Separate Financial Information of Guarantor Subsidiaries | Separate Financial Information of Guarantor Subsidiaries The Company’s senior unsecured notes due 2026 (the “2026 Senior Unsecured Notes”) are fully and unconditionally guaranteed, jointly and severally, on a senior unsecured basis, subject to certain customary guarantor release conditions, by certain 100% owned material domestic subsidiaries of the Company (or the “Guarantor Subsidiaries”). The guarantee by a Guarantor Subsidiary will be released in the event of (i) the release of a Guarantor Subsidiary from its guarantee of indebtedness under the credit agreement or other indebtedness that would have required the Guarantor Subsidiary to guarantee the 2026 Senior Unsecured Notes, (ii) the sale, issuance or other disposition of capital stock of a Guarantor Subsidiary such that it is no longer a restricted subsidiary under the indenture governing the 2026 Senior Unsecured Notes, (iii) the sale of all or substantially all of a Guarantor Subsidiary’s assets, (iv) the Company’s exercise of its defeasance options under the indenture governing the 2026 Senior Unsecured Notes, (v) the dissolution or liquidation of a Guarantor Subsidiary or (vi) the sale of all the equity interest in a Guarantor Subsidiary. The Company’s other domestic subsidiaries and its foreign subsidiaries (collectively, the “Non-Guarantor Subsidiaries”) do not guarantee the 2026 Senior Unsecured Notes. The following condensed consolidating financial information reflects the summarized financial information of Western Digital Corporation (“Parent”), the Guarantor Subsidiaries on a combined basis, and the Non-Guarantor Subsidiaries on a combined basis. Condensed Consolidating Balance Sheet As of September 28, 2018 Parent Guarantor Subsidiaries Non-Guarantor Subsidiaries Eliminations Total (in millions) ASSETS Current assets: Cash and cash equivalents $ 5 $ 1,061 $ 3,580 $ — $ 4,646 Accounts receivable, net — 1,326 893 — 2,219 Intercompany receivables 2,344 4,306 2,142 (8,792 ) — Inventories — 991 2,302 (174 ) 3,119 Other current assets 27 243 317 — 587 Total current assets 2,376 7,927 9,234 (8,966 ) 10,571 Property, plant and equipment, net — 1,072 1,982 — 3,054 Notes receivable and investments in Flash Ventures — — 2,028 — 2,028 Goodwill — 387 9,685 — 10,072 Other intangible assets, net — 35 2,369 — 2,404 Investments in consolidated subsidiaries 21,369 18,981 — (40,350 ) — Loans due from consolidated affiliates 247 16 — (263 ) — Other non-current assets 59 45 472 — 576 Total assets $ 24,051 $ 28,463 $ 25,770 $ (49,579 ) $ 28,705 LIABILITIES AND SHAREHOLDERS’ EQUITY Current liabilities: Accounts payable $ — $ 193 $ 1,888 $ — $ 2,081 Accounts payable to related parties — — 286 — 286 Intercompany payables 1,382 4,159 3,251 (8,792 ) — Accrued expenses 162 561 582 — 1,305 Accrued compensation — 295 205 — 500 Current portion of long-term debt 213 — — — 213 Total current liabilities 1,757 5,208 6,212 (8,792 ) 4,385 Long-term debt 10,899 — 31 — 10,930 Loans due to consolidated affiliates — 247 16 (263 ) — Other liabilities 20 1,498 497 — 2,015 Total liabilities 12,676 6,953 6,756 (9,055 ) 17,330 Total shareholders’ equity 11,375 21,510 19,014 (40,524 ) 11,375 Total liabilities and shareholders’ equity $ 24,051 $ 28,463 $ 25,770 $ (49,579 ) $ 28,705 Condensed Consolidating Balance Sheet As of June 29, 2018 Parent Guarantor Subsidiaries Non-Guarantor Subsidiaries Eliminations Total (in millions) ASSETS Current assets: Cash and cash equivalents $ 40 $ 668 $ 4,297 $ — $ 5,005 Accounts receivable, net — 1,358 839 — 2,197 Intercompany receivables 1,903 4,256 2,674 (8,833 ) — Inventories — 990 2,159 (205 ) 2,944 Other current assets 20 195 277 — 492 Total current assets 1,963 7,467 10,246 (9,038 ) 10,638 Property, plant and equipment, net — 1,092 2,003 — 3,095 Notes receivable and investments in Flash Ventures — — 2,105 — 2,105 Goodwill — 387 9,688 — 10,075 Other intangible assets, net — 38 2,642 — 2,680 Investments in consolidated subsidiaries 20,847 19,893 — (40,740 ) — Loans due from consolidated affiliates 943 16 — (959 ) — Other non-current assets 182 29 431 — 642 Total assets $ 23,935 $ 28,922 $ 27,115 $ (50,737 ) $ 29,235 LIABILITIES AND SHAREHOLDERS’ EQUITY Current liabilities: Accounts payable $ — $ 279 $ 1,986 $ — $ 2,265 Accounts payable to related parties — — 259 — 259 Intercompany payables 1,066 4,648 3,119 (8,833 ) — Accrued expenses 198 505 571 — 1,274 Accrued compensation — 297 182 — 479 Current portion of long-term debt 179 — — — 179 Total current liabilities 1,443 5,729 6,117 (8,833 ) 4,456 Long-term debt 10,962 — 31 — 10,993 Loans due to consolidated affiliates — 427 532 (959 ) — Other liabilities (1 ) 1,768 488 — 2,255 Total liabilities 12,404 7,924 7,168 (9,792 ) 17,704 Total shareholders’ equity 11,531 20,998 19,947 (40,945 ) 11,531 Total liabilities and shareholders’ equity $ 23,935 $ 28,922 $ 27,115 $ (50,737 ) $ 29,235 Condensed Consolidating Statement of Operations For the three months ended September 28, 2018 Parent Guarantor Subsidiaries Non-Guarantor Subsidiaries Eliminations Total (in millions) Revenue, net $ — $ 3,485 $ 4,996 $ (3,453 ) $ 5,028 Cost of revenue — 3,005 3,824 (3,465 ) 3,364 Gross profit — 480 1,172 12 1,664 Operating expenses: Research and development — 363 213 — 576 Selling, general and administrative 1 251 104 — 356 Intercompany operating expense (income) — (407 ) 407 — — Employee termination, asset impairment, and other charges — 32 14 — 46 Total operating expenses 1 239 738 — 978 Operating income (loss) (1 ) 241 434 12 686 Interest and other income (expense): Interest income 8 3 12 (8 ) 15 Interest expense (116 ) (6 ) (2 ) 8 (116 ) Other income (expense), net 1 — (1 ) (2 ) (2 ) Total interest and other income (expense), net (107 ) (3 ) 9 (2 ) (103 ) Income (loss) before taxes (108 ) 238 443 10 583 Income tax expense (benefit) (144 ) 118 98 — 72 Equity in earnings from subsidiaries 475 345 — (820 ) — Net income $ 511 $ 465 $ 345 $ (810 ) $ 511 Condensed Consolidating Statement of Operations For the three months ended September 29, 2017 Parent Guarantor Subsidiaries Non-Guarantor Subsidiaries Eliminations Total (in millions) Revenue, net $ — $ 3,710 $ 5,081 $ (3,610 ) $ 5,181 Cost of revenue — 3,200 3,647 (3,579 ) 3,268 Gross profit — 510 1,434 (31 ) 1,913 Operating expenses: Research and development — 381 211 — 592 Selling, general and administrative 2 258 104 — 364 Intercompany operating expense (income) — (400 ) 400 — — Employee termination, asset impairment, and other charges — 11 41 — 52 Total operating expenses 2 250 756 — 1,008 Operating income (loss) (2 ) 260 678 (31 ) 905 Interest and other income (expense): Interest income 81 2 14 (81 ) 16 Interest expense (204 ) (6 ) (76 ) 81 (205 ) Other income (expense), net (8 ) 11 (9 ) — (6 ) Total interest and other income (expense), net (131 ) 7 (71 ) — (195 ) Income (loss) before taxes (133 ) 267 607 (31 ) 710 Income tax expense (benefit) (57 ) 54 32 — 29 Equity in earnings from subsidiaries 757 592 — (1,349 ) Net income $ 681 $ 805 $ 575 $ (1,380 ) $ 681 Condensed Consolidating Statement of Comprehensive Income (Loss) For the three months ended September 28, 2018 Parent Guarantor Subsidiaries Non-Guarantor Subsidiaries Eliminations Total (in millions) Net income $ 511 $ 465 345 $ (810 ) $ 511 Other comprehensive loss, before tax: Foreign currency translation adjustment (37 ) (34 ) (34 ) 68 (37 ) Net unrealized loss, on derivative contracts and available-for-sale securities (1 ) (8 ) (10 ) 18 (1 ) Total other comprehensive loss, before tax (38 ) (42 ) (44 ) 86 (38 ) Income tax benefit related to items of other comprehensive loss 1 — 1 (1 ) 1 Other comprehensive loss, net of tax (37 ) (42 ) (43 ) 85 (37 ) Total comprehensive income $ 474 $ 423 $ 302 $ (725 ) $ 474 Condensed Consolidating Statement of Comprehensive Income (Loss) For the three months ended September 29, 2017 Parent Guarantor Subsidiaries Non-Guarantor Subsidiaries Eliminations Total (in millions) Net income $ 681 $ 805 $ 575 $ (1,380 ) $ 681 Other comprehensive loss, before tax: Foreign currency translation adjustment (4 ) (4 ) (4 ) 8 (4 ) Net unrealized gain (loss) on derivative contracts and available-for-sale securities 3 2 2 (4 ) 3 Total other comprehensive loss, before tax (1 ) (2 ) (2 ) 4 (1 ) Income tax benefit (expense) related to items of other comprehensive loss — — (2 ) 2 — Other comprehensive loss, net of tax (1 ) (2 ) (4 ) 6 (1 ) Total comprehensive income $ 680 $ 803 $ 571 $ (1,374 ) $ 680 Condensed Consolidating Statement of Cash Flows For the three months ended September 28, 2018 Parent Guarantor Subsidiaries Non-Guarantor Subsidiaries Eliminations Total (in millions) Cash flows from operating activities Net cash provided by (used in) operating activities (101 ) (691 ) 1,244 253 705 Cash flows from investing activities Purchases of property, plant and equipment — (63 ) (214 ) — (277 ) Purchases of investments — (2 ) (9 ) — (11 ) Proceeds from sale of investments — — 6 — 6 Proceeds from maturities of investments — — 3 — 3 Notes receivable issuances to Flash Ventures — — (115 ) — (115 ) Notes receivable proceeds from Flash Ventures — — 144 — 144 Strategic investments and other, net — — (9 ) — (9 ) Intercompany loan from consolidated affiliates 696 — — (696 ) — Advances from (to) parent and consolidated affiliates 97 (97 ) — — — Net cash provided by (used in) investing activities 793 (162 ) (194 ) (696 ) (259 ) Cash flows from financing activities — Issuance of stock under employee stock plans 8 — — — 8 Taxes paid on vested stock awards under employee stock plans (66 ) — — — (66 ) Repurchases of common stock (563 ) — — — (563 ) Dividends paid to shareholders (148 ) — — — (148 ) Repayment of debt (38 ) — — — (38 ) Intercompany loan to consolidated affiliates — (180 ) (516 ) 696 — Change in investment in consolidated subsidiaries 80 1,426 (1,253 ) (253 ) — Net cash provided by (used in) financing activities (727 ) 1,246 (1,769 ) 443 (807 ) Effect of exchange rate changes on cash — — 2 — 2 Net increase (decrease) in cash and cash equivalents (35 ) 393 (717 ) — (359 ) Cash and cash equivalents, beginning of year 40 668 4,297 — 5,005 Cash and cash equivalents, end of period 5 1,061 3,580 — 4,646 Condensed Consolidating Statement of Cash Flows For the three months ended September 29, 2017 Parent Guarantor Subsidiaries Non-Guarantor Subsidiaries Eliminations Total (in millions) Cash flows from operating activities Net cash provided by (used in) operating activities $ (6 ) $ 145 $ 1,031 $ (37 ) $ 1,133 Cash flows from investing activities Purchases of property, plant and equipment — (47 ) (113 ) — (160 ) Proceeds from the sale of property, plant and equipment — — 5 — 5 Acquisitions, net of cash acquired — (93 ) — — (93 ) Purchases of investments — (10 ) (28 ) — (38 ) Proceeds from sale of investments — — 14 — 14 Proceeds from maturities of investments — — 2 — 2 Notes receivable issuances to Flash Ventures — — (229 ) — (229 ) Notes receivable proceeds from Flash Ventures — — 98 — 98 Strategic investments and other, net 23 — 23 Advances from (to) consolidated affiliates 60 (62 ) — 2 — Net cash provided by (used in) investing activities 60 (212 ) (228 ) 2 (378 ) Cash flows from financing activities Issuance of stock under employee stock plans 20 — — 20 Taxes paid on vested stock awards under employee stock plans (61 ) — — (61 ) Dividends paid to shareholders (147 ) — — (147 ) Settlement of debt hedge contracts 26 — 26 Repayment of debt (62 ) — (62 ) Intercompany loan from (to) consolidated affiliates 300 (300 ) — — Change in investment in consolidated subsidiaries 117 (129 ) (23 ) 35 — Net cash provided by (used in) financing activities 193 (129 ) (323 ) 35 (224 ) Effect of exchange rate changes on cash — — 1 — 1 Net increase (decrease) in cash and cash equivalents 247 (196 ) 481 — 532 Cash and cash equivalents, beginning of year 18 1,212 5,124 — 6,354 Cash and cash equivalents, end of period $ 265 $ 1,016 $ 5,605 $ — $ 6,886 |