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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q

(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended October 2, 2020
Or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to                     
Commission file number: 1-8703

https://cdn.kscope.io/06023f099bce6f2586b1d28908ba7006-wdc-20201002_g1.jpg
WESTERN DIGITAL CORPORATION
(Exact Name of Registrant as Specified in Its Charter)

Delaware33-0956711
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer Identification No.)
5601 Great Oaks ParkwaySan Jose,California95119
(Address of principal executive offices)(Zip Code)
Registrant’s telephone number, including area code: (408) 717-6000
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading symbol(s)Name of each exchange on which registered
Common Stock, $.01 Par Value Per ShareWDCThe Nasdaq Stock Market LLC
 (Nasdaq Global Select Market)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filerAccelerated filerNon-accelerated filerSmaller reporting companyEmerging growth company




If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.    
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  ý
As of the close of business on October 30, 2020, 304,245,045 shares of common stock, par value $0.01 per share, were outstanding.



WESTERN DIGITAL CORPORATION
INDEX

PAGE NO.
PART I. FINANCIAL INFORMATION
Item 1.Financial Statements (unaudited)
Condensed Consolidated Balance Sheets — As of October 2, 2020 and July 3, 2020
Condensed Consolidated Statements of Operations — Three Months Ended October 2, 2020 and October 4, 2019
Condensed Consolidated Statements of Comprehensive Loss — Three Months Ended October 2, 2020 and October 4, 2019
Condensed Consolidated Statements of Cash Flows — Three Months Ended October 2, 2020 and October 4, 2019
Condensed Consolidated Statements of Shareholders' Equity — Three Months Ended October 2, 2020 and October 4, 2019
Notes to Condensed Consolidated Financial Statements
Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 3.Quantitative and Qualitative Disclosures About Market Risk
Item 4.Controls and Procedures
PART II. OTHER INFORMATION
Item 1.Legal Proceedings
Item 1A.Risk Factors
Item 6.Exhibits

Unless otherwise indicated, references herein to specific years and quarters are to our fiscal years and fiscal quarters, and references to financial information are on a consolidated basis. As used herein, the terms “we,” “us,” “our,” the “Company,” “WDC” and “Western Digital” refer to Western Digital Corporation and its subsidiaries, unless we state, or the context indicates, otherwise.

WDC, a Delaware corporation, is the parent company of our data storage business. Our principal executive offices are located at 5601 Great Oaks Parkway, San Jose, California 95119. Our telephone number is (408) 717-6000.

Western Digital, the Western Digital logo, G-Technology, SanDisk and WD are registered trademarks or trademarks of Western Digital or its affiliates in the U.S. and/or other countries. All other trademarks, registered trademarks and/or service marks, indicated or otherwise, are the property of their respective owners.


3

Table of Contents
FORWARD-LOOKING STATEMENTS

This document contains forward-looking statements within the meaning of the federal securities laws. Any statements that do not relate to historical or current facts or matters are forward-looking statements. You can identify some of the forward-looking statements by the use of forward-looking words, such as “may,” “will,” “could,” “would,” “project,” “believe,” “anticipate,” “expect,” “estimate,” “continue,” “potential,” “plan,” “forecast,” and the like, or the use of future tense. Statements concerning current conditions may also be forward-looking if they imply a continuation of current conditions. Examples of forward-looking statements include, but are not limited to, statements concerning:

expectations regarding the effects of the COVID-19 pandemic and measures intended to reduce its spread;
expectations regarding our Flash Ventures joint venture with Kioxia Corporation, the flash industry and our flash wafer output plans;
expectations regarding the outcome of legal proceedings in which we are involved;
our reinvestment in the business and ongoing deleveraging efforts;
our beliefs regarding tax benefits and the timing of future payments, if any, relating to the unrecognized tax benefits, and the adequacy of our tax provisions;
expectations regarding capital investments and sources of funding for those investments; and
our beliefs regarding the sufficiency of our available liquidity to meet our working capital, debt and capital expenditure needs as well as our dividend plans.

These forward-looking statements are based on information available to the Company as of the date of this Quarterly Report on Form 10-Q and are based on management’s current views and assumptions. They are conditioned upon and involve a number of risks, uncertainties and other factors that could cause actual results or performance to differ materially from those expressed in the forward-looking statements. These risks and uncertainties include, but are not limited to:

future responses to and effects of the COVID-19 pandemic;
volatility in global economic conditions;
impact of business and market conditions;
impact of competitive products and pricing;
our development and introduction of products based on new technologies and expansion into new data storage markets;
risks associated with cost saving initiatives, restructurings, acquisitions, divestitures, mergers, joint ventures and our strategic relationships;
difficulties or delays in manufacturing or other supply chain disruptions;
hiring and retention of key employees;
our high level of debt and other financial obligations;
changes to our relationships with key customers;
disruptions in operations from cyberattacks or other system security risks;
actions by competitors; and
risks associated with compliance with changing legal and regulatory requirements and the outcome of legal proceedings.

You are urged to carefully review the disclosures we make concerning these risks and review the additional disclosures we make concerning material risks and other factors that may affect the outcome of our forward-looking statements and our business and operating results, including those made in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended July 3, 2020 (the “2020 Annual Report on Form 10-K”) and any of those made in our other reports filed with the Securities and Exchange Commission, including under “Risk Factors” in Item 1A of subsequent Annual Reports on Form 10-K and Quarterly Reports on Form 10-Q that may from time to time amend, supplement or supersede the risks and uncertainties disclosed in the 2020 Annual Report on Form 10-K. You are cautioned not to place undue reliance on the forward-looking statements included in this Quarterly Report on Form 10-Q, which speak only as of the date of this document. We do not intend, and undertake no obligation, to update or revise these forward-looking statements to reflect events or circumstances after the date of this document or to reflect the occurrence of unanticipated events, except as required by law.

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PART I. FINANCIAL INFORMATION

Item 1.    Financial Statements (unaudited)

WESTERN DIGITAL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(in millions, except par value)
(Unaudited)
October 2,
2020
July 3,
2020
ASSETS
Current assets:
Cash and cash equivalents$2,995 $3,048 
Accounts receivable, net2,097 2,379 
Inventories3,355 3,070 
Other current assets558 551 
Total current assets9,005 9,048 
Property, plant and equipment, net2,897 2,854 
Notes receivable and investments in Flash Ventures1,746 1,875 
Goodwill10,069 10,067 
Other intangible assets, net758 941 
Other non-current assets927 877 
Total assets$25,402 $25,662 
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable$1,949 $1,945 
Accounts payable to related parties404 407 
Accrued expenses1,293 1,296 
Accrued compensation497 472 
Current portion of long-term debt286 286 
Total current liabilities4,429 4,406 
Long-term debt9,086 9,289 
Other liabilities2,311 2,416 
Total liabilities15,826 16,111 
Commitments and contingencies (Notes 9, 10, 12 and 15)
Shareholders’ equity:
Preferred stock, $0.01 par value; authorized — 5 shares; issued and outstanding — none
  
Common stock, $0.01 par value; authorized — 450 shares; issued — 312 shares; outstanding — 304 shares and 302 shares, respectively
3 3 
Additional paid-in capital3,537 3,717 
Accumulated other comprehensive income (loss)(101)(157)
Retained earnings6,658 6,725 
Treasury stock — common shares at cost; 8 shares and 10 shares, respectively
(521)(737)
Total shareholders’ equity9,576 9,551 
Total liabilities and shareholders’ equity$25,402 $25,662 

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
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WESTERN DIGITAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in millions, except per share amounts)
(Unaudited)
Three Months Ended
October 2,
2020
October 4,
2019
Revenue, net$3,922 $4,040 
Cost of revenue3,018 3,282 
Gross profit904 758 
Operating expenses:
Research and development555 574 
Selling, general and administrative256 305 
Employee termination, asset impairment, and other charges23 8 
Total operating expenses834 887 
Operating income (loss)70 (129)
Interest and other income (expense):
Interest income2 12 
Interest expense(84)(122)
Other income, net9 2 
Total interest and other expense, net(73)(108)
Loss before taxes(3)(237)
Income tax expense57 39 
Net loss$(60)$(276)
Loss per common share
Basic and diluted$(0.20)$(0.93)
Weighted average shares outstanding:
Basic and diluted303 296 
Cash dividends declared per share$ $0.50 

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
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WESTERN DIGITAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(in millions)
(Unaudited)
Three Months Ended
October 2,
2020
October 4,
2019
Net loss$(60)$(276)
Other comprehensive income (loss), before tax:
Actuarial pension gain1 1 
Foreign currency translation adjustment32 5 
Net unrealized gain (loss) on derivative contracts and available-for-sale securities30 (33)
Total other comprehensive income (loss), before tax63 (27)
Income tax benefit (expense) related to items of other comprehensive income (loss), before tax(7)5 
Other comprehensive income (loss), net of tax56 (22)
Total comprehensive loss$(4)$(298)

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
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WESTERN DIGITAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
(Unaudited)
Three Months Ended
October 2,
2020
October 4,
2019
Cash flows from operating activities
Net loss$(60)$(276)
Adjustments to reconcile net loss to net cash provided by operations:
Depreciation and amortization374 406 
Stock-based compensation76 77 
Deferred income taxes11 (27)
Loss on disposal of assets1 2 
Amortization of debt discounts10 10 
Other non-cash operating activities, net(6)(21)
Changes in:
Accounts receivable, net282 (243)
Inventories(285)(5)
Accounts payable99 155 
Accounts payable to related parties(3)176 
Accrued expenses(23)100 
Accrued compensation26 75 
Other assets and liabilities, net(139)(176)
Net cash provided by operating activities363 253 
Cash flows from investing activities
Purchases of property, plant and equipment(337)(145)
Proceeds from the sale of property, plant and equipment7  
Acquisitions, net of cash acquired (22)
Notes receivable issuances to Flash Ventures(114)(171)
Notes receivable proceeds from Flash Ventures277 357 
Strategic investments and other, net1 15 
Net cash provided by (used in) investing activities(166)34 
Cash flows from financing activities
Issuance of stock under employee stock plans1 26 
Taxes paid on vested stock awards under employee stock plans(41)(52)
Dividends paid to shareholders (147)
Repayment of debt(213)(319)
Net cash used in financing activities(253)(492)
Effect of exchange rate changes on cash3 (2)
Net decrease in cash and cash equivalents(53)(207)
Cash and cash equivalents, beginning of year3,048 3,455 
Cash and cash equivalents, end of period$2,995 $3,248 
Supplemental disclosure of cash flow information:
Cash paid for income taxes$144 $67 
Cash paid for interest$104 $143 

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
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WESTERN DIGITAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(in millions)
Common StockTreasury StockAdditional Paid-In CapitalAccumulated Other Comprehensive Income (Loss)Retained EarningsTotal Shareholders’ Equity
SharesAmountSharesAmount
Balance at July 3, 2020312 $3 (10)$(737)$3,717 $(157)$6,725 $9,551 
Net loss— — — — — — (60)(60)
Adoption of new accounting standards— — — — — — (7)(7)
Employee stock plans— — 2 216 (256)— — (40)
Stock-based compensation— — — — 76 — — 76 
Actuarial pension gain— — — — — 1 — 1 
Foreign currency translation adjustment— — — — — 32 — 32 
Net unrealized gain on derivative contracts— — — — — 23 — 23 
Balance at October 2, 2020312 $3 (8)$(521)$3,537 $(101)$6,658 $9,576 

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WESTERN DIGITAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(in millions)

Common StockTreasury StockAdditional Paid-In CapitalAccumulated Other Comprehensive Income (Loss)Retained EarningsTotal Shareholders’ Equity
SharesAmountSharesAmount
Balance at June 28, 2019312 $3 (17)$(1,268)$3,851 $(68)$7,449 $9,967 
Net loss— — — — — — (276)(276)
Adoption of new accounting standards— — — — — — (5)(5)
Employee stock plans— — 3 181 (207)— — (26)
Stock-based compensation— — — — 77 — — 77 
Dividends to shareholders— — — — 7 — (156)(149)
Actuarial pension gain— — — — — 1 — 1 
Foreign currency translation adjustment— — — — — 4 — 4 
Net unrealized loss on derivative contracts— — — — — (27)— (27)
Balance at October 4, 2019312 $3 (14)$(1,087)$3,728 $(90)$7,012 $9,566 

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
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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 that address the evolving needs of the information technology (“IT”) industry and the infrastructure that enables the proliferation of data in virtually every other industry. The Company creates environments for data to thrive. The Company is driving the innovation needed to help customers capture, preserve, access and transform an ever-increasing diversity of data. Everywhere data lives, from advanced data centers to mobile sensors to personal devices, the Company’s industry-leading solutions deliver the possibilities of data.

The Company’s broad portfolio of technology and products address the following key end markets: Client Devices; Data Center Devices and Solutions; and Client Solutions. The Company also generates license and royalty revenue from its extensive intellectual property (“IP”), which is included in each of these three end market categories.

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 fiscal year ended July 3, 2020. In the opinion of management, all adjustments necessary to fairly state the Condensed Consolidated Financial Statements have been made. All such adjustments are of a normal, recurring nature. Certain information and footnote disclosures normally included in the Consolidated Financial Statements prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) 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 Company’s Annual Report on Form 10‑K for the fiscal year ended July 3, 2020. The results of operations for interim periods are not necessarily indicative of results to be expected for the full year.

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 2021, which ends on July 2, 2021, will be comprised of 52 weeks, with all quarters presented consisting of 13 weeks. Fiscal year 2020, which ended on July 3, 2020, was comprised of 53 weeks, with the first quarter consisting of 14 weeks and the remaining quarters consisting of 13 weeks each.

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 with consideration given to the potential impacts of the coronavirus disease 2019 (“COVID-19”) pandemic. However, actual results could differ materially from these estimates and be significantly affected by the severity and duration of the pandemic, the extent of actions to contain or treat COVID-19, how quickly and to what extent normal economic and operating activity can resume, and the severity and duration of the global economic downturn that results from the pandemic.

Segment Information

The Company manufactures, markets, and sells data storage devices and solutions in the U.S. and in foreign countries through its sales personnel, dealers, distributors, retailers, and subsidiaries. Historically, the Company has managed and reported under a single operating segment. Late in the first quarter of fiscal 2021, the Chief Executive Officer, who is the Company’s Chief Operating Decision Maker (“CODM”), announced a decision to reorganize the Company’s business by forming two separate product business units: flash-based products and hard disk drives (“HDD”). Beginning in the second fiscal quarter, the Company is in the process of transitioning to this new operating model and discrete information has not yet been established to align with the new business structure. Management expects to finalize its assessment of its operating segments when the transition is completed, which is expected to be by the end of fiscal 2021.
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WESTERN DIGITAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Note 2.    Recent Accounting Pronouncements

Accounting Pronouncements Recently Adopted

In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Updates (“ASU”) No. 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” (“ASU 2016-13”). ASU 2016-13 seeks to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments, including trade receivables, and other commitments to extend credit held by a reporting entity at each reporting date. The amendments require an entity to replace the incurred loss impairment methodology in current U.S. GAAP with a methodology that reflects current expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The amendments are effective for fiscal years (and interim periods within those fiscal years) beginning after December 15, 2019, which for the Company is the first quarter of fiscal 2021. The Company adopted this standard effective July 4, 2020 (the beginning of fiscal 2021) with no material impact on its Condensed Consolidated Financial Statements.

In November 2018, the FASB issued ASU No. 2018-18, “Collaborative Arrangements (Topic 808): Clarifying the Interaction between Topic 808 and Topic 606” (“ASU 2018-18”). ASU 2018-18 clarifies that certain transactions between collaborative arrangement participants should be accounted for as revenue when the collaborative arrangement participant is a customer in the context of a unit of account and precludes recognizing as revenue consideration received from a collaborative arrangement participant if the participant is not a customer. This ASU requires retrospective adoption to the date the Company adopted Accounting Standards Codification (ASC) 606 by recognizing a cumulative-effect adjustment to the opening balance of retained earnings of the earliest annual period presented. The Company adopted this standard effective July 4, 2020 (the beginning of fiscal 2021) with no material impact on its Condensed Consolidated Financial Statements.

Recently Issued Accounting Pronouncements Not Yet Adopted

In December 2019, the FASB issued ASU No. 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes” (“ASU 2019-12”). ASU 2019-12 removes certain exceptions for recognizing deferred taxes for investments, performing intraperiod allocation and calculating income taxes in interim periods. The ASU also adds guidance to reduce complexity in certain areas, including recognizing deferred taxes for tax goodwill and allocating taxes to members of a consolidated group. This ASU is effective for fiscal years (and interim periods within those fiscal years) beginning after December 15, 2020, which for the Company is the first quarter of fiscal 2022. Early adoption is permitted. The Company does not expect this update to have a material impact on its Condensed Consolidated Financial Statements.




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WESTERN DIGITAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Note 3.    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 either October 2, 2020 or July 3, 2020.

The Company incurs sales commissions and other direct incremental costs to obtain sales contracts. The Company has applied the practical expedient to recognize the direct incremental costs of obtaining contracts 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. Other direct incremental costs to obtain contracts that have an expected benefit of greater than one year are amortized over the period of expected cash flows from the related contracts, and the amortization expense is recorded as a reduction to revenue. Total capitalized contract costs as of October 2, 2020 and July 3, 2020 as well as the related amortization for the three months ended October 2, 2020 and October 4, 2019 were not material.

Contract liabilities relate to customers’ payments in advance of performance under the contract and primarily relate to remaining performance obligations under support and maintenance contracts. As of October 2, 2020 and July 3, 2020, contract liabilities were not material.

The Company applies the practical expedients and does not disclose transaction price allocated to the remaining performance obligations for (i) arrangements that have an original expected duration of one year or less, which mainly consist of support and maintenance contracts, and (ii) variable consideration amounts for sale-based or usage-based royalties for IP license arrangements, which typically range longer than one year. Remaining performance obligations are mainly attributed to right-to-access patent license arrangements and customer support and service contracts, which will be recognized over the remaining contract period. The transaction price allocated to the remaining performance obligations as of October 2, 2020 was $102 million, which is mainly attributable to the functional IP license and service arrangements. The Company expects to recognize this amount as revenue as follows: $31 million during the remainder of fiscal 2021, $40 million in fiscal 2022, and $31 million in fiscal 2023 and thereafter.

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WESTERN DIGITAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The Company’s disaggregated revenue information is as follows:
Three Months Ended
October 2,
2020
October 4,
2019
(in millions)
Revenue by Product
Hard disk drives (“HDD”)$1,844 $2,408 
Flash-based2,078 1,632 
Total Revenue$3,922 $4,040 
Revenue by End Market
Client Devices$1,946 $1,616 
Data Center Devices & Solutions1,129 1,532 
Client Solutions847 892 
Total Revenue$3,922 $4,040 
Revenue by Geography
Americas$1,079 $1,313 
Europe, Middle East and Africa629 779 
Asia2,214 1,948 
Total Revenue$3,922 $4,040 

The Company’s top 10 customers accounted for 44% of its net revenue for the three months ended October 2, 2020, and 43% of its net revenue for the three months ended October 4, 2019. For the three months ended October 2, 2020, no single customer accounted for 10% of the Company’s net revenue, and for the three months ended October 4, 2019, one customer accounted for 11% of the Company’s net revenue.

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WESTERN DIGITAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


Note 4.    Supplemental Financial Statement Data

Accounts receivable, net

From time to time, in connection with factoring agreements, the Company sells trade accounts receivable without recourse to third party purchasers in exchange for cash. During the three months ended October 2, 2020 and October 4, 2019, the Company sold trade accounts receivable and received cash proceeds of $128 million and $85 million, respectively. The discounts on the trade accounts receivable sold during the periods were not material and were recorded within Other income, net in the Condensed Consolidated Statements of Operations. As of October 2, 2020 and July 3, 2020, the amount of factored receivables that remained outstanding was $128 million and $113 million, respectively.

Inventories
October 2,
2020
July 3,
2020
(in millions)
Inventories:
Raw materials and component parts$1,426 $1,306 
Work-in-process964 956 
Finished goods965 808 
Total inventories$3,355 $3,070 

Property, plant and equipment, net
October 2,
2020
July 3,
2020
(in millions)
Property, plant and equipment:
Land$286 $294 
Buildings and improvements1,865 1,837 
Machinery and equipment7,514 7,391 
Computer equipment and software430 429 
Furniture and fixtures52 52 
Construction-in-process327 297 
Property, plant and equipment, gross10,474 10,300 
Accumulated depreciation(7,577)(7,446)
Property, plant and equipment, net$2,897 $2,854 

Goodwill
Carrying Amount
(in millions)
Balance at July 3, 2020$10,067 
Foreign currency translation adjustment2 
Balance at October 2, 2020$10,069 



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WESTERN DIGITAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Intangible assets
October 2,
2020
July 3,
2020
(in millions)
Finite-lived intangible assets$5,543 $5,541 
In-process research and development80 80 
Accumulated amortization(4,865)(4,680)
Intangible assets, net$758 $941 

As part of prior acquisitions, the Company recorded at the time of the acquisition acquired in-process research and development (“IPR&D”) for projects in progress that had not yet reached technological feasibility. IPR&D is initially accounted for as an indefinite-lived intangible asset. Once a project reaches technological feasibility, the Company reclassifies the balance to existing technology and begins to amortize the intangible asset over its estimated useful life.

Product warranty liability

Changes in the warranty accrual were as follows:
Three Months Ended
October 2,
2020
October 4,
2019
(in millions)
Warranty accrual, beginning of period$408 $350 
Charges to operations35 49 
Utilization(31)(48)
Changes in estimate related to pre-existing warranties(21)6 
Warranty accrual, end of period$391 $357 

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

October 2,
2020
July 3,
2020
(in millions)
Warranty accrual
Current portion (included in Accrued expenses)$191 $205 
Long-term portion (included in Other liabilities)200 203 
Total warranty accrual$391 $408 

Other liabilities
October 2,
2020
July 3,
2020
(in millions)
Other liabilities:
Non-current net tax payable$711 $815 
Payables related to unrecognized tax benefits715 720 
Other non-current liabilities885 881 
Total other liabilities$2,311 $2,416 

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WESTERN DIGITAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Accumulated other comprehensive income (loss)

Accumulated other comprehensive income (loss) (“AOCI”), net of tax refers to expenses, gains and losses that are recorded as an element of shareholders’ equity but are excluded from net income. The following table illustrates the changes in the balances of each component of AOCI:
Actuarial Pension Gains (Losses)Foreign Currency Translation AdjustmentUnrealized Gains (Losses) on Derivative ContractsTotal Accumulated Comprehensive Income (Loss)
(in millions)
Balance at July 3, 2020$(58)$(2)$(97)$(157)
Other comprehensive loss before reclassifications1 32 18 51 
Amounts reclassified from accumulated other comprehensive loss  12 12 
Income tax benefit (expense) related to items of other comprehensive loss  (7)(7)
Net current-period other comprehensive loss1 32 23 56 
Balance at October 2, 2020$(57)$30 $(74)$(101)

During the three months ended October 2, 2020 and October 4, 2019, the amounts reclassified out of AOCI related to derivative contracts were substantially all charged to Cost of revenue in the Condensed Consolidated Statements of Operations.

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WESTERN DIGITAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Note 5.    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 assets and liabilities that are measured at fair value on a recurring basis as of October 2, 2020 and July 3, 2020, and indicate the fair value hierarchy of the valuation techniques utilized to determine such values:
October 2, 2020
 Level 1Level 2Level 3Total
(in millions)
Assets:
Cash equivalents - Money market funds$861 $ $ $861