January 3, 2020
| Ireland | 98-0648577 | |||||||
(State or other jurisdiction of | (I.R.S. Employer | |||||||
| incorporation or organization) |
Identification Number) | |||||||
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||||||||
| Ordinary Shares, par value $0.00001 per share | STX | The NASDAQ Global Select Market | ||||||||||||
| Large accelerated | ☒ | Accelerated filer: | ☐ | |||||||||||
| Non-accelerated filer: | ☐ | Smaller reporting company: | ☐ | |||||||||||
| Emerging growth company: | ☐ | |||||||||||||
| 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. | ||||||||||||||
| ☐ | ||||||||||||||
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. ☐
Item 1. Current assets: Cash and cash equivalents Accounts receivable, net Inventories Other current assets Total current assets Property, equipment and leasehold improvements, net Goodwill Other intangible assets, net Deferred income taxes Other assets, net Total Assets Current liabilities: Accounts payable Accrued employee compensation Accrued warranty Current portion of long-term debt Accrued expenses Total current liabilities Long-term accrued warranty Long-term accrued income taxes Othernon-current liabilities Long-term debt Total Liabilities Commitments and contingencies (See Notes 12, 14 and 15) Shareholders’ Equity: Ordinary shares and additionalpaid-in capital Accumulated other comprehensive loss Accumulated deficit Total Equity Total Liabilities and Equity Revenue Cost of revenue Product development Marketing and administrative Amortization of intangibles Restructuring and other, net Total operating expenses Income from operations Interest income Interest expense Other, net Other expense, net Income before income taxes Provision for income taxes Net income Net income per share: Basic Diluted Number of shares used in per share calculations: Basic Diluted Cash dividends declared per ordinary share Net income Other comprehensive income (loss), net of tax: Cash flow hedges Change in net unrealized gain (loss) on cash flow hedges Less: reclassification for amounts included in net income Net change Marketable securities Change in net unrealized gain (loss) on marketable securities Less: reclassification for amounts included in net income Net change Post-retirement plans Change in unrealized gain (loss) on post-retirement plans Less: reclassification for amounts included in net income Net change Foreign currency translation adjustments Total other comprehensive income (loss), net of tax Comprehensive income OPERATING ACTIVITIES Net income Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization Share-based compensation Impairment of long-lived assets Deferred income taxes Othernon-cash operating activities, net Changes in operating assets and liabilities: Accounts receivable, net Inventories Accounts payable Accrued employee compensation Accrued expenses, income taxes and warranty Vendor receivables Other assets and liabilities Net cash provided by operating activities INVESTING ACTIVITIES Acquisition of property, equipment and leasehold improvements Proceeds from the sale of property and equipment Maturities of short-term investments Other investing activities, net Net cash used in investing activities FINANCING ACTIVITIES Redemption and repurchase of debt Taxes paid related to net share settlement of equity awards Repurchases of ordinary shares Dividends to shareholders Proceeds from issuance of ordinary shares under employee stock plans Net cash used in financing activities Effect of foreign currency exchange rate changes on cash, cash equivalents, and restricted cash Increase in cash, cash equivalents, and restricted cash Cash, cash equivalents, and restricted cash at the beginning of the period Cash, cash equivalents, and restricted cash at the end of the period 28, 2018 Balance at June 30, 2017 Net income Other comprehensive income Issuance of ordinary shares under employee stock plans Repurchases of ordinary shares Tax withholding related to vesting of restricted stock units Dividends to shareholders Share-based compensation Balance at December 29, 2017 systems. . The results of operations for the three and six months ended January 3, 2020 are not necessarily indicative of the results of operations to be expected for any subsequent interim period or for the Company’s fiscal year ending July 3, 2020. Condensed Consolidated Balance Sheets. ROU assets represent the Company’s right to use an underlying asset for the lease term and the corresponding lease liabilities represent its obligation to make lease payments arising from the lease. (Dollars in millions) Available-for-sale securities: Money market funds Time deposits and certificates of deposit Total Included in Cash and cash equivalents Included in Other current assets Total January 3, 2020: January 3, 2020. (Dollars in millions) Due in less than 1 year Due in 1 to 5 years Due in 6 to 10 years Thereafter Total (Dollars in millions) Available-for-sale securities: Money market funds Time deposits and certificates of deposit Total Included in Cash and cash equivalents Included in Other current assets Total 28, 2019: 28, 2019. (Dollars in millions) Cash and cash equivalents Restricted cash included in Other current assets Total cash, cash equivalents, and restricted cash shown in the Statements of Cash Flows (Dollars in millions) Raw materials and components Work-in-process Finished goods (Dollars in millions) Property, equipment and leasehold improvements Accumulated depreciation and amortization (Dollars in millions) Dividends payable Other accrued expenses Total (Dollars in millions) Balance at June 30, 2017 Other comprehensive income (loss) before reclassifications Amounts reclassified from AOCI Other comprehensive income (loss) Balance at December 29, 2017 Balance at July 1, 2016 Other comprehensive income (loss) before reclassifications Amounts reclassified from AOCI Other comprehensive income (loss) Balance at December 30, 2016 such facility is also available for swing line loans. principal amount of approximately $250 million was repurchased pursuant to cash tender offers for certain senior notes (the principal amount of $200 million was repurchased pursuant to the Tender Offers. The Company recorded a loss of $10 million during the six months ended January 3, 2020, which was included in Other, net in the Company’s Condensed Consolidated Statements of Operations. STX. principal amount of approximately $170 million was repurchased pursuant to the Tender Offers. The Company recorded a loss of $8 million during the six months ended January 3, 2020, which was included in Other, net in the Company’s Condensed Consolidated Statements of Operations. STX. STX. Fiscal Year Remainder of 2018 2019 2020 2021 2022 Thereafter Total related to share-based compensation expense. current year generation of research credits. limitation. (Dollars in millions) Cash and cash equivalents Accounts receivable, net Inventories Other current andnon-current assets Property, plant and equipment Intangible assets Goodwill Total assets Accounts payable, accrued expenses and other Total liabilities Total (Dollars in millions) Existing technology Customer relationships Trade names Total amortizable intangible assets acquired In-process research and development Total acquired identifiable intangible assets (Dollars in millions) Balance at June 30, 2017 Goodwill acquired Goodwill disposed Foreign currency translation effect Balance at December 29, 2017 (Dollars in millions) Existing technology Customer relationships Trade name Other intangible assets Total amortizable other intangible assets (Dollars in millions) Existing technology Customer relationships Trade name Other intangible assets Total amortizable other intangible assets (Dollars in millions) Remainder of 2018 2019 2020 2021 2022 Thereafter Total (Dollars in millions) Restructuring charges Cash payments Adjustments Contents 28, 2019. As of January 3, 2020, the amount of existing net gains related to cash flow hedges recorded in Accumulated other comprehensive loss included $3 million that is expected to be reclassified to earnings within twelve months. contracts as of January 3, 2020 and June 28, 2019. All of the foreign currency forward exchange contracts mature within 12 months. as of January 3, 2020 and June 28, 2019: (Dollars in millions) Derivatives Not Designated as Hedging Instruments Foreign currency forward exchange contracts Total return swap January 3, 2020: (Dollars in millions) Derivatives Designated as Hedging Instruments Foreign currency forward exchange contracts Derivatives Not Designated as Hedging Instruments Foreign currency forward exchange contracts Total return swap 28, 2018 (Dollars in millions) Assets: Money market funds Time deposits Total cash equivalents Restricted cash and investments: Money market funds Time deposits and certificates of deposit Total assets (Dollars in millions) Assets: Cash and cash equivalents Other current assets Total assets January 3, 2020: (Dollars in millions) Assets: Money market funds Time deposits Total cash equivalents Restricted cash and investments: Money market funds Time deposits and certificates of deposit Total assets (Dollars in millions) Assets: Cash and cash equivalents Other current assets Total assets 28, 2019: respectively. For the three and six months ended 28, 2018, there were 0 upward or downward adjustments on equity investments. or buildings. (Dollars in millions) 3.75% Senior Notes due November 2018 4.25% Senior Notes due March 2022 4.75% Senior Notes due June 2023 4.875% Senior Notes due March 2024 4.75% Senior Notes due January 2025 4.875% Senior Notes due June 2027 5.75% Senior Notes due December 2034 Less: debt issuance costs Long-term debt, net of debt issuance costs Less: current portion of long-term debt Long-term debt, less current portion Contents January 3, 2020. Constitution. (In millions) Repurchases of ordinary shares Tax withholding related to vesting of equity awards Total January 3, 2020:PAGE NO. 9283637PART II38383838Item 6.3940(Unaudited) December 29,
2017 June 30,
2017 ASSETS $ 2,556 $ 2,539 1,055 1,199 1,014 982 285 321 4,910 5,041 1,762 1,875 1,238 1,238 222 281 402 609 216 224 $ 8,750 $ 9,268 LIABILITIES AND EQUITY $ 1,620 $ 1,626 183 237 111 113 560 — 639 650 3,113 2,626 125 120 12 15 123 122 4,316 5,021 7,689 7,904 6,246 6,152 (11 ) (17 ) (5,174 ) (4,771 ) 1,061 1,364 $ 8,750 $ 9,268 The information as of June 30, 2017 was derived from the Company’s audited Consolidated Balance Sheet as of June 30, 2017. January 3,
2020June 28,
2019(unaudited) ASSETS Current assets: Cash and cash equivalents $ 1,744 $ 2,220 Accounts receivable, net 1,112 989 Inventories 1,148 970 Other current assets 148 184 Total current assets 4,152 4,363 Property, equipment and leasehold improvements, net 2,049 1,869 Goodwill 1,237 1,237 Other intangible assets, net 83 111 Deferred income taxes 1,119 1,114 Other assets, net 292 191 Total Assets $ 8,932 $ 8,885 LIABILITIES AND EQUITY Current liabilities: Accounts payable $ 1,870 $ 1,420 Accrued employee compensation 191 169 Accrued warranty 80 91 Current portion of long-term debt 6 — Accrued expenses 553 552 Total current liabilities 2,700 2,232 Long-term accrued warranty 89 104 Long-term accrued income taxes 3 4 Other non-current liabilities 175 130 Long-term debt 4,135 4,253 Total Liabilities 7,102 6,723 Commitments and contingencies (See Notes 11 and 13) Shareholders’ Equity: Ordinary shares and additional paid-in capital 6,667 6,545 Accumulated other comprehensive loss (33) (34) Accumulated deficit (4,804) (4,349) Total Equity 1,830 2,162 Total Liabilities and Equity $ 8,932 $ 8,885 For the Three Months Ended For the Six Months Ended December 29,
2017 December 30,
2016 December 29,
2017 December 30,
2016 $ 2,914 $ 2,894 $ 5,546 $ 5,691 2,037 2,003 3,933 3,999 250 305 513 620 142 155 287 308 19 28 41 57 33 33 84 115 2,481 2,524 4,858 5,099 433 370 688 592 6 1 13 2 (61 ) (50 ) (122 ) (100 ) (7 ) (11 ) (20 ) (11 ) (62 ) (60 ) (129 ) (109 ) 371 310 559 483 212 13 219 19 $ 159 $ 297 $ 340 $ 464 $ 0.55 $ 1.00 $ 1.18 $ 1.56 0.55 1.00 1.17 1.55 288 296 289 297 291 298 291 299 $ 0.63 $ 0.63 $ 1.26 $ 1.26 For the Three Months Ended For the Six Months Ended January 3,
2020December 28,
2018January 3,
2020December 28,
2018Revenue $ 2,696 $ 2,715 $ 5,274 $ 5,706 Cost of revenue 1,938 1,921 3,845 3,999 Product development 250 246 505 512 Marketing and administrative 120 120 242 235 Amortization of intangibles 4 5 8 11 Restructuring and other, net — 7 17 30 Total operating expenses 2,312 2,299 4,617 4,787 Income from operations 384 416 657 919 Interest income 4 22 15 46 Interest expense (48) (56) (103) (114) Other, net (4) 16 (35) 15 Other expense, net (48) (18) (123) (53) Income before income taxes 336 398 534 866 Provision for income taxes 18 14 16 32 Net income $ 318 $ 384 $ 518 $ 834 Net income per share: Basic $ 1.21 $ 1.35 $ 1.96 $ 2.92 Diluted 1.20 1.34 1.93 2.88 Number of shares used in per share calculations: Basic 262 285 264 286 Diluted 265 287 268 290 Cash dividends declared per ordinary share $ 0.65 $ 0.63 $ 1.28 $ 1.26 For the Three Months Ended For the Six Months Ended December 29,
2017 December 30,
2016 December 29,
2017 December 30,
2016 $ 159 $ 297 $ 340 $ 464 — (2 ) — (3 ) — — — 1 — (2 ) — (2 ) — — — — — — — — — — — — — — — — — — — — — — — — 2 (7 ) 6 (6 ) 2 (9 ) 6 (8 ) $ 161 $ 288 $ 346 $ 456 For the Three Months Ended For the Six Months Ended January 3,
2020December 28,
2018January 3,
2020December 28,
2018Net income $ 318 $ 384 $ 518 $ 834 Other comprehensive income (loss), net of tax: Cash flow hedges Change in net unrealized gain (loss) on cash flow hedges 3 (4) 2 (1) Less: reclassification for amounts included in net income 1 (1) 1 (2) Net change 4 (5) 3 (3) Foreign currency translation adjustments 3 (4) (2) (2) Total other comprehensive income (loss), net of tax 7 (9) 1 (5) Comprehensive income $ 325 $ 375 $ 519 $ 829 For the Six Months Ended December 29,
2017 December 30,
2016 $ 340 $ 464 318 391 59 73 — 9 204 3 3 18 145 110 (32 ) (140 ) 59 170 (54 ) 70 3 69 42 19 — (9 ) 1,087 1,247 (201 ) (235 ) 2 (1 ) — 6 (11 ) (4 ) (210 ) (234 ) (152 ) — (21 ) (24 ) (361 ) (248 ) (366 ) (188 ) 35 47 (865 ) (413 ) 5 (12 ) 17 588 2,543 1,132 $ 2,560 $ 1,720 For the Six Months Ended January 3,
2020December 28,
2018OPERATING ACTIVITIES Net income $ 518 $ 834 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 185 272 Share-based compensation 53 45 Deferred income taxes (4) 1 Other non-cash operating activities, net 47 (44) Changes in operating assets and liabilities: Accounts receivable, net (124) 135 Inventories (172) (47) Accounts payable 458 (240) Accrued employee compensation 22 (89) Accrued expenses, income taxes and warranty (38) (16) Other assets and liabilities (9) 24 Net cash provided by operating activities 936 875 INVESTING ACTIVITIES Acquisition of property, equipment and leasehold improvements (341) (304) Proceeds from settlement of foreign currency forward exchange contracts — 66 Proceeds from sale of strategic investments — 10 Proceeds from the sale of assets 1 6 Purchases of investments (45) (8) Net cash used in investing activities (385) (230) FINANCING ACTIVITIES Redemption and repurchase of debt (645) (499) Dividends to shareholders (335) (361) Repurchases of ordinary shares (600) (286) Taxes paid related to net share settlement of equity awards (39) (30) Net proceeds from issuance of long-term debt 498 — Proceeds from issuance of ordinary shares under employee stock plans 69 35 Other financing activities, net (2) — Net cash used in financing activities (1,054) (1,141) Effect of foreign currency exchange rate changes on cash, cash equivalents and restricted cash (2) (1) Decrease in cash, cash equivalents and restricted cash (505) (497) Cash, cash equivalents and restricted cash at the beginning of the period 2,251 1,857 Cash, cash equivalents and restricted cash at the end of the period $ 1,746 $ 1,360 STATEMENTSTATEMENTS OF SHAREHOLDERS’ EQUITYSixThree Months EndedJanuary 3, 2020 and December 29, 2017 Number
of
Ordinary
Shares Par Value
of Shares Additional
Paid-in
Capital Accumulated
Other
Comprehensive
Loss Accumulated
Deficit Total 292 $ — $ 6,152 $ (17 ) $ (4,771 ) $ 1,364 340 340 6 6 4 35 35 (10 ) (361 ) (361 ) (1 ) (21 ) (21 ) (361 ) (361 ) 59 59 285 $ — $ 6,246 $ (11 ) $ (5,174 ) $ 1,061 Number
of
Ordinary
SharesPar Value
of SharesAdditional
Paid-in
CapitalAccumulated
Other
Comprehensive
LossAccumulated
DeficitTotal Balance at October 4, 2019 263 $ — $ 6,610 $ (40) $ (4,800) $ 1,770 Net income 318 318 Other comprehensive income 7 7 Issuance of ordinary shares under employee stock plans 1 30 30 Repurchases of ordinary shares (3) (150) (150) Tax withholding related to vesting of restricted stock units (2) (2) Dividends to shareholders (170) (170) Share-based compensation 27 27 Balance at January 3, 2020 261 $ — $ 6,667 $ (33) $ (4,804) $ 1,830 Number
of
Ordinary
SharesPar Value
of SharesAdditional
Paid-in
CapitalAccumulated
Other
Comprehensive
LossAccumulated
DeficitTotal Balance at September 28, 2018 286 $ — $ 6,427 $ (12) $ (4,569) $ 1,846 Net income 384 384 Other comprehensive loss (9) (9) Issuance of ordinary shares under employee stock plans 3 3 Repurchases of ordinary shares (3) (136) (136) Tax withholding related to vesting of restricted stock units (3) (3) Dividends to shareholders (178) (178) Share-based compensation 27 27 Balance at December 28, 2018 283 $ — $ 6,457 $ (21) $ (4,502) $ 1,934 Number
of
Ordinary
SharesPar Value
of SharesAdditional
Paid-in
CapitalAccumulated
Other
Comprehensive
LossAccumulated
DeficitTotal Balance at June 28, 2019 269 $ — $ 6,545 $ (34) $ (4,349) $ 2,162 Impact of adopting new lease standard (Note 1) (2) (2) Net income 518 518 Other comprehensive income 1 1 Issuance of ordinary shares under employee stock plans 5 69 69 Repurchases of ordinary shares (12) (597) (597) Tax withholding related to vesting of restricted stock units (1) (39) (39) Dividends to shareholders (335) (335) Share-based compensation 53 53 Balance at January 3, 2020 261 $ — $ 6,667 $ (33) $ (4,804) $ 1,830 Number
of
Ordinary
SharesPar Value
of SharesAdditional
Paid-in
CapitalAccumulated
Other
Comprehensive
LossAccumulated
DeficitTotal Balance at June 29, 2018 287 $ — $ 6,377 $ (16) $ (4,696) $ 1,665 Cumulative effect of adoption of new revenue standard 34 34 Net income 834 834 Other comprehensive loss (5) (5) Issuance of ordinary shares under employee stock plans 3 35 35 Repurchases of ordinary shares (6) (286) (286) Tax withholding related to vesting of restricted stock units (1) (30) (30) Dividends to shareholders (358) (358) Share-based compensation 45 45 Balance at December 28, 2018 283 $ — $ 6,457 $ (21) $ (4,502) $ 1,934 (the(“STX”) and its subsidiaries (collectively, unless the context otherwise indicates, the “Company”) is a leading provider of data storage technology and solutions. Its principal products are hard disk drives, commonly referred to as disk drives, hard drives or HDDs. In addition to HDDs, the Company produces a broad range of data storage products including solid state drives (“SSD”SSDs”) and their related controllers,, solid state hybrid drives (“SSHD”SSHDs”) and storage subsystems.Hard disk drivesDisk drivesHDDs continue to be the primary medium of mass data storage due to their performance attributes, reliability, high quality and cost effectiveness. Complementing existing data center storage architecture, solid-state storage devicesSSDs use integrated circuit assemblies as memory to store data, withand most SSDs using NAND-baseduse NAND flash memory. In addition to HDDs and SSDs, SSHDs combine the features of SSDs and HDDs in the same unit, containing a large hard disk drivehigh capacity HDD and ana smaller SSD acting as a cache to improve performance of frequently accessed data.nearlineconsumer applications. These markets were previously categorized as enterprise servers and storage systems, edge non-compute applications, and edge compute applications. The Company’s SSD product portfolio is mainly comprised of Serial Attached SCSI (“SAS”) and Non-Volatile Memory Express (“NVMe”) and is designed primarily for applications in enterprise servers and storage systems; edge compute / client compute applications, where its products are designed primarily for desktop and mobile computing; and edgenon-compute /client non-compute applications, where its products are designed for a wide variety of end user devices such as portable external storage systems, surveillance systems, network-attached storage (“NAS”), digital video recorders (“DVRs”) and gaming consoles.cloud systems andenterprise data solutions extend innovation from the device into the information infrastructure, onsite and in the cloud. Its(“EDS”) portfolio includes modularstorage subsystems for enterprises, cloud service providers, scale-out storage servers and original equipment manufacturers (“OEM”OEMs”) storage systemsand scale-out storage servers.condensedCompany’s consolidated financial statements reflect, in the opinion of management, all material adjustments necessary to present fairly the condensed consolidated financial position, results of operations, comprehensive income, cash flows and shareholders’ equity for the periods presented. Such adjustments are of a normal and recurring nature. Certain prior period amounts in the condensed consolidated financial statements and notes to the condensed consolidated financial statements have been reclassified to conform to the current period’s presentation.The Company’s Consolidated Financial Statements for the fiscal year ended June 30, 2017,28, 2019 are included in its Annual Report onForm 10-K, as filed with the United StatesU.S. Securities and Exchange Commission (“SEC”) on August 4, 2017.2, 2019. The Company believes that the disclosures included in thethese unaudited condensed consolidated financial statements, when read in conjunction with its Consolidated Financial Statementsconsolidated financial statements as of June 30, 2017,28, 2019, and the notes thereto, are adequate to make the information presented not misleading.The results of operations for the three and six months ended December 29, 2017, are not necessarily indicative of the results of operations to be expected for any subsequent interim period in the Company’s fiscal year ending June 29, 2018. BothIn fiscal years with 53 weeks, the first quarter consists of 14 weeks and the remaining quarters consist of 13 weeks each. The three and six months ended December 29, 2017January 3, 2020 consisted of 13 weeks and 27 weeks, respectively, and the three and six months ended December 30, 201628, 2018 consisted of 13 weeks and 26 weeks, respectively. Fiscal year 2018 will be2020, which ends on July 3, 2020, is comprised of 53 weeks and fiscal year 2019, which ended on June 28, 2019, was comprised of 52 weeks and will end on June 29, 2018.weeks. The fiscal quarters ended December 29, 2017, September 29, 2017,January 3, 2020, October 4, 2019 and December 30, 2016,28, 2018, are also referred to herein as the “December 20172019 quarter”, the “September 20172019 quarter”, and the “December 20162018 quarter”, respectively.Theresignificantmaterial changes into the Company’s significant accounting policies. Please refer topolicies disclosed in Note 11. Basis of Presentation and Summary of Significant Accounting Policies of “Financial Statements and Supplementary Data” contained in Part II, Item 88. of the Company’s Annual Report onForm 10-K for the fiscal year ended June 30, 2017,28, 2019, as filed with the SEC on August 4, 20172, 2019.discussionresult, effective June 29, 2019, the Company changed its estimate of the useful lives of its manufacturing equipment from a range of three to five years to a range of three to seven years. The effect of this change in estimate increased the net income by $42 million and $65 million for the three and six months ended January 3, 2020, respectively, and increased the diluted earnings per share by $0.16 and $0.24 for the three and six months ended January 3, 2020, respectively.other significant accounting policies.IssuedAdopted Accounting PronouncementsMay 2014, August 2015, April 2016, May 2016 and DecemberFebruary 2016, the Financial Accounting Standards Board (“FASB”) issuedASU 2014-09 Accounting Standard Update (“ASU”) 2016-02 (ASC Topic 606)842), Revenue from Contracts with Customers, ASU 2015-14 (ASC Topic 606) Revenue from Contracts with Customers, DeferralLeases, and subsequently issued certain interpretive clarifications on this new guidance which amend a number of aspects of lease accounting, including requiring a lessee to recognize an ROU asset and corresponding lease liability for operating leases and enhanced disclosures. As of June 29, 2019, adoption of the Effective Date,standard resulted in the recognition of ROU assets and corresponding current and non-current lease liabilities of $115 million, $17 million and $57 million, respectively, on the Company’s Condensed Consolidated Balance Sheet, primarily relating to real estate operating leases. The adoption of this ASU 2016-10did not have a material impact on the Company’s other condensed consolidated financial statements. For information regarding the impact of ASC 842 adoption, see Summary of Significant Accounting Policies - Leases above and Note 5. Leases.606) Revenue220), Income Statement—Reporting Comprehensive Income: Reclassification of Certain Tax Effects from Contracts with Customers, Identifying Performance ObligationsAccumulated Other Comprehensive Income. This ASU was issued following the enactment of the U.S. Tax Cuts and Licensing,ASU 2016-12 (ASC Topic 606) Revenue from Contracts with Customers, Narrow-Scope ImprovementsJobs Act of 2017 (the “Tax Act”) and Practical Expedients, andASU 2016-20 (ASC Topic 606) Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers, respectively. ASC Topic 606 outlines a single comprehensive model forpermits entities to useelect a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Act. This ASU became effective and the Company adopted the guidance in the September 2019 quarter. The Company has elected not to reclassify the stranded amounts. The adoption of this guidance did not have a material impact on its condensed consolidated financial statements and disclosures.revenue arising from contractscapitalizing implementation costs incurred in a hosting arrangement that is a service contract with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. It also requires entitiesthe accounting for implementation costs incurred to disclose both quantitative and qualitative information that enable financial statements users to understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers.develop or obtain internal-use software. The Company is required to adopt the guidance in the first quarter of fiscal 2019. This standard may be applied retrospectively to all prior periods presented, or retrospectively with a cumulative adjustment to retained earnings in the year of adoption (“modified retrospective transition approach”). Based on its assessment, the Company plans to adopt the new revenue standard in the first quarter of fiscal 2019, utilizing the modified retrospective method of transition. While management has not yet completed its assessment of the impact of adopting this new standard on the Company’s consolidated financial statements, the Company expects the adoption of the new standard will result in the recognition of revenues generally uponshipment (sell-in basis) for sales of products to certain direct retail customers and customers in certain indirect retail channels which are currently being recognized on a sell-through basis. Accordingly, the Company will need to estimate variable consideration (e.g. rebates) related to customer incentives on these arrangements. These changes are not expected to have a material impact on the Company’s condensed consolidated financial statements.In January 2016, the FASB issuedASU 2016-01 (ASCSubtopic 825-10), Financial Instruments—Overall Recognition and Measurement of Financial Assets and Financial Liabilities. The amendments in this ASU require entities to measure all investments in equity securities at fair value with changes recognized through net income. This requirement does not apply to investments that qualify for the equity method of accounting, to those that result in consolidation of the investee, or for which the entity meets a practicability exception to fair value measurement. Additionally, the amendments eliminate certain disclosure requirements related to financial instruments measured at amortized cost and add disclosures related to the measurement categories of financial assets and financial liabilities. The Company is required to adopt the guidance in the first quarter of fiscal 2019. Early adoption is permitted for only certain portions of the ASU. The Company expects to elect the measurement alternative for measurement of equity investments, defined as cost, less impairments, if any, plus or minus changes resulting from observable price changes in orderly transactions for an identical or similar investment in the same issuer (the “Price Changes”) until the equity investments’ fair value becomes readily determinable. The amount of the impact to equity investments will depend on any Price Changes observed after adoption in the first quarter of fiscal 2019.In February 2016, the FASB issuedASU 2016-02 (ASC Topic 842), Leases. The ASU amends a number of aspects of lease accounting, including requiring lessees to recognize operating leases with a term greater than one year on their balance sheet asa right-of-use asset and corresponding lease liability, measured at the present value of the lease payments. The Company is required to adopt the guidance in the first quarter of fiscal 2020.2021. Early adoption is permitted. The Company is in the process of assessing the impact of this ASU on its condensed consolidated financial statements.January 2017,June 2016, the FASB issuedASU 2017-012016-13 (ASC Topic 805)326), Business Combination: ClarifyingFinancial Instruments—Credit Losses: Measurement of Credit Losses on Financial Instruments. This ASU amends the Definitionrequirement on the measurement and recognition of a Business. The amendments in this ASU change the definition of a business to assist with evaluating when a set of transferredexpected credit losses for financial assets and activities is a business.held. The Company plansis required to adopt thethis guidance in the first quarter of fiscal 2019.year 2021. The Company is in the process of assessing the impact of this ASU on its consolidated financial statements.condensed consolidated financial statements.In May 2017, the FASB issuedASU 2017-09 (ASC Topic 718), Stock Compensation: Scope of Modification Accounting. The amendments in this ASU provide guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting. The Company plans to adopt the guidance in the first quarter of fiscal 2019. Early adoption is permitted. The Company is in the process of assessing the impact of this ASU on its condensed consolidated financial statements.Recently Adopted Accounting PronouncementsIn July 2015, the FASB issuedASU 2015-11 (ASC Topic 330), Inventory: Simplifying the Measurement of Inventory. The amendments in this ASU require inventory measurement at the lower of cost and net realizable value. This ASU became effective and was adopted by the Company in the September 2017 quarter on a prospective basis. The adoption of this guidance had no material impact on the Company’s condensed consolidated financial statements and disclosures.In March 2016, the FASB issuedASU 2016-09 (ASC Topic 718), Stock Compensation—Improvements to Employee Share-Based Payment Accounting. The amendments in this ASU are intended to simplify several areas of accounting for share-based compensation arrangements, including the income tax consequences, classification on the consolidated statement of cash flows and treatment of forfeitures. This ASU became effective and was adopted by the Company in the September 2017 quarter. Upon adoption, excess tax benefits or deficiencies from share-based award activity are reflected in the condensed consolidated statements of operations as a component of the provision for income taxes, whereas they previously were recognized in the Shareholder’s equity in the condensed consolidated balance sheets. The Company also elected to continue to account for share-based compensation expense net of estimated forfeitures. The adoption of this ASU resulted in an increase in deferred tax assets relating to net operating losses of approximately $0.6 billion, offset by an equivalent increase in the valuation allowance with no impact to retained earnings. The adoption of this guidance had no material impact on the Company’s condensed consolidated financial statements and disclosures.In October 2016, the FASB issuedASU 2016-16 (ASC Topic 740), Income Taxes: Intra-Entity Transfers of Assets Other Than Inventory. The amendments in this ASU require the recognition of the income tax consequences for intra-entity transfers of assets other than inventory when the transfer occurs. The Company elected to adopt this ASU in the September 2017 quarter on a modified retrospective basis with no material impact on the Company’s condensed consolidated financial statements and disclosures.2.Balance Sheet InformationInvestmentsDecember 29, 2017: Amortized
Cost Unrealized
Gain/(Loss) Fair
Value $ 674 $ — $ 674 390 — 390 $ 1,064 $ — $ 1,064 $ 1,060 4 $ 1,064 (Dollars in millions) Amortized
CostUnrealized
Gain/(Loss)Fair
ValueAvailable-for-sale debt securities: Money market funds $ 571 $ — $ 571 Time deposits and certificates of deposit 101 — 101 Other debt securities 14 — 14 Total $ 686 $ — $ 686 Included in Cash and cash equivalents $ 670 Included in Other current assets 2 Included in Other assets, net 14 Total $ 686 December 29, 2017,January 3, 2020, the Company’s Other current assets included $4$2 million in restricted cash and investments held as collateral at banks for various performance obligations.December 29, 2017,January 3, 2020, the Company had no0 materialavailable-for-sale debt securities that had been in a continuous unrealized loss position for a period greater than 12 months. The Company determined that no0 available-for-sale debt securities were other-than-temporarily impaired as of December 29, 2017.December 29, 2017,January 3, 2020, by remaining contractual maturity were as follows: Amortized
Cost Fair
Value $ 1,064 $ 1,064 — — — — — — $ 1,064 $ 1,064 (Dollars in millions) Amortized
CostFair
ValueDue in less than 1 year $ 672 $ 672 Due in 1 to 5 years 6 6 Due in 6 to 10 years — — Thereafter 8 8 Total $ 686 $ 686 30, 2017: Amortized
Cost Unrealized
Gain/(Loss) Fair
Value $ 594 $ — $ 594 584 — 584 $ 1,178 $ — $ 1,178 $ 1,174 4 $ 1,178 (Dollars in millions) Amortized
CostUnrealized
Gain/(Loss)Fair
ValueAvailable-for-sale debt securities: Money market funds $ 417 $ — $ 417 Time deposits and certificates of deposit 133 — 133 Other debt securities 7 — 7 Total $ 557 $ — $ 557 Included in Cash and cash equivalents $ 548 Included in Other current assets 2 Included in Other assets, net 7 Total $ 557 30, 2017,28, 2019, the Company’s Other current assets included $4$2 million in restricted cash and investments held as collateral at banks for various performance obligations.30, 2017,28, 2019, the Company had no0 materialavailable-for-sale debt securities that had been in a continuous unrealized loss position for a period greater than 12 months. The Company determined no0 available-for-sale debt securities were other-than-temporarily impaired as of June 30, 2017.withinon the Company’s Condensed Consolidated Balance Sheets that reconciles to the corresponding amount in theits Condensed Consolidated Statements of Cash Flows: December 29,
2017 June 30,
2017 December 30,
2016 July 1,
2016 $ 2,556 $ 2,539 $ 1,716 $ 1,125 4 4 4 7 $ 2,560 $ 2,543 $ 1,720 $ 1,132 (Dollars in millions) January 3,
2020June 28,
2019December 28,
2018June 29,
2018Cash and cash equivalents $ 1,744 $ 2,220 $ 1,357 $ 1,853 Restricted cash included in Other current assets 2 31 3 4 Total cash, cash equivalents and restricted cash presented on the Statements of Cash Flows $ 1,746 $ 2,251 $ 1,360 $ 1,857 December 29,
2017 June 30,
2017 $ 303 $ 350 296 257 415 375 $ 1,014 $ 982 (Dollars in millions) January 3,
2020June 28,
2019Raw materials and components $ 346 $ 336 Work-in-process 365 217 Finished goods 437 417 Total inventories $ 1,148 $ 970 December 29,
2017 June 30,
2017 $ 9,422 $ 9,633 (7,660 ) (7,758 ) $ 1,762 $ 1,875 (Dollars in millions) January 3,
2020June 28,
2019Property, equipment and leasehold improvements $ 10,095 $ 9,835 Accumulated depreciation and amortization (8,046) (7,966) Property, equipment and leasehold improvements, net $ 2,049 $ 1,869 December 29,
2017 June 30,
2017 $ 179 $ 184 460 466 $ 639 $ 650 (Dollars in millions) January 3,
2020June 28,
2019Dividends payable $ 170 $ 170 Other accrued expenses 383 382 Total accrued expenses $ 553 $ 552 Unrealized
Gains (Losses)
on Cash Flow
Hedges Unrealized
Gains (Losses)
on Marketable
Securities Unrealized
Gains (Losses)
on Post-
Retirement
Plans Foreign
Currency
Translation
Adjustments Total $ — $ — $ (5 ) $ (12 ) $ (17 ) — — — 6 6 — — — — — — — — 6 6 $ — $ — $ (5 ) $ (6 ) $ (11 ) $ (1 ) $ — $ (7 ) $ (17 ) $ (25 ) (3 ) — — (6 ) (9 ) 1 — — — 1 (2 ) — — (6 ) (8 ) $ (3 ) $ — $ (7 ) $ (23 ) $ (33 ) 3.DebtShort-Term Borrowings(Dollars in millions) Unrealized Gains/(Losses) on Cash Flow Hedges Unrealized Gains/(Losses) on Available-for-Sale Debt Securities Unrealized Gains/(Losses) on Post-Retirement Plans Foreign Currency Translation Adjustments Total Balance at June 28, 2019 $ — $ — $ (20) $ (14) $ (34) Other comprehensive income (loss) before reclassifications 2 — — (2) — Amounts reclassified from AOCI 1 — — — 1 Other comprehensive income (loss) 3 — — (2) 1 Balance at January 3, 2020 $ 3 $ — $ (20) $ (16) $ (33) Balance at June 29, 2018 $ — $ — $ (4) $ (12) $ (16) Other comprehensive loss before reclassifications (1) — — (2) (3) Amounts reclassified from AOCI (2) — — — (2) Other comprehensive loss (3) — — (2) (5) Balance at December 28, 2018 $ (3) $ — $ (4) $ (14) $ (21) credit agreement entered into by the Company and itsCompany’s subsidiary, Seagate HDD Cayman, entered into a credit agreement (the “Credit Agreement”) on January 18, 2011 and subsequentlyFebruary 20, 2019, which was most recently amended (the “Revolvingon September 16, 2019. The Credit Agreement provides an up to $1.5 billion senior unsecured revolving credit facility (“Revolving Credit Facility”) provides the Company withand a $700term loan facility in an aggregate principal amount of $500 million senior secured revolving credit facility.(“Term Loan”). The term of the Revolving Credit Facility is through January 15, 2020, provided that ifhas a final maturity of February 20, 2024 and the Company does not have Investment Grade Ratings (as defined in the Revolving Credit Facility) on August 15, 2018, then theTerm Loan has a final maturity date will be Augustof September 16, 2018 unless certain extension conditions have been satisfied.2025. The loans made under the Revolving Credit Facility and the Term Loan will bear interest at a rate of LIBORthe London Interbank Offered Rate (“LIBOR”) plus a variable margin for each facility that will be determined based on the corporate credit rating of the Company. The CompanySTX and certain of its material subsidiaries fully and unconditionally guarantee both the Revolving Credit Facility.Facility and the Term Loan. The Revolving Credit Facility also allows such facility to increase by an additional $100 million, provided that (i) there has been, and will be after giving effect to such increase, no default, (ii) the increase is at least $25 million, and (iii) the existing commitments under such facility receive 0.50% most favored nation protection. An aggregate amount of up to $75 million of the Revolving Credit Facility is available for cash borrowings, subject to compliance with certain covenants and other customary conditions to borrowing, and for the issuance of letters of credit, and an aggregate amount of up to asub-limit$50 million of $75 million.RevolvingTerm Loan is repayable in quarterly installments of 1.25% of the original principal amount beginning on December 31, 2020, with the remaining balance payable upon maturity.Facility, as amended,Agreement includes three financial covenants: (1) minimum cash, cash equivalents and marketable securities;interest coverage ratio, (2) a fixed charge coverage ratio;total leverage ratio, and (3) a net leverage ratio. On April 27, 2016, the Revolving Credit Agreement was amended in order to increase the allowable net leverage ratio to allow for higher net leverage levels.minimum liquidity amount. The Company was in compliance with the modified covenants as of December 29, 2017January 3, 2020 and expects to be in compliance for the next 12 months.December 29, 2017,January 3, 2020, 0 borrowings were drawn and no borrowings had been drawn or letters of credit or swing line loans had been utilized under the Revolving Credit Facility.$800 million Aggregate Principal Amount of 3.75% Senior Notes due November 2018 (the “2018 Notes”). The interest on the 2018 Notes is payable semi-annually on May 15 and November 15 of each year. The issuer under the 2018 Notes is Seagate HDD Cayman, and the obligations under the 2018 Notes are fully and unconditionally guaranteed, on a senior unsecured basis, by the Company. During the three and six months ended December 29, 2017, the Company repurchased $128 million and $150 million aggregate principal amount of the 2018 Notes, respectively, for cash at a premium to their principal amount, plus accrued and unpaid interest. The Company recorded a loss of approximately $2 million on repurchases during the three and six months ended December 29, 2017 which is included in Other, net on the Condensed Consolidated Statements of Operations. The remainder of the 2018 Notes are classified as Current portion of long-term debt on the Company’s Condensed Consolidated Balance Sheet at December 29, 2017.Company.Company.the Company.Company.the Company.the Company.December 29, 2017,January 3, 2020, future principal payments on long-term debt were as follows (in millions): Amount $ — 560 — — 750 3,613 $ 4,923 4.Income TaxesFiscal Year Amount Remainder of 2020 $ — 2021 19 2022 525 2023 766 2024 525 Thereafter 2,336 Total $ 4,171 $212$18 million and $219$16 million in the three and six months ended December 29, 2017,January 3, 2020, respectively. The discrete items in the income tax provision were not material for the three months ended January 3, 2020. The income tax provision for the three and six months ended December 29, 2017January 3, 2020 included approximately $197$10 million of net discrete tax expense,benefits, primarily associated with the revaluation of U.S. deferred tax assets as a result of the enactment of the Tax Cuts and Jobs Act on December 22, 2017, partially offset by the recognition of previously unrecognizednet excess tax benefits associated with the expiration of certain statutes of limitation.December 29, 2017January 3, 2020 differed from the provision for income taxes that would be derived by applying the Irish statutory rate of 25% to income before income taxes, primarily due to the net effect of (i) tax benefits related tonon-U.S. (i) non-Irish earnings generated in jurisdictions that are subject to tax incentive programs and are considered indefinitely reinvested outside of Ireland and (ii) a reduction in the net U.S. deferred tax assets associated with revaluation to a lower U.S. tax rate.December 29, 2017,January 3, 2020, the Company’s unrecognized tax benefits excluding interest and penalties increased by approximately $1$3 million to $75 million. The unrecognized tax benefits that, if recognized,$86 million; substantially all of which would impact the effective tax rate, were $75 million at December 29, 2017,if recognized, subject to certain future changes in valuation allowance.allowance reversals. During the 12twelve months beginning December 30, 2017,January 4, 2020, the Company expects that its unrecognized tax benefits could be reduced by approximately $2 million, primarilyan immaterial amount as a result of the expiration of certain statutes of limitation.an income tax provisionprovisions of $13$14 million and $19$32 million in the three and six months ended December 30, 2016,28, 2018, respectively. The income tax provision for the three and six months ended December 30, 201628, 2018 included approximately $5 million and $4 million of net discrete tax benefits, respectively, primarily associated with the releaserecognition of previously unrecognized tax reserves associated withbenefits related to the expiration of certain statutes of limitation and prior year tax adjustments.30, 201628, 2018 differed from the provision fromfor income taxes that would be derived by applying the Irish statutory rate of 25% to income before income taxes, primarily due to the net effect of (i) tax benefits related tonon-U.S. non-Irish earnings generated in jurisdictions that are subject to tax incentive programs and are considered indefinitely reinvested outside of Ireland and (ii) a decrease in valuation allowance for certain deferred tax assets.On December 22, 2017,Tax Cutsnon-cancelable period of the lease, adjusted for options to extend or terminate the lease when it is reasonably certain that an option will be exercised.Jobs Act (the “Act”) was enacted into law in the United States.are shown net of immaterial sublease income. The Act significantly revises U.S. corporate income tax law by, amongcomponents of lease costs and other things, lowering U.S. corporate income tax rates from 35%information related to 21%, implementing a territorial tax systemleases were as follows:(Dollars in millions) For the Three Months Ended January 3, 2020 For the Six Months Ended January 3, 2020 Operating lease cost $ 5 $ 11 Variable lease cost 1 2 Total lease cost $ 6 $ 13 Operating cash outflows from operating leases $ 5 $ 9 January 3,
2020Weighted-average remaining lease term 12.9 years Weighted-average discount rate 6.29 % imposing a tax on deemed repatriated earnings ofnon-U.S. subsidiaries. The Act’s new international rules, including the Global IntangibleLow-Taxed Income, the Foreign Derived Intangible Income and the Base Erosion Anti-Avoidance Tax,lease liabilities are not expected to have a material impactincluded on the Company’s financial statements. However, these assessments are based on preliminary reviewCondensed Consolidated Balance Sheet as follows:(Dollars in millions) Balance Sheet Location January 3,
2020ROU assets Other assets, net $ 109 Current lease liabilities Accrued expenses $ 14 Non-current lease liabilities Other non-current liabilities $ 55 Fiscal Year Amount Remainder of 2020 $ 6 2021 16 2022 14 2023 10 2024 5 Thereafter 105 Total lease payments 156 Less: imputed interest (87) Present value of lease liabilities $ 69 analysis of the Act and are subject to change as the Company continues to evaluate these highly complex rules as additional interpretive guidance is issued.Pursuant to SEC Staff Accounting Bulletin (SAB) 118 (regarding the application of ASC 740 associated with the enactment of the Act), theExit Costsa provisional tax expensenet restructuring charges of approximately $208$17 million for the six months ended January 3, 2020. Restructuring charges were not material for the three months ended December 29, 2017 tore-measure its U.S. deferred tax assets at the newly enacted 21% tax rate.January 3, 2020. The tax expense is provisional because the Company continues to evaluate the impact of various domestic and international provisions of the Act as well as the impact of additional guidance that may be provided. This provisional tax expense increased the Company’s effective tax rate for the three months ended December 29, 2017 to approximately 56%. Many of the other U.S. tax changesrestructuring plans are not expected to impact the Company’s tax expense in the short-term due the Company’s large net operating loss and tax credit carryovers.5.AcquisitionsDot Hill Systems Corp.On October 6, 2015, the Company acquired all of the outstanding shares of Dot Hill Systems Corp. (“Dot Hill”), a supplier of software and hardware storage systems. The Company paid $9.75 per share, or $674 million, in cash for the acquisition. The acquisition of Dot Hill further expands the Company’sOEM-focused cloud storage systems business and advances the Company’s strategic efforts.The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the acquisition date: Amount $ 40 48 21 7 10 252 364 742 (68 ) (68 ) $ 674 The following table shows the fair value of the separately identifiable intangible assets at the time of acquisition and the period over which each intangible asset will be amortized: Fair Value Weighted-
Average
Amortization
Period $ 164 5.0 years 71 7.0 years 3 5.0 years 238 5.5 years 14 $ 252 The recognized goodwill, which is not deductible for income tax purposes, is primarily attributable to cost synergies expected to arise after the acquisition and the benefits the Company expects to derive from enhanced market opportunities.6.Goodwill and Other Intangible AssetsGoodwillThe changes in the carrying amount of goodwill for the six months ended December 29, 2017, are as follows: Amount $ 1,238 — (1 ) 1 $ 1,238 Other Intangible AssetsOther intangible assets consist primarily of existing technology, customer relationships and trade names acquired in business combinations. Intangibles are amortized on a straight-line basis over the respective estimated useful lives of the assets. Amortization is charged to Operating expenses in the Condensed Consolidated Statements of Operations.The carrying value of other intangible assets subject to amortization, excluding fully amortized intangible assets, as of December 29, 2017, is set forth in the following table: Gross Carrying
Amount Accumulated
Amortization Net Carrying
Amount Weighted-Average
Remaining Useful Life $ 279 $ (138 ) $ 141 3.2 years 105 (50 ) 55 4.3 years 17 (11 ) 6 1.7 years 36 (16 ) 20 2.2 years $ 437 $ (215 ) $ 222 3.2 years The carrying value of other intangible assets subject to amortization, excluding fully amortized intangible assets, as of June 30, 2017 is set forth in the following table: Gross Carrying
Amount Accumulated
Amortization Net Carrying
Amount Weighted-Average
Remaining Useful Life $ 280 $ (112 ) $ 168 3.6 years 487 (395 ) 92 3.4 years 27 (19 ) 8 2.1 years 29 (16 ) 13 2.6 years $ 823 $ (542 ) $ 281 3.4 years For the three and six months ended December 29, 2017, the amortization expense of other intangible assets were $33 million and $69 million, respectively. For the three and six months ended December 30, 2016, the amortization expense of other intangible assets was $42 million and $84 million, respectively. As of December 29, 2017, expected amortization expense for other intangible assets for each of the next five fiscal years and thereafter is as follows: Amount $ 40 71 53 25 17 16 $ 222 7.Restructuring and Exit CostsFor the three and six months ended December 29, 2017, the Company recorded restructuring charges of approximately $33 million and $84 million, respectively, comprised primarily of charges related to workforce reduction costs and facilityfacilities and other exit costs associated with the restructuring of its workforce during the fiscal year. The Company’s significant restructuring plans are described below.costs. All restructuring charges are reported in Restructuring and other, net on the Company’s Condensed Consolidated Statements of Operations.December 2017 Plan - On December 8, 2017, the Company committed to a restructuring plan (the “December 2017 Plan”) to reduce its cost structure. December 2017 Plan included reducingfollowing table summarizes the Company’s global headcount by approximately 500 employees. The December 2017 Plan is expected to be substantially completed by the end of fiscal year 2018.July 2017 Plan -On July 25, 2017, the Company committed to a restructuring plan (the “July 2017 Plan”) to reduce its cost structure. The July 2017 Plan included reducing the Company’s global headcount by approximately 600 employees. The July 2017 Plan was largely completed by the end of the September 2017 quarter.March 2017 Plan -On March 9, 2017, the Company committed to a restructuring plan (the “March 2017 Plan”) in connection with the continued consolidation of its global footprint. The Company closed its design center in Korea, resulting in the reductionactivities under all of the Company’s headcount by approximately 300 employees. The March 2017 Plan was largely completed byactive restructuring plans for the endsix months ended January 3, 2020:fiscal year 2017.July 2016 Plan - On July 11, 2016, the Company committed to a restructuring plan (the “July 2016 Plan”) for continued consolidation of its global footprint across Asia, EMEA and the Americas. The July 2016 Plan included reducing worldwide headcount by approximately 6,500 employees. The July 2016 Plan was largely completed by the end of the December 2017 quarter.In addition, during fiscal year 2017, the Company committed to sell certain land and buildings primarily in Asia as part of the March 2017 and July 2016 plans, which accordingly met the criteria to be classified as assets held for sale and were reclassified to Other current assets at that time. These assets remained included in Other current assets on the Condensed Consolidated Balance Sheet as of December 29, 2017. December 2017 Plan July 2017 Plan March 2017 Plan July 2016 Plan Other Plans Workforce
Reduction
Costs Facilities
and
Other
Exit
Costs Workforce
Reduction
Costs Facilities
and
Other
Exit
Costs Workforce
Reduction
Costs Facilities
and
Other
Exit
Costs Workforce
Reduction
Costs Facilities
and
Other
Exit
Costs Workforce
Reduction
Costs Facilities
and
Other
Exit
Costs Total Accrual balances at June 30, 2017 $ — $ — $ — $ — $ — $ — $ 22 $ 2 $ 6 $ 13 $ 43 27 — 38 4 — — 1 9 2 — 81 (3 ) — (35 ) (3 ) — — (21 ) (11 ) (7 ) — (80 ) — — (1 ) — 2 — 2 — — — 3 Accrual balances at December 29, 2017 $ 24 $ — $ 2 $ 1 $ 2 $ — $ 4 $ — $ 1 $ 13 $ 47 Total costs incurred to date as of December 29, 2017 $ 27 $ — $ 37 $ 4 $ 31 $ 3 $ 82 $ 29 $ 228 $ 51 $ 492 Total expected charges to be incurred as of December 29, 2017 $ 3 $ 7 $ — $ — $ — $ 1 $ 1 $ 4 $ — $ 3 $ 19 Restructuring charges for the three months ended December 29, 2017 $ 27 $ — $ (1 ) $ — $ 1 $ — $ 2 $ 3 $ 1 $ — $ 33 8.Derivative Financial InstrumentsRestructuring Plans (Dollars in millions) Workforce Reduction Costs Facilities and Other Exit Costs Total Accrual balances at June 28, 2019 $ 13 $ 17 $ 30 Lease adoption adjustment — (11) (11) Restructuring charges 20 1 21 Cash payments (15) (3) (18) Adjustments (4) — (4) Accrual balances at January 3, 2020 $ 14 $ 4 $ 18 Total costs incurred to date as of January 3, 2020 $ 474 $ 118 $ 592 Total expected charges to be incurred as of January 3, 2020 $ — $ 1 $ 1 TheFrom time to time, the Company enters into cash flow hedges in the form of foreign currency forward exchange contracts. The objective of foreign currency forward exchange contracts in orderis to manage the foreign currency exchange rate risk on forecasted expenses and investments denominated in foreign currencies.in theon its Condensed Consolidated Balance Sheets at fair value. The changes in the fair value of thehighly effective portions of designated cash flow hedges are recorded in Accumulated other comprehensive loss until the hedged item is recognized in earnings. Derivatives that are not designated as hedging instruments and the ineffective portions of cash flow hedgesor are not assessed to be highly effective are adjusted to fair value through earnings. The Company had no outstandingamount of net unrealized gain on cash flow hedges was $3 million as of December 29, 2017January 3, 2020 and the amount of net unrealized loss on cash flow hedges was not material as of June 30, 2017.dedesignatesde-designates its cash flow hedges when the forecasted hedged transactions are realizedaffect earnings or it is probable the forecasted hedged transactions will not occur in the initially identified time period. At such time, the associated gains and losses deferred in Accumulated other comprehensive loss on the Company’s Condensed Consolidated Balance Sheets are reclassified immediately into earnings and any subsequent changes in the fair value of such derivative instruments are immediately reflected in earnings. The Company did not recognize anyrecognized a net gains or lossesloss of $1 million in Other expense, net related to the loss of hedge designation on discontinued cash flow hedges during the three and six months ended January 3, 2020. The Company recognized a net gain of $1 million and $2 million in Other expense, net related to the loss of hedge designation on discontinued cash flow hedges during the three and six months ended December 29, 2017.As28, 2018, respectively.December 29, 2017 and June 30, 2017,foreign currency forward exchange contracts that the Company does not haveuses to hedge the foreign currency exposure on forecasted expenditures denominated in currencies other than the U.S. dollar. The Company recognizes gains and losses on these contracts, as well as the related costs in Other, net on its Condensed Consolidated Statements of Operations.contracts. As of January 3, 2020 (Dollars in millions) Contracts
Designated as
HedgesContracts Not
Designated as
HedgesSingapore Dollar $ 26 $ 32 Chinese Renminbi 10 20 $ 36 $ 52 As of June 28, 2019 (Dollars in millions) Contracts
Designated as
HedgesContracts Not
Designated as
HedgesSingapore Dollar $ 60 $ 40 Chinese Renminbi 79 20 British Pound Sterling 6 12 $ 145 $ 72 Non-qualified Deferred Compensation Plan—non-qualified deferred compensation plan: the Seagate Deferred Compensation Plan (the “SDCP”). In fiscal year 2014, the Company entered into a Total Return Swap (“TRS”) in order to manage the equity market risks associated with the SDCP liabilities. The Company pays a floating rate, based on LIBOR plus an interest rate spread, on the notional amount of the TRS. The TRS is designed to substantially offset changes in the SDCP liability due to changes in the value of the investment options made by employees. As of December 29, 2017,January 3, 2020, the notional investments underlying the TRS amounted to $117$124 million. The contract term of the TRS is through January 20192021 and is settled on a monthly basis, therefore limiting counterparty performance risk. The Company did not designate the TRS as a hedge. Rather, the Company records all changes in the fair value of the TRS to earnings to offset the market value changes of the SDCP liabilities.As of December 29, 2017 and June 30, 2017,Company had no outstanding foreign currency forward exchange contracts and theCompany’s derivative instruments measured at gross fair value of the TRSas reflected in theon its Condensed Consolidated Balance Sheets respectively, is immaterial.As of January 3, 2020 Derivative Assets Derivative Liabilities (Dollars in millions) Balance Sheet
LocationFair
ValueBalance Sheet
LocationFair
ValueDerivatives designated as hedging instruments: Foreign currency forward exchange contracts Other current assets $ 1 Accrued expenses $ — Interest rate swap Other current assets 2 Accrued expenses — Derivatives not designated as hedging instruments: Foreign currency forward exchange contracts Other current assets — Accrued expenses — Total derivatives $ 3 $ — As of June 28, 2019 Derivative Assets Derivative Liabilities (Dollars in millions) Balance Sheet
LocationFair
ValueBalance Sheet
LocationFair
ValueDerivatives designated as hedging instruments: Foreign currency forward exchange contracts Other current assets $ — Accrued expenses $ — Derivatives not designated as hedging instruments: Foreign currency forward exchange contracts Other current assets 1 Accrued expenses (1) Total derivatives $ 1 $ (1) theits Condensed Consolidated StatementStatements of Comprehensive Income and the Condensed Consolidated StatementStatements of Operations for the three and six months ended December 29, 2017. Location of Gain or
(Loss) Recognized in
Income on Derivatives Amount of Gain or
(Loss) Recognized in
Income on Derivatives For the Three Months For the Six Months Other, net $ — $ — Operating expenses 4 7 Location of Gain/
(Loss) Recognized in
Income on DerivativesAmount of Gain/
(Loss) Recognized in
Income on DerivativesFor the Three Months For the Six Months Foreign currency forward exchange contracts Other, net $ 1 $ (2) Total return swap Operating expenses $ 7 $ 7
(Dollars in millions)
Derivatives Designated as Hedging InstrumentsAmount of Gain/(Loss) Recognized in OCI on Derivatives (Effective Portion) Location of Gain/(Loss) Reclassified from Accumulated OCI into Income (Effective Portion) Amount of Gain/(Loss) Reclassified from Accumulated OCI into Income (Effective Portion) Location of Gain/(Loss) Recognized in Income on Derivatives (Ineffective Portion and Amount Excluded from Effectiveness Testing) Amount of Gain/(Loss) Recognized in Income (Ineffective Portion and Amount Excluded from Effectiveness Testing) For the Three Months For the Six Months For the Three Months For the Six Months For the Three Months For the Six Months Foreign currency forward exchange contracts $ 1 $ — Other expense, net $ (1) $ (1) Other expense, net $ — $ — Interest rate swap $ 2 $ 2 Other expense, net $ — $ — Other expense, net $ — $ — theits Condensed Consolidated StatementStatements of Comprehensive Income and theits Condensed Consolidated StatementStatements of Operations for the three and six months ended December 30, 2016: Amount of
Gain or
(Loss)
Recognized
in OCI on
Derivatives
(Effective
Portion) Location of
Gain or (Loss)
Reclassified
from
Accumulated
OCI into
Income
(Effective
Portion) Amount of
Gain or
(Loss)
Reclassified
from
Accumulated
OCI into
Income
(Effective
Portion) Location of
Gain or (Loss)
Recognized in
Income on
Derivatives
(Ineffective
Portion and
Amount Excluded
from
Effectiveness
Testing) Amount of
Gain
or (Loss)
Recognized in
Income
(Ineffective
Portion and
Amount
Excluded from
Effectiveness
Testing) (a) For the
Three
Months For the
Six
Months For the
Three
Months For the
Six
Months For the
Three
Months For the
Six
Months $ (2 ) $ (3 ) Cost of revenue $ — $ (1 ) Cost of revenue $ — $ — Location of Gain or
(Loss) Recognized in
Income on Derivatives Amount of Gain or
(Loss) Recognized in
Income on Derivatives For the Three Months For the Six Months Other, net $ (2 ) $ (3 ) Operating expenses 1 $ 4 (a)The amount of gain or (loss) recognized in income related to the ineffective portion of the hedging relationships and the amount excluded from the assessment of hedge effectiveness were less than $1 million for the three and six months ended December 30, 2016.9.Fair ValueLocation of Gain/
(Loss) Recognized in
Income on DerivativesAmount of Gain/
(Loss) Recognized in
Income on DerivativesFor the Three Months For the Six Months Foreign currency forward exchange contracts Other, net $ (13) $ 28 Total return swap Operating expenses $ (15) $ (11) Amount of Gain/(Loss) Recognized in OCI on Derivatives (Effective Portion) Location of Gain/(Loss) Reclassified from Accumulated OCI into Income (Effective Portion) Amount of Gain/(Loss) Reclassified from Accumulated OCI into Income (Effective Portion) Location of Gain/(Loss) Recognized in Income on Derivatives (Ineffective Portion and Amount Excluded from Effectiveness Testing) Amount of Gain/(Loss) Recognized in Income (Ineffective Portion and Amount Excluded from Effectiveness Testing) For the Three Months For the Six Months For the Three Months For the Six Months For the Three Months For the Six Months Foreign currency forward exchange contracts $ (4) $ (1) Other expense, net $ 1 $ 2 Other expense, net $ 1 $ 1 reflectsreflect the Company’s own assumptions of market participant valuation (unobservable inputs). A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The three levels of inputs that may be used to measure fair value are:December 29, 2017: Fair Value Measurements at Reporting Date Using Quoted Prices
in Active
Markets for
Identical
Instruments
(Level 1) Significant
Other
Observable
Inputs
(Level 2) Significant
Unobservable
Inputs
(Level 3) Total
Balance $ 673 $ — $ — $ 673 — 387 — 387 673 387 — 1,060 1 — — 1 — 3 — 3 $ 674 $ 390 $ — $ 1,064 Fair Value Measurements at Reporting Date Using Quoted Prices
in Active
Markets for
Identical
Instruments
(Level 1) Significant
Other
Observable
Inputs
(Level 2) Significant
Unobservable
Inputs
(Level 3) Total
Balance $ 673 $ 387 $ — $ 1,060 1 3 — 4 $ 674 $ 390 $ — $ 1,064 Fair Value Measurements at Reporting Date Using (Dollars in millions) Quoted
Prices in
Active
Markets for
Identical
Instruments
(Level 1)Significant
Other
Observable
Inputs
(Level 2)Significant
Unobservable
Inputs
(Level 3)Total
BalanceAssets: Money market funds $ 570 $ — $ — $ 570 Time deposits and certificates of deposit — 100 — 100 Total cash equivalents 570 100 — 670 Restricted cash and investments: Money market funds 1 — — 1 Time deposits and certificates of deposit — 1 — 1 Other debt securities — — 14 14 Derivative assets — 3 — 3 Total assets $ 571 $ 104 $ 14 $ 689 Fair Value Measurements at Reporting Date Using (Dollars in millions) Quoted
Prices in
Active
Markets for
Identical
Instruments
(Level 1)Significant
Other
Observable
Inputs
(Level 2)Significant
Unobservable
Inputs
(Level 3)Total
BalanceAssets: Cash and cash equivalents $ 570 $ 100 $ — $ 670 Other current assets 1 4 — 5 Other assets, net — — 14 14 Total assets $ 571 $ 104 $ 14 $ 689 30, 2017: Fair Value Measurements at Reporting Date Using Quoted Prices
in Active
Markets for
Identical
Instruments
(Level 1) Significant
Other
Observable
Inputs
(Level 2) Significant
Unobservable
Inputs
(Level 3) Total
Balance $ 593 $ — $ — $ 593 — 581 — 581 593 581 — 1,174 1 — — 1 — 3 — 3 $ 594 $ 584 $ — $ 1,178 Fair Value Measurements at Reporting Date Using Quoted Prices
in Active
Markets for
Identical
Instruments
(Level 1) Significant
Other
Observable
Inputs
(Level 2) Significant
Unobservable
Inputs
(Level 3) Total
Balance $ 593 $ 581 $ — $ 1,174 1 3 — 4 $ 594 $ 584 $ — $ 1,178 Fair Value Measurements at Reporting Date Using (Dollars in millions) Quoted
Prices in
Active
Markets for
Identical
Instruments
(Level 1)Significant
Other
Observable
Inputs
(Level 2)Significant
Unobservable
Inputs
(Level 3)Total
BalanceAssets: Money market funds $ 416 $ — $ — $ 416 Time deposits and certificates of deposit — 132 — 132 Total cash equivalents 416 132 — 548 Restricted cash and investments: Money market funds 1 — — 1 Time deposits and certificates of deposit — 1 — 1 Other debt securities — — 7 7 Derivative assets — 1 — 1 Total assets $ 417 $ 134 $ 7 $ 558 Liabilities: Derivative liabilities $ — $ 1 $ — $ 1 Total liabilities $ — $ 1 $ — $ 1 Fair Value Measurements at Reporting Date Using (Dollars in millions) Quoted
Prices in
Active
Markets for
Identical
Instruments
(Level 1)Significant
Other
Observable
Inputs
(Level 2)Significant
Unobservable
Inputs
(Level 3)Total
BalanceAssets: Cash and cash equivalents $ 416 $ 132 $ — $ 548 Other current assets 1 2 — 3 Other assets, net — — 7 7 Total assets $ 417 $ 134 $ 7 $ 558 Liabilities: Accrued expenses $ — $ 1 $ — $ 1 Total liabilities $ — $ 1 $ — $ 1 valuesvalue of all of its cash equivalents.equivalents and short-term investments. For the cash equivalents and short-term investments in the Company’s portfolio, multiple pricing sources are generally available. The pricing service uses inputs from multiple industry standardindustry-standard data providers or other third partythird-party sources and various methodologies, such as weighting and models, to determine the appropriate price at the measurement date. The Company corroborates the prices obtained from the pricing service against other independent sources and, as of December 29, 2017,January 3, 2020, has not found it necessary to make any adjustments to the prices obtained. The Company’s derivative financial instruments are also classified within Level 2. The Company’s derivative financial instruments consist of foreign currency forward exchange contracts, interest rate swaps and the TRS. The Company recognizes derivative financial instruments in its condensed consolidated financial statements at fair value. The Company determines the fair value of these instruments by considering the estimated amount it would pay or receive to terminate these agreements at the reporting date.As of December 29, 2017 and June 30, 2017, the Company had no Level 3 assets or liabilities measured at fair value on a recurring basis.influence as well as equity method investments representing those where the Company does have the ability to exercise significant influence but does not have control.influence. These investments are included in Other assets, net inon the Company’s Condensed Consolidated Balance Sheets, and are periodically analyzed to determine whether or not there are indicators of impairment. Theat December 29, 2017 and June 30, 2017 totaled $129was $151 million and $125$114 million, respectively, and consisted primarily of privately held equity securities without a readily determinable fair value.December 29, 2017,January 3, 2020, the Company did not have any equity investments accounted for under the cost method that were other-than-temporarily impaired and did not record any impairment charges. For the six months ended December 30, 2016, the Company determined thatrecorded a certain equity investment accounted for under the cost method was other-than-temporarily impaired, and recognized a chargedownward adjustment of $25$1 million in order to write down the carrying amount of thean investment to zero. Since thereits fair value. This amount was no active market for the equity securities of the investee, the Company estimated fair value of the investee by analyzing the underlying cash flows and future prospects of the investee. These amounts were recorded in Other, net in the Condensed Consolidated Statements of Operations. The Company did not record any impairment charges inFor the three and six months ended December 30, 2016.December 29, 2017 and June 30, 2017,28, 2019, the Company had $77$23 million of held for sale assetsland and building (collectively, the “properties”) included in Other current assets on theits Condensed Consolidated Balance Sheets, which primarily consisted of $37 million of land and building in Korea and $26 million of land and building in China, withSheets. In July 2019, the remainderCompany completed the sale of the balance comprisedproperties. As of property at other locations (collectively,January 3, 2020, the “properties”). The respective properties to be sold met the criteria to be classified asCompany had 0 held for sale during the quarters ended March 31, 2017 and June 30, 2017. Depreciation related to the properties ceased as of the date these were determined to be held for sale. During fiscal year 2017, the Company recorded impairment charges of $35 million to write down the carrying amount of such properties to their estimated fair values less costs to sell. The impairment charges were recorded in Operating expenses in the Condensed Consolidated Statement of Operations. No additional impairment charges related to these properties were recorded during the three and six months period ended December 29, 2017. The fair values were measured with the assistance of third-party valuation models which used inputs such as comparable market data for similar land sale transactions adjusted for differences in comparable properties to derive the estimated fair value of the subject properties and the cost approach valuation techniques for buildings as part of the analysis. The fair value measurement was categorized as Level 3 as significant unobservable inputs were used in the valuation analysis.debt in orderdebt: January 3, 2020 June 28, 2019 (Dollars in millions) Carrying
AmountEstimated
Fair ValueCarrying
AmountEstimated
Fair Value4.25% Senior Notes due March 2022 $ 499 $ 517 $ 749 $ 763 4.75% Senior Notes due June 2023 741 785 941 973 4.875% Senior Notes due March 2024 498 533 498 514 4.75% Senior Notes due January 2025 750 798 920 929 4.875% Senior Notes due June 2027 689 734 689 688 5.75% Senior Notes due December 2034 489 520 489 482 LIBOR based Term Loan due September 2025 500 502 — — 4,166 4,389 4,286 4,349 Less: debt issuance costs (25) — (33) — Debt, net of debt issuance costs 4,141 4,389 4,253 4,349 Less: current portion of long-term debt (6) (6) — — Long-term debt, less current portion, net of debt issuance costs $ 4,135 $ 4,383 $ 4,253 $ 4,349 maturity: December 29, 2017 June 30, 2017 Carrying
Amount Estimated
Fair Value Carrying
Amount Estimated
Fair Value $ 560 $ 567 $ 710 $ 726 748 758 748 765 951 972 951 987 497 504 497 511 975 961 975 984 695 668 695 698 489 473 489 488 $ 4,915 $ 4,903 $ 5,065 $ 5,159 (39 ) — (44 ) — $ 4,876 $ 4,903 $ 5,021 $ 5,159 (560 ) (567 ) — — $ 4,316 $ 4,336 $ 5,021 $ 5,159 10.Equity284,573,784260,923,948 shares were outstanding as of December 29, 2017,January 3, 2020, and 100,000,000 preferred shares, par value $0.00001, of which noneNaN were issued or outstanding as of December 29, 2017.Company’s boardBoard of directors (the “Board of Directors”).Directors. Upon any liquidation, dissolution, or winding up, of the Company, after required payments are made to holders of preferred shares, any remaining assets of the Company will be distributed ratably to holders of the preferred and ordinary shares. Holders of shares are entitled to one vote per share on all matters upon which the ordinary shares are entitled to vote, including the election of directors.one1 or more series, up to the authorized amount, without shareholder approval. The Board of Directors is authorized to establish from time to time the number of shares to be included in each series, and to fix the rights, preferences and privileges of the shares of each wholly unissued series and any of its qualifications, limitations or restrictions. The Board of Directors can also increase or decrease the number of shares of a series, but not below the number of shares of that series then outstanding, without any further vote or action by the shareholders.On April 22, 2015, the Board of Directors authorized the Company to repurchase $2.5 billion of its outstanding ordinary shares.Articles of Association.December 29, 2017, $0.9January 3, 2020, $1.6 billion remained available for repurchase under the existing repurchase authorization limit.the Company’sordinary shares during the six months ended December 29, 2017: Number of Shares
Repurchased Dollar Value of Shares
Repurchased 10 $ 361 1 21 11 $ 382 11.Share-based Compensation(In millions) Number of Shares Repurchased Dollar Value of Shares Repurchased Repurchases of ordinary shares 12 $ 597 Tax withholding related to vesting of equity awards 1 39 Total 13 $ 636 Company recorded approximately $27 millionfollowing table provides information about disaggregated revenue by sales channel and $59 milliongeographical region for the Company’s single reportable segment:For the Three Months Ended For the Six Months Ended (Dollars in millions) January 3,
2020December 28,
2018January 3,
2020December 28,
2018Revenues by Channel OEMs $ 1,843 $ 1,865 $ 3,663 $ 4,003 Distributors 463 443 924 977 Retailers 390 407 687 726 Total $ 2,696 $ 2,715 $ 5,274 $ 5,706 Asia Pacific $ 1,377 $ 1,386 $ 2,655 $ 2,854 Americas 761 731 1,596 1,737 EMEA 558 598 1,023 1,115 Total $ 2,696 $ 2,715 $ 5,274 $ 5,706
Indemnifications to Officers and Directors
On May 4, 2009,
On July 3, 2010, pursuant to a corporate reorganization, the common shareholders of Seagate-Cayman became ordinary shareholders of Seagate Technology plc (the “Company”) and Seagate-Cayman became a wholly owned subsidiary of the Company, as described more fully in the Current Report on Form8-K filed by the Company on July 6, 2010 (the “Redomestication”). On July 27, 2010, in connection with the Redomestication, the Company, as sole shareholder of Seagate-Cayman, approved a form of deed of indemnity (the “Deed of Indemnity”), which provides for the indemnification by Seagate-Cayman of any director, officer, employee or agent of the Company, Seagate-Cayman or any subsidiary of the Company (each, a “Deed Indemnitee”), in addition to any of a Deed Indemnitee’s indemnification rights under the Company’s Articles of Association, applicable law or otherwise, with a similar scope to the Revised Indemnification Agreement. Seagate-Cayman entered into the Deed of Indemnity with certain Deed Indemnitees effective as of July 3, 2010 and continues to enter into the Deed of Indemnity with additional Deed Indemnitees from time to time.
Intellectual Property
| For the Three Months Ended | For the Six Months Ended | |||||||||||||||
(Dollars in millions) | December 29, 2017 | December 30, 2016 | December 29, 2017 | December 30, 2016 | ||||||||||||
Balance, beginning of period | $ | 230 | $ | 216 | $ | 233 | $ | 206 | ||||||||
Warranties issued | 40 | 34 | 75 | 65 | ||||||||||||
Repairs and replacements | (27 | ) | (29 | ) | (54 | ) | (59 | ) | ||||||||
Changes in liability forpre-existing warranties, including expirations | (7 | ) | 1 | (18 | ) | 10 | ||||||||||
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Balance, end of period | $ | 236 | $ | 222 | $ | 236 | $ | 222 | ||||||||
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| For the Six Months Ended | ||||||||||||||||||||
| (Dollars in millions) | January 3, 2020 | December 28, 2018 | ||||||||||||||||||
| Balance, beginning of period | $ | 195 | $ | 237 | ||||||||||||||||
| Warranties issued | 46 | 65 | ||||||||||||||||||
| Repairs and replacements | (44) | (52) | ||||||||||||||||||
| Changes in liability for pre-existing warranties, including expirations | (28) | (28) | ||||||||||||||||||
| Balance, end of period | $ | 169 | $ | 222 | ||||||||||||||||
| For the Three Months Ended | For the Six Months Ended | |||||||||||||||
(In millions, except per share data) | December 29, 2017 | December 30, 2016 | December 29, 2017 | December 30, 2016 | ||||||||||||
Numerator: | ||||||||||||||||
Net income | $ | 159 | $ | 297 | $ | 340 | $ | 464 | ||||||||
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Number of shares used in per share calculations: | ||||||||||||||||
Total shares for purposes of calculating basic net income per share | 288 | 296 | 289 | 297 | ||||||||||||
Weighted-average effect of dilutive securities: | ||||||||||||||||
Employee equity award plans | 3 | 2 | 2 | 2 | ||||||||||||
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Total shares for purpose of calculating diluted net income per share | 291 | 298 | 291 | 299 | ||||||||||||
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Net income per share: | ||||||||||||||||
Basic | $ | 0.55 | $ | 1.00 | $ | 1.18 | $ | 1.56 | ||||||||
Diluted | $ | 0.55 | $ | 1.00 | $ | 1.17 | $ | 1.55 | ||||||||
| For the Three Months Ended | For the Six Months Ended | |||||||||||||||||||||||||||||||||||||
| (In millions, except per share data) | January 3, 2020 | December 28, 2018 | January 3, 2020 | December 28, 2018 | ||||||||||||||||||||||||||||||||||
| Numerator: | ||||||||||||||||||||||||||||||||||||||
| Net income | $ | 318 | $ | 384 | $ | 518 | $ | 834 | ||||||||||||||||||||||||||||||
| Number of shares used in per share calculations: | ||||||||||||||||||||||||||||||||||||||
| Total shares for purposes of calculating basic net income per share | 262 | 285 | 264 | 286 | ||||||||||||||||||||||||||||||||||
| Weighted-average effect of dilutive securities: | ||||||||||||||||||||||||||||||||||||||
| Employee equity award plans | 3 | 2 | 4 | 4 | ||||||||||||||||||||||||||||||||||
| Total shares for purpose of calculating diluted net income per share | 265 | 287 | 268 | 290 | ||||||||||||||||||||||||||||||||||
| Net income per share: | ||||||||||||||||||||||||||||||||||||||
| Basic | $ | 1.21 | $ | 1.35 | $ | 1.96 | $ | 2.92 | ||||||||||||||||||||||||||||||
| Diluted | 1.20 | 1.34 | 1.93 | 2.88 | ||||||||||||||||||||||||||||||||||
Other Contingencies
infringementnon-infringement by Compaq’s products as to claims 1, 3, and 5 of the ‘473 patent because Compaq’s F10 BIOS interface does not meet the “commands” limitation of those claims; 3) vacated the district court’s summary judgmentof non-infringement by Compaq’s accused products as toclaims 7-15 of the ‘473 patent; 4) reversed the district court’s summary judgmentof non-infringement based on intervening rights; and 5) remanded the case to the district court for further proceedings on the ‘473 patent. In view of the rulings made by the district court and the Court of Appeals and the uncertainty regarding the amount of damages, if any, that could be awarded Convolve in this matter, the Company does not believe that it is currently possible to determine a reasonable estimate of the possible range of loss related to this matter.
Enova Technology Corporation v. Seagate Technology (US) Holdings, Inc., et al.On June 5, 2013, Enova Technology Corporation (“Enova”) filed a complaint against Seagate Technology (US) Holdings, Inc. and Seagate Technology LLC in the U.S. District Court for the District of Delaware alleging infringement of U.S. Patent No. 7,136,995 (the “‘995 patent”), “Cryptographic Device,” and U.S. Patent No. 7,900,057 (the “‘057 patent”), “Cryptographic Serial ATA Apparatus and Method.” The Company believes the claims are without merit and intends to vigorously defend this case. On April 27, 2015, the district court ordered a stay of the case, in view of proceedings regarding the ‘995 and ‘057 patents before the Patent Trial and Appeal Board (“PTAB”) of the U.S. Patent and Trademark Office. On September 2, 2015, PTAB issued its final written decision thatclaims 1-15 of the ‘995 patent are held unpatentable. On December 18, 2015, PTAB issued its final written decisions thatclaims 1-32 and 40-53 of the ‘057 patent are held unpatentable. On February 4, 2016, PTAB issued its final written decision thatclaims 33-39 of the ‘057 patent are held unpatentable. Enova appealed PTAB’s decisions on the ‘995 patent and the ‘057 patent to the U.S. Court of Appeals for the Federal Circuit. On March 20, 2017, the court of appeals issued its judgment affirming PTAB’s decision on the ‘995 patent. On September 6, 2017, the court of appeals issued its judgment affirming PTAB’s decision on the ‘057 patent. On November 27, 2017, Enova filed a petition for writ of certiorari with the U.S. Supreme Court challenging the court of appeals’ decision on the ‘057 Patent. The Supreme Court has not yet ruled on this petition. The district court case remains stayed. In view of the uncertainty regarding the amount of damages, if any, that could be awarded in this matter, the Company does not believe that it is currently possible to determine a reasonable estimate of the possible range of loss related to this matter.
be immaterial to the financial statements.
Investment commitment to acquire preferred equity securities.On September 28, 2017,
Dividend Declared
On January 29, 2018, the Company’sCom
25, 2020.
Some of the statements and assumptions included in this
except as required by law.
Our Company
We are a leading provider of data storage technology and solutions. Our principal products are hard disk drives, commonly referred to as disk drives, hard drives or HDDs. In addition to HDDs, we produce a broad range of data storage products including solid state drives (“SSD”) and their related controllers, solid state hybrid drives (“SSHD”) and storage subsystems.
Hard disk drives are devices that store digitally encoded data on rapidly rotating disks with magnetic surfaces. Disk drives continue to be the primary medium of mass data storage due to their performance attributes, high quality and cost effectiveness. Complementing existing data center storage architecture, solid-state storage devices use integrated circuit assemblies as memory to store data with most SSDs using NAND-based flash memory. In addition to HDDs and SSDs, SSHDs combine the features of SSDs and HDDs in the same unit, containing a large hard disk drive and an SSD cache to improve performance of frequently accessed data.
Our products are designed for mission critical and nearline applications in enterprise servers and storage systems; edge compute / client compute applications, where our products are designed primarily for desktop and mobile computing; and edgenon-compute /client non-compute applications, where our products are designed for a wide variety of end user devices such as portable external storage systems, surveillance systems, network-attached storage (“NAS”), digital video recorders (“DVRs”) and gaming consoles.
Our cloud systems and solutions extend innovation from the device into the information infrastructure, onsite and in the cloud. Our portfolio includes modular original equipment manufacturer (“OEM”) storage systemsand scale-out storage servers.
2019 quarter.
Highlights of events in the December 2019 quarter that impacted our financial position.dividends.
| For the Three Months Ended | For the Six Months Ended | |||||||||||||||||||
(Dollars in millions) | December 29, 2017 | September 29, 2017 | December 30, 2016 | December 29, 2017 | December 30, 2016 | |||||||||||||||
Revenue | $ | 2,914 | $ | 2,632 | $ | 2,894 | $ | 5,546 | $ | 5,691 | ||||||||||
Cost of revenue | 2,037 | 1,896 | 2,003 | 3,933 | 3,999 | |||||||||||||||
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Gross margin | 877 | 736 | 891 | 1,613 | 1,692 | |||||||||||||||
Product development | 250 | 263 | 305 | 513 | 620 | |||||||||||||||
Marketing and administrative | 142 | 145 | 155 | 287 | 308 | |||||||||||||||
Amortization of intangibles | 19 | 22 | 28 | 41 | 57 | |||||||||||||||
Restructuring and other, net | 33 | 51 | 33 | 84 | 115 | |||||||||||||||
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Income from operations | 433 | 255 | 370 | 688 | 592 | |||||||||||||||
Other expense, net | (62 | ) | (67 | ) | (60 | ) | (129 | ) | (109 | ) | ||||||||||
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Income before income taxes | 371 | 188 | 310 | 559 | 483 | |||||||||||||||
Provision for income taxes | 212 | 7 | 13 | 219 | 19 | |||||||||||||||
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Net income | $ | 159 | $ | 181 | $ | 297 | $ | 340 | $ | 464 | ||||||||||
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| For the Three Months Ended | For the Six Months Ended | |||||||||||||||||||
| December 29, 2017 | September 29, 2017 | December 30, 2016 | December 29, 2017 | December 30, 2016 | |||||||||||||||
Revenue | 100 | % | 100 | % | 100 | % | 100 | % | 100 | % | ||||||||||
Cost of revenue | 70 | 72 | 69 | 71 | 70 | |||||||||||||||
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Gross margin | 30 | 28 | 31 | 29 | 30 | |||||||||||||||
Product development | 9 | 10 | 11 | 9 | 11 | |||||||||||||||
Marketing and administrative | 5 | 5 | 5 | 5 | 6 | |||||||||||||||
Amortization of intangibles | — | 1 | 1 | 1 | 1 | |||||||||||||||
Restructuring and other, net | 1 | 2 | 1 | 2 | 2 | |||||||||||||||
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Income from operations | 15 | 10 | 13 | 12 | 10 | |||||||||||||||
Other expense, net | (3 | ) | (3 | ) | (2 | ) | (2 | ) | (2 | ) | ||||||||||
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Income before income taxes | 12 | 7 | 11 | 10 | 8 | |||||||||||||||
Provision for income taxes | 7 | — | 1 | 4 | — | |||||||||||||||
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Net income | 5 | % | 7 | % | 10 | % | 6 | % | 8 | % | ||||||||||
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| For the Three Months Ended | For the Six Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||
| (Dollars in millions) | January 3, 2020 | October 4, 2019 | December 28, 2018 | January 3, 2020 | December 28, 2018 | |||||||||||||||||||||||||||||||||||||||||||||
| Revenue | $ | 2,696 | $ | 2,578 | $ | 2,715 | $ | 5,274 | $ | 5,706 | ||||||||||||||||||||||||||||||||||||||||
| Cost of revenue | 1,938 | 1,907 | 1,921 | 3,845 | 3,999 | |||||||||||||||||||||||||||||||||||||||||||||
| Gross margin | 758 | 671 | 794 | 1,429 | 1,707 | |||||||||||||||||||||||||||||||||||||||||||||
| Product development | 250 | 255 | 246 | 505 | 512 | |||||||||||||||||||||||||||||||||||||||||||||
| Marketing and administrative | 120 | 122 | 120 | 242 | 235 | |||||||||||||||||||||||||||||||||||||||||||||
| Amortization of intangibles | 4 | 4 | 5 | 8 | 11 | |||||||||||||||||||||||||||||||||||||||||||||
| Restructuring and other, net | — | 17 | 7 | 17 | 30 | |||||||||||||||||||||||||||||||||||||||||||||
| Income from operations | 384 | 273 | 416 | 657 | 919 | |||||||||||||||||||||||||||||||||||||||||||||
| Other expense, net | (48) | (75) | (18) | (123) | (53) | |||||||||||||||||||||||||||||||||||||||||||||
| Income before income taxes | 336 | 198 | 398 | 534 | 866 | |||||||||||||||||||||||||||||||||||||||||||||
| Provision (benefit) for income taxes | 18 | (2) | 14 | 16 | 32 | |||||||||||||||||||||||||||||||||||||||||||||
| Net income | $ | 318 | $ | 200 | $ | 384 | $ | 518 | $ | 834 | ||||||||||||||||||||||||||||||||||||||||
| For the Three Months Ended | For the Six Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||
| January 3, 2020 | October 4, 2019 | December 28, 2018 | January 3, 2020 | December 28, 2018 | ||||||||||||||||||||||||||||||||||||||||||||||
| Revenue | 100 | % | 100 | % | 100 | % | 100 | % | 100 | % | ||||||||||||||||||||||||||||||||||||||||
| Cost of revenue | 72 | 74 | 71 | 73 | 70 | |||||||||||||||||||||||||||||||||||||||||||||
| Gross margin | 28 | 26 | 29 | 27 | 30 | |||||||||||||||||||||||||||||||||||||||||||||
| Product development | 9 | 10 | 9 | 10 | 9 | |||||||||||||||||||||||||||||||||||||||||||||
| Marketing and administrative | 4 | 5 | 5 | 5 | 4 | |||||||||||||||||||||||||||||||||||||||||||||
| Amortization of intangibles | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||
| Restructuring and other, net | — | — | — | — | 1 | |||||||||||||||||||||||||||||||||||||||||||||
| Income from operations | 15 | 11 | 15 | 12 | 16 | |||||||||||||||||||||||||||||||||||||||||||||
| Other expense, net | (2) | (3) | (1) | (2) | (1) | |||||||||||||||||||||||||||||||||||||||||||||
| Income before income taxes | 13 | 8 | 14 | 10 | 15 | |||||||||||||||||||||||||||||||||||||||||||||
| Provision (benefit) for income taxes | 1 | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||
| Net income | 12 | % | 8 | % | 14 | % | 10 | % | 15 | % | ||||||||||||||||||||||||||||||||||||||||
| For the Three Months Ended | For the Six Months Ended | |||||||||||||||||||
| December 29, 2017 | September 29, 2017 | December 30, 2016 | December 29, 2017 | December 30, 2016 | |||||||||||||||
ASPs (per unit) | $ | 68 | $ | 64 | $ | 67 | $ | 66 | $ | 67 | ||||||||||
Exabytes Shipped | 88 | 70 | 68 | 158 | 135 | |||||||||||||||
Revenues by Channel (%) | ||||||||||||||||||||
OEMs | 67 | % | 67 | % | 66 | % | 67 | % | 68 | % | ||||||||||
Distributors | 17 | % | 17 | % | 18 | % | 17 | % | 18 | % | ||||||||||
Retailers | 16 | % | 16 | % | 16 | % | 16 | % | 14 | % | ||||||||||
Revenues by Geography (%) | ||||||||||||||||||||
Americas | 26 | % | 26 | % | 30 | % | 26 | % | 32 | % | ||||||||||
EMEA | 19 | % | 18 | % | 19 | % | 18 | % | 17 | % | ||||||||||
Asia Pacific | 55 | % | 56 | % | 51 | % | 56 | % | 51 | % | ||||||||||
market and HDD exabytes shipped by market and price per terabyte:
| For the Three Months Ended | For the Six Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||
| January 3, 2020 | October 4, 2019 | December 28, 2018 | January 3, 2020 | December 28, 2018 | ||||||||||||||||||||||||||||||||||||||||||||||
| Revenues by Channel (%) | ||||||||||||||||||||||||||||||||||||||||||||||||||
| OEMs | 68 | % | 71 | % | 69 | % | 69 | % | 70 | % | ||||||||||||||||||||||||||||||||||||||||
| Distributors | 17 | % | 18 | % | 16 | % | 18 | % | 17 | % | ||||||||||||||||||||||||||||||||||||||||
| Retailers | 15 | % | 11 | % | 15 | % | 13 | % | 13 | % | ||||||||||||||||||||||||||||||||||||||||
| Revenues by Geography (%) | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Asia Pacific | 51 | % | 50 | % | 51 | % | 50 | % | 50 | % | ||||||||||||||||||||||||||||||||||||||||
| Americas | 28 | % | 32 | % | 27 | % | 30 | % | 30 | % | ||||||||||||||||||||||||||||||||||||||||
| EMEA | 21 | % | 18 | % | 22 | % | 20 | % | 20 | % | ||||||||||||||||||||||||||||||||||||||||
| Revenues by Market (%) | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Mass capacity | 49 | % | 47 | % | 39 | % | 48 | % | 43 | % | ||||||||||||||||||||||||||||||||||||||||
| Legacy | 43 | % | 46 | % | 53 | % | 44 | % | 50 | % | ||||||||||||||||||||||||||||||||||||||||
| Other | 8 | % | 7 | % | 8 | % | 8 | % | 7 | % | ||||||||||||||||||||||||||||||||||||||||
| HDD Exabytes Shipped by Market | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Mass capacity | 71 | 64 | 47 | 135 | 107 | |||||||||||||||||||||||||||||||||||||||||||||
| Legacy | 36 | 34 | 40 | 70 | 79 | |||||||||||||||||||||||||||||||||||||||||||||
| Total | 107 | 98 | 87 | 205 | 186 | |||||||||||||||||||||||||||||||||||||||||||||
| HDD Price per Terabyte | $ | 23 | $ | 24 | $ | 28 | $ | 24 | $ | 28 | ||||||||||||||||||||||||||||||||||||||||
Compared to the December 2016 quarter, revenue
shipped.
increase in exabytes shipped.
| For the Three Months Ended | For the Six Months Ended | |||||||||||||||||||
(Dollars in millions) | December 29, 2017 | September 29, 2017 | December 30, 2016 | December 29, 2017 | December 30, 2016 | |||||||||||||||
Cost of revenue | $ | 2,037 | $ | 1,896 | $ | 2,003 | $ | 3,933 | $ | 3,999 | ||||||||||
Gross margin | 877 | 736 | 891 | 1,613 | 1,692 | |||||||||||||||
Gross margin percentage | 30 | % | 28 | % | 31 | % | 29 | % | 30 | % | ||||||||||
| For the Three Months Ended | For the Six Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| (Dollars in millions) | January 3, 2020 | October 4, 2019 | December 28, 2018 | January 3, 2020 | December 28, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Cost of revenue | $ | 1,938 | $ | 1,907 | $ | 1,921 | $ | 3,845 | $ | 3,999 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Gross margin | 758 | 671 | 794 | 1,429 | 1,707 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Gross margin percentage | 28 | % | 26 | % | 29 | % | 27 | % | 30 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Compared to the corresponding three and six months ended December 2016 quarter, gross
equipment in the September 2019 quarter
.| For the Three Months Ended | For the Six Months Ended | |||||||||||||||||||
(Dollars in millions) | December 29, 2017 | September 29, 2017 | December 30, 2016 | December 29, 2017 | December 30, 2016 | |||||||||||||||
Product development | $ | 250 | $ | 263 | $ | 305 | $ | 513 | $ | 620 | ||||||||||
Marketing and administrative | 142 | 145 | 155 | 287 | 308 | |||||||||||||||
Amortization of intangibles | 19 | 22 | 28 | 41 | 57 | |||||||||||||||
Restructuring and other, net | 33 | 51 | 33 | 84 | 115 | |||||||||||||||
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Operating expenses | $ | 444 | $ | 481 | $ | 521 | $ | 925 | $ | 1,100 | ||||||||||
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| For the Three Months Ended | For the Six Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| (Dollars in millions) | January 3, 2020 | October 4, 2019 | December 28, 2018 | January 3, 2020 | December 28, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Product development | $ | 250 | $ | 255 | $ | 246 | $ | 505 | $ | 512 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Marketing and administrative | 120 | 122 | 120 | 242 | 235 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Amortization of intangibles | 4 | 4 | 5 | 8 | 11 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Restructuring and other, net | — | 17 | 7 | 17 | 30 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Operating expenses | $ | 374 | $ | 398 | $ | 378 | $ | 772 | $ | 788 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Compared
Compared to corresponding six months ended December 2016 quarter, product development expense decreased by $107 million primarily due to a $47 million decrease in salaries and employee benefits as a result of the restructuring of our workforce in prior periods, a $36 million decrease due to related operational efficiencies and a $24 million decrease in variable compensation and share-based compensation expenses.
Marketing and administrative expense. Marketing and administrative expense for the December 2017 quarter decreased by $3 million from the September 20172018 quarter primarily due to an $8 million increase in compensation and other employee benefits, a decrease$3 million increase in salariesoutside services expense and related benefits as a result of the restructuring of our workforce in prior periods, partially offset by an$3 million increase in variable compensation expense.
Compared to the December 2016 quarter, Marketing and administrative expense decreasedpartially offset by $13 million, primarily due to a $9$6 million decrease in salaries and related benefits as a result of the restructuring of our workforce in prior periods,depreciation expense and a $4 million decrease in variable compensation expense.
Comparedmaterial purchases.
Restructuring and other, net. Restructuring and other,voluntary early exit programs.
| For the Three Months Ended | For the Six Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| (Dollars in millions) | January 3, 2020 | October 4, 2019 | December 28, 2018 | January 3, 2020 | December 28, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other expense, net | $ | (48) | $ | (75) | $ | (18) | $ | (123) | $ | (53) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Restructuring and other, net for the three and six months ended December 2016 quarter was primarily comprised of restructuring charges to reduce our global workforce by 6,500 employees. Each of these restructuring activities have reduced our workforce as we continue to consolidate our global footprint across Asia, EMEA and the Americas. See “Part I, Item 1. Financial Statements—Note 7. Restructuring and Exit Costs” for more details.
Other Expense, Net
| For the Three Months Ended | For the Six Months Ended | |||||||||||||||||||
(Dollars in millions) | December 29, 2017 | September 29, 2017 | December 30, 2016 | December 29, 2017 | December 30, 2016 | |||||||||||||||
Other expense, net | $ | (62 | ) | $ | (67 | ) | $ | (60 | ) | $ | (129 | ) | $ | (109 | ) | |||||
Other expense, net decreased by $5$27 million from the September 20172019 quarter primarily due to a favorable $9$30 million changenon-recurring loss resulting from the repurchase of certain long-term debt in foreign currency exchange rates,the September 2019 quarter and a $5 million decrease in interest expense in the December 2019 quarter due to the decrease in long-term debt, partially offset by a $2$7 million loss on repurchase of debtdecrease in interest income in the December 2017 quarter.
Compared to December 20162019 quarter Other expense, net increased by $2 million in the December 2017 quarter primarily due to a $16 million of unfavorable change in foreign currency exchange rates and a $10 million increase in interest expense on the issuance of $750 million of 4.25% Senior Notes due 2022 and $500 million of 4.875% Senior Notes due 2024 in the quarter ended March 31, 2017, offset by the absence of a $25 million charge related to the impairment of a strategic investment in the December 2016 quarter.
mainly resulting from lower average invested balances.
rates.
| For the Three Months Ended | For the Six Months Ended | |||||||||||||||||||
(Dollars in millions) | December 29, 2017 | September 29, 2017 | December 30, 2016 | December 29, 2017 | December 30, 2016 | |||||||||||||||
Provision for income taxes | $ | 212 | $ | 7 | $ | 13 | $ | 219 | $ | 19 | ||||||||||
| For the Three Months Ended | For the Six Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| (Dollars in millions) | January 3, 2020 | October 4, 2019 | December 28, 2018 | January 3, 2020 | December 28, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Provision (benefit) for income taxes | $ | 18 | $ | (2) | $ | 14 | $ | 16 | $ | 32 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
related to share-based compensation expense.
current year generation of research credits.
Our
On December 22, 2017, the Tax Cuts and Jobs Act (the “Act”) was enacted into law in the United States. The Act significantly revises U.S. corporate income tax law by, among other things, lowering corporate income tax rates from 35% to 21%, implementing a territorial tax system and imposing a tax on deemed repatriated earnings ofnon-U.S. subsidiaries. The Act’s new international rules, including the Global IntangibleLow-Taxed Income, the Foreign Derived Intangible Income and the Base Erosion Anti-Avoidance Tax, are not expected to have a material impact on our financial statements. However, these assessments are based on preliminary review and analysis of the Act and are subject to change as we continue to evaluate these highly complex rules as additional interpretive guidance is issued.
Pursuant to SEC Staff Accounting Bulletin (SAB) 118 (regarding the application of ASC 740 associated with the enactment of the Act), we recorded a provisional tax expense of approximately $208 million for the three months ended December 29, 2017 tore-measure our U.S. deferred tax assets at the newly enacted 21% tax rate. The tax expense is provisional because we continue to evaluate the impact of various domestic and international provisions of the Act as well as the impact of additional guidance that may be provided. This provisional tax expense increased our effective tax rate for the three months ended December 29, 2017 to approximately 56%. Many of the other U.S. tax changes are not expected to impact our tax expense in the short-term due to our large net operating loss and tax credit carryovers.
investments, and we do not believe the fair value of our short-term investments has significantly changed from the values reported as of January 3, 2020.
(Dollars in millions) | December 29, 2017 | June 30, 2017 | Change | |||||||||
Cash and cash equivalents | $ | 2,556 | $ | 2,539 | $ | 17 | ||||||
| (Dollars in millions) | January 3, 2020 | June 28, 2019 | Change | |||||||||||||||||
| Cash and cash equivalents | $ | 1,744 | $ | 2,220 | $ | (476) | ||||||||||||||
Term Loan
.up to $1.5 billion available for borrowing under our Revolving Credit Facility. 25, 2020. (Dollars in millions) Contractual Cash Obligations: Long-term debt Interest payments on debt Purchase obligations(2) Operating leases(1) Capital expenditures Other funding requirements(3) Subtotal Commitments: Letters of credit or bank guarantees Total our Constitution.December 29, 2017January 3, 2020 consisted of: (1) approximately $2.6approximately $1.7 billion in cash and cash equivalents, (2) cash we expect to generate from operations, and (3) a $700 million senior revolving credit facility.December 29, 2017,January 3, 2020, no borrowings had been drawn under the revolving credit facility orand no borrowings had been utilized for letters of credit or swing line loans issued under this credit facility.the Revolving Credit Facility. The line of creditRevolving Credit Facility is available for borrowings, subject to compliance with financial covenants and other customary conditions to borrowing.credit agreement that governs our revolving credit facility, as amended,Credit Agreement includes three financial covenants: (1) minimum cash, cash equivalents and marketable securities;interest coverage ratio, (2) a fixed charge coverage ratio;total leverage ratio, and (3) a net leverage ratio. On April 28, 2016, the Revolving Credit Agreement was amended in order to increase the allowable net leverage ratio to adjust for our current financialminimum liquidity position.amount. The term of the revolving credit facilityRevolving Credit Facility is through January 15, 2020 provided that if we do not have Investment Grade Ratings (as defined in the revolving credit facility) on August 15, 2018, thenFebruary 20, 2024, and the maturity date will be Augustof the Term Loan is September 16, 2018 unless certain extension conditions have been satisfied.2025. We were in compliance with the modified covenants as of December 29, 2017January 3, 2020 and expect to be in compliance for the next 12 months.dividend.dividend and any future strategic investments. Our ability to fund these requirements will depend on our future cash flows, which are determined by future operating performance, and therefore, subject to prevailing global macroeconomic conditions and financial, business and other factors, some of which are beyond our control.2018,2020, we expect capital expenditures to be less than 5%remain within our long-term targeted range of 6% to 8% of revenue.otherwise,otherwise, or we may repurchase outstanding senior notes pursuant to the terms of the applicable indenture.Dividends declared in20172019 quarter, our Board of $179Directors declared dividends of $0.65 per share, totaling $170 million, which were subsequently paid on January 3, 2018. The Company’s8, 2020. On January 27, 2020, our Board of Directors announceddeclared a quarterly cash dividend of $0.63$0.65 per share, on January 29, 2018, which is payable on April 4, 20188, 2020 to shareholders of record at the close of business on March 21, 2018.purchases.purchases or other means. As of December 29, 2017, $0.9January 3, 2020, $1.6 billion remainedremained available for repurchaserepurchases under our existing repurchase authorization limit.authorization. All repurchases are effected as redemptions in accordance with the Company’s Articles of Association.Contractual Obligations and CommitmentsOur contractual cash obligations and commitments as of December 29, 2017, have been summarized in the table below: Fiscal Year(s) Total Remainder of
2018 2019-2020 2021-2022 Thereafter $ 4,923 $ — $ 560 $ 750 $ 3,613 1,720 115 430 420 755 764 764 — — — 122 9 25 13 75 127 116 10 1 — 24 12 12 — — 7,680 1,016 1,037 1,184 4,443 107 15 91 1 — $ 7,787 $ 1,031 $ 1,128 $ 1,185 $ 4,443 (1)Includes total future minimum rent expense undernon-cancelable leases for both occupied and vacated facilities (rent expense is shown net of sublease income).(2)Purchase obligations are defined as contractual obligations for the purchase of goods or services, which are enforceable and legally binding on us, and that specify all significant terms.(3)Consists of funding requirements related to strategic commitments.On September 28, 2017, we entered into an Equity Commitment Letter (“ECL”) with a consortium of investors led by Bain Capital Private Equity for the acquisition of Toshiba Memory Corporation (“TMC”). The ECL contemplates that, upon the closing of the acquisition, we would purchase up to JPY 139.5 billion (approximately USD 1.24 billion based on an exchange rate as of December 29, 2017), of a newlyissued non-convertible preferred equity security of a newly formed company, K. K. Pangea, for the purpose of acquiring TMC. The closing of the acquisition is subject to regulatory approvals and other closing conditions.As of December 29, 2017, we had a liability for unrecognized tax benefits and an accrual for the payment of related interest totaling $11 million, none of which is expected to be settled within one year. Outside of one year, we are unable to make a reasonably reliable estimate of when cash settlement with a taxing authority will occur.Condensed Consolidated Financial Statements,condensed consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of such statements requires us to make estimates and assumptions that affect the reported amounts of revenues and expenses during the reporting period and the reported amounts of assets and liabilities as of the date of the financial statements. Our estimates are based on historical experience and other assumptions that we consider to be appropriate in the circumstances. However, actual future results may vary from our estimates.Since our fiscal year ended June 30, 2017,77. of our Annual Report onForm 10-K for the fiscal year ended June 30, 2017,28, 2019, as filed with the SEC on August 4, 2017,2, 2019, for a discussion of our critical accounting policies and estimates.ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
the September 2019 quarter and will mature on September 16, 2025. The objective of the interest rate swap agreements is to eliminate the variability of interest payment cash flows associated with variable interest rates. The Company designated the interest rate swaps as cash flow hedges.
Our Term Loan bears interest at a variable rate equal to LIBOR plus a variable margin set on December 19, 2019.
| Fiscal Years Ended | ||||||||||||||||||||||||||||||||
(Dollars in millions, except percentages) | 2018 | 2019 | 2020 | 2021 | 2022 | Thereafter | Total | Fair Value at December 29, 2017 | ||||||||||||||||||||||||
Assets | ||||||||||||||||||||||||||||||||
Cash equivalents: | ||||||||||||||||||||||||||||||||
Fixed rate | $ | 1,064 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 1,064 | $ | 1,064 | ||||||||||||||||
Average interest rate | 1.49 | % | 1.49 | % | ||||||||||||||||||||||||||||
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Total fixed income | $ | 1,064 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 1,064 | $ | 1,064 | ||||||||||||||||
Average interest rate | 1.49 | % | 1.49 | % | ||||||||||||||||||||||||||||
Debt | ||||||||||||||||||||||||||||||||
Fixed rate | $ | — | $ | 560 | $ | — | $ | — | $ | 750 | $ | 3,613 | $ | 4,923 | $ | 4,903 | ||||||||||||||||
Average interest rate | 3.75 | % | 4.25 | % | 4.93 | % | 4.69 | % | ||||||||||||||||||||||||
January 3, 2020.
| Fiscal Years Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| (Dollars in millions, except percentages) | 2020 | 2021 | 2022 | 2023 | 2024 | Thereafter | Total | Fair Value at January 3, 2020 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Assets | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Cash equivalents: | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Floating rate | $ | 672 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 672 | $ | 672 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Average interest rate | 1.96 | % | 1.96 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other debt securities | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Fixed rate | $ | — | $ | 6 | $ | — | $ | — | $ | — | $ | 8 | $ | 14 | $ | 14 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Fixed interest rate | 5.00 | % | 5.00 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Debt | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Fixed rate | $ | — | $ | — | $ | 500 | $ | 741 | $ | 500 | $ | 1,930 | $ | 3,671 | $ | 3,887 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Average interest rate | 4.25 | % | 4.75 | % | 4.88 | % | 5.05 | % | 4.86 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Variable rate | $ | — | $ | 19 | $ | 25 | $ | 25 | $ | 25 | $ | 406 | $ | 500 | $ | 502 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Average interest rate | 3.39 | % | 3.39 | % | 3.39 | % | 3.39 | % | 3.39 | % | 3.39 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
We evaluate hedging effectiveness prospectively and retrospectively and recordhav
| (Dollars in millions, except weighted-average contract rate) | Notional Amount | Weighted-Average Contract Rate | Estimated Fair Value(1) | |||||||||||||||||
| Foreign currency forward exchange contracts: | ||||||||||||||||||||
| Singapore Dollar | $ | 58 | $ | 1.37 | $ | 1 | ||||||||||||||
| Chinese Renminbi | 30 | $ | 6.85 | — | ||||||||||||||||
| Total | $ | 88 | $ | 1 | ||||||||||||||||
counterparties and increase the cost of such capital.transaction costs andability to raise capital, our ability to execute transactions with various counterparties.Seagate Deferred Compensation Plan (the “SDCP”).SDCP. In fiscal year 2014, we entered into a Total Return Swap (“TRS”)TRS in order to manage the equity market risks associated with the SDCP liabilities. We pay a floating rate, based on LIBOR plus an interest rate spread, on the notional amount of the TRS. The TRS is designed to substantially offset changes in the SDCP liability due to changes in the value of the investment options made by employees. See “Part I, Item 1. Financial Statements—Note 8.7. Derivative Financial Instruments” of this Quarterly Report onForm 10-Q.ITEM 4.CONTROLS AND PROCEDURES
An
On April 22, 2015, the Board of Directors authorized the Company to repurchase $2.5 billion of its outstanding ordinary shares.
STX’s Constitution.
| Period | Total Number of Shares Repurchased(1)(2) | Average Price Paid Per Share(1)(2) | Total Number of Shares Repurchased as Part of Publicly Announced Plans or Programs(2) | Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs(1)(2) | ||||||||||||||||||||||
| October 5, 2019 through November 1, 2019 | — | $ | 57.61 | — | $ | 1,707 | ||||||||||||||||||||
| November 2, 2019 through November 29, 2019 | 1 | 58.56 | 1 | 1,660 | ||||||||||||||||||||||
| November 30, 2019 through January 3, 2020 | 2 | 59.22 | 2 | 1,555 | ||||||||||||||||||||||
| Total | 3 | 3 | ||||||||||||||||||||||||
(In millions, except average price paid per share) | Total Number of Shares Repurchased | Average Price Paid per Share | Total Number of Shares Repurchased as Part of Publicly Announced Plans or Programs | Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs | ||||||||||||
September 30, 2017 through October 27, 2017 | — | $ | 34.02 | — | $ | 1,084 | ||||||||||
October 28, 2017 through November 24, 2017 | — | 39.59 | — | 1,084 | ||||||||||||
November 25, 2017 through December 29, 2017 | 5.0 | 39.21 | 5.0 | 888 | ||||||||||||
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Total | 5.0 | $ | 39.17 | 5.0 | $ | 888 | ||||||||||
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applicable.
See
| Incorporated by Reference | |||||||||||||||||||||||||||||||||||
| Exhibit No. | Description of Exhibit | Form | File No. | Exhibit | Filing Date | Filed Herewith | |||||||||||||||||||||||||||||
| 3.1 | 8-K | 001-31560 | 3.1 | 10/24/2016 | |||||||||||||||||||||||||||||||
| 3.2 | 10-K | 001-31560 | 3.2 | 8/20/2010 | |||||||||||||||||||||||||||||||
| 10.1+ | X | ||||||||||||||||||||||||||||||||||
| 10.2+ | 8-K | 001-31560 | 10.1 | 11/4/2019 | |||||||||||||||||||||||||||||||
| 10.3+ | X | ||||||||||||||||||||||||||||||||||
| 10.4+ | X | ||||||||||||||||||||||||||||||||||
| 10.5+ | X | ||||||||||||||||||||||||||||||||||
| 10.6+ | X | ||||||||||||||||||||||||||||||||||
| 31.1 | X | ||||||||||||||||||||||||||||||||||
| 31.2 | X | ||||||||||||||||||||||||||||||||||
| 32.1† | X | ||||||||||||||||||||||||||||||||||
| 101.INS | Inline XBRL Instance Document. | X | |||||||||||||||||||||||||||||||||
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document. | X | |||||||||||||||||||||||||||||||||
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document. | X | |||||||||||||||||||||||||||||||||
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document. | X | |||||||||||||||||||||||||||||||||
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document. | X | |||||||||||||||||||||||||||||||||
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase. | X | |||||||||||||||||||||||||||||||||
| 104 | Inline XBRL Cover page and contained in Exhibit 101. | ||||||||||||||||||||||||||||||||||
EXHIBIT INDEX
Form 10-Q, irrespective of any general incorporation language contained in such filing.
SEAGATE TECHNOLOGY PUBLIC LIMITED COMPANY | ||||||||||||||||||
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| DATE: | February 4, 2020 | BY: |
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Executive Vice President
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40