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WESTERN DIGITAL CORP 8-K Report, Material Agreement (Dec 12, 2017)

Filed December 12, 2017For Securities:WDC

Summary

Western Digital Corporation (WDC) announced a significant resolution to its protracted legal and arbitration disputes with Toshiba Corporation regarding their NAND flash memory joint ventures. This settlement, effective December 12, 2017, paves the way for the company to move forward with crucial capacity expansions and technology transitions. A key outcome is the Y6 Facility Agreement, which formalizes the operation and construction of a new 300-millimeter wafer fabrication facility (Fab 6) in Yokkaichi, Japan. This facility is essential for transitioning existing 2D NAND capacity to advanced BiCS 3D NAND manufacturing. Under the Y6 Facility Agreement, Western Digital will contribute approximately $950 million for Fab 6's start-up costs and Phase II equipment investments, commencing in the latter half of 2018. The agreement also outlines terms for Western Digital's future participation in a new fabrication facility in Iwate, Japan, on terms similar to the Yokkaichi arrangement. Furthermore, the settlement extends the terms of key joint venture agreements, ensuring continued operational collaboration through 2027 and 2029. The resolution also includes agreements with Bain Capital concerning the sale of Toshiba Memory Corporation (TMC), which Western Digital has consented to, subject to certain restrictions.

Key Highlights

  • 1Resolution of litigation and arbitration with Toshiba concerning NAND flash memory joint ventures.
  • 2Entry into the Y6 Facility Agreement for the construction and operation of a new BiCS 3D NAND fab (Fab 6) in Yokkaichi, Japan.
  • 3Western Digital commits approximately $950 million for Fab 6 start-up and Phase II equipment investments, expected to yield output in H2 2018.
  • 4Agreement for future participation in a new fabrication facility in Iwate, Japan, on terms similar to Yokkaichi.
  • 5Extension of key joint venture agreement terms (FAL to Dec 31, 2029; FFL to Dec 31, 2027).
  • 6Consent to the sale of Toshiba Memory Corporation (TMC) to a Bain Capital-led consortium, subject to specified transfer restrictions.
  • 7Toshiba has agreed to end 'Access Restrictions' previously imposed on Western Digital.

Frequently Asked Questions

The main impact is the resolution of a significant legal dispute with Toshiba, removing uncertainty and allowing Western Digital to focus on crucial operational and strategic initiatives, particularly the expansion of its 3D NAND flash memory production capacity through the new Fab 6 facility.

Western Digital is committed to funding 50% of Fab 6's start-up costs and 50% of the joint ventures' portion of Phase II equipment investments. The initial commitment is expected to be approximately $950 million, primarily for equipment investments and start-up costs through calendar 2018. Additionally, a $60 million prepayment for building depreciation is due in January 2018.

Toshiba is unilaterally investing in Phase I of Fab 6 and will receive the output from that phase. Western Digital will participate from Phase II equipment investments and expects to receive output associated with Phase II beginning in the second half of calendar 2018.

Yes, Western Digital has consented to the sale of TMC to a Bain Capital-led consortium. However, for three years following the sale's closing, Western Digital's consent will be required for any issuance or transfer of equity or control in TMC to certain 'Restricted Parties,' subject to limited exceptions.