April 3, 2020
| Ireland | 98-0648577 | |||||||
| (State or other jurisdiction of | (I.R.S. Employer | |||||||
| incorporation or organization) | ||||||||
| 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 | ||||||||||||
Yes
☒ No ☐Yes
☒ No ☐Large accelerated | ☒ |
| Accelerated filer: | ☐ | |||||||||||||
Non-accelerated filer: | ☐ |
| Smaller reporting company: | ☐ | |||||||||||||
Emerging growth company: | ☐ | ||||||||||||||||
| If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. | ☐ | ||||||||||||||||
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. ☐
Yes
☐No ☒Item 1.PAGE NO. Income—Income - Three and Nine Months Ended April 3, 2020 and March 29, 2019 and March 30, 2018 (Unaudited)Flows—Flows - Nine Months Ended April 3, 2020 and March 29, 2019 and March 30, 2018 (Unaudited)Equity—Equity - Three and Nine Months Ended April 3, 2020 and March 29, 2019 and March 30, 2018 (Unaudited)334344PART II45454545Item 6.47
(Unaudited)
| March 29, 2019 | June 29, 2018 | |||||||
| ASSETS | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 1,388 | $ | 1,853 | ||||
Accounts receivable, net | 897 | 1,184 | ||||||
Inventories | 1,001 | 1,053 | ||||||
Other current assets | 201 | 220 | ||||||
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Total current assets | 3,487 | 4,310 | ||||||
Property, equipment and leasehold improvements, net | 1,822 | 1,792 | ||||||
Investment in debt security | 1,318 | 1,275 | ||||||
Goodwill | 1,237 | 1,237 | ||||||
Other intangible assets, net | 129 | 188 | ||||||
Deferred income taxes | 416 | 417 | ||||||
Other assets, net | 187 | 191 | ||||||
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Total Assets | $ | 8,596 | $ | 9,410 | ||||
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| LIABILITIES AND EQUITY | ||||||||
Current liabilities: | ||||||||
Accounts payable | $ | 1,310 | $ | 1,728 | ||||
Accrued employee compensation | 145 | 253 | ||||||
Accrued warranty | 100 | 112 | ||||||
Current portion of long-term debt | — | 499 | ||||||
Accrued expenses | 591 | 598 | ||||||
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Total current liabilities | 2,146 | 3,190 | ||||||
Long-term accrued warranty | 112 | 125 | ||||||
Long-term accrued income taxes | 5 | 10 | ||||||
Othernon-current liabilities | 122 | 100 | ||||||
Long-term debt, less current portion | 4,522 | 4,320 | ||||||
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Total Liabilities | 6,907 | 7,745 | ||||||
Commitments and contingencies (See Notes 12, 14 and 15) | ||||||||
Shareholders’ Equity: | ||||||||
Ordinary shares and additionalpaid-in capital | 6,518 | 6,377 | ||||||
Accumulated other comprehensive loss | (21 | ) | (16 | ) | ||||
Accumulated deficit | (4,808 | ) | (4,696 | ) | ||||
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Total Equity | 1,689 | 1,665 | ||||||
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Total Liabilities and Equity | $ | 8,596 | $ | 9,410 | ||||
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The information as of June 29, 2018 was derived from the Company’s audited Consolidated Balance Sheet as of June 29, 2018.
| April 3, 2020 | June 28, 2019 | ||||||||||
| (unaudited) | |||||||||||
| ASSETS | |||||||||||
| Current assets: | |||||||||||
| Cash and cash equivalents | $ | 1,612 | $ | 2,220 | |||||||
| Accounts receivable, net | 1,160 | 989 | |||||||||
| Inventories | 1,102 | 970 | |||||||||
| Other current assets | 141 | 184 | |||||||||
| Total current assets | 4,015 | 4,363 | |||||||||
| Property, equipment and leasehold improvements, net | 2,093 | 1,869 | |||||||||
| Goodwill | 1,237 | 1,237 | |||||||||
| Other intangible assets, net | 70 | 111 | |||||||||
| Deferred income taxes | 1,112 | 1,114 | |||||||||
| Other assets, net | 302 | 191 | |||||||||
| Total Assets | $ | 8,829 | $ | 8,885 | |||||||
| LIABILITIES AND EQUITY | |||||||||||
| Current liabilities: | |||||||||||
| Accounts payable | $ | 1,830 | $ | 1,420 | |||||||
| Accrued employee compensation | 155 | 169 | |||||||||
| Accrued warranty | 76 | 91 | |||||||||
| Current portion of long-term debt | 12 | — | |||||||||
| Accrued expenses | 617 | 552 | |||||||||
| Total current liabilities | 2,690 | 2,232 | |||||||||
| Long-term accrued warranty | 87 | 104 | |||||||||
| Long-term accrued income taxes | 3 | 4 | |||||||||
| Other non-current liabilities | 166 | 130 | |||||||||
| Long-term debt | 4,091 | 4,253 | |||||||||
| Total Liabilities | 7,037 | 6,723 | |||||||||
| Commitments and contingencies (See Notes 11 and 13) | |||||||||||
| Shareholders’ Equity: | |||||||||||
| Ordinary shares and additional paid-in capital | 6,725 | 6,545 | |||||||||
| Accumulated other comprehensive loss | (67) | (34) | |||||||||
| Accumulated deficit | (4,866) | (4,349) | |||||||||
| Total Equity | 1,792 | 2,162 | |||||||||
| Total Liabilities and Equity | $ | 8,829 | $ | 8,885 | |||||||
| For the Three Months Ended | For the Nine Months Ended | |||||||||||||||
| March 29, 2019 | March 30, 2018 | March 29, 2019 | March 30, 2018 | |||||||||||||
Revenue | $ | 2,313 | $ | 2,803 | $ | 8,019 | $ | 8,349 | ||||||||
Cost of revenue | 1,712 | 1,956 | 5,711 | 5,889 | ||||||||||||
Product development | 238 | 254 | 750 | 767 | ||||||||||||
Marketing and administrative | 110 | 135 | 345 | 422 | ||||||||||||
Amortization of intangibles | 6 | 6 | 17 | 47 | ||||||||||||
Restructuring and other, net | 11 | 11 | 41 | 95 | ||||||||||||
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Total operating expenses | 2,077 | 2,362 | 6,864 | 7,220 | ||||||||||||
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Income from operations | 236 | 441 | 1,155 | 1,129 | ||||||||||||
Interest income | 21 | 10 | 67 | 23 | ||||||||||||
Interest expense | (55 | ) | (60 | ) | (169 | ) | (182 | ) | ||||||||
Other, net | 13 | 2 | 28 | (18 | ) | |||||||||||
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Other expense, net | (21 | ) | (48 | ) | (74 | ) | (177 | ) | ||||||||
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Income before income taxes | 215 | 393 | 1,081 | 952 | ||||||||||||
Provision for income taxes | 20 | 12 | 52 | 231 | ||||||||||||
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Net income | $ | 195 | $ | 381 | $ | 1,029 | $ | 721 | ||||||||
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Net income per share: | ||||||||||||||||
Basic | $ | 0.69 | $ | 1.33 | $ | 3.62 | $ | 2.50 | ||||||||
Diluted | 0.69 | 1.31 | 3.57 | 2.48 | ||||||||||||
Number of shares used in per share calculations: | ||||||||||||||||
Basic | 281 | 286 | 284 | 288 | ||||||||||||
Diluted | 284 | 291 | 288 | 291 | ||||||||||||
Cash dividends declared per ordinary share | $ | 0.63 | $ | 0.63 | $ | 1.89 | $ | 1.89 | ||||||||
| For the Three Months Ended | For the Nine Months Ended | ||||||||||||||||||||||||||||||||||
| April 3, 2020 | March 29, 2019 | April 3, 2020 | March 29, 2019 | ||||||||||||||||||||||||||||||||
| Revenue | $ | 2,718 | $ | 2,313 | $ | 7,992 | $ | 8,019 | |||||||||||||||||||||||||||
| Cost of revenue | 1,972 | 1,712 | 5,817 | 5,711 | |||||||||||||||||||||||||||||||
| Product development | 246 | 238 | 751 | 750 | |||||||||||||||||||||||||||||||
| Marketing and administrative | 119 | 110 | 361 | 345 | |||||||||||||||||||||||||||||||
| Amortization of intangibles | 3 | 6 | 11 | 17 | |||||||||||||||||||||||||||||||
| Restructuring and other, net | 2 | 11 | 19 | 41 | |||||||||||||||||||||||||||||||
| Total operating expenses | 2,342 | 2,077 | 6,959 | 6,864 | |||||||||||||||||||||||||||||||
| Income from operations | 376 | 236 | 1,033 | 1,155 | |||||||||||||||||||||||||||||||
| Interest income | 4 | 21 | 19 | 67 | |||||||||||||||||||||||||||||||
| Interest expense | (49) | (55) | (152) | (169) | |||||||||||||||||||||||||||||||
| Other, net | 7 | 13 | (28) | 28 | |||||||||||||||||||||||||||||||
| Other expense, net | (38) | (21) | (161) | (74) | |||||||||||||||||||||||||||||||
| Income before income taxes | 338 | 215 | 872 | 1,081 | |||||||||||||||||||||||||||||||
| Provision for income taxes | 18 | 20 | 34 | 52 | |||||||||||||||||||||||||||||||
| Net income | $ | 320 | $ | 195 | $ | 838 | $ | 1,029 | |||||||||||||||||||||||||||
| Net income per share: | |||||||||||||||||||||||||||||||||||
| Basic | $ | 1.23 | $ | 0.69 | $ | 3.19 | $ | 3.62 | |||||||||||||||||||||||||||
| Diluted | 1.22 | 0.69 | 3.15 | 3.57 | |||||||||||||||||||||||||||||||
| Number of shares used in per share calculations: | |||||||||||||||||||||||||||||||||||
| Basic | 261 | 281 | 263 | 284 | |||||||||||||||||||||||||||||||
| Diluted | 263 | 284 | 266 | 288 | |||||||||||||||||||||||||||||||
| Cash dividends declared per ordinary share | $ | 0.65 | $ | 0.63 | $ | 1.93 | $ | 1.89 | |||||||||||||||||||||||||||
| For the Three Months Ended | For the Nine Months Ended | |||||||||||||||
| March 29, 2019 | March 30, 2018 | March 29, 2019 | March 30, 2018 | |||||||||||||
Net income | $ | 195 | $ | 381 | $ | 1,029 | $ | 721 | ||||||||
Other comprehensive income (loss), net of tax: | ||||||||||||||||
Cash flow hedges | ||||||||||||||||
Change in net unrealized gain (loss) on cash flow hedges | 1 | — | — | — | ||||||||||||
Less: reclassification for amounts included in net income | 1 | — | (1 | ) | — | |||||||||||
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Net change | 2 | — | (1 | ) | — | |||||||||||
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Marketable securities | ||||||||||||||||
Change in net unrealized gain (loss) onavailable-for-sale debt securities | — | — | — | — | ||||||||||||
Less: reclassification for amounts included in net income | — | — | — | — | ||||||||||||
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Net change | — | — | — | — | ||||||||||||
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Post-retirement plans | ||||||||||||||||
Change in unrealized gain (loss) on post-retirement plans | — | — | — | — | ||||||||||||
Less: reclassification for amounts included in net income | — | — | — | — | ||||||||||||
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Net change | — | — | — | — | ||||||||||||
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Foreign currency translation adjustments | (2 | ) | 3 | (4 | ) | 9 | ||||||||||
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Total other comprehensive income (loss), net of tax | — | 3 | (5 | ) | 9 | |||||||||||
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Comprehensive income | $ | 195 | $ | 384 | $ | 1,024 | $ | 730 | ||||||||
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| For the Three Months Ended | For the Nine Months Ended | ||||||||||||||||||||||||||||||||||||||||
| April 3, 2020 | March 29, 2019 | April 3, 2020 | March 29, 2019 | ||||||||||||||||||||||||||||||||||||||
| Net income | $ | 320 | $ | 195 | $ | 838 | $ | 1,029 | |||||||||||||||||||||||||||||||||
| Other comprehensive income (loss), net of tax: | |||||||||||||||||||||||||||||||||||||||||
| Cash flow hedges | |||||||||||||||||||||||||||||||||||||||||
| Change in net unrealized gain (loss) on cash flow hedges | (29) | 1 | (27) | — | |||||||||||||||||||||||||||||||||||||
| Less: reclassification for amounts included in net income | (1) | 1 | — | (1) | |||||||||||||||||||||||||||||||||||||
| Net change | (30) | 2 | (27) | (1) | |||||||||||||||||||||||||||||||||||||
| Post-retirement plans | |||||||||||||||||||||||||||||||||||||||||
| Change in unrealized gain (loss) on post-retirement plans | 2 | — | 2 | — | |||||||||||||||||||||||||||||||||||||
| Less: reclassification for amounts included in net income | — | — | — | — | |||||||||||||||||||||||||||||||||||||
| Net change | 2 | — | 2 | — | |||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustments | (6) | (2) | (8) | (4) | |||||||||||||||||||||||||||||||||||||
| Total other comprehensive income (loss), net of tax | (34) | — | (33) | (5) | |||||||||||||||||||||||||||||||||||||
| Comprehensive income | $ | 286 | $ | 195 | $ | 805 | $ | 1,024 | |||||||||||||||||||||||||||||||||
| For the Nine Months Ended | ||||||||
| March 29, 2019 | March 30, 2018 | |||||||
| OPERATING ACTIVITIES | ||||||||
Net income | $ | 1,029 | $ | 721 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
Depreciation and amortization | 407 | 461 | ||||||
Share-based compensation | 73 | 85 | ||||||
Deferred income taxes | 15 | 209 | ||||||
Gain on sale of property and equipment | (1 | ) | — | |||||
Othernon-cash operating activities, net | (68 | ) | 9 | |||||
Changes in operating assets and liabilities: | ||||||||
Accounts receivable, net | 296 | 124 | ||||||
Inventories | 49 | (20 | ) | |||||
Accounts payable | (366 | ) | 74 | |||||
Accrued employee compensation | (108 | ) | (49 | ) | ||||
Accrued expenses, income taxes and warranty | (32 | ) | (24 | ) | ||||
Other assets and liabilities | 19 | 55 | ||||||
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Net cash provided by operating activities | 1,313 | 1,645 | ||||||
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| INVESTING ACTIVITIES | ||||||||
Acquisition of property, equipment and leasehold improvements | (451 | ) | (270 | ) | ||||
Proceeds from settlement of foreign currency forward exchange contracts | 66 | — | ||||||
Proceeds from sale of strategic investments | 10 | — | ||||||
Proceeds from sale of properties previously classified as held for sale | 27 | 43 | ||||||
Proceeds from sale of property and equipment | 3 | 2 | ||||||
Purchases of strategic investments | (14 | ) | (8 | ) | ||||
Other investing activities, net | — | (6 | ) | |||||
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Net cash used in investing activities | (359 | ) | (239 | ) | ||||
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| FINANCING ACTIVITIES | ||||||||
Redemption and repurchase of debt | (499 | ) | (209 | ) | ||||
Dividends to shareholders | (539 | ) | (545 | ) | ||||
Repurchases of ordinary shares | (613 | ) | (361 | ) | ||||
Taxes paid related to net share settlement of equity awards | (30 | ) | (22 | ) | ||||
Net proceeds from issuance of long-term debt | 196 | — | ||||||
Proceeds from issuance of ordinary shares under employee stock plans | 68 | 110 | ||||||
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Net cash used in financing activities | (1,417 | ) | (1,027 | ) | ||||
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Effect of foreign currency exchange rate changes on cash, cash equivalents and restricted cash | (3 | ) | 8 | |||||
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(Decrease) increase in cash, cash equivalents and restricted cash | (466 | ) | 387 | |||||
Cash, cash equivalents and restricted cash at the beginning of the period | 1,857 | 2,543 | ||||||
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Cash, cash equivalents and restricted cash at the end of the period | $ | 1,391 | $ | 2,930 | ||||
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| For the Nine Months Ended | |||||||||||||||||
| April 3, 2020 | March 29, 2019 | ||||||||||||||||
| OPERATING ACTIVITIES | |||||||||||||||||
| Net income | $ | 838 | $ | 1,029 | |||||||||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||||||||
| Depreciation and amortization | 279 | 407 | |||||||||||||||
| Share-based compensation | 80 | 73 | |||||||||||||||
| Deferred income taxes | 3 | 15 | |||||||||||||||
| Other non-cash operating activities, net | 55 | (69) | |||||||||||||||
| Changes in operating assets and liabilities: | |||||||||||||||||
| Accounts receivable, net | (172) | 296 | |||||||||||||||
| Inventories | (126) | 49 | |||||||||||||||
| Accounts payable | 424 | (366) | |||||||||||||||
| Accrued employee compensation | (14) | (108) | |||||||||||||||
| Accrued expenses, income taxes and warranty | (18) | (32) | |||||||||||||||
| Other assets and liabilities | (23) | 19 | |||||||||||||||
| Net cash provided by operating activities | 1,326 | 1,313 | |||||||||||||||
| INVESTING ACTIVITIES | |||||||||||||||||
| Acquisition of property, equipment and leasehold improvements | (471) | (451) | |||||||||||||||
| Proceeds from settlement of foreign currency forward exchange contracts | — | 66 | |||||||||||||||
| Proceeds from sale of strategic investments | — | 10 | |||||||||||||||
| Proceeds from the sale of assets | 1 | 30 | |||||||||||||||
| Purchases of investments | (57) | (14) | |||||||||||||||
| Net cash used in investing activities | (527) | (359) | |||||||||||||||
| FINANCING ACTIVITIES | |||||||||||||||||
| Redemption and repurchase of debt | (685) | (499) | |||||||||||||||
| Dividends to shareholders | (505) | (539) | |||||||||||||||
| Repurchases of ordinary shares | (795) | (613) | |||||||||||||||
| Taxes paid related to net share settlement of equity awards | (39) | (30) | |||||||||||||||
| Net proceeds from issuance of long-term debt | 498 | 196 | |||||||||||||||
| Proceeds from issuance of ordinary shares under employee stock plans | 100 | 68 | |||||||||||||||
| Other financing activities, net | (2) | — | |||||||||||||||
| Net cash used in financing activities | (1,428) | (1,417) | |||||||||||||||
| Effect of foreign currency exchange rate changes on cash, cash equivalents and restricted cash | (8) | (3) | |||||||||||||||
| Decrease in cash, cash equivalents and restricted cash | (637) | (466) | |||||||||||||||
| 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 | $ | 1,614 | $ | 1,391 | |||||||||||||
| Number of Ordinary Shares | Par Value of Shares | Additional Paid-in Capital | Accumulated Other Comprehensive Loss | Accumulated Deficit | Total | |||||||||||||||||||||||||||||||||
| Balance at January 3, 2020 | 261 | $ | — | $ | 6,667 | $ | (33) | $ | (4,804) | $ | 1,830 | |||||||||||||||||||||||||||
| Net income | 320 | 320 | ||||||||||||||||||||||||||||||||||||
| Other comprehensive loss | (34) | (34) | ||||||||||||||||||||||||||||||||||||
| Issuance of ordinary shares under employee stock plans | 1 | 31 | 31 | |||||||||||||||||||||||||||||||||||
| Repurchases of ordinary shares | (5) | (214) | (214) | |||||||||||||||||||||||||||||||||||
| Tax withholding related to vesting of restricted stock units | — | — | — | |||||||||||||||||||||||||||||||||||
| Dividends to shareholders | (168) | (168) | ||||||||||||||||||||||||||||||||||||
| Share-based compensation | 27 | 27 | ||||||||||||||||||||||||||||||||||||
| Balance at April 3, 2020 | 257 | $ | — | $ | 6,725 | $ | (67) | $ | (4,866) | $ | 1,792 | |||||||||||||||||||||||||||
| Number of Ordinary Shares | Par Value of Shares | Additional Paid-in Capital | Accumulated Other Comprehensive Loss | Accumulated Deficit | Total | |||||||||||||||||||||||||||||||||
| Balance at December 28, 2018 | 283 | $ | — | $ | 6,457 | $ | (21) | $ | (4,502) | $ | 1,934 | |||||||||||||||||||||||||||
| Net income | 195 | 195 | ||||||||||||||||||||||||||||||||||||
| Other comprehensive loss | — | — | ||||||||||||||||||||||||||||||||||||
| Issuance of ordinary shares under employee stock plans | 1 | 33 | 33 | |||||||||||||||||||||||||||||||||||
| Repurchases of ordinary shares | (7) | (327) | (327) | |||||||||||||||||||||||||||||||||||
| Tax withholding related to vesting of restricted stock units | — | — | — | |||||||||||||||||||||||||||||||||||
| Dividends to shareholders | (174) | (174) | ||||||||||||||||||||||||||||||||||||
| Share-based compensation | 28 | 28 | ||||||||||||||||||||||||||||||||||||
| Balance at March 29, 2019 | 277 | $ | — | $ | 6,518 | $ | (21) | $ | (4,808) | $ | 1,689 | |||||||||||||||||||||||||||
29, 2019
| Number of Ordinary Shares | Par Value of Shares | Additional Paid-in Capital | Accumulated Other Comprehensive Loss | Accumulated Deficit | Total | |||||||||||||||||||
Balance at December 28, 2018 | 283 | $ | — | $ | 6,457 | $ | (21 | ) | $ | (4,502 | ) | $ | 1,934 | |||||||||||
Net income | 195 | 195 | ||||||||||||||||||||||
Other comprehensive loss | — | — | ||||||||||||||||||||||
Issuance of ordinary shares under employee stock plans | 1 | 33 | 33 | |||||||||||||||||||||
Repurchases of ordinary shares | (7 | ) | (327 | ) | (327 | ) | ||||||||||||||||||
Tax withholding related to vesting of restricted stock units | — | — | — | |||||||||||||||||||||
Dividends to shareholders | (174 | ) | (174 | ) | ||||||||||||||||||||
Share-based compensation | 28 | 28 | ||||||||||||||||||||||
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Balance at March 29, 2019 | 277 | $ | — | $ | 6,518 | $ | (21 | ) | $ | (4,808 | ) | $ | 1,689 | |||||||||||
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| Number of Ordinary Shares | Par Value of Shares | Additional Paid-in Capital | Accumulated Other Comprehensive Loss | Accumulated Deficit | Total | |||||||||||||||||||
Balances at December 29, 2017 | 285 | $ | — | $ | 6,246 | $ | (11 | ) | $ | (5,174 | ) | $ | 1,061 | |||||||||||
Net income | 381 | 381 | ||||||||||||||||||||||
Other comprehensive income | 3 | 3 | ||||||||||||||||||||||
Issuance of ordinary shares under employee stock plans | 2 | 75 | 75 | |||||||||||||||||||||
Tax withholding related to vesting of restricted stock units | (1 | ) | (1 | ) | ||||||||||||||||||||
Dividends to shareholders | (181 | ) | (181 | ) | ||||||||||||||||||||
Share-based compensation | 26 | 26 | ||||||||||||||||||||||
|
|
|
|
|
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|
|
|
|
|
| |||||||||||||
Balance at March 30, 2018 | 287 | $ | — | $ | 6,347 | $ | (8 | ) | $ | (4,975 | ) | $ | 1,364 | |||||||||||
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|
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| |||||||||||||
| Number of Ordinary Shares | Par Value of Shares | Additional Paid-in Capital | Accumulated Other Comprehensive Loss | Accumulated Deficit | Total | |||||||||||||||||||||||||||||||||
| 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 | 838 | 838 | ||||||||||||||||||||||||||||||||||||
| Other comprehensive loss | (33) | (33) | ||||||||||||||||||||||||||||||||||||
| Issuance of ordinary shares under employee stock plans | 6 | 100 | 100 | |||||||||||||||||||||||||||||||||||
| Repurchases of ordinary shares | (17) | (811) | (811) | |||||||||||||||||||||||||||||||||||
| Tax withholding related to vesting of restricted stock units | (1) | (39) | (39) | |||||||||||||||||||||||||||||||||||
| Dividends to shareholders | (503) | (503) | ||||||||||||||||||||||||||||||||||||
| Share-based compensation | 80 | 80 | ||||||||||||||||||||||||||||||||||||
| Balance at April 3, 2020 | 257 | $ | — | $ | 6,725 | $ | (67) | $ | (4,866) | $ | 1,792 | |||||||||||||||||||||||||||
| Number of Ordinary Shares | Par Value of Shares | Additional Paid-in Capital | Accumulated Other Comprehensive Loss | Accumulated Deficit | Total | |||||||||||||||||||||||||||||||||
| 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 | 1,029 | 1,029 | ||||||||||||||||||||||||||||||||||||
| Other comprehensive loss | (5) | (5) | ||||||||||||||||||||||||||||||||||||
| Issuance of ordinary shares under employee stock plans | 4 | 68 | 68 | |||||||||||||||||||||||||||||||||||
| Repurchases of ordinary shares | (13) | (613) | (613) | |||||||||||||||||||||||||||||||||||
| Tax withholding related to vesting of restricted stock units | (1) | (30) | (30) | |||||||||||||||||||||||||||||||||||
| Dividends to shareholders | (532) | (532) | ||||||||||||||||||||||||||||||||||||
| Share-based compensation | 73 | 73 | ||||||||||||||||||||||||||||||||||||
| Balance at March 29, 2019 | 277 | $ | — | $ | 6,518 | $ | (21) | $ | (4,808) | $ | 1,689 | |||||||||||||||||||||||||||
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
For the Nine Months Ended March 29, 2019 and March 30, 2018
(In millions)
(Unaudited)
| Number of Ordinary Shares | Par Value of Shares | Additional Paid-in Capital | Accumulated Other Comprehensive Loss | Accumulated Deficit | Total | |||||||||||||||||||
Balance at June 29, 2018 | 287 | $ | — | $ | 6,377 | $ | (16 | ) | $ | (4,696 | ) | $ | 1,665 | |||||||||||
Cumulative effect of adoption of new revenue standard (Note 1) | 34 | 34 | ||||||||||||||||||||||
Net income | 1,029 | 1,029 | ||||||||||||||||||||||
Other comprehensive loss | (5 | ) | (5 | ) | ||||||||||||||||||||
Issuance of ordinary shares under employee stock plans | 4 | 68 | 68 | |||||||||||||||||||||
Repurchases of ordinary shares | (13 | ) | (613 | ) | (613 | ) | ||||||||||||||||||
Tax withholding related to vesting of restricted stock units | (1 | ) | (30 | ) | (30 | ) | ||||||||||||||||||
Dividends to shareholders | (532 | ) | (532 | ) | ||||||||||||||||||||
Share-based compensation | 73 | 73 | ||||||||||||||||||||||
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| |||||||||||||
Balance at March 29, 2019 | 277 | $ | — | $ | 6,518 | $ | (21 | ) | $ | (4,808 | ) | $ | 1,689 | |||||||||||
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| Number of Ordinary Shares | Par Value of Shares | Additional Paid-in Capital | Accumulated Other Comprehensive Loss | Accumulated Deficit | Total | |||||||||||||||||||
Balances at June 30, 2017 | 292 | $ | — | $ | 6,152 | $ | (17 | ) | $ | (4,771 | ) | $ | 1,364 | |||||||||||
Net income | 721 | 721 | ||||||||||||||||||||||
Other comprehensive income | 9 | 9 | ||||||||||||||||||||||
Issuance of ordinary shares under employee stock plans | 6 | 110 | 110 | |||||||||||||||||||||
Repurchases of ordinary shares | (10 | ) | (361 | ) | (361 | ) | ||||||||||||||||||
Tax withholding related to vesting of restricted stock units | (1 | ) | (22 | ) | (22 | ) | ||||||||||||||||||
Dividends to shareholders | (542 | ) | (542 | ) | ||||||||||||||||||||
Share-based compensation | 85 | 85 | ||||||||||||||||||||||
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| |||||||||||||
Balance at March 30, 2018 | 287 | $ | — | $ | 6,347 | $ | (8 | ) | $ | (4,975 | ) | $ | 1,364 | |||||||||||
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See Notes to Condensed Consolidated Financial Statements.
SEAGATE TECHNOLOGY PLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Hard disk drives
In addition to HDDs and SSDs, SSHDs combine the features of SSDs and HDDs in the same unit, containing a high capacity HDD and a smaller SSD acting as a cache to improve performance of frequently accessed data.
systems.
.
July 3, 2020.
Summary of Significant Accounting Policies
Revenue Recognition
2020, respectively, and increased the diluted earnings per share by $0.14 and $0.39 for the three and nine months ended April 3, 2020,
respectively.Revenue from sales of products is generally recognized upon transfer of control to customersoperating expenses in an amount that reflects the consideration the Company expects to receive in exchange for those products, net of sales taxes. This typically occurs upon shipment from the Company. When applicable, the Company includes shipping charges billed to customers in Revenue and includes the related shipping costs in Cost of revenue on the Company’s Condensed Consolidated Statements of Operations.
The Company records estimated variable consideration at the time of revenue recognition as a reduction to net revenue. Variable consideration generally consists of sales incentive programs, such as price protection and volume incentives aimed at increasing customer demand. For OEM sales, rebates are typically established by estimating the most likely amount of consideration expected to be received based on an OEM customer’s volume of purchases from Seagate or other agreed upon rebate programs. For the distribution and retailing channel, these sales incentive programs typically involve estimating the most likely amount of rebates related to a customer’s level of sales, order size, advertising or point of sale activity as well as the expected value of price protection adjustments based on historical analysis and forecasted pricing environment. Marketing development program costs are accrued and recorded as a reduction to revenue at the same time that the related revenue is recognized.
The Company elected a practical expedient to expense sales commissions when the commissions are incurred because the amortization period would have been one year or less. These costs are recorded as Marketing and administrative on the Company’s Condensed Consolidated Statements of Operations.
In June 2016, the FASB issuedASU 2016-13 (ASC Topic 326), Financial InstrumentsASC 842 adoption, see
Note 5. Leases.
InIn February 2018, the FASB issued ASU2018-02 (ASC Topic 220),Income Statement—Reporting Comprehensive Income: Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. This ASU was issued following the enactment of the U.S. Tax Cuts and Jobs Act of 2017 (the “Tax Act”) and permits entities to elect a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Act. TheThis ASU became effective and the Company is required to adopt thisadopted the guidance in the first quarter of fiscal year 2020. Early adoption is permitted.ended October 4, 2019. The Company is inhas elected not to reclassify the process of assessing the impactstranded amounts. The adoption of this ASUguidance did not have a material impact on its condensed consolidated financial statements.
statements and disclosures.
Recently Adopted Accounting Pronouncements
The Company applied the ASC 606 using a modified retrospective transition approach to all contracts that were not completed as of June 29, 2018. Results for reporting periods beginning June 30, 2018 are presented under ASC 606, while prior period amounts were not adjusted and continue to be reported under the historical accounting standard. As a result of the adoption, the Company identified a change in revenue recognition timing on its product sales made to certain retail customers and started to recognize revenue when the Company transfers control to the applicable customers rather than deferring recognition until those customers sell the products. In addition, the Company established accruals for the variable consideration related to customer incentives on these arrangements. On the date of initial adoption, the Company removed the related deferred income on the product sales made to these customers and recorded estimates of the accrual for variable consideration through a cumulative adjustment to accumulated deficit. The cumulative effect of the change to the Company’s Condensed Consolidated Balance Sheet from the adoption of ASC 606 was as follows:
(Dollars in millions) | As of June 29, 2018 | Effect of adoption of ASC 606 | As of June 30, 2018 | |||||||||
Accounts receivable, net | $ | 1,184 | $ | 9 | $ | 1,193 | ||||||
Inventory | $ | 1,053 | $ | (9 | ) | $ | 1,044 | |||||
Accrued expenses | $ | 598 | $ | (34 | ) | $ | 564 | |||||
Accumulated deficit | $ | (4,696 | ) | $ | 34 | $ | (4,662 | ) | ||||
The impact of applying the new accounting standard on the Company’s condensed consolidated financial statements for the three and nine months ended March 29, 2019 was not material.
In January 2016, the FASB issuedASU 2016-01 (ASCSubtopic 825-10), Financial Instruments—Overall Recognition and Measurement of Financial Assets and Financial Liabilities,as amended by ASU2018-03,Financial Instruments—Overall: Technical Correction and Improvements,issued in February 2018. The amendments in these ASUs require entities to measure all equity investments at fair value with changes recognized through net income. 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. These ASUs became effective and were adopted by the Company in the September 2018 quarter. For equity investments without readily determinable fair value, the Company elected 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 until the equity investments’ fair value becomes readily determinable. The adoption ofadopt this guidance had no impact on the Company’s condensed consolidated financial statements and disclosures.
In January 2017, the FASB issuedASU 2017-01 (ASC Topic 805), Business Combination: Clarifying the Definition of a Business. The amendments in this ASU change the definition of a business to assist with evaluating when a set of transferred assets and activities is a business. The Company adopted the guidance in the September 2018 quarter.first quarter of fiscal year 2021. The adoptionCompany is in the process of assessing the impact of this guidance had no impactASU on the Company’s condensedits consolidated financial statements and disclosures.
statements.
|
exceptions for applying U.S. generally accepted accounting principles to contracts, hedging relationships and other transactions affected by reference rate reform if certain criteria are met. Adoption of the expedients and exceptions is permitted upon issuance of this update through December 31, 2022. The Company is in the process of assessing the impact of this ASU on its consolidated financial statements.
(Dollars in millions) | Amortized Cost | Unrealized Gain/(Loss) | Fair Value | |||||||||
Available-for-sale debt securities: | ||||||||||||
Money market funds | $ | 239 | $ | — | $ | 239 | ||||||
Time deposits and certificates of deposit | 300 | — | 300 | |||||||||
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|
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| |||||||
Total | $ | 539 | $ | — | $ | 539 | ||||||
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Included in Cash and cash equivalents | $ | 536 | ||||||||||
Included in Other current assets | 3 | |||||||||||
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| |||||||||||
Total | $ | 539 | ||||||||||
|
| |||||||||||
April 3, 2020:
| (Dollars in millions) | Amortized Cost | Unrealized Gain/(Loss) | Fair Value | |||||||||||||||||
| Available-for-sale debt securities: | ||||||||||||||||||||
| Money market funds | $ | 352 | $ | — | $ | 352 | ||||||||||||||
| Time deposits and certificates of deposit | 255 | — | 255 | |||||||||||||||||
| Other debt securities | 18 | — | 18 | |||||||||||||||||
| Total | $ | 625 | $ | — | $ | 625 | ||||||||||||||
| Included in Cash and cash equivalents | $ | 605 | ||||||||||||||||||
| Included in Other current assets | 2 | |||||||||||||||||||
| Included in Other assets, net | 18 | |||||||||||||||||||
| Total | $ | 625 | ||||||||||||||||||
April 3, 2020.
(Dollars in millions) | Amortized Cost | Fair Value | ||||||
Due in less than 1 year | $ | 539 | $ | 539 | ||||
Due in 1 to 5 years | — | — | ||||||
Due in 6 to 10 years | — | — | ||||||
Thereafter | — | — | ||||||
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| |||||
Total | $ | 539 | $ | 539 | ||||
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| |||||
| (Dollars in millions) | Amortized Cost | Fair Value | ||||||||||||
| Due in less than 1 year | $ | 607 | $ | 607 | ||||||||||
| Due in 1 to 5 years | 10 | 10 | ||||||||||||
| Due in 6 to 10 years | — | — | ||||||||||||
| Thereafter | 8 | 8 | ||||||||||||
| Total | $ | 625 | $ | 625 | ||||||||||
(Dollars in millions) | Amortized Cost | Unrealized Gain/(Loss) | Fair Value | |||||||||
Available-for-sale securities: | ||||||||||||
Money market funds | $ | 621 | $ | — | $ | 621 | ||||||
Time deposits and certificates of deposit | 395 | — | 395 | |||||||||
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|
|
| |||||||
Total | $ | 1,016 | $ | — | $ | 1,016 | ||||||
|
|
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|
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| |||||||
Included in Cash and cash equivalents | $ | 1,012 | ||||||||||
Included in Other current assets | 4 | |||||||||||
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Total | $ | 1,016 | ||||||||||
|
| |||||||||||
28, 2019:
| (Dollars in millions) | Amortized Cost | Unrealized Gain/(Loss) | Fair Value | |||||||||||||||||
| Available-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 | ||||||||||||||||||
28, 2019.
(Dollars in millions) | March 29, 2019 | June 29, 2018 | March 30, 2018 | June 30, 2017 | ||||||||||||
Cash and cash equivalents | $ | 1,388 | $ | 1,853 | $ | 2,926 | $ | 2,539 | ||||||||
Restricted cash included in Other current assets | 3 | 4 | 4 | 4 | ||||||||||||
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Total cash, cash equivalents and restricted cash shown in the Statements of Cash Flows | $ | 1,391 | $ | 1,857 | $ | 2,930 | $ | 2,543 | ||||||||
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| (Dollars in millions) | April 3, 2020 | June 28, 2019 | March 29, 2019 | June 29, 2018 | ||||||||||||||||||||||||||||||||||
| Cash and cash equivalents | $ | 1,612 | $ | 2,220 | $ | 1,388 | $ | 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 | $ | 1,614 | $ | 2,251 | $ | 1,391 | $ | 1,857 | ||||||||||||||||||||||||||||||
(Dollars in millions) | March 29, 2019 | June 29, 2018 | ||||||
Raw materials and components | $ | 330 | $ | 329 | ||||
Work-in-process | 260 | 347 | ||||||
Finished goods | 411 | 377 | ||||||
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Total inventories | $ | 1,001 | $ | 1,053 | ||||
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| (Dollars in millions) | April 3, 2020 | June 28, 2019 | ||||||||||||
| Raw materials and components | $ | 397 | $ | 336 | ||||||||||
| Work-in-process | 330 | 217 | ||||||||||||
| Finished goods | 375 | 417 | ||||||||||||
| Total inventories | $ | 1,102 | $ | 970 | ||||||||||
(Dollars in millions) | March 29, 2019 | June 29, 2018 | ||||||
Property, equipment and leasehold improvements | $ | 9,736 | $ | 9,525 | ||||
Accumulated depreciation and amortization | (7,914 | ) | (7,733 | ) | ||||
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| |||||
Property, equipment and leasehold improvements, net | $ | 1,822 | $ | 1,792 | ||||
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| (Dollars in millions) | April 3, 2020 | June 28, 2019 | ||||||||||||
| Property, equipment and leasehold improvements | $ | 10,169 | $ | 9,835 | ||||||||||
| Accumulated depreciation and amortization | (8,076) | (7,966) | ||||||||||||
| Property, equipment and leasehold improvements, net | $ | 2,093 | $ | 1,869 | ||||||||||
Investment in Debt Security
As of March 29, 2019 and June 29, 2018, the Company had approximately $1.3 billion investmentin non-convertible preferred stock of Toshiba Memory Corporation (“TMC”, formerly known as “K.K. Pangea”). The Company has the positive intent and ability to hold the investment until maturity. As such, the investment, with a contractual maturity of six years starting from May 31, 2018, is accounted for asa held-to-maturity debt security, carried at cost and adjusted for amortization of transaction costs into interest income. Additionally, the debt security has a contractualpayment-in-kind (“PIK”) income which will be paid in cash upon redemption of the investment. PIK income computed at the contractual rate is accrued into Interest income in the Company’s Condensed Consolidated Statements of Operations and added to the carrying value of the Investment in debt security on its Condensed Consolidated Balance Sheets. For the three and nine months ended March 29, 2019, the PIK income earned was $16 million and $47 million, respectively. There was no other-than-temporary impairment identified for the three and nine months ended March 29, 2019. Please refer to Note 8 - Fair Value for more details.
(Dollars in millions) Dividends payable Other accrued expenses Total accrued expenses (Dollars in millions) Balance at June 29, 2018 Other comprehensive income (loss) before reclassifications Amounts reclassified from AOCI Other comprehensive income (loss) Balance at March 29, 2019 Balance at June 30, 2017 Other comprehensive income (loss) before reclassifications Amounts reclassified from AOCI Other comprehensive income (loss) Balance at March 30, 2018 March 29,
2019 June 29,
2018 $ 174 $ 181 417 417 $ 591 $ 598 (Dollars in millions) April 3,
2020June 28,
2019Dividends payable $ 168 $ 170 Other accrued expenses 449 382 Total accrued expenses $ 617 $ 552 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 $ — $ — $ (4 ) $ (12 ) $ (16 ) — — — (4 ) (4 ) (1 ) — — — (1 ) (1 ) — — (4 ) (5 ) $ (1 ) $ — $ (4 ) $ (16 ) $ (21 ) $ — $ — $ (5 ) $ (12 ) $ (17 ) — — — 9 9 — — — — — — — — 9 9 $ — $ — $ (5 ) $ (3 ) $ (8 ) (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 (27) — 2 (8) (33) Amounts reclassified from AOCI — — — — — Other comprehensive income (loss) (27) — 2 (8) (33) Balance at April 3, 2020 $ (27) $ — $ (18) $ (22) $ (67) Balance at June 29, 2018 $ — $ — $ (4) $ (12) $ (16) Other comprehensive loss before reclassifications — — — (4) (4) Amounts reclassified from AOCI (1) — — — (1) Other comprehensive loss (1) — — (4) (5) Balance at March 29, 2019 $ (1) $ — $ (4) $ (16) $ (21) 3.Debt
three and nine months ended April 3, 2020, the Company repurchased $23 million and $273 million three and nine months ended April 3, 2020, the Company repurchased $17 million and $217 million aggregate principal amount of the 2023 Notes for cash at a discount or at a premium to their principal amount, plus accrued and unpaid interest, respectively, approximately $200 million principal amount of which was repurchased pursuant to the Tender Offers. The Company recorded an immaterial gain and a loss of approximately $10 million on repurchases during the three and nine months ended April 3, 2020, respectively, which is 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 nine months ended April 3, 2020, which was included in Other, net in the Company’s Condensed Consolidated Statements of Operations. STX.Revolving FacilityOn February 20, 2019, the Company terminated its senior unsecured revolving credit facility scheduled to expire on January 15, 2020, under which the Company was able to draw up to $700 million. Upon termination, the Company and itsAgreementnew credit agreement (the “2019 Revolving“Credit Agreement”) on February 20, 2019, which was most recently amended on September 16, 2019. The Credit Facility”) whichAgreement provides the Company with a $1.3an up to $1.5 billion senior unsecured revolving credit facility.facility (“Revolving Credit Facility”) and a term loan facility in an aggregate principal amount of $500 million (“Term Loan”). The term of the 2019 Revolving Credit Facility is throughhas a final maturity of February 20, 2024.2024 and the Term Loan has a final maturity date of September 16, 2025. The loans made under the 2019 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 otherof its material subsidiaries of the Company fully and unconditionally guarantee both the revolving credit facility.Revolving Credit Facility and the Term Loan. The 2019 Revolving Credit Facility also allows the Companysuch facility to increase the facility by up to an aggregate of $300additional $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 thesuch facility receive 0.50% most favored nation protection. An aggregate amount of up to $75 million of the facilityRevolving Credit Facility is available for the issuance of letters of credit, and an aggregate amount of up to $50 million of thesuch facility is also available for swing line loans.2019 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.FacilityAgreement includes three financial covenants: (1) interest coverage ratio, (2) total leverage ratio, and (3) a minimum liquidity amount. The Company was in compliance with the covenants as of March 29, 2019April 3, 2020 and expects to be in compliance for the next 12 months.March 29, 2019, $200 million had beenApril 3, 2020, 0 borrowings were drawn and no letters of credit or swing line loans had been utilized under the 2019 Revolving Credit Facility.$800 million Aggregate Principal Amount of 3.75% Senior Notes due November 2018 (the “2018 Notes”). The Company recorded a loss of approximately $1 million and $3 million on repurchases during the three and nine months ended March 30, 2018, respectively, which is included in Other, net on the Company’s Condensed Consolidated Statements of Operations. On November 15, 2018, the 2018 Notes matured and the Company repaid the entire outstanding principal amount of $499 million, plus accrued and unpaid interest.Company.Company.the Company.Company.the Company.
$500 million Aggregate Principal Amount of 5.75% Senior Notes due December 2034 (the “2034 Notes”). The interest on the 2034 Notes is payable semi-annually on June 1 and December 1 of each year. The issuer under the 2034 Notes is Seagate HDD Cayman, and the obligations under the 2034 Notes are fully and unconditionally guaranteed, on a senior unsecured basis, by the Company.
STX.
Fiscal Year | Amount | |||
Remainder of 2019 | $ | — | ||
2020 | — | |||
2021 | — | |||
2022 | 750 | |||
2023 | 951 | |||
Thereafter | 2,862 | |||
|
| |||
Total | $ | 4,563 | ||
|
| |||
|
| Fiscal Year | Amount | |||||||
| Remainder of 2020 | $ | — | ||||||
| 2021 | 19 | |||||||
| 2022 | 502 | |||||||
| 2023 | 749 | |||||||
| 2024 | 525 | |||||||
| Thereafter | 2,336 | |||||||
| Total | $ | 4,131 | ||||||
During
| (Dollars in millions) | For the Three Months Ended April 3, 2020 | For the Nine Months Ended April 3, 2020 | ||||||||||||
| Operating lease cost | $ | 6 | $ | 17 | ||||||||||
| Variable lease cost | 1 | 3 | ||||||||||||
| Total lease cost | $ | 7 | $ | 20 | ||||||||||
| Operating cash outflows from operating leases | $ | 4 | $ | 13 | ||||||||||
| April 3, 2020 | ||||||||
| Weighted-average remaining lease term | 13.0 years | |||||||
| Weighted-average discount rate | 6.53 | % | ||||||
| (Dollars in millions) | Balance Sheet Location | April 3, 2020 | ||||||||||||
| ROU assets | Other assets, net | $ | 107 | |||||||||||
| Current lease liabilities | Accrued expenses | $ | 14 | |||||||||||
| Non-current lease liabilities | Other non-current liabilities | $ | 51 | |||||||||||
| Fiscal Year | Amount | |||||||
| Remainder of 2020 | $ | 3 | ||||||
| 2021 | 16 | |||||||
| 2022 | 14 | |||||||
| 2023 | 10 | |||||||
| 2024 | 5 | |||||||
| Thereafter | 103 | |||||||
| Total lease payments | 151 | |||||||
| Less: imputed interest | (86) | |||||||
| Present value of lease liabilities | $ | 65 | ||||||
Exit Costs
The Company’s income tax provision recorded for the three and nine months ended March 30, 2018 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. 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.
On December 22, 2017, the Tax Act was enacted into law in the United States. The Tax Act significantly revises U.S. corporate income tax law by, among other things, lowering U.S. corporate income tax rates from 35% to 21%, implementing a territorial tax system, and imposing aone-time transition tax on deemed repatriated earnings ofnon-U.S. subsidiaries.
The U.S. tax law changes, including limitations on various business deductions such as executive compensation under Internal Revenue Code §162(m), will not impact the Company’s tax expense in the short-term due to its large net operating loss and tax credit carryovers and associated valuation allowance. The Tax Act’s new international rules, including Global IntangibleLow-Taxed Income (“GILTI”), Foreign Derived Intangible Income (“FDII”), and Base Erosion Anti-Avoidance Tax (“BEAT”) are effective beginning in fiscal year 2019. For fiscal year 2019, the Company has included these effects of the Tax Act in its fiscal year 2019 financial statements and has concluded the impact will not be material.
As of the fiscal quarter ended September 28, 2018, pursuant to SEC Staff Accounting Bulletin (“SAB”) 118 (regarding the application of ASC 740, Income Taxes (“ASC 740”) associated with the enactment of the Tax Act), the Company had considered SAB 118 and believed its accounting under ASC 740 for the provisions of the Tax Act was complete.
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Goodwill
The changes in the carrying amount of goodwill for the nine months ended March 29, 2019, were as follows:
(Dollars in millions) | Amount | |||
Balance at June 29, 2018 | $ | 1,237 | ||
Goodwill acquired | — | |||
Goodwill disposed | — | |||
Foreign currency translation effect | — | |||
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| |||
Balance at March 29, 2019 | $ | 1,237 | ||
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| |||
Other Intangible Assets
Other 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 Company’s Condensed Consolidated Statements of Operations.
The carrying value of other intangible assets subject to amortization, excluding fully amortized intangible assets, as of March 29, 2019, is set forth in the following table:
(Dollars in millions) | Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | Weighted-Average Remaining Useful Life | ||||||||||||
Existing technology | $ | 237 | $ | (167 | ) | $ | 70 | 2.0 years | ||||||||
Customer relationships | 90 | (53 | ) | 37 | 3.4 years | |||||||||||
Trade name | 17 | (16 | ) | 1 | 0.8 years | |||||||||||
Other intangible assets | 41 | (20 | ) | 21 | 2.9 years | |||||||||||
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Total amortizable other intangible assets | $ | 385 | $ | (256 | ) | $ | 129 | 2.5 years | ||||||||
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The carrying value of other intangible assets subject to amortization, excluding fully amortized intangible assets, as of June 29, 2018, is set forth in the following table:
(Dollars in millions) | Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | Weighted-Average Remaining Useful Life | ||||||||||||
Existing technology | $ | 256 | $ | (145 | ) | $ | 111 | 2.5 years | ||||||||
Customer relationships | 89 | (42 | ) | 47 | 4.0 years | |||||||||||
Trade name | 17 | (13 | ) | 4 | 1.3 years | |||||||||||
Other intangible assets | 45 | (19 | ) | 26 | 3.0 years | |||||||||||
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Total amortizable other intangible assets | $ | 407 | $ | (219 | ) | $ | 188 | 2.9 years | ||||||||
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For the three and nine months ended March 29, 2019, the amortization expense of other intangible assets was $20 million and $59 million, respectively. For the three and nine months ended March 30, 2018, the amortization expense of other intangible assets was $21 million and $90 million, respectively. As of March 29, 2019, expected amortization expense for other intangible assets for each of the next five fiscal years and thereafter was as follows:
(Dollars in millions) | Amount | |||
Remainder of 2019 | $ | 18 | ||
2020 | 57 | |||
2021 | 29 | |||
2022 | 20 | |||
2023 | 5 | |||
Thereafter | — | |||
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Total | $ | 129 | ||
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For the three and nine months ended March 29, 2019, the Company recordedThe Company’s restructuring charges of approximately $11 million and $39 million, respectively,plans are comprised primarily of charges related to workforce reduction costs and facilities and other exit costs associated with the restructuring of its workforce. 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. The December 2017 Plan included reducing the Company’s global headcount by approximately 500 employees. The December 2017 Plan was 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 substantially completed during fiscal year 2018.
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 reduction of the Company’s headcount by approximately 300 employees. The March 2017 Plan was substantially completed by the end of 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 substantially completed during fiscal year 2018.
The following table summarizestables summarize the Company’s restructuring activities under all of the Company’s active restructuring plans for the nine months ended March 29, 2019:
| December 2017 Plan | July 2017 Plan | March 2017 Plan | July 2016 Plan | Other Plans | ||||||||||||||||||||||||||||||||||||||||
(Dollars in millions) | 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 29, 2018 | $ | 5 | $ | 4 | $ | — | $ | 1 | $ | 1 | $ | — | $ | 2 | $ | — | $ | 11 | $ | 18 | $ | 42 | ||||||||||||||||||||||
Restructuring charges | — | 3 | — | — | — | — | — | 4 | 29 | 4 | 40 | |||||||||||||||||||||||||||||||||
Cash payments | (5 | ) | (4 | ) | — | — | — | — | (1 | ) | (4 | ) | (36 | ) | (6 | ) | (56 | ) | ||||||||||||||||||||||||||
Adjustments | — | (1 | ) | — | (1 | ) | — | — | — | — | 1 | — | (1 | ) | ||||||||||||||||||||||||||||||
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| Accrual balances at March 29, 2019 | $ | — | $ | 2 | $ | — | $ | — | $ | 1 | $ | — | $ | 1 | $ | — | $ | 5 | $ | 16 | $ | 25 | ||||||||||||||||||||||
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| Total costs incurred to date as of March 29, 2019 | $ | 26 | $ | 8 | $ | 37 | $ | 3 | $ | 31 | $ | 3 | $ | 82 | $ | 38 | $ | 270 | $ | 63 | $ | 561 | ||||||||||||||||||||||
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| Total expected charges to be incurred as of March 29, 2019 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 1 | $ | — | $ | 1 | ||||||||||||||||||||||
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plans:
| Restructuring 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 | 22 | 1 | 23 | |||||||||||||||||||||||
| Cash payments | (29) | (3) | (32) | |||||||||||||||||||||||
| Adjustments | (4) | — | (4) | |||||||||||||||||||||||
| Accrual balances at April 3, 2020 | $ | 2 | $ | 4 | $ | 6 | ||||||||||||||||||||
| Total costs incurred to date as of April 3, 2020 | $ | 476 | $ | 118 | $ | 594 | ||||||||||||||||||||
| Total expected charges to be incurred as of April 3, 2020 | $ | — | $ | 1 | $ | 1 | ||||||||||||||||||||
| Restructuring Plans | ||||||||||||||||||||||||||
| (Dollars in millions) | Workforce Reduction Costs | Facilities and Other Exit Costs | Total | |||||||||||||||||||||||
| Accrual balances at June 29, 2018 | $ | 19 | $ | 23 | $ | 42 | ||||||||||||||||||||
| Restructuring charges | 29 | 11 | 40 | |||||||||||||||||||||||
| Cash payments | (42) | (14) | (56) | |||||||||||||||||||||||
| Adjustments | 1 | (2) | (1) | |||||||||||||||||||||||
| Accrual balances at March 29, 2019 | $ | 7 | $ | 18 | $ | 25 | ||||||||||||||||||||
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28, 2019. As of April 3, 2020, the amount of existing net losses related to cash flow hedges recorded in Accumulated other comprehensive loss included $6 million that is expected to be reclassified to earnings within twelve months.
Operations.
The following tables show the total notional value of the Company’s outstanding foreign currency forward exchange contracts as of March 29, 2019April 3, 2020 and June 29, 2018.28, 2019. All theseof the foreign currency forward exchange contracts mature within 12 months:
| As of March 29, 2019 | ||||||||
(Dollars in millions) | Contracts Designated as Hedges | Contracts Not Designated as Hedges | ||||||
Thai Baht | $ | — | $ | 19 | ||||
Singapore Dollar | — | 25 | ||||||
Chinese Renminbi | 10 | — | ||||||
British Pound Sterling | 20 | 18 | ||||||
Japanese Yen | 39 | 1,314 | ||||||
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| $ | 69 | $ | 1,376 | |||||
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| As of June 29, 2018 | ||||||||
(Dollars in millions) | Contracts Designated as Hedges | Contracts Not Designated as Hedges | ||||||
Japanese Yen | $ | 66 | $ | 1,310 | ||||
months.
| As of April 3, 2020 | ||||||||||||||||||||
| (Dollars in millions) | Contracts Designated as Hedges | Contracts Not Designated as Hedges | ||||||||||||||||||
| Singapore Dollar | $ | 56 | $ | 52 | ||||||||||||||||
| Chinese Renminbi | — | 10 | ||||||||||||||||||
| British Pound Sterling | 8 | 1 | ||||||||||||||||||
| $ | 64 | $ | 63 | |||||||||||||||||
| As of June 28, 2019 | ||||||||||||||||||||
| (Dollars in millions) | Contracts Designated as Hedges | Contracts Not Designated as Hedges | ||||||||||||||||||
| Singapore Dollar | $ | 60 | $ | 40 | ||||||||||||||||
| Chinese Renminbi | 79 | 20 | ||||||||||||||||||
| British Pound Sterling | 6 | 12 | ||||||||||||||||||
| $ | 145 | $ | 72 | |||||||||||||||||
| As of March 29, 2019 | ||||||||||||||||
| Derivative Assets | Derivative Liabilities | |||||||||||||||
(Dollars in millions) | Balance Sheet Location | Fair Value | Balance Sheet Location | Fair Value | ||||||||||||
Derivatives designated as hedging instruments: | ||||||||||||||||
Foreign currency forward exchange contracts | Other current assets | $ | 1 | Accrued expenses | $ | (1 | ) | |||||||||
Derivatives not designated as hedging instruments: | ||||||||||||||||
Foreign currency forward exchange contracts | Other current assets | 1 | Accrued expenses | (21 | ) | |||||||||||
Total return swap | Other current assets | — | Accrued expenses | — | ||||||||||||
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Total derivatives | $ | 2 | $ | (22 | ) | |||||||||||
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28, 2019:
| As of April 3, 2020 | ||||||||||||||||||||||||||||||||||||||||||||
| Derivative Assets | Derivative Liabilities | |||||||||||||||||||||||||||||||||||||||||||
| (Dollars in millions) | Balance Sheet Location | Fair Value | Balance Sheet Location | Fair Value | ||||||||||||||||||||||||||||||||||||||||
| Derivatives designated as hedging instruments: | ||||||||||||||||||||||||||||||||||||||||||||
| Foreign currency forward exchange contracts | Other current assets | $ | — | Accrued expenses | $ | (2) | ||||||||||||||||||||||||||||||||||||||
| Interest rate swap | Other current assets | — | Accrued expenses | (25) | ||||||||||||||||||||||||||||||||||||||||
| Derivatives not designated as hedging instruments: | ||||||||||||||||||||||||||||||||||||||||||||
| Foreign currency forward exchange contracts | Other current assets | — | Accrued expenses | (3) | ||||||||||||||||||||||||||||||||||||||||
| Total return swap | Other current assets | — | Accrued expenses | (20) | ||||||||||||||||||||||||||||||||||||||||
| Total derivatives | $ | — | $ | (50) | ||||||||||||||||||||||||||||||||||||||||
| As of June 29, 2018 | ||||||||||||||||
| Derivative Assets | Derivative Liabilities | |||||||||||||||
(Dollars in millions) | Balance Sheet Location | Fair Value | Balance Sheet Location | Fair Value | ||||||||||||
Derivatives 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 | 10 | Accrued expenses | — | ||||||||||||
Total return swap | Other current assets | — | Accrued expenses | — | ||||||||||||
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Total derivatives | $ | 10 | $ | — | ||||||||||||
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| As of June 28, 2019 | ||||||||||||||||||||||||||||||||||||||||||||
| Derivative Assets | Derivative Liabilities | |||||||||||||||||||||||||||||||||||||||||||
| (Dollars in millions) | Balance Sheet Location | Fair Value | Balance Sheet Location | Fair Value | ||||||||||||||||||||||||||||||||||||||||
| Derivatives 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) | ||||||||||||||||||||||||||||||||||||||||
(Dollars in millions) Derivatives Not Designated as Hedging Instruments | Location of Gain/ (Loss) Recognized in Income on Derivatives | Amount of Gain/ (Loss) Recognized in Income on Derivatives | ||||||||
| For the Three Months | For the Nine Months | |||||||||
Foreign currency forward exchange contracts | Other, net | $ | 10 | $ | 38 | |||||
Total return swap | Operating expenses | $ | 11 | $ | — | |||||
(Dollars in millions) Derivatives Designated as Hedging Instruments | 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 Nine Months | For the Three Months | For the Nine Months | For the Three Months | For the Nine Months | |||||||||||||||||||||||||||
Foreign currency forward exchange contracts | $ | 1 | $ | — | Other expense, net | $ | (1 | ) | $ | 1 | Other expense, net | $ | — | $ | 1 | |||||||||||||||||
AsApril 3, 2020:
| Location of Gain/ (Loss) Recognized in Income on Derivatives | Amount of Gain/ (Loss) Recognized in Income on Derivatives | |||||||||||||||||||||||||
(Dollars in millions) Derivatives Not Designated as Hedging Instruments | For the Three Months | For the Nine Months | ||||||||||||||||||||||||
| Foreign currency forward exchange contracts | Other, net | $ | (3) | $ | (5) | |||||||||||||||||||||
| Total return swap | Operating expenses | (23) | (16) | |||||||||||||||||||||||
(Dollars in millions) Derivatives Designated as Hedging Instruments | 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 Nine Months | For the Three Months | For the Nine Months | For the Three Months | For the Nine Months | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Foreign currency forward exchange contracts | $ | (2) | $ | (2) | Other expense, net | $ | — | $ | (1) | Other expense, net | $ | — | $ | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Interest rate swap | (27) | (25) | Other expense, net | 1 | 1 | Other expense, net | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
(Dollars in millions) Derivatives Not Designated as Hedging Instruments | Location of Gain/ (Loss) Recognized in Income on Derivatives | Amount of Gain/ (Loss) Recognized in Income on Derivatives | ||||||||
| For the Three Months | For the Nine Months | |||||||||
Foreign currency forward exchange contracts | Other, net | $ | — | $ | — | |||||
Total return swap | Operating expenses | $ | (2 | ) | $ | 5 | ||||
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| Location of Gain/ (Loss) Recognized in Income on Derivatives | Amount of Gain/ (Loss) Recognized in Income on Derivatives | |||||||||||||||||||||||||
(Dollars in millions) Derivatives Not Designated as Hedging Instruments | For the Three Months | For the Nine Months | ||||||||||||||||||||||||
| Foreign currency forward exchange contracts | Other, net | $ | 10 | $ | 38 | |||||||||||||||||||||
| Total return swap | Operating expenses | $ | 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) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
(Dollars in millions) Derivatives Designated as Hedging Instruments | For the Three Months | For the Nine Months | For the Three Months | For the Nine Months | For the Three Months | For the Nine Months | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Foreign currency forward exchange contracts | $ | 1 | $ | — | Other expense, net | $ | (1) | $ | 1 | Other expense, net | $ | — | $ | 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 Balance | ||||||||||||
Assets: | ||||||||||||||||
Money market funds | $ | 238 | $ | — | $ | — | $ | 238 | ||||||||
Time deposits and certificates of deposit | — | 298 | — | 298 | ||||||||||||
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Total cash equivalents | 238 | 298 | — | 536 | ||||||||||||
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Restricted cash and investments: | ||||||||||||||||
Money market funds | 1 | — | — | 1 | ||||||||||||
Time deposits and certificates of deposit | — | 2 | — | 2 | ||||||||||||
Derivative Assets | — | 2 | — | 2 | ||||||||||||
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Total assets | $ | 239 | $ | 302 | $ | — | $ | 541 | ||||||||
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Liabilities: | ||||||||||||||||
Derivative liabilities | $ | — | $ | 22 | $ | — | $ | 22 | ||||||||
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Total liabilities | $ | — | $ | 22 | $ | — | $ | 22 | ||||||||
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April 3, 2020:
| 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 Balance | ||||||||||||||||||||||||||||||||||||||||
| Assets: | ||||||||||||||||||||||||||||||||||||||||||||
| Money market funds | $ | 351 | $ | — | $ | — | $ | 351 | ||||||||||||||||||||||||||||||||||||
| Time deposits and certificates of deposit | — | 254 | — | 254 | ||||||||||||||||||||||||||||||||||||||||
| Total cash equivalents | 351 | 254 | — | 605 | ||||||||||||||||||||||||||||||||||||||||
| Restricted cash and investments: | ||||||||||||||||||||||||||||||||||||||||||||
| Money market funds | 1 | — | — | 1 | ||||||||||||||||||||||||||||||||||||||||
| Time deposits and certificates of deposit | — | 1 | 1 | |||||||||||||||||||||||||||||||||||||||||
| Other debt securities | — | — | 18 | 18 | ||||||||||||||||||||||||||||||||||||||||
| Total assets | $ | 352 | $ | 255 | $ | 18 | $ | 625 | ||||||||||||||||||||||||||||||||||||
| Liabilities: | ||||||||||||||||||||||||||||||||||||||||||||
| Derivative liabilities | $ | — | $ | 50 | $ | — | $ | 50 | ||||||||||||||||||||||||||||||||||||
| Total liabilities | $ | — | $ | 50 | $ | — | $ | 50 | ||||||||||||||||||||||||||||||||||||
| 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 Balance | ||||||||||||
Assets: | ||||||||||||||||
Cash and cash equivalents | $ | 238 | $ | 298 | $ | — | $ | 536 | ||||||||
Other current assets | 1 | 4 | — | 5 | ||||||||||||
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Total assets | $ | 239 | $ | 302 | $ | — | $ | 541 | ||||||||
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Liabilities: | ||||||||||||||||
Accrued expenses | $ | — | $ | 22 | $ | — | $ | 22 | ||||||||
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Total liabilities | $ | — | $ | 22 | $ | — | $ | 22 | ||||||||
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| |||||||||
| 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 Balance | ||||||||||||||||||||||||||||||||||||||||
| Assets: | ||||||||||||||||||||||||||||||||||||||||||||
| Cash and cash equivalents | $ | 351 | $ | 254 | $ | — | $ | 605 | ||||||||||||||||||||||||||||||||||||
| Other current assets | 1 | 1 | — | 2 | ||||||||||||||||||||||||||||||||||||||||
| Other assets, net | — | — | 18 | 18 | ||||||||||||||||||||||||||||||||||||||||
| Total assets | $ | 352 | $ | 255 | $ | 18 | $ | 625 | ||||||||||||||||||||||||||||||||||||
| Liabilities: | ||||||||||||||||||||||||||||||||||||||||||||
| Accrued expenses | $ | — | $ | 50 | $ | — | $ | 50 | ||||||||||||||||||||||||||||||||||||
| Total liabilities | $ | — | $ | 50 | $ | — | $ | 50 | ||||||||||||||||||||||||||||||||||||
| 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 Balance | ||||||||||||
Assets: | ||||||||||||||||
Money market funds | $ | 620 | $ | — | $ | — | $ | 620 | ||||||||
Time deposits and certificates of deposit | — | 392 | — | 392 | ||||||||||||
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| |||||||||
Total cash equivalents | 620 | 392 | — | 1,012 | ||||||||||||
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| |||||||||
Restricted cash and investments: | ||||||||||||||||
Money market funds | 1 | — | — | 1 | ||||||||||||
Time deposits and certificates of deposit | — | 3 | — | 3 | ||||||||||||
Derivative assets | — | 10 | — | 10 | ||||||||||||
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| |||||||||
Total assets | $ | 621 | $ | 405 | $ | — | $ | 1,026 | ||||||||
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| |||||||||
| 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 Balance | ||||||||||||
Assets: | ||||||||||||||||
Cash and cash equivalents | $ | 620 | $ | 392 | $ | — | $ | 1,012 | ||||||||
Other current assets | 1 | 13 | — | 14 | ||||||||||||
|
|
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|
|
|
|
| |||||||||
Total assets | $ | 621 | $ | 405 | $ | — | $ | 1,026 | ||||||||
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| |||||||||
28, 2019:
| 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 Balance | ||||||||||||||||||||||||||||||||||||||||
| Assets: | ||||||||||||||||||||||||||||||||||||||||||||
| 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 Balance | ||||||||||||||||||||||||||||||||||||||||
| Assets: | ||||||||||||||||||||||||||||||||||||||||||||
| 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 | ||||||||||||||||||||||||||||||||||||
The Company classifies items in Level 2 if the financial asset or liability is valued using observable inputs. The Company uses observable inputs including quoted prices in active markets for similar assets or liabilities. Level 2 assets include: agency bonds, corporate bonds, commercial paper, municipal bonds, U.S. Treasuries, time deposits and certificates of deposit. These debt investments are priced using observable inputs and valuation models which vary by asset class. The Company uses a pricing service to assist in determining the fair value of all of its cash equivalents and short-term investments.equivalents. 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 March 29, 2019,April 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 March 29, 2019 and June 29, 2018, the Company had no Level 3 assets or liabilities measured at fair value on a recurring basis.
investments. properties. As of April 3, 2020, the Company had 0 held for sale land or buildings.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.Prior to fiscal year 2019, the Company’s strategic investments in privately-held companies without readily determinable fair values were accounted for under the cost method and were recorded at historical cost at the time of investment, with adjustments to the balance only in the event of impairment. Effective June 30, 2018, the Company adopted ASU2016-01, Financial Instruments, which changed the way the Company accounts for equity investments, excluding investments that qualify for the equity method of accounting. The Company’s equity investments in privately-held companies without readily determinable fair values are now measured using the measurement alternative, defined by ASC 321,Investments — Equity Securities, as cost, less impairments, and adjusted up or down based on observable price changes in orderly transactions for identical or similar investments of the same issuer. Any adjustments resulting from impairments and/or observable price changes are recorded as Other, net in the Company’s Condensed Consolidated Statements of Operations.March 29, 2019April 3, 2020 and June 29, 2018,28, 2019, the carrying value of the Company’s strategic investments were $118 million.was $160 million and $114 million, respectively. Our strategic investments are recorded at fair value only if an impairment or observable price adjustment is recognized in the current period. If an observable price adjustment or impairment is recognized on our strategic investments during the period, the Company classifies these assets as Level 3 within the fair value hierarchy based on the nature of the fair value inputs. For the three andmonths ended April 3, 2020 there were 0 upward or downward adjustments on equity investments. For the nine months ended March 30, 2018,April 3, 2020, the Company determined that a certain equity investment accounted for under the cost method was other-than-temporarily impaired and recorded a chargedownward adjustment of $3$1 million in order to write down the carrying valueamount of thean investment to its fair value. This amount was recorded in Other, net in the Condensed Consolidated Statements of Operations. For the three and nine months ended March 29, 2019, there were no 0 upward or downward adjustments on equity investments as a result of adoption of the measurement alternative during the September 2018 quarter.March 29,June 28, 2019, and June 29, 2018, the Company had $52$23 million and $26 million, respectively, of heldheld for sale land and building (collectively, the “properties”) included in Other current assets on its Condensed Consolidated Balance Sheets. Of the balance as of March 29,In July 2019, $24 million and $28 million are located in Asia and in the Americas, respectively. Depreciation related to the properties ceased as of the date these were determined to be held for sale. During the September 2018 quarter, the Company accepted an offer to sell the property in Asia to a third party and thereafter, recorded an impairment charge of approximately $2 million for the nine months ended March 29, 2019. The impairment charge was recorded in Restructuring and other, net in the Company’s Condensed Consolidated Statement of Operations. No impairment was identified for the three months ended March 29, 2019 and for the three and nine months ended March 30, 2018. The sale of the properties are expected to be completed by the end of fiscal year 2019, subject to customary closing conditions for both properties and government approval for the sale of the property in Asia.The Company’s investment in a debt security, classifiedas held-to-maturity, represents sharesof non-convertible preferred stock of TMC. This debt security has a maturity date of six years starting from May 31, 2018 and is classified as Investment in debt security on the Company’s Condensed Consolidated Balance Sheets. The debt security is recorded at amortized cost and its fair value approximated the carrying value at June 29, 2018. As of March 29, 2019, the fair value of this investment was $1,322 million with an unrealized gain of $4 million on the carrying value of $1,318 million. There was no other-than-temporary impairment identified for the three and nine months ended March 29, 2019. The fair value was determined utilizing Level 2 inputs such as discount rates and yield terms of similar types of securities issued by comparable companies.
The Company’s debt is carried at amortized cost. The estimated fair value of the Company’s debt is derived using the closing price of the same debt instruments as of the date of valuation, which takes into account the yield curve, interest rates and other observable inputs. Accordingly, these fair value measurements are categorized as Level 2. The following table presents the fair value and amortized cost of the Company’s debt:
| March 29, 2019 | June 29, 2018 | |||||||||||||||
(Dollars in millions) | Carrying Amount | Estimated Fair Value | Carrying Amount | Estimated Fair Value | ||||||||||||
3.75% Senior Notes due November 2018 | $ | — | $ | — | $ | 499 | $ | 501 | ||||||||
4.25% Senior Notes due March 2022 | 749 | 755 | 749 | 743 | ||||||||||||
4.75% Senior Notes due June 2023 | 951 | 962 | 951 | 942 | ||||||||||||
4.875% Senior Notes due March 2024 | 498 | 501 | 497 | 489 | ||||||||||||
4.75% Senior Notes due January 2025 | 975 | 949 | 975 | 936 | ||||||||||||
4.875% Senior Notes due June 2027 | 695 | 668 | 695 | 650 | ||||||||||||
5.75% Senior Notes due December 2034 | 489 | 450 | 489 | 441 | ||||||||||||
LIBOR based 2019 Revolving Credit Facility due February 2024 | 200 | 200 | — | — | ||||||||||||
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| |||||||||
| $ | 4,557 | $ | 4,485 | $ | 4,855 | $ | 4,702 | |||||||||
Less: debt issuance costs | (35 | ) | — | (36 | ) | — | ||||||||||
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| |||||||||
Long-term debt, net of debt issuance costs | $ | 4,522 | $ | 4,485 | $ | 4,819 | $ | 4,702 | ||||||||
Less: current portion of long-term debt, net of debt issuance costs | — | — | (499 | ) | (501 | ) | ||||||||||
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| |||||||||
Long-term debt, less current portion | $ | 4,522 | $ | 4,485 | $ | 4,320 | $ | 4,201 | ||||||||
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| |||||||||
| April 3, 2020 | June 28, 2019 | |||||||||||||||||||||||||||||||||||||
| (Dollars in millions) | Carrying Amount | Estimated Fair Value | Carrying Amount | Estimated Fair Value | ||||||||||||||||||||||||||||||||||
| 4.25% Senior Notes due Mar 2022 | $ | 477 | $ | 475 | $ | 749 | $ | 763 | ||||||||||||||||||||||||||||||
| 4.75% Senior Notes due June 2023 | 724 | 722 | 941 | 973 | ||||||||||||||||||||||||||||||||||
| 4.875% Senior Notes due Mar 2024 | 498 | 497 | 498 | 514 | ||||||||||||||||||||||||||||||||||
| 4.75% Senior Notes due January 2025 | 750 | 732 | 920 | 929 | ||||||||||||||||||||||||||||||||||
| 4.875% Senior Notes due June 2027 | 689 | 668 | 689 | 688 | ||||||||||||||||||||||||||||||||||
| 5.75% Senior Notes due December 2034 | 489 | 438 | 489 | 482 | ||||||||||||||||||||||||||||||||||
| LIBOR based Term Loan due September 2025 | 500 | 467 | — | — | ||||||||||||||||||||||||||||||||||
| 4,127 | 3,999 | 4,286 | 4,349 | |||||||||||||||||||||||||||||||||||
| Less: debt issuance costs | (24) | — | (33) | — | ||||||||||||||||||||||||||||||||||
| Debt, net of debt issuance costs | 4,103 | 3,999 | 4,253 | 4,349 | ||||||||||||||||||||||||||||||||||
| Less: current portion of long-term debt | (12) | (12) | — | — | ||||||||||||||||||||||||||||||||||
| Long-term debt, less current portion, net of debt issuance costs | $ | 4,091 | $ | 3,987 | $ | 4,253 | $ | 4,349 | ||||||||||||||||||||||||||||||
|
April 3, 2020. (In millions) Repurchases of ordinary shares Tax withholding related to vesting of equity awards Total April 3, 2020:isis $13,500 and consists of 1,250,000,000 ordinary shares, par value $0.00001, of which 276,834,237257,352,218 shares were outstanding as of March 29, 2019, April 3, 2020, and 100,000,000 preferred shares, par value $0.00001, of which noneNaN were issued or outstanding as of March 29, 2019. – —Holders of ordinary shares are entitled to receive dividends as and when declared by the 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. – —The Company may issue preferred shares in 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.Articles of Association.On October 29, 2018, the Company’s Board of Directors authorized the repurchase of an additional $2.3 billion of its outstanding ordinary shares. Constitution.March 29, 2019, $2.5April 3, 2020, $1.3 billion remained available for repurchase under the existing repurchase authorization limit.the Company’sordinary shares during the nine months ended March 29, 2019: Number of
Shares
Repurchased Dollar Value of Shares
Repurchased 13 $ 613 1 30 14 $ 643 (In millions) Number of Shares Repurchased Dollar Value of Shares Repurchased Repurchases of ordinary shares 17 $ 811 Tax withholding related to vesting of equity awards 1 39 Total 18 $ 850 10.Revenue
| For the Three Months Ended | For the Nine Months Ended | |||||||||||||||||||||||||||||||||||||
| (Dollars in millions) | April 3, 2020 | March 29, 2019 | April 3, 2020 | March 29, 2019 | ||||||||||||||||||||||||||||||||||
| Revenues by Channel | ||||||||||||||||||||||||||||||||||||||
| OEMs | $ | 1,970 | $ | 1,568 | $ | 5,633 | $ | 5,571 | ||||||||||||||||||||||||||||||
| Distributors | 465 | 411 | 1,389 | 1,388 | ||||||||||||||||||||||||||||||||||
| Retailers | 283 | 334 | 970 | 1,060 | ||||||||||||||||||||||||||||||||||
| Total | $ | 2,718 | $ | 2,313 | $ | 7,992 | $ | 8,019 | ||||||||||||||||||||||||||||||
Revenues by Geography (1) | ||||||||||||||||||||||||||||||||||||||
| Asia Pacific | $ | 1,257 | $ | 1,069 | $ | 3,912 | $ | 3,923 | ||||||||||||||||||||||||||||||
| Americas | 938 | 796 | 2,534 | 2,533 | ||||||||||||||||||||||||||||||||||
| EMEA | 523 | 448 | 1,546 | 1,563 | ||||||||||||||||||||||||||||||||||
| Total | $ | 2,718 | $ | 2,313 | $ | 7,992 | $ | 8,019 | ||||||||||||||||||||||||||||||
| For the Three Months Ended | For the Nine Months Ended | |||||||||||||||
(Dollars in millions) | March 29, 2019 | March 30, 2018 | March 29, 2019 | March 30, 2018 | ||||||||||||
Revenues by Channel | ||||||||||||||||
OEMs | $ | 1,568 | $ | 1,971 | $ | 5,571 | $ | 5,801 | ||||||||
Distributors | 411 | 477 | 1,388 | 1,406 | ||||||||||||
Retailers | 334 | 355 | 1,060 | 1,142 | ||||||||||||
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Total | $ | 2,313 | $ | 2,803 | $ | 8,019 | $ | 8,349 | ||||||||
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Revenues by Geography(1) | ||||||||||||||||
Americas | $ | 796 | $ | 912 | $ | 2,533 | $ | 2,700 | ||||||||
EMEA | 448 | 522 | 1,563 | 1,561 | ||||||||||||
Asia Pacific | 1,069 | 1,369 | 3,923 | 4,088 | ||||||||||||
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Total | $ | 2,313 | $ | 2,803 | $ | 8,019 | $ | 8,349 | ||||||||
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The Company recorded approximately $28 million and $73 million of share-based compensation expense during the three and nine months ended March 29, 2019, respectively. The Company recorded approximately $26 million and $85 million of share-based compensation expense during the three and nine months ended March 30, 2018, respectively.
|
On May 4, 2009, , then and wholly-owned subsidiary of STX, from time to time enters into indemnification agreements with the parent company, entered into a new formdirectors, officers, employees and agents of indemnification agreement (the “Revised Indemnification Agreement”) with its officers and directorsSTX or any of Seagate-Cayman and its subsidiaries (each, an “Indemnitee”). The Revised Indemnification Agreement providesindemnification agreements provide indemnification in addition to any of Indemnitee’s indemnification rights under Seagate-Cayman’sany relevant Articles of Association (or similar constitutional document), applicable law or otherwise, and indemnifies an Indemnitee for certain expenses (including attorneys’ fees), judgments, fines and settlement amounts actually and reasonably incurred by him or her in any action or proceeding, including any action by or in the right of Seagate-CaymanSTX or any of its subsidiaries, arising out of his or her service as a director, officer, employee or agent of Seagate-CaymanSTX or any of its subsidiaries or of any other entity to which he or she provides services at Seagate-Cayman’sthe Company’s request. However, an Indemnitee shallIndemnitees are not be indemnified under the Revised Indemnification Agreementindemnification agreements for (i) any fraud or dishonesty in the performance of Indemnitee’s duty to Seagate-CaymanSTX or the applicable subsidiary of Seagate-Cayman or (ii) Indemnitee’s conscious, intentional or willful failure to act honestly, lawfully and in good faith with a view to the best interests of Seagate-Cayman or the applicable subsidiary of Seagate-Cayman.Company. In addition, the Revised Indemnification Agreement providesindemnification agreements provide that Seagate-Cayman will advance expenses incurred by an Indemnitee in connection with enforcement of the Revised Indemnification Agreementindemnification agreement or with the investigation, settlement or appeal of any action or proceeding against him or her as to which he or she could be indemnified.
On July 3, 2010, pursuant to a corporate reorganization, the common shareholders of Seagate-Cayman became ordinary shareholders of the Company and Seagate-Cayman became a wholly owned subsidiary of the Company, as described more fully in the Current Report onForm 8-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 indemnification rights of a Deed Indemnitee under the Company’s Articles of Association, applicable law or otherwise, with a similar scope to the Revised Indemnification Agreement. Seagate-Cayman entered into Deeds of Indemnity with certain Deed Indemnitees effective as of July 3, 2010 and continues to enter into Deeds of Indemnity with additional Deed Indemnitees from time to time.
The nature of these indemnification obligations prevents the Company from making a reasonable estimate of the maximum potential amount it could be required to pay on behalf of its officers and directors. Historically, the Company has not made any significant indemnification payments under such agreements and no0 amount has been accrued in the Company’s condensed consolidated financial statements with respect to these indemnification obligations.
(Dollars in millions) Balance, beginning of period Warranties issued Repairs and replacements Changes in liability forpre-existing warranties, including expirations Balance, end of period Intellectual Property has enteredfrom time to time enters into agreements with customers, suppliers, partners and suppliersothers in the ordinary course of business that includeprovide indemnification for certain matters including, but not limited to, intellectual property indemnification obligations that are customary in the industry. These guarantees generally require the Company to compensate the other party for certain damagesinfringement claims, environmental claims and costs incurred as a resultbreach of third party intellectual property claims arising from these transactions.agreement claims. The nature of the intellectual propertyCompany’s indemnification obligations prevents the Company from making a reasonable estimate of the maximum potential amount it could be required to pay to its customers and suppliers.pay. Historically, the Company has not made any significant indemnification payments under such agreements and no0 amount has been accrued in the Company’s condensed consolidated financial statements with respect to these indemnification obligations.three and nine months ended April 3, 2020 and March 29, 2019 and March 30, 2018 were as follows: For the Three Months Ended For the Nine Months Ended March 29,
2019 March 30,
2018 March 29,
2019 March 30,
2018 $ 222 $ 236 $ 237 $ 233 24 36 89 111 (23 ) (26 ) (75 ) (80 ) (11 ) (11 ) (39 ) (29 ) $ 212 $ 235 $ 212 $ 235 For the Nine Months Ended (Dollars in millions) April 3,
2020March 29,
2019Balance, beginning of period $ 195 $ 237 Warranties issued 67 89 Repairs and replacements (65) (75) Changes in liability for pre-existing warranties, including expirations (34) (39) Balance, end of period $ 163 $ 212 13.Earnings Per Share
| For the Three Months Ended | For the Nine Months Ended | |||||||||||||||
(In millions, except per share data) | March 29, 2019 | March 30, 2018 | March 29, 2019 | March 30, 2018 | ||||||||||||
| Numerator: | ||||||||||||||||
Net income | $ | 195 | $ | 381 | $ | 1,029 | $ | 721 | ||||||||
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| Number of shares used in per share calculations: | ||||||||||||||||
Total shares for purposes of calculating basic net income per share | 281 | 286 | 284 | 288 | ||||||||||||
Weighted-average effect of dilutive securities: | ||||||||||||||||
Employee equity award plans | 3 | 5 | 4 | 3 | ||||||||||||
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Total shares for purpose of calculating diluted net income per share | 284 | 291 | 288 | 291 | ||||||||||||
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| Net income per share: | ||||||||||||||||
Basic | $ | 0.69 | $ | 1.33 | $ | 3.62 | $ | 2.50 | ||||||||
Diluted | $ | 0.69 | $ | 1.31 | $ | 3.57 | $ | 2.48 | ||||||||
| For the Three Months Ended | For the Nine Months Ended | |||||||||||||||||||||||||||||||||||||
| (In millions, except per share data) | April 3, 2020 | March 29, 2019 | April 3, 2020 | March 29, 2019 | ||||||||||||||||||||||||||||||||||
| Numerator: | ||||||||||||||||||||||||||||||||||||||
| Net income | $ | 320 | $ | 195 | $ | 838 | $ | 1,029 | ||||||||||||||||||||||||||||||
| Number of shares used in per share calculations: | ||||||||||||||||||||||||||||||||||||||
| Total shares for purposes of calculating basic net income per share | 261 | 281 | 263 | 284 | ||||||||||||||||||||||||||||||||||
| Weighted-average effect of dilutive securities: | ||||||||||||||||||||||||||||||||||||||
| Employee equity award plans | 2 | 3 | 3 | 4 | ||||||||||||||||||||||||||||||||||
| Total shares for purpose of calculating diluted net income per share | 263 | 284 | 266 | 288 | ||||||||||||||||||||||||||||||||||
| Net income per share: | ||||||||||||||||||||||||||||||||||||||
| Basic | $ | 1.23 | $ | 0.69 | $ | 3.19 | $ | 3.62 | ||||||||||||||||||||||||||||||
| Diluted | 1.22 | 0.69 | 3.15 | 3.57 | ||||||||||||||||||||||||||||||||||
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Other Contingencies
Intellectual Property
On August 16, 2011, the district court granted in part and denied in part the Company’s motion for summary judgment. On July 1, 2013, the U.S. Court of Appeals for the Federal Circuit: 1) affirmed the district court’s summary judgment rulings that Seagatethe Company did not misappropriate any of the alleged trade secrets and that the asserted claims of the ‘635 patent are invalid; 2) reversed and vacated the district court’s summary judgmentof non-infringement with respect to the ‘473 patent; and 3) remanded the case for further proceedings on the ‘473 patent. On July 11, 2014, the district court granted the Company’s further summary judgment motion regarding the ‘473 patent. On February 10, 2016, the U.S. Court of Appeals for the Federal Circuit: 1) affirmed the district court’s summary judgment of no direct infringement by Seagatethe Company because Seagate’sthe Company’s ATA/SCSI disk drives do not meet the “user interface” limitation of the asserted claims of the ‘473 patent; 2) affirmed the district court’s summary judgmentof non-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.
NoA jury trial date has been set.in this matter was previously scheduled to begin on June 1, 2020. On April 20, 2020, the court scheduled the jury trial for November 30, 2020. While the possible range of loss for this matter remains uncertain, the Company estimates the amount of loss to be immaterial to the financial statements.United States,U.S., Canada, Mexico, Taiwan, China, Japan and others. The European UnionEU REACH Directive (Registration, Evaluation, Authorization, and Restriction of Chemicals, EC 1907/2006) also restricts substances of very high concern (“SVHCs”) in products. If the Company or its suppliers fails to comply with the substance restrictions, recycle requirements or other environmental requirements as they are enacted worldwide, it could have a materially adverse effect on the Company’s business.
Other Matters
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Unconditional Long-term Purchase Obligations
As of March 29, 2019,
Unconditional Long-term Capital Expenditures
As of March 29, 2019, the Company had $16 million of unconditional long-term commitment primarily related to purchases of equipment.
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Dividend Declared
On April 30, 2019, the Company’sCom
24, 2020
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Some of the statements and assumptions included in this
•the uncertainty in global economic and political conditions;
•the development and introduction of products based on new technologies and expansion into new data storage markets;
•the impact of competitive product announcements and unexpected advances in competing technologies or changes in market trends;
•the impact of variable demand, changes in market demand, and an adverse pricing environment for storage products;
the Company’s ability to achieve projected cost savings in connection with its restructuring plans and consolidation of its manufacturing activities;
•the Company’s ability to effectively manage its debt obligations and comply with certain covenants in its credit facilities with respect to financial ratios and financial condition tests and its ability to maintain a favorable cash liquidity position;
•the Company’s ability to successfully qualify, manufacture and sell its storage products particularly the new disk drive products with lower cost structures, in increasing volumes on a cost-effective basis and with acceptable quality;
possible excess industry supply both with respect to particular disk drive products•any price erosion or volatility of sales volumes through the Company’s distributor and competing alternative storage technology solutions;
•the effects of the outbreak of COVID-19 and related individual, business and government responses on the global economy and their impact on the Company’s business, operations and financial results;
consolidation trends in the data storage industry;
fluctuations in interest rates;
•currency fluctuations that may impact the Company’s margins, international sales and results of operations;
fluctuations in the value of the Company’s investments and the associated investment income;
•the impact of trade barriers, such as import/export duties and restrictions, tariffs and quotas, imposed by the U.S. or other countries in which the Company conducts business;
•the evolving legal and regulatory, economic, environmental and administrative climate in the international markets where the Company operates including changes in regulations relating to privacyoperates; and protection of data and environmental matters; and
•cyber-attacks or other data breaches that disrupt the Company’s operations or result in the dissemination of proprietary or confidential information and cause reputational harm,harm.
Information concerningother risks, uncertainties and other factors, among others, that could cause results to differ materially from those projectedour expectations are described in such forward-looking statements is also set forththis Quarterly Report on Form 10-Q, including in Part II, Item 1A of this Quarterly Report, and in “Item 1A. Risk Factors” of our Annual Reporton Form 10-K for the fiscal year ended June 29, 2018,28, 2019, which we encourage you to carefully read. These forward-looking statements should not be relied upon as representing our views as of any date subsequent to the date on which they were made and we undertake no obligation to update forward-looking statements to reflect new information or future events or circumstances after the date they were made.
except as required by law.
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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 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, and most SSDs use NAND flash memory.
Our HDD products are designed for mission critical and nearline applications in enterprise servers and storage systems; edge compute applications, where our products are designed primarily for desktop and mobile computing; and edgenon-compute applications, where our products are designed for a wide variety of end user devices such as portable external storage systems, surveillance systems, digital video recorders (“DVRs”), network-attached storage (“NAS”) and gaming consoles. Our SSD products mainly include serial attached SCSI (“SAS”) andNon-Volatile Memory Express (“NVMe”) SSDs.
Our enterprise data solutions (formerly referred to as the “cloud systems and solutions”) portfolio includes modular original equipment manufacturer (“OEM”) storage systemsand scale-out storage servers.
and the March 2019 quarter.
COVID-19 pandemic. For a further discussion of the uncertainties and business risks associated with the COVID-19 pandemic, see the section entitled “Risk Factors” in Part II, Item 1A of this Quarterly Report.
| For the Three Months Ended | For the Nine Months Ended | |||||||||||||||||||
(Dollars in millions) | March 29, 2019 | December 28, 2018 | March 30, 2018 | March 29, 2019 | March 30, 2018 | |||||||||||||||
Revenue | $ | 2,313 | $ | 2,715 | $ | 2,803 | $ | 8,019 | $ | 8,349 | ||||||||||
Cost of revenue | 1,712 | 1,921 | 1,956 | 5,711 | 5,889 | |||||||||||||||
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Gross margin | 601 | 794 | 847 | 2,308 | 2,460 | |||||||||||||||
Product development | 238 | 246 | 254 | 750 | 767 | |||||||||||||||
Marketing and administrative | 110 | 120 | 135 | 345 | 422 | |||||||||||||||
Amortization of intangibles | 6 | 5 | 6 | 17 | 47 | |||||||||||||||
Restructuring and other, net | 11 | 7 | 11 | 41 | 95 | |||||||||||||||
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Income from operations | 236 | 416 | 441 | 1,155 | 1,129 | |||||||||||||||
Other expense, net | (21 | ) | (18 | ) | (48 | ) | (74 | ) | (177 | ) | ||||||||||
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Income before income taxes | 215 | 398 | 393 | 1,081 | 952 | |||||||||||||||
Provision for income taxes | 20 | 14 | 12 | 52 | 231 | |||||||||||||||
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Net income | $ | 195 | $ | 384 | $ | 381 | $ | 1,029 | $ | 721 | ||||||||||
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| For the Three Months Ended | For the Nine Months Ended | |||||||||||||||||||
| March 29, 2019 | December 28, 2018 | March 30, 2018 | March 29, 2019 | March 30, 2018 | ||||||||||||||||
Revenue | 100% | 100% | 100% | 100% | 100% | |||||||||||||||
Cost of revenue | 74 | 71 | 70 | 71 | 71 | |||||||||||||||
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Gross margin | 26 | 29 | 30 | 29 | 29 | |||||||||||||||
Product development | 10 | 9 | 9 | 9 | 9 | |||||||||||||||
Marketing and administrative | 5 | 5 | 5 | 4 | 5 | |||||||||||||||
Amortization of intangibles | — | — | — | — | 1 | |||||||||||||||
Restructuring and other, net | 1 | — | — | 1 | 1 | |||||||||||||||
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Income from operations | 10 | 15 | 16 | 15 | 13 | |||||||||||||||
Other expense, net | (1) | (1) | (2) | (1) | (2) | |||||||||||||||
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Income before income taxes | 9 | 14 | 14 | 14 | 11 | |||||||||||||||
Provision for income taxes | 1 | — | — | 1 | 2 | |||||||||||||||
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Net income | 8% | 14% | 14% | 13% | 9% | |||||||||||||||
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| (Dollars in millions) | April 3, 2020 | January 3, 2020 | March 29, 2019 | April 3, 2020 | March 29, 2019 | |||||||||||||||||||||||||||||||||||||||||||||
| Revenue | $ | 2,718 | $ | 2,696 | $ | 2,313 | $ | 7,992 | $ | 8,019 | ||||||||||||||||||||||||||||||||||||||||
| Cost of revenue | 1,972 | 1,938 | 1,712 | 5,817 | 5,711 | |||||||||||||||||||||||||||||||||||||||||||||
| Gross margin | 746 | 758 | 601 | 2,175 | 2,308 | |||||||||||||||||||||||||||||||||||||||||||||
| Product development | 246 | 250 | 238 | 751 | 750 | |||||||||||||||||||||||||||||||||||||||||||||
| Marketing and administrative | 119 | 120 | 110 | 361 | 345 | |||||||||||||||||||||||||||||||||||||||||||||
| Amortization of intangibles | 3 | 4 | 6 | 11 | 17 | |||||||||||||||||||||||||||||||||||||||||||||
| Restructuring and other, net | 2 | — | 11 | 19 | 41 | |||||||||||||||||||||||||||||||||||||||||||||
| Income from operations | 376 | 384 | 236 | 1,033 | 1,155 | |||||||||||||||||||||||||||||||||||||||||||||
| Other expense, net | (38) | (48) | (21) | (161) | (74) | |||||||||||||||||||||||||||||||||||||||||||||
| Income before income taxes | 338 | 336 | 215 | 872 | 1,081 | |||||||||||||||||||||||||||||||||||||||||||||
| Provision for income taxes | 18 | 18 | 20 | 34 | 52 | |||||||||||||||||||||||||||||||||||||||||||||
| Net income | $ | 320 | $ | 318 | $ | 195 | $ | 838 | $ | 1,029 | ||||||||||||||||||||||||||||||||||||||||
March 29, December 28, March 30, March 29, March 30, Revenues by Channel (%) OEMs Distributors Retailers Revenues by Geography (%) Americas EMEA Asia Pacific HDD ASPs (per unit) HDD Exabytes Shipped shipped by market and price per terabyte: (Dollars in millions) Cost of revenue Gross margin Gross margin percentage and lower depreciation expense For the Three Months Ended For the Nine Months Ended April 3,
2020January 3,
2020March 29,
2019April 3,
2020March 29,
2019Revenue 100 % 100 % 100 % 100 % 100 % Cost of revenue 73 72 74 73 71 Gross margin 27 28 26 27 29 Product development 9 9 10 9 9 Marketing and administrative 4 4 5 5 4 Amortization of intangibles — — — — — Restructuring and other, net — — 1 — 1 Income from operations 14 15 10 13 15 Other expense, net (1) (2) (1) (2) (1) Income before income taxes 13 13 9 11 14 Provision for income taxes 1 1 1 1 1 Net income 12 % 12 % 8 % 10 % 13 % geography, HDD average drive selling prices (“ASPs”)market and HDD exabytes shipped: For the Three Months Ended For the Nine Months Ended
2019
2018
2018
2019
2018 68 % 69 % 70 % 70 % 69 % 18 % 16 % 17 % 17 % 17 % 14 % 15 % 13 % 13 % 14 % 35 % 27 % 32 % 32 % 32 % 19 % 22 % 19 % 19 % 19 % 46 % 51 % 49 % 49 % 49 % $ 68 $ 68 $ 70 $ 69 $ 67 77 87 87 263 245 For the Three Months Ended For the Nine Months Ended April 3,
2020January 3,
2020March 29,
2019April 3,
2020March 29,
2019Revenues by Channel (%) OEMs 73 % 68 % 68 % 71 % 70 % Distributors 17 % 17 % 18 % 17 % 17 % Retailers 10 % 15 % 14 % 12 % 13 % Revenues by Geography (%) Asia Pacific 46 % 51 % 46 % 49 % 49 % Americas 35 % 28 % 35 % 32 % 32 % EMEA 19 % 21 % 19 % 19 % 19 % Revenues by Market (%) Mass capacity 57 % 49 % 40 % 51 % 42 % Legacy 36 % 43 % 52 % 42 % 51 % Other 7 % 8 % 8 % 7 % 7 % HDD Exabytes Shipped by Market Mass capacity 91 71 43 226 150 Legacy 29 36 34 99 113 Total 120 107 77 325 263 HDD Price per Terabyte $ 21 $ 23 $ 28 $ 23 $ 28 20192020 quarter decreasedincreased by $402$22 million from the December 20182019 quarter primarily due to thean increase in mass capacity storage exabytes shipped, partially offset by a decrease in legacy market exabytes shipped as a result of lower demand for our products, seasonality declines and price erosion.20192020 quarter decreasedincreased by $490$405 million from the March 20182019 quarter primarily due to the decreasean increase in mass capacity storage exabytes shipped, as a result of less favorable market conditions andpartially offset by price erosion.decreased by $330 million from the nine months ended March 30, 2018 primarily due toas a result of price erosion, partially offset by an increase in mass capacity storage exabytes shipped.rebates and price masking.OEM rebates. Sales incentive programs were approximately 13%, 13% and 12% of gross driveHDD revenue for the March 2019,2020 quarter and 13% for each of the December 20182019 and March 20182019 quarters respectively.. Adjustments to revenues due to under or over accruals for sales incentive programs related to revenues reported in prior quarterly periods were less than 1% of quarterly gross revenue in all periods presented. For the Three Months Ended For the Nine Months Ended March 29,
2019 December 28,
2018 March 30,
2018 March 29,
2019 March 30,
2018 $ 1,712 $ 1,921 $ 1,956 $ 5,711 $ 5,889 601 794 847 2,308 2,460 26 % 29 % 30 % 29 % 29 % For the Three Months Ended For the Nine Months Ended (Dollars in millions) April 3,
2020January 3,
2020March 29,
2019April 3,
2020March 29,
2019Cost of revenue $ 1,972 $ 1,938 $ 1,712 $ 5,817 $ 5,711 Gross margin 746 758 601 2,175 2,308 Gross margin percentage 27 % 28 % 26 % 27 % 29 % 20192020 quarter decreased fromcompared to the December 20182019 quarter primarily driven by price erosion and higher logistics costs and factory underutilization and price erosion.Comparedunder-utilization due to the March 2018 quarter, grossCOVID-19 disruptions, partially offset by improved product mix. decreased primarily driven by improved product mix and lower depreciation expense due to the change in useful lives of our manufacturing equipment in the quarter ended October 4, 2019, partially offset by price erosion and higher logistics costs and factory underutilization.Comparedunder-utilization due to the nine months ended March 29, 2019, grossCOVID-19 disruptions.30, 2018 remained flat29, 2019 primarily driven by favorableprice erosion, partially offset by improved product mix offset by price erosion.20192020 quarter, total warranty cost was 0.6% of revenue and included a favorable change in estimates of prior warranty accruals of 0.5%0.2% of revenue primarily due to lower repair costs and improvements in return rates on newer generation products. Warranty cost related to new shipments was 1.1%0.8%, 0.8% and 1.1% and 1.3% of revenuerevenue for the March 2020 quarter, December 2019 December 2018quarter and March 2018 quarters,2019 quarter, respectively.
Operating Expenses
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(Dollars in millions) | March 29, 2019 | December 28, 2018 | March 30, 2018 | March 29, 2019 | March 30, 2018 | |||||||||||||||
Product development | $ | 238 | $ | 246 | $ | 254 | $ | 750 | $ | 767 | ||||||||||
Marketing and administrative | 110 | 120 | 135 | 345 | 422 | |||||||||||||||
Amortization of intangibles | 6 | 5 | 6 | 17 | 47 | |||||||||||||||
Restructuring and other, net | 11 | 7 | 11 | 41 | 95 | |||||||||||||||
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Operating expenses | $ | 365 | $ | 378 | $ | 406 | $ | 1,153 | $ | 1,331 | ||||||||||
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2019. (Dollars in millions) Other expense, net For the Three Months Ended For the Nine Months Ended (Dollars in millions) April 3,
2020January 3,
2020March 29,
2019April 3,
2020March 29,
2019Product development $ 246 $ 250 $ 238 $ 751 $ 750 Marketing and administrative 119 120 110 361 345 Amortization of intangibles 3 4 6 11 17 Restructuring and other, net 2 — 11 19 41 Operating expenses $ 370 $ 374 $ 365 $ 1,142 $ 1,153 decreased by $8 million compared to the December 2018 quarterprimarily due to a $7 million decreaseincrease in variable compensation expense, a $6 million increase in outside services expense and a $5 million increase in other general expenses mainly as a result of timing of materials purchases, partially offset by a $4$6 million decrease related to timing of grants received and a $5 million decrease in variable compensation expense, offset by a $2 million increase in share-based compensationdepreciation expense.Compared to the March 2018 quarter, Product development expense for the March 2019 quarter decreased by $16 million primarily due to a $10 million decrease in variable compensation expense and an $8 million decrease in other general expenses due to operational efficiencies.Compared to the corresponding nine months ended March 30, 2018, 2019 decreased by $17 million primarily due to an $18 million decrease in variable compensation expense and a $5 million decrease in salaries and employee benefits primarily due to the voluntary early exit program and restructuring of our workforce in prior periods, partially offset by a $9 million increase in share-based compensation expense.20192020 quarter decreased by $10 million fromremained relatively flat compared to the December 20182019 quarter.decrease$6 million increase in other general expenses.Compared to the March 2018 quarter, Marketing and administrativeoutside services expense for the March 2019 quarter decreased by $25 million, primarily due to a $4 million decrease in salaries and employee benefits as a result of the restructuring of our workforce in prior periods, a $13 million decrease in other general expenses and a $7$3 million decreaseincrease in variable compensation expense.Compared to the corresponding nine months ended March 30, 2018, March 29, 2019 decreasedApril 3, 2020 increased by $77$16 million primarily due to a $31 million decrease in salaries and employee benefits as a result of the restructuring of our workforce in prior periods, a $30 million decrease in other general expenses due to related operational efficiencies and a $15 million decrease in variable compensation expense.Amortization of intangibles. Amortization of intangibles for the March 2019 quarter remained flat compared to the December 2018 quarter and March 2018 quarter. Amortization of intangibles for the nine months ended March 29, 2019 decreased by $30primarily due to an $8 million fromincrease in other general expenses and a $7 million increase in outside services expense.30, 201829, 2019, due to certain intangible assets reachingthat reached the end of their useful lives.waswere comprised of charges primarily related to a voluntary early exit program. There was no new restructuring plan in the March 2019 quarter.Restructuring and other, net for nine months ended March 30, 2018 was comprisedprograms. For the Three Months Ended For the Nine Months Ended March 29,
2019 December 28,
2018 March 30,
2018 March 29,
2019 March 30,
2018 $ (21 ) $ (18 ) $ (48 ) $ (74 ) $ (177 ) For the Three Months Ended For the Nine Months Ended (Dollars in millions) April 3,
2020January 3,
2020March 29,
2019April 3,
2020March 29,
2019Other expense, net $ (38) $ (48) $ (21) $ (161) $ (74)
rates. (Dollars in millions) Provision for income taxes statutes of limitation.2019 quarter remained flat compared to the December 2018 quarter.Compared to the March 2018 quarter, Other expense, net for the March 20192020 quarter decreased by $27$10 million from the December 2019 quarter primarily due to a $16 million increase in interest income on our investment in a debt security, a $9 million net increase in gains due to favorable changes in foreign currency exchange rates, a $6 million decrease in interest expense due to the repayment of certain senior notes, a $3 million decrease due to impairment charge of a strategic investment that did not recur in fiscal year 2019, offset by a $5 million decrease in interest income primarily due to lower average invested balances.nine months ended March 29,2020 quarter increased by $17 million compared to the March 2019 decreased by $103 million from the corresponding period in the prior year,quarter primarily due to a $47$25 million increaseof non-recurring income, net in interest income onthe March 2019 quarter related to our previous investment in a debt security, a $43Toshiba Memory Holdings Corporation (“TMHC”), which was redeemed in the quarter ended June 28, 2019, partially offset by $5 million net increase in gains due to favorable changes in foreign currency exchange rates and $4 million decrease in interest expense from the repurchase of certain long-term debt. For the Three Months Ended For the Nine Months Ended (Dollars in millions) April 3,
2020January 3,
2020March 29,
2019April 3,
2020March 29,
2019Provision for income taxes $ 18 $ 18 $ 20 $ 34 $ 52 repaymentnet effect of tax benefits related to (i) non-Irish earnings generated in jurisdictions that are subject to tax incentive programs and are considered indefinitely reinvested outside of Ireland and (ii) current year generation of research credits.senior notes.Income Taxes For the Three Months Ended For the Nine Months Ended March 29,
2019 December 28,
2018 March 30,
2018 March 29,
2019 March 30,
2018 $ 20 $ 14 $ 12 $ 52 $ 231
During the nine months ended March 29, 2019, our unrecognized tax benefits excluding interest and penalties decreased by approximately $19 million to $41 million. The unrecognized tax benefits that, if recognized, would impact the effective tax rate were $41 million at March 29, 2019, subject to certain future valuation allowance reversals. During the 12 months beginning March 30, 2019, we expect that our unrecognized tax benefits could be reduced by approximately $6 million, primarily as a result of the expiration of certain statutes of limitation.
Our income tax provision was $12 million and $231 million in the three and nine months ended March 30, 2018, respectively. The income tax provision for the three and nine months ended March 30, 2018 included approximately $2 million of net discrete tax benefit and approximately $195 million of net discrete tax expense, respectively. The discrete items for the nine months ended March 30, 2018 are primarily associated with the revaluation of U.S. deferred tax assets as a result of the enactment of the Tax Act on December 22, 2017, partially offset by the recognition of previously unrecognized tax benefits associated with the expiration of certain statutes of limitation.
Our income tax provision recorded for the nine months ended March 30, 2018 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. non-Irish earnings generated in jurisdictions that are subject to tax holidays or 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, the Tax Act was enacted into law in the United States. The Tax Act significantly revises U.S. corporate income tax law by, among other things, lowering U.S. corporate income tax rates from 35% to 21%, implementing a territorial tax system, and imposing aone-time transition tax on deemed repatriated earnings ofnon-U.S. subsidiaries.
The U.S. tax law changes, including limitations on various business deductions such as executive compensation under Internal Revenue Code §162(m), will not impact our tax expense in the short-term due to our large net operating loss and tax credit carryovers and associated valuation allowance. The Tax Act’s new international rules, including Global IntangibleLow-Taxed Income (“GILTI”), Foreign Derived Intangible Income (“FDII”), and Base Erosion Anti-Avoidance Tax (“BEAT”) are effective beginning in fiscal year 2019. For fiscal year 2019, we have included these effects of the Tax Act in our financial statements and concluded the impact will not be material.
As of the quarter ended September 28, 2018, pursuant to SEC Staff Accounting Bulletin (“SAB”) 118 (regarding the application of ASC 740 associated with the enactment of the Tax Act), we had considered SAB 118 and believed our accounting under ASC 740 for the provisions of the Tax Act was complete.
April 3, 2020.
(Dollars in millions) Cash and cash equivalents activities and net proceeds of $498 million from borrowings under our Term Loan. •a March 29,
2019 June 29,
2018 Change $ 1,388 $ 1,853 $ (465 ) (Dollars in millions) April 3,
2020June 28,
2019Change Cash and cash equivalents $ 1,612 $ 2,220 $ (608) March 29, 2019April 3, 2020 decreased by $465$608 million from June 29, 201828, 2019 primarily as a result of the repurchases of our ordinary shares of $613$795 million, repurchases of certain senior notes of $685 million for $660 million in aggregate principal amount, dividends to our shareholders of $539 million, repayment of our 2018 Senior Notes of $499$505 million and payments for capital expenditures of $451$471 million, partially offset by net proceeds from the borrowing on the 2019 Revolving Credit Facilitycash of $196$1,326 million and net cash provided by operating activities.March 29, 2019April 3, 2020 was $1,313$1,326 million and includes the effects of net income adjusted fornon-cash items including depreciation, amortization, share-based compensation and: decreasen increase of $296$424 million in accounts payable, primarily due to timing of payments and an increase in materials purchased;a decrease in revenuethe timing of collections; and improved collections;
partially offset by a decrease•an increase of $366$126 million in accounts payable,inventories, primarily due to lower material purchasesan increase in materials purchased for new product ramps and timing of payments; and
a decrease of $108 million in accrued employee compensation primarilythe potential for supply chain disruptions due to cash paid to our employees as part of our variable compensation plans.
•$March 29, 2019April 3, 2020 was $359$527 million, primarily attributableattributable to the following activities:$451 million, offset by the proceeds from the settlementinvestments of foreign currency forward exchange contracts of $66 million and the proceeds from the sale of properties previously classified as held for sale of $27$57 million.activitiesactivities of $1,417$1,428 million for the nine months ended March 29, 2019April 3, 2020 was primarily attributable to the following activities:613795 million in paymentspayments for repurchase of our ordinary shares;
•$539685 million in dividend payments;
•$3039 million in paymentspayments for taxes related to net share settlement of equity awards;
•partially offset by $196$498 million in net proceeds from borrowings under the borrowing on the 2019 revolving credit facility;Term Loan; and
•$68100 million in proceedsproceeds from the issuance of ordinary shares under employee stock plans.
March 29, 2019April 3, 2020 consisted of: (1) approximately $1.4approximately $1.6 billion in cash and cash equivalents, (2) cash we expect to generate from operations, and (3) $1.1subject to compliance with certain requirements under our control, up to $1.5 billion available for borrowing fromunder our 2019 Revolving Credit Facility.
On February 20, 2019, we terminated our senior unsecured revolving credit facility scheduled to expire on January 15, 2020, under which we were able to draw up to $700 million. Upon termination, we and our subsidiary Seagate HDD Cayman entered into a new credit agreement which provides us with a $1.3 billion senior unsecured revolving credit facility and an option to increase the facility by up to an aggregate of $300 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 the facility receive 0.50% most favored nation protection.
As of March 29, 2019, approximately $200 million inApril 3, 2020, no borrowings had been drawn and no borrowings had been utilized for letters of credit or swing line loans issued under the 2019 Revolving Credit Facility. The 2019 Revolving Credit Facility is available for borrowings, subject to compliance with financial covenants and other customary conditions to borrowing.
revenue to align to market conditions.
Dividends declared in
24, 2020.
Constitution.
Contractual Obligations and Commitments
Our contractual cash obligations and commitments as of March 29, 2019, have been summarized in the table below:
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(Dollars in millions) | Total | Remainder of 2019 | 2020-2021 | 2022-2023 | Thereafter | |||||||||||||||
Contractual Cash Obligations: | ||||||||||||||||||||
Long-term debt, including current portion | $ | 4,563 | $ | — | $ | — | $ | 1,701 | $ | 2,862 | ||||||||||
Interest payments on debt | 1,440 | 55 | 420 | 388 | 577 | |||||||||||||||
Purchase obligations (1) | 1,207 | 924 | 102 | 8 | 173 | |||||||||||||||
Operating leases (2) | 111 | 4 | 20 | 16 | 71 | |||||||||||||||
Capital expenditures | 385 | 113 | 272 | — | — | |||||||||||||||
Other funding requirements(3) | 13 | 2 | 11 | — | — | |||||||||||||||
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Subtotal | 7,719 | 1,098 | 825 | 2,113 | 3,683 | |||||||||||||||
Commitments: | ||||||||||||||||||||
Letters of credit or bank guarantees | 105 | 13 | 92 | — | — | |||||||||||||||
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Total | $ | 7,824 | $ | 1,111 | $ | 917 | $ | 2,113 | $ | 3,683 | ||||||||||
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As of March 29, 2019, we had a liability of $41 million for unrecognized tax benefits excluding interest and penalties, of which $3 million and an additional $1 million of interest and penalties could result in potential cash payments, 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.
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April 3, 2020.
margin set on February 14, 2020.
| Fiscal Years Ended | ||||||||||||||||||||||||||||||||
(Dollars in millions, except percentages) | 2019 | 2020 | 2021 | 2022 | 2023 | Thereafter | Total | Fair Value at March 29, 2019 | ||||||||||||||||||||||||
| Assets | ||||||||||||||||||||||||||||||||
Cash equivalents: | ||||||||||||||||||||||||||||||||
Floating rate | $ | 539 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 539 | $ | 539 | ||||||||||||||||
Average interest rate | 2.74 | % | 2.74 | % | ||||||||||||||||||||||||||||
Investment in debt security including accrued PIK income: | ||||||||||||||||||||||||||||||||
Fixed rate | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 1,300 | $ | 1,300 | $ | 1,322 | ||||||||||||||||
Fixed interest rate | 5.00 | % | 5.00 | % | ||||||||||||||||||||||||||||
| Debt | ||||||||||||||||||||||||||||||||
Fixed rate | $ | — | $ | — | $ | — | $ | 750 | $ | 951 | $ | 2,662 | $ | 4,363 | $ | 4,285 | ||||||||||||||||
Average interest rate | 4.25 | % | 4.75 | % | 4.99 | % | 4.81 | % | ||||||||||||||||||||||||
Variable rate | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 200 | $ | 200 | $ | 200 | ||||||||||||||||
Average interest rate | 4.03 | % | 4.03 | % | ||||||||||||||||||||||||||||
April 3, 2020.
| Fiscal Years Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| (Dollars in millions, except percentages) | 2020 | 2021 | 2022 | 2023 | 2024 | Thereafter | Total | Fair Value at April 3, 2020 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Assets | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Cash equivalents: | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Floating rate | $ | 607 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 607 | $ | 607 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Average interest rate | 1.63 | % | 1.63 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other debt securities | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Fixed rate | $ | — | $ | 10 | $ | — | $ | — | $ | — | $ | 8 | $ | 18 | $ | 18 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Fixed interest rate | 5.00 | % | 5.00 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Debt | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Fixed rate | $ | — | $ | — | $ | 477 | $ | 724 | $ | 500 | $ | 1,930 | $ | 3,631 | $ | 3,532 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Average interest rate | 4.25 | % | 4.75 | % | 4.88 | % | 5.05 | % | 4.86 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Variable rate | $ | — | $ | 19 | $ | 25 | $ | 25 | $ | 25 | $ | 406 | $ | 500 | $ | 467 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Average interest rate | 3.29 | % | 3.29 | % | 3.29 | % | 3.29 | % | 3.29 | % | 3.29 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
We evaluate hedging effectiveness prospectively and retrospectively. As of March 29, 2019, our foreign currency forward exchange contracts include a notional amount of approximately 10.1 billion Japanese Yen ($91 million), to hedge the PIK income related to our TMC investment, out of which $39 million is designated as a cash flow hedge and the remainder of $52 million wasde-designated and included in contracts not designated as hedges.
WeWe did not havehave any material net gains or losses recognized in Cost of revenue, or Other, expense, net for cash flow hedges due to hedge ineffectiveness or discontinued cash flow hedges during the three and nine months ended March 29, 2019.
April 3, 2020.
| (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 | $ | 108 | $ | 1.37 | $ | (4) | ||||||||||||||
| Chinese Renminbi | 10 | $ | 6.86 | — | ||||||||||||||||
| British Pound Sterling | 9 | $ | 0.77 | (1) | ||||||||||||||||
| Total | $ | 127 | $ | (5) | ||||||||||||||||
(Dollars in millions, except weighted-average contract rate) | Notional Amount | Weighted- Average Contract Rate | Estimated Fair Value(1) | |||||||||
Foreign currency forward exchange contracts: | ||||||||||||
Thai Baht | $ | 19 | $ | 33.07 | $ | 1 | ||||||
Singapore Dollar | 25 | 1.36 | — | |||||||||
Chinese Renminbi | 10 | 6.79 | — | |||||||||
British Pound Sterling | 38 | 0.77 | 1 | |||||||||
Japanese Yen | 1,353 | 110.51 | (22 | ) | ||||||||
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Total | $ | 1,445 | $ | (20 | ) | |||||||
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capital.increase the cost of such capital and our ability to execute transactions with various counterparties.We have an investment in debt security of $1.3 billion carried at amortized cost. We review our debt security for impairment when eventscounterparties and circumstances indicate a decline in fair valueincrease the cost of such asset below carrying value is other-than-temporary.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 7. Derivative Financial Instruments” of this Quarterly Report onForm 10-Q.ITEM 4.CONTROLS AND PROCEDURES
April 3, 2020.
Changes in Internal Control over Financial Reporting
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There have been no material changes to the description of the risk factors associated with our business previously disclosed in “Risk Factors” in Part I, Item 1A in our Annual Report onForm 10-K for the fiscal year ended June 29, 2018.
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On October 29, 2018, the Company’s Board of Directors authorized the repurchase of an additional $2.3 billion of its outstanding ordinary shares. STX’s Constitution.
The timing of purchases will depend upon prevailing market conditions, alternative uses of capital and other factors. We may limit or terminate the repurchase program at any time.
| Period | Total Number of Shares Repurchased(1) | Average Price Paid Per Share(1) | 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(1) | ||||||||||||||||||||||
| January 4, 2020 through January 31, 2020 | — | $ | 61.15 | — | $ | 1,555 | ||||||||||||||||||||
| February 1, 2020 through February 28, 2020 | 2 | 54.12 | 2 | 1,474 | ||||||||||||||||||||||
| February 29, 2020 through April 3, 2020 | 3 | 45.65 | 3 | 1,341 | ||||||||||||||||||||||
| Total | 5 | 5 | ||||||||||||||||||||||||
(In millions, except average price paid per share) | Total Number of Shares Repurchased(1) | Average Price Paid Per Share(1) | 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(1) | ||||||||||||
December 29, 2018 through January 25, 2019 | 1 | $ | 39.90 | 1 | $ | 2,815 | ||||||||||
January 26, 2019 through February 22, 2019 | 2 | 45.46 | 2 | 2,740 | ||||||||||||
February 23, 2019 through March 29, 2019 | 4 | 46.74 | 4 | 2,544 | ||||||||||||
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Total | 7 | 7 | ||||||||||||||
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| 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 | |||||||||||||||||||||||||||||||
| 31.1 | X | ||||||||||||||||||||||||||||||||||
| 31.2 | X | ||||||||||||||||||||||||||||||||||
| 32.1† | X | ||||||||||||||||||||||||||||||||||
| 101.INS | Inline XBRL Instance Document. | ||||||||||||||||||||||||||||||||||
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document. | ||||||||||||||||||||||||||||||||||
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document. | ||||||||||||||||||||||||||||||||||
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document. | ||||||||||||||||||||||||||||||||||
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document. | ||||||||||||||||||||||||||||||||||
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase. | ||||||||||||||||||||||||||||||||||
| 104 | Inline XBRL Cover page and contained in Exhibit 101. | ||||||||||||||||||||||||||||||||||
/s/ Gianluca Romano Gianluca Romano Executive Vice President and Chief Financial OfficerSEAGATE TECHNOLOGY PUBLIC LIMITED COMPANY DATE: April 30, 20192020BY: BY:
(Principal Financial and Accounting Officer)