sheets:

			January 2, 2026						June 27, 2025
			(in millions)
Current liabilities (included in Accrued expenses)			$	1					$	1
Non-current liabilities (included in Other liabilities)			77						67
Net amount recognized			$	78					$	68

Net periodic benefit costs were immaterial for the three and six months ended January 2, 2026 and December 27, 2024.

WESTERN DIGITAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 12. Shareholders’ Equity and Convertible Preferred Stock

Stock-based Compensation Expense

The following tables present the Company’s stock-based compensation for equity-settled awards by type (i.e., restricted stock units (“RSUs”), restricted stock unit awards with performance conditions or market conditions (“PSUs”), and rights to purchase shares of common stock under the Company’s Employee Stock Purchase Plan (“ESPP”)) and financial statement line items as well as the related tax benefit included in the Company’s Condensed Consolidated Statements of Operations:

			Three Months Ended												Six Months Ended
			January 2, 2026						December 27, 2024						January 2, 2026						December 27, 2024
			(in millions)
RSUs and PSUs			$	49					$	27					$	98					$	76
ESPP			4						3						8						11
Total			$	53					$	30					$	106					$	87

			Three Months Ended												Six Months Ended
			January 2, 2026						December 27, 2024						January 2, 2026						December 27, 2024
			(in millions)
Cost of revenue			$	8					$	9					$	17					$	19
Research and development			23						15						46						35
Selling, general and administrative			19						6						40						33
Business realignment charges			3						—						3						—
Subtotal			53						30						106						87
Tax benefit			(6)						(5)						(13)						(11)
Total			$	47					$	25					$	93					$	76

Any shortfalls or excess windfall tax benefits and tax deficiencies for shortfalls related to the vesting and exercise of stock-based awards, which are recognized as a component of the Company’s Income tax expense, were immaterial for the periods presented.

Compensation cost related to unvested RSUs, PSUs, and rights to purchase shares of common stock under the ESPP are generally amortized on a straight-line basis over the remaining average service period. The following table presents the unamortized compensation cost and weighted average service period of all unvested outstanding awards as of January 2, 2026:

			Unamortized Compensation Cost						Weighted Average Service Period
			(in millions)						(years)
RSUs and PSUs (1)			$	335					2.0
ESPP			19						1.0
Total unamortized compensation cost			$	354

(1) Weighted average service period assumes the performance conditions are met for the PSUs.

WESTERN DIGITAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Plan Activities

RSUs and PSUs

The following table summarizes RSU and PSU activity under the Company’s incentive plans:

			Number of Shares						Weighted Average Grant Date Fair Value						Aggregate Intrinsic Value at Vest Date
			(in millions)												(in millions)
RSUs and PSUs outstanding at June 27, 2025			9.7						$	33.56
Granted			2.5						72.20
Vested			(2.8)						34.14						$	278
Forfeited			(0.3)						35.31
RSUs and PSUs outstanding at January 2, 2026			9.1						$	44.51

RSUs and PSUs are generally settled in an equal number of shares of the Company’s common stock at the time of vesting of the units.

Convertible Preferred Stock

On January 31, 2023, the Board of Directors of the Company authorized the designation of 900,000 shares of Series A Convertible Perpetual Preferred Stock, par value $0.01 per share (the “Preferred Shares”), from the Company’s existing 5,000,000 authorized but unissued shares of preferred stock and issued the Preferred Shares through a private placement. As of both January 2, 2026 and June 27, 2025, 235,000 of the Preferred Shares were outstanding.

The Preferred Shares have an initial stated value of $1,000 per share and accrue a cumulative preferred dividend at an annual rate of 6.25% per annum (increasing to 7.25% per annum on January 31, 2030 and to 8.25% per annum on January 31, 2033) compounded on a quarterly basis. Such dividends are payable on a quarterly basis in cash or in-kind through an increase to the stated value. Through December 27, 2024, the Company paid quarterly dividends on the Preferred Shares in-kind through an increase to the stated value. Subsequently, quarterly dividends on the Preferred Shares have been made in cash, including $4 million and $8 million paid in the three and six months ended January 2, 2026, respectively. The Preferred Shares also participate in any dividends declared for common shareholders on an as-converted equivalent basis.

As of January 2, 2026, the Preferred Shares are convertible into shares of the Company’s common stock at a conversion rate of approximately $35.51 per share, as adjusted in accordance with the Certificate of Designations for the Preferred Shares (the “Conversion Price”). This rate is subject to future anti-dilution adjustments and certain other one-time adjustments in the event of various specified spin-off transactions. The conversion applies to the total of the stated value of the Preferred Shares, including dividends paid in-kind. As of January 2, 2026 and June 27, 2025, the Preferred Shares outstanding had an aggregate liquidation preference, including previous dividends paid in-kind, of $265 million as of each date, and would have been convertible, if otherwise permitted, into approximately 7 million shares of common stock as of each date. The Company may opt to convert the Preferred Shares after January 31, 2026, if the closing price per share of the Company’s common stock exceeds 150% of the Conversion Price for at least 20 out of 30 consecutive trading days immediately before the Company’s conversion notice.

WESTERN DIGITAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Share Repurchase Program

On May 9, 2025, the Company’s Board of Directors authorized a share repurchase program for the repurchase of up to $2.0 billion of the Company’s common stock (the “Share Repurchase Program”). There is no expiration date for the Share Repurchase Program. During the three months ended January 2, 2026, the Company repurchased 3.8 million shares under the Share Repurchase Program for a total cash cost of $615 million plus $4 million for accrued excise taxes. During the six months ended January 2, 2026, the Company repurchased 10.2 million shares under the Share Repurchase Program for a total cash cost of $1.17 billion plus $8 million for accrued excise taxes. As of January 2, 2026, the Company had $684 million available for purchases pursuant to the Share Repurchase Program. Repurchases under the Share Repurchase Program may be made in the open market or in privately negotiated transactions and may be made under a Rule 10b5-1 plan. The Company expects shares repurchased under the Share Repurchase Program to be funded principally by operating cash flows. The amount and timing of share repurchases will depend on market conditions and other corporate considerations. The Company may suspend or discontinue the Share Repurchase Program at any time.

Dividends to Common Shareholders

On April 29, 2025, the Company’s Board of Directors authorized the adoption of a cash dividend program. Under the cash dividend program, holders of the Company’s common stock will receive dividends when and as declared by the Board of Directors. During the three months ended January 2, 2026, the Company paid cash dividends of $0.125 per share of its outstanding common stock, totaling $43 million, plus $1 million paid to holders of the Company’s Preferred Shares in accordance with their participation rights. During the six months ended January 2, 2026, the Company paid aggregate cash dividends of $0.225 per share of its outstanding common stock, totaling $77 million, plus $2 million paid to holders of the Company’s Preferred Shares in accordance with their participation rights.

Subsequent to quarter-end, on January 28, 2026, the Board of Directors declared a cash dividend of $0.125 per share of the Company’s common stock, which will be paid on March 18, 2026 to shareholders of record as of the close of business on March 5, 2026.

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

WESTERN DIGITAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 13. Net Income Per Common Share

The following table presents the computation of basic and diluted income per common share:

			Three Months Ended												Six Months Ended
			January 2, 2026									December 27, 2024						January 2, 2026						December 27, 2024
			(in millions, except per share data)
Net income from continuing operations			$	1,842								$	466					$	3,024					$	619
Dividends allocated to preferred shareholders			(5)									(4)						(10)						(8)
Income attributable to participating securities(1)			(39)									(7)						(64)						(9)
Net income from continuing operations attributable to common shareholders - basic			1,798									455						2,950						602
Net income from discontinued operations, net of taxes, attributable to common shareholders			—									126						—						460
Net income attributable to common shareholders - basic			$	1,798								$	581					$	2,950					$	1,062
Net income from continuing operations attributable to common shareholders - basic			$	1,798								$	455					$	2,950					$	602
Re-allocation of participating securities considered potentially dilutive			4									—						6						1
Net income from continuing operations attributable to common shareholders - diluted			1,802									455						2,956						603
Net income from discontinued operations, net of taxes, attributable to common shareholders			—									126						—						460
Net income attributable to common shareholders - diluted			$	1,802								$	581					$	2,956					$	1,063
Weighted average shares:
Basic			341									346						343						345
RSUs, PSUs, ESPP, and convertible notes			40									11						35						12
Diluted			381									357						378						357
Net income per common share:
Basic:
Continuing operations			$	5.27								$	1.32					$	8.60					$	1.74
Discontinued operations			—									0.36						—						1.34
Net income per common share			5.27									1.68						8.60						3.08
Diluted:
Continuing operations			4.73									1.27						7.82						1.69
Discontinued operations			—									0.36						—						1.29
Net income per common share			4.73									1.63						7.82						2.98

(1) Participating securities consist of preferred stock because it participates on a pro rata basis in any dividends declared on shares of common stock.

Basic net income per common share is computed using (i) net income less (ii) dividends allocated to preferred shareholders less (iii) net income attributable to participating securities divided by (iv) basic weighted average shares outstanding. Diluted net income per common share is computed as (i) basic net income attributable to common shareholders plus (ii) diluted adjustments to income allocable to participating securities divided by (iii) diluted weighted average shares outstanding. The “if-converted” method is used to determine the dilutive impact for the convertible notes and the preferred shares. The treasury stock method is used to determine the dilutive impact of unvested equity awards.

WESTERN DIGITAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Potentially dilutive common shares include dilutive outstanding RSUs and PSUs, rights to purchase shares of common stock under the Company’s ESPP, shares issuable in connection with the Company’s convertible notes, and Preferred Shares. For the three and six months ended January 2, 2026 and December 27, 2024, based on the Company’s average stock price during the period, an insignificant number of common shares subject to outstanding equity awards were anti-dilutive.

WESTERN DIGITAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 14. Legal Proceedings

Intellectual Property Litigation

On September 28, 2016, SPEX Technologies, Inc. (“SPEX”) filed a lawsuit in the Central District Court against the Company and two of the Company’s current or former wholly-owned subsidiaries, Western Digital Technologies, Inc. and HGST Inc., alleging infringement of U.S. Patent Nos. 6,088,802 and 6,003,135, both of which allegedly relate to moving a security mechanism (e.g., the encrypting/decrypting mechanism) from a host computer or a separate device to a peripheral device that provides data storage. As the case progressed, SPEX dismissed its allegations relating to U.S. Patent No. 6,003,135 and narrowed its case to one claim related to U.S. Patent No. 6,088,802 and asserted this against certain HDD products that may include certain encryption capabilities. The trial commenced on October 8, 2024, and concluded on October 18, 2024, and the jury awarded SPEX damages of $316 million for the use of one claim related to U.S. Patent No. 6,088,802 in the past, prior to its expiration in 2017. On January 8, 2025, the Court entered judgment for SPEX in accordance with the verdict and also awarded SPEX prejudgment interest of $237 million and legal costs. On June 16, 2025, the Court ruled on the Company’s post-trial motions, finding that SPEX did not present sufficient evidence on which a damages award could be determined and therefore awarded nominal damages of $1. On June 27, 2025, the Court entered an amended judgment awarding SPEX nominal damages of $1 with no prejudgment interest and no legal costs. The Company has appealed the infringement finding, and SPEX has appealed damages-related issues. Based on available appellate arguments, the Company believes a loss is not probable and has not accrued a liability as a result of the jury verdict or the entry of amended judgment in its financial statements as of January 2, 2026.

Other Matters

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 management’s expectations.

The ability to predict the ultimate outcome of any legal proceeding involves judgments, estimates and inherent uncertainties. The actual outcome of these matters could differ materially from management’s estimates.