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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant ☒
Filed by a Party other than the Registrant ☐
Check the appropriate box:
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Preliminary Proxy Statement |
Confidential, for Use of the Commission Only (as permitted by Rule14a-6(e)(2)) |
Definitive Proxy Statement |
Definitive Additional Materials |
Soliciting Material under §240.14a-12 |
Seagate Technology Public Limited Company
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
No fee required. | ||||
Fee computed on table below per Exchange Act Rules14a-6(i)(1)and 0-11. | ||||
(1) | Title of each class of securities to which transaction applies: | |||
(2) | Aggregate number of securities to which transaction applies: | |||
(3) | Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule0-11 (set forth the amount on which the filing fee is calculated and state how it was determined): | |||
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(5) | Total fee paid: | |||
Fee paid previously with preliminary materials. | ||||
Check box if any part of the fee is offset as provided by Exchange ActRule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. | ||||
(1) | Amount Previously Paid: | |||
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(4) | Date Filed: |
September 4, 2015August 30, 2017
Dear Fellow Shareholder:
You are cordially invited to attend the 20152017 Annual General Meeting of Shareholders of Seagate Technology plc, which will be held at 9:30 a.m. local time on Wednesday, October 21, 2015,18, 2017, at the IntercontinentalInterContinental Hotel, Simmonscourt Road, Dublin 4, Ireland.
Details of the business to be presented at the meeting may be found in the Notice of Annual General Meeting of Shareholders and the Proxy Statement accompanying this letter.
We hope you are planning to attend the meeting. Your vote is important. Whether or not you plan to attend the meeting, please submit your proxy as soon as possible so that your shares may be represented at the 20152017 Annual General Meeting.
On behalf of the Board of Directors of Seagate Technology plc, I thank you for your continued support.
Sincerely,
Stephen J. Luczo
Chairman and Chief Executive Officer
2017 NOTICE OF MEETING AND PROXY STATEMENT |
SEAGATE TECHNOLOGY PUBLIC LIMITED COMPANY
NOTICE OF 20152017 ANNUAL GENERAL MEETING OF SHAREHOLDERS
The 20152017 Annual General Meeting of Shareholders of Seagate Technology plc ("Seagate"(“Seagate” or the "Company"“Company”), a company incorporated under the laws of Ireland, will be held on Wednesday, October 21, 2015,18, 2017, at 9:30 a.m. local time, at the IntercontinentalInterContinental Hotel, Simmonscourt Road, Dublin 4, Ireland.
The purposes of the 20152017 Annual General Meeting are:
General Proposals:
1. | By separate resolutions, to elect as directors the following incumbent directors who shall retire in accordance with the Articles of Association and, being eligible, offer themselves for election and to elect as a director (the “Director Nominees”): |
(a) Stephen J. Luczo | (b) | (c) Michael R. Cannon | ||||
(d)Mei-Wei Cheng | (e) William T. Coleman | (f) Jay L. Geldmacher | ||||
(g) | (h) | (i) Stephanie Tilenius | ||||
(j) |
2. | Approve, in an advisory,non-binding vote, the compensation of the Company’s named executive officers(“Say-on-Pay”). |
3. | Approve, in an advisory,non-binding vote, the frequency of futureSay-on-Pay votes (“Frequency ofSay-on-Pay”). |
4. | Approve an amendment and restatement of the Seagate Technology Public Limited Company Amended and Restated Employee Stock Purchase Plan (the “ESP Plan”) to increase the number of shares available for issuance. |
5. | Ratify, in anon-binding vote, the appointment of Ernst & Young LLP as the independent auditors of the Company and to authorize, in a binding vote, the Audit Committee of the Company’s board of directors (the “Board”) to set the auditors’ remuneration. |
Irish law. (Special Resolution).
6. | Grant the Board the authority to allot and/or issue shares under Irish law. |
7 | Grant the Board the authority toopt-out of statutorypre-emption rights under Irish law. |
8. | Determine the price range at which the Company canre-allot shares that it acquires as treasury shares under Irish law. |
SEAGATE TECHNOLOGY PLC | 2017 Proxy Statement |
2017 NOTICE OF MEETING AND PROXY STATEMENT |
Other:
9. | Conduct such other business properly brought before the meeting. |
The Board of Directors recommends that you vote "FOR" proposals“FOR” each director nominee included in Proposal 1 and “FOR” each of Proposals 2 and 4 through 4.8. For Proposal 3, the Board recommends you vote “FOR one year.” The full text of these proposals 1 through 4 is set forth in the accompanying proxy statement.Proxy Statement.
Proposals 1, 32, 4, 5 and 46 are ordinary resolutions, requiring the approval of a simple majority of the votes cast at the meeting. Proposal 2 is3 requires an affirmative vote of a plurality of all votes cast at the meeting. Proposals 7 and 8 are special resolution,resolutions, requiring the approval of not less than 75% of the votes cast.
Only shareholders of record as of the close of business on August 28, 2015,21, 2017 are entitled to receive notice of and to vote at the 2017 Annual General Meeting.Whether or not you plan to attend the meeting, pleasePlease provide your proxy by either usingeven if you plan on attending the Internet or telephone as further explainedmeeting. Instructions on how to vote your proxy are set forth in the accompanying proxy statement or filling in, signing, dating, and promptly mailing a proxy card.Proxy Statement.
During the meeting, following a review of Seagate’s business and affairs, management will also present Seagate'sSeagate’s Irish financial statements for the fiscal year ended July 3, 2015June 30, 2017 and the reports of the directors and auditors thereon.
By order of the Board,
Katherine E. Schuelke
Senior Vice President, Chief Legal Officer and Company Secretary
August 30, 2017
SEAGATE TECHNOLOGY PLC | ||||||
September 4, 2015
2017 NOTICE OF MEETING AND PROXY STATEMENT |
IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS
FOR THE ANNUAL GENERAL MEETING OF SHAREHOLDERS
TO BE HELD ON OCTOBER 21, 2015:
18, 2017
We will be relying on the U.S. Securities and Exchange Commission (the “SEC”) rule that allows companies to furnish Proxy Materials over the Internet instead of mailing printed copies of those materials to each shareholder. As a result, we are sending our shareholders a Notice of Internet Availability of Proxy Materials (the "Notice"“Notice”) instead of a paper copy of our Proxy Statement, our Irish financial statements for the Company’s fiscal year 2015,ended June 30, 2017 (“fiscal year 2017”), the proxy card and our Annual Report onForm 10-K for fiscal year 20152017 (collectively, the "Proxy Materials"“Proxy Materials”). The Notice also contains instructions on how to request a paper copy of the Proxy Materials. If you have previously elected to receive our Proxy Materials electronically, you will continue to receive these materials via email unless you elect otherwise. A full printed set of our Proxy Materials will be mailed to you automatically only if you have previously made a permanent election to receive our Proxy Materials in printed form.
IF YOU ARE A SHAREHOLDER WHO IS ENTITLED TO ATTEND, SPEAK AND VOTE, THEN YOU ARE ENTITLED TO APPOINT A PROXY OR PROXIES TO ATTEND, SPEAK AND VOTE ON YOUR BEHALF. A PROXY IS NOT REQUIRED TO BE A SHAREHOLDER IN THE COMPANY. IF YOU WISH TO APPOINT AS PROXY ANY PERSON OTHER THAN THE INDIVIDUALS SPECIFIED ON THE PROXY CARD, PLEASE CONTACT THE COMPANY SECRETARY AT OUR REGISTERED OFFICE.
OFFICE AND ALSO NOTE THAT YOUR NOMINATED PROXY MUST ATTEND THE ANNUAL GENERAL MEETING IN PERSON IN ORDER FOR YOUR VOTES TO BE CAST.
SEAGATE TECHNOLOGY PLC | 2017 Proxy Statement |
2017 NOTICE OF MEETING AND PROXY STATEMENT |
This summary highlights information contained elsewhere in this Proxy Statement. For more complete information about the topics summarized below, please review Seagate Technology plc'splc’s Annual Report onForm 10-K and the entire Proxy Statement.
20152017 Annual General Meeting of Shareholders
Date and Time: | Wednesday, October | |||
Place: | Simmonscourt Road Dublin 4, Ireland | |||
Record Date: | August 21, 2017 | |||
Voting: | Shareholders as of close of business on | |||
Attendance: | All shareholders as of the close of business on the Record Date may attend the | |||
Proxy Materials: | The Proxy Materials were first made available to shareholders on or about |
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SEAGATE TECHNOLOGY PLC | 2017 Proxy Statement |
2017 NOTICE OF MEETING AND PROXY STATEMENT |
Proposals, voting recommendations and vote required:
The Board of Directors recommends that you vote "FOR"“FOR” each of the proposals that will be submitted for shareholder approval at the 2015 Annual General Meeting.2017 AGM.
The proposals are: | Vote required: | Page: | ||||||
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1 | By separate resolutions, to elect the 11 director nominees named in the proxy statement. | Ordinary Resolutions Majority of votes cast | 12 | |||||
2 | To determine the price range at which the Company can re-issue shares that it holds as treasury shares under Irish law. | Special Resolution At least 75% of votes cast | 18 | |||||
3 | To approve, in an advisory, non-binding vote, the compensation of the Company's named executive officers. | Ordinary Resolution Majority of votes cast | 19 | |||||
4 | To ratify, in an advisory, non-binding vote, the appointment of Ernst & Young LLP as the independent auditors of the Company for the fiscal year ending July 1, 2016 ("fiscal year 2016") and to authorize, in a binding vote, the Audit Committee of the Board of Directors to set the auditors' remuneration. | Ordinary Resolution Majority of votes cast | 20 |
Proposals: | Vote required: | Board Recommendation | ||||
1. | Election of each of the 10 Director Nominees | Majority of Votes Cast | FOR each nominee | |||
2. | Advisory Vote onSay-on-Pay | Majority of Votes Cast | FOR | |||
3. | Advisory Vote on the Frequency ofSay-on-Pay | Affirmative Plurality of Votes Cast | FOR one year | |||
4. | Amendment and Restatement of the ESP Plan to increase the number of shares available for issuance | Majority of Votes Cast | FOR | |||
5. | Ratification of the Appointment and Remuneration of Auditors | Majority of Votes Cast | FOR | |||
6. | Grant Board Authority to Allot and/or Issue Shares | Majority of Votes Cast | FOR | |||
7. | Grant Board Authority toOpt-out of StatutoryPre-emption Rights | 75% of Votes Cast | FOR | |||
8. | Determine the Price Range for theRe-Allotment of Treasury Shares | 75% of Votes Cast | FOR |
TableDuring the meeting, following a review of ContentsSeagate’s business and affairs, management will also present Seagate’s Irish financial statements for the fiscal year 2017 and the reports of the directors and statutory auditors thereon.
Seagate'sSeagate’s Corporate Governance Highlights
• The Board | • The Board | |
• Directors must receive a majority of shareholder votes cast to be elected. | • The
| |
• Directors and executive officers are subject to share ownership guidelines. | • Executive officers are subject to a | |
• All directors are elected annually by shareholders. | • The Company maintains ananti-hedging policy for all directors and employees. | |
• The Board | • The Board | |
• The Board |
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SEAGATE TECHNOLOGY PLC | 2017 Proxy Statement
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Director Nominees
2017 NOTICE OF MEETING AND PROXY STATEMENT |
Director Nominees.
We are asking our shareholders to elect, by separate resolutions, each of the director nomineesDirector Nominees described below:
Nominee | Age |
Director Since | Principal Occupation | Independent | Current Committee Membership | |||||||
Stephen J. Luczo
| 60 | 2000 | Chairman and Chief Executive Officer of Seagate Technology plc | No | • None | |||||||
Mark W. Adams
| 53 | 2017 | Chief Executive Officer of Lumileds, Inc. | Yes | • Audit | |||||||
Michael R. Cannon
| 64 | 2011 | Former President, Global Operations, Dell, Inc. | Yes | • Compensation • Nominating and Corporate Governance (Chair) | |||||||
Mei-Wei Cheng
| 67 | 2012 | FormerNon-Executive Chairman of Pactera Technology International Ltd. | Yes | • Audit • Finance |
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SEAGATE TECHNOLOGY PLC | 2017 Proxy Statement |
2017 NOTICE OF MEETING AND PROXY STATEMENT |
Nominee | Age |
Director Since | Principal Occupation | Independent | Current Committee Membership | |||||||
William T. Coleman
| 69 | 2012 | Chief Executive Officer of Veritas Technologies LLC | Yes | • Finance • Nominating and Corporate Governance | |||||||
Jay L. Geldmacher
| 61 | 2012 | Chief Executive Officer of Artesyn Embedded Technologies | Yes | • Compensation | |||||||
William D. Mosley
| 51 | 2017 | President and Chief Operating Officer of Seagate Technology plc | No | • None | |||||||
Dr. Chong Sup Park
| 69 | 2006 | Former Chairman and Chief Executive Officer of Maxtor Corp. | Yes | • Audit (Chair) • Nominating and Corporate Governance |
Nominee | Age | Director Since | Principal Occupation | Independent | Current Committee Membership | |||||
---|---|---|---|---|---|---|---|---|---|---|
Stephen J. Luczo | 58 | 2000 | Chairman and Chief Executive Officer of Seagate Technology plc | No | • None | |||||
Frank J. Biondi, Jr. | 70 | 2005 | Senior Managing Director of WaterView Advisors LLC | Yes | • Compensation • Finance (Chair) | |||||
Michael R. Cannon | 62 | 2011 | Former President, Global Operations, Dell, Inc. | Yes | • Audit • Nominating and Corporate Governance (Chair) |
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SEAGATE TECHNOLOGY PLC | 2017 Proxy Statement |
2017 NOTICE OF MEETING AND PROXY STATEMENT |
Nominee | Age | Director Since | Principal Occupation | Independent | Current Committee Membership | |||||
---|---|---|---|---|---|---|---|---|---|---|
Mei-Wei Cheng | 65 | 2012 | Non-Executive Chairman of Pactera Technology International Ltd. | Yes | • Audit • Finance | |||||
William T. Coleman | 67 | 2012 | Partner with Alsop Louie Partners | Yes | • Finance • Nominating and Corporate Governance | |||||
Jay L. Geldmacher | 59 | 2012 | CEO of Artesyn Embedded Technologies | Yes | • Compensation | |||||
Dr. Dambisa F. Moyo | 46 | Nominee | International Economist and Commentator | Yes | • None | |||||
Kristen M. Onken | 66 | 2011 | Former Senior Vice President, Finance and Chief Financial Officer of Logitech International, SA | Yes | • Audit (Chair) | |||||
Nominee | Age |
Director Since | Principal Occupation | Independent | Current Committee Membership | |||||||
Stephanie Tilenius
| 50 | 2014 | Chief Executive Officer andCo-Founder of Vida Health, Inc. | Yes | • Finance • Nominating and Corporate Governance | |||||||
Edward J. Zander
| 70 | 2009 | Former Chairman and Chief Executive Officer of Motorola, Inc. | Yes | • Compensation (Chair) |
Nominee | Age | Director Since | Principal Occupation | Independent | Current Committee Membership | |||||
---|---|---|---|---|---|---|---|---|---|---|
Dr. Chong Sup Park | 67 | 2006 | Former Chairman and CEO of Maxtor | Yes | • Compensation • Nominating and Corporate Governance | |||||
Stephanie Tilenius | 48 | 2014 | Co-Founder and CEO of Vida Health, Inc. | Yes | • Finance • Nominating and Corporate Governance | |||||
Edward J. Zander | 68 | 2009 | Former Chairman and CEO of Motorola, Inc. | Yes | • Compensation (Chair) |
For further biographical information about our director nomineesDirector Nominees, see pages 12 through 17biographical information starting on page 15 of this Proxy Statement.
Determine the price range at which the Company can re-issue shares held as treasury shares.
We are asking you to determine the price range at which the Company can re-issue shares held as treasury shares. From time to time the Company may acquire ordinary shares and hold them as treasury shares. The Company may re-issue such treasury shares, and under Irish law, our shareholders must authorize the price range at which we may re-issue any shares held in treasury. As required under Irish law, this must be approved by special resolution, and requires the affirmative vote of at least 75% of the votes cast.
Advisory Approval of the Compensation of Our Executives.Say-on-Pay Proposal.
We are asking for your advisory approval of the compensation of our named executive officers (our "NEOs."“NEOs”). as required by Section 14A of the Securities Exchange Act of 1934 (the “Exchange Act”) and the related rules of the SEC. While our Board of Directors intends to carefully consider the shareholder vote resulting from the proposal, the final vote will not be binding on us and is advisory in nature.
Before considering this proposal, please read our "Compensation“Compensation Discussion and Analysis,"Analysis” starting on page 36, which explains our executive compensation programs and the Compensation Committee'sCommittee’s compensation decisions.
TableAdvisory Approval of Contentsthe Frequency ofSay-on-Pay Proposal.
We are asking you to indicate how frequently we should seek an advisory vote on the compensation of our NEOs. This proposal is also referred to as the Frequency ofSay-on-Pay proposal. The Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”) requires that we solicit your advisory vote with respect to the Frequency ofSay-on-Pay every six years. At our 2011 Annual General Meeting, our shareholders indicated that they would preferSay-on-Pay votes to occur annually and we have heldSay-on-Pay votes every year since that time. You may indicate whether you would prefer aSay-on-Pay vote every one year, two years, or three years, or you may abstain from voting on this proposal. The Board believes that continuing to hold an advisory vote on executive compensation annually is aligned with our policy of seeking feedback from you on corporate governance, our compensation policies, practices and philosophy for our NEOs.
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SEAGATE TECHNOLOGY PLC | 2017 Proxy Statement |
2017 NOTICE OF MEETING AND PROXY STATEMENT |
You may cast your vote on your preferred voting frequency by choosing any of the following four options with respect to this proposal: “every one year,” “two years,” “three years,” or “abstain.” We are asking you to vote for a frequency of “every one year.”
While our Board intends to carefully consider the shareholder vote resulting from the proposal, the final vote will not be binding on us and is advisory in nature.
Before considering this proposal, please read our “Compensation Discussion and Analysis” starting on page 36, which explains our executive compensation programs and the Compensation Committee’s compensation decisions.
Approval of our Amended and Restated Employee Stock Purchase Plan.
We are asking you to approve the amendment and restatement of our ESP Plan, which increases the number of shares reserved for issuance under the current plan by 10,000,000 and to make certain administrative updates. A detailed discussion about the amendments is included in Proposal 4, starting on page 70.
Ratification of the appointment of Ernst & Young LLP, and authorization to set auditors'auditors’ remuneration.
We are asking you to ratify the appointment of Ernst & Young LLP as our auditors, and to authorize the Audit Committee to set their remuneration.
Grant the Board authority to allot and/or issue shares.
We are asking you to grant our Board authority to allot and/or issue shares under Irish law. This authority is fundamental to our business and granting the Board this authority is a routine matter for public companies incorporated in Ireland. Under Irish law, this proposal must be approved by ordinary resolution, which requires the affirmative vote of a simple majority of the votes cast.
Grant the Board authority toopt-out of statutorypre-emption rights.
We are asking you to grant the Board authority to allot and/or issue shares for cash without first offering them to existing shareholders. This authority is fundamental to our business and granting the Board this authority is a routine matter for public companies incorporated in Ireland. Under Irish law, this proposal must be approved by special resolution, which requires the affirmative vote of at least 75% of the votes cast.
Determine the price range at which the Company canre-allot shares held as treasury shares.
We are asking you to determine the price range at which the Company canre-allot shares held as treasury shares. From time to time, the Company may acquire ordinary shares and hold them as treasury shares. The Company mayre-allot such treasury shares, and under Irish law, our shareholders must authorize the price range at which we mayre-allot any shares held in treasury. Under Irish law this proposal must be approved by special resolution, which requires the affirmative vote of at least 75% of the votes cast.
Executive Compensation
Pay for PerformancePay-for-Performance
The general philosophy and structure of our executive compensation programs emphasize strong alignment between executive pay and corporate financial performance. In addition, our compensation
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SEAGATE TECHNOLOGY PLC | 2017 Proxy Statement |
2017 NOTICE OF MEETING AND PROXY STATEMENT |
philosophy is designed to align our executive compensation programs with long term shareholder interests. In the Company'sCompany’s fiscal year ended July 3, 2015 ("fiscal year 2015"),2017, a majority of our long term equity incentive awards were granted in the form of performance basedperformance-based restricted share units, which vest dependent upon the achievement ofpre-established performance objectives, including return on invested capital, relative total shareholder return and adjusted earnings per share, reflecting a strong emphasis on pay for performancepay-for-performance and the alignment of interests between our NEOs and our shareholders. In addition, over 88%at least 86% of our NEO total annual targeted compensation is at-risk.at risk.
Highlights of fiscal year 2015 financial performance include:
Please review our "Compensation“Compensation Discussion and Analysis"Analysis” for additional information and definitions of financial metrics.
Table of Contents2018 AGM
2016 AGM
Deadline for shareholder proposals for inclusion in the | May | |
Period for shareholder nomination of directors: | April | |
Deadline for all other proposals: | July |
For further information, see the section entitled "Shareholder“Shareholder Proposals and Nominations"Nominations” on page 82 of this Proxy.Proxy Statement.
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SEAGATE TECHNOLOGY PLC | 2017 Proxy Statement |
2017 NOTICE OF MEETING AND PROXY STATEMENT |
10 | ||||
15 | ||||
15 | ||||
21 | ||||
25 | ||||
25 | ||||
26 | ||||
27 | ||||
30 | ||||
33 | ||||
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT | 33 | |||
36 | ||||
36 | ||||
38 | ||||
38 | ||||
38 | ||||
39 | ||||
39 | ||||
Role of our CEO and Management in the Decision-Making Process | 40 | |||
40 | ||||
40 | ||||
43 | ||||
44 | ||||
46 | ||||
50 | ||||
50 | ||||
51 | ||||
52 | ||||
53 | ||||
54 | ||||
54 | ||||
55 | ||||
56 | ||||
57 | ||||
60 | ||||
60 | ||||
Potential Payments Upon Qualifying Termination or Change in Control | 61 | |||
PROPOSAL 2 – AN ADVISORY, NON-BINDING VOTE ON THE COMPANY’S EXECUTIVE COMPENSATION –SAY-ON-PAY VOTE | 68 | |||
69 | ||||
70 |
SEAGATE TECHNOLOGY PLC | 2017 Proxy Statement |
2017 NOTICE OF MEETING AND PROXY STATEMENT |
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Fees Paid to Independent Auditors
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EQUITY COMPENSATION PLAN INFORMATION
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SHAREHOLDER PROPOSALS AND NOMINATIONS
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APPENDIX A: | A-1 | |||
B-1 |
SEAGATE TECHNOLOGY PLC | 2017 Proxy Statement |
2017 NOTICE OF MEETING AND PROXY STATEMENT |
PROXY STATEMENT
In this Proxy Statement, "Seagate“Seagate Technology," "Seagate,"” “Seagate,” the "Company," "we," "us"“Company,” “we,” “us” and "our"“our” refer to Seagate Technology plc, an Irish public limited company. This Proxy Statement and the enclosed proxy card, or the Notice of Internet Availability of Proxy Materials, are first being mailed to shareholders of record at the close of business on August 28, 2015 (the "Record Date")the Record Date on or about September 4, 2015.August 30, 2017.
Following are questions and answers concerning voting and solicitation and other general information.
Why did I receive this Proxy Statement? | We sent you this Proxy Statement or a Notice of Internet Availability of Proxy Materials | |
This Proxy Statement summarizes the information you need to know to vote on an informed basis. | ||
Why are there two sets of financial statements covering the same fiscal period? | U.S. securities laws require us to send you our | |
What do I need to do to attend the | All shareholders as of the Record Date are invited to attend the |
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SEAGATE TECHNOLOGY PLC | 2017 Proxy Statement |
2017 NOTICE OF MEETING AND PROXY STATEMENT |
Who may vote? | You are entitled to vote if you |
How do I vote? | Shareholders of record can cast their votes by proxy by: | ||
• using the Internet and voting at www.proxyvote.com; | |||
• calling 1.800.690.6903 and following the telephone prompts; or | |||
• completing, signing and returning a proxy card by | |||
If you have received a Notice, it contains a control number that will allow you to access the Proxy Materials online. If you have received a paper copy of our Proxy Materials, a printed proxy card has been enclosed. If you have not received a paper copy of our Proxy Materials and wish to vote by mail, please follow the instructions included in the Notice to obtain a paper proxy card. A full printed set of our Proxy Materials will be mailed to you automatically only if you have previously made a permanent election to receive our Proxy Materials in printed form. | |||
The Notice is not a proxy card and it cannot be used to vote your shares. | |||
Shareholders of record may also vote their shares directly by attending the | |||
| |||
In order to be timely processed, your vote must be received by | |||
May I revoke my proxy? | If you are a registered holder of the | ||
• notifying the Company Secretary in writing: c/o Seagate Technology plc at 38/39 Fitzwilliam Square, Dublin 2, Ireland, Attention: Company Secretary; | |||
• submitting another properly signed proxy card with a later date or another Internet or telephone proxy at a later date but prior to the close of voting described above; or | |||
• by voting in person at the |
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SEAGATE TECHNOLOGY PLC | 2017 Proxy Statement |
2017 NOTICE OF MEETING AND PROXY STATEMENT |
Merely attending the |
If you are not a registered holder but your shares are registered in the name of a nominee, you must contact the nominee to revoke your proxy. Merely attending or attempting to vote in person at the 2017 AGM will not revoke your proxy if your shares are held in the name of a nominee. | |||
How will my proxy get voted? | If your proxy is properly submitted, you are legally designating the person or persons named in the proxy card to vote your shares as you have directed. Unless you name a different person or persons to act as your proxy, | ||
If you are a The following proposals areroutine matters: • Proposal 5 (Ratification of the Appointment and Remuneration of Auditors) • Proposal 6 (Grant Board Authority to Allot and/or Issue Shares) • Proposal 7 (Grant Board Authority toOpt-out of StatutoryPre-emption Rights) • Proposal 8 (Determine Price Range for theRe-allotment of Treasury Shares) However, your bank, broker-dealer brokerage firm, trust or other similar organization or nominee may not vote your shares on The following proposals arenon-routine matters: • Proposal 1 (Election of each of the 10 Director Nominees) • Proposal 2 (Advisory Vote onSay-on-Pay) • Proposal 3 (Advisory Vote on the Frequency ofSay-on-Pay) • Proposal 4 (Amendment and Restatement of the ESP Plan to increase the number of shares available for issuance) |
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SEAGATE TECHNOLOGY PLC | 2017 Proxy Statement |
2017 NOTICE OF MEETING AND PROXY STATEMENT |
What constitutes a quorum? | The presence (in person or by proxy) of shareholders entitled to exercise a majority of the voting power of the Company on the Record Date is necessary to constitute a quorum to conduct business for the | |
What vote is required to approve each of the proposals? |
• Proposal 1 (Election of each of the • Proposal 2 (Advisory Vote onSay-on-Pay) • Proposal 4 (Amendment and • Proposal 5 (Ratification of the • Proposal 75% of Votes Cast Required to Approve: • Proposal 7 (Grant the • Proposal 8 (Determine the Price Range for Affirmative Plurality of Votes Cast Required to Approve: • Proposal 3 (Advisory Vote on the Frequency ofSay-on-Pay) | |
Although abstentions and brokernon-votes are counted as |
Who pays the expenses of this | We have hired Morrow | ||
How will voting be counted on any other matters that may be presented at the | Although we do not know of any matters to be presented or acted upon at the | ||
Board recommendations. | The Board |
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SEAGATE TECHNOLOGY PLC | 2017 Proxy Statement |
2017 NOTICE OF MEETING AND PROXY STATEMENT |
Voting procedures and tabulation. | The Board |
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SEAGATE TECHNOLOGY PLC | 2017 Proxy Statement |
2017 NOTICE OF MEETING AND PROXY STATEMENT |
PROPOSALS 1(a) – 1(k)1(j) – ELECTION OF DIRECTORS
(Ordinary Resolutions)
The Company uses a majority of votes cast standard for the election of directors. A majority of the votes cast means that the number of votes cast "for"“for” a director nominee must exceed the number of votes cast "against"“against” that director nominee. Each of the Board of Directors nomineesDirector Nominees is being nominated for election for aone-year term beginning at the end of the 20152017 AGM to be held on October 21, 201518, 2017 and expiring at the end of the 2016 AGM.2018 Annual General Meeting of Shareholders (the “2018 AGM”).
Under our Articles of Association, if a director is notre-elected in a director election, then that director will not be appointed and the position on the Board of Directors that would have been elected or filled by the director nominee will, except in limited circumstances, become vacant. The Board of Directors has the ability to fill the vacancy in accordance with the Articles of Association, subject to approval by the Company'sCompany’s shareholders at the next AGMannual general meeting of Shareholders.shareholders.
Notwithstanding the requirement that a director nominee requires a majority of the votes cast, as Irish law requires a minimum of two directors at all times, in the event that an election results in either only one or no directors receiving the required majority vote, either the nominee or each of the two nominees, as appropriate, receiving the greatest number of votes in favor of his or her election shall, in accordance with the Company'sCompany’s Articles of Association, hold office until his or her successor(s) shall be elected.
The Board of Directors recommends that you vote "FOR" each of the following nominees:THE BOARD RECOMMENDS THAT YOU VOTE “FOR” EACH OF THE FOLLOWING NOMINEES:
(a) | Stephen J. Luczo—age | Mr. Luczo has been our On October 1, 2017, Mr. Luczo will step down from his position as CEO of Seagate and become our Executive Chairman. |
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Expertise:As our CEO, Mr. Luczo brings significant expertise to our Board |
(b) Mark W. Adams – age 53, Director since 2017 | Mark W. Adams has | ||||
Expertise:Mr. | |||||
(c) Michael R. Cannon—age | Mr. Cannon served as President, Global Operations of Dell Inc. from February 2007 until his retirement in January 2009, and as |
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Expertise:Mr. Cannon has extensive industry expertise, including expertise in the disk drive business that is invaluable to our |
(d) Mei-Wei | Mr. Cheng | ||||
Expertise: | |||||
(e) William | Mr. Coleman has been CEO of Veritas Technologies LLC since January 2016. He was a partner with Alsop Louie Partners, a venture capital firm that invests in early stage technology, | ||||
Mr. Coleman previously founded BEA Systems, Inc., an enterprise application and service infrastructure software provider, where he served as Chairman of the Board from 1995 |
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Expertise:As a partner of a private equity firm and |
Table of Contentsexperience.
(f) | Jay L. Geldmacher—age | Since November 2013, Mr. Geldmacher has served as CEO of Artesyn Embedded Technologies, a spin off from the Embedded Computing and Power business of Emerson | ||
Expertise: | As a CEO, Mr. Geldmacher brings international, technological, and operational expertise to our Board, | |||
(g) William D. Mosley—age 51, Director since 2017 | Mr. Mosley has been our COO since June 2016 and On October 1, 2017, Mr. Mosley will become our CEO. Expertise: As our COO, Mr. Mosley is directly responsible for the Company’s operations. With his broad-based executive-level experience andin-depth understanding of | |||
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(h) Dr. Chong Sup Park—age | Dr. Chong Sup Park served as Chairman and CEO of Maxtor from November 2004 until May 2006, as Chairman of | |||
Expertise: | As a former board chair and CEO, and having held other senior management positions with other companies, Dr. Park |
(i) Stephanie Tilenius—age | Ms. Tilenius is a | ||||
Expertise: | Ms. Tilenius is an experienced senior executive in the consumer internet sector. She contributes her leadership, strategic insight, digital and |
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2017 NOTICE OF MEETING AND PROXY STATEMENT |
(j) Edward J. Zander—age | Mr. Zander served as Chairman and CEO of Motorola, Inc. from January 2004 until January 2008, when he retired as CEO and continued as Chairman. He resigned as Chairman in May 2008. Prior to joining Motorola, Mr. Zander was a Managing Director of Silver Lake Partners, a leading private equity fund focused on investments in technology industries from July 2003 to December 2003. Mr. Zander was President and COO of Sun Microsystems Inc., a leading provider of hardware, software and services for networks, from October 1987 until June 2002. Within the past five years, Mr. Zander has served as a member of the board of directors of NetSuite, Inc. | ||
Expertise: | Mr. Zander brings financial, technological, sales and marketing, and research and development expertise to our Board |
There isare no familyfamilial relationships between any of the directors, director nomineesDirector Nominees or our executive officers, nor are any of our directors, director nomineesDirector Nominees or executive officers party to any legal proceedings adverse to us.
PROPOSAL 2 – DETERMINE THE PRICE RANGE AT WHICH THE COMPANYCAN RE-ISSUE SHARES HELD AS TREASURY SHARES(Special Resolution)
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Our open-market share repurchases and other share buyback activities, all effected by way of redemptions in accordance with our Articles of Association, may result in ordinary shares being acquired and held by the Company as treasury shares. We may re-issue treasury shares that we acquire through our various share buyback activities including in connection with our executive and director compensation programs.
Under Irish law, our shareholders must authorize the price range at which we may re-issue any shares held in treasury. In this Proposal, that price range is expressed as a minimum and maximum percentage of the closing market price of our ordinary shares on the NASDAQ the day preceding the day on which the relevant share is re-issued. Under Irish law, this authorization must expire no later than 18 months after its passing unless renewed.
"RESOLVED, that for purposes of Section 1078 of the Companies Act 2014, the re-allotment price at which any treasury shares (as defined by Section 106(1) of the Companies Act of 2014) held by the Company may be re-allotted off-market shall be as follows:
(a) The maximum price at which a treasury share may be re-allotted off-market shall be an amount equal to 120% of the closing price on the NASDAQ for shares of that class on the day preceding the day on which the relevant share is re-allotted by Seagate.
(b) The minimum price at which a treasury share may be re-allotted shall be the nominal value of the share where such a share is required to satisfy an obligation under an employees' share scheme (as defined under Section 64(1) of the Companies Act 2014) or any share incentive plan operated by Seagate or, in all other cases, an amount equal to 90% of the closing price on the NASDAQ for shares of that class on the day preceding the day on which the relevant share is re-allotted by Seagate.
(c) The re-allotment price range as determined by paragraphs (a) and (b) shall expire eighteen months from the date of the passing of this resolution, unless previously varied, revoked or renewed in accordance with the provisions of Section 1078 of the Companies Act 2014."
The affirmative vote of not less than 75% of the votes cast by holders of ordinary shares represented in person or by proxy at the 2015 AGM is necessary to approve Proposal 2 regarding the price range at which Seagate may re-issue any treasury shares in off-market transactions.
The Board of Directors recommends that shareholders vote "FOR" the proposal to determine the price at which the Company can reissue shares held as treasury shares.
PROPOSAL 3 – AN ADVISORY, NON-BINDING VOTE ON THE COMPANY'SEXECUTIVE COMPENSATION
The Board of Directors is presenting the following Proposal, commonly known as a "Say-on-Pay" proposal, which gives you as a shareholder the opportunity to endorse or not endorse, in an advisory, non-binding vote, the compensation of our named executive officers, as required by Section 14A of the Exchange Act and the related rules of the SEC. The Board of Directors currently intends to hold such votes annually. Accordingly, the next such vote will be held at the Company's 2016 Annual General Meeting. You may endorse or not endorse, respectively, the compensation paid to our named executive officers by voting for or against the following resolution:
"RESOLVED, that, on an advisory, non-binding basis, the compensation of the Company's named executive officers, as disclosed in the Compensation Discussion and Analysis, the accompanying compensation tables and the related disclosure contained in the Company's proxy statement is hereby approved."
While our Board of Directors intends to carefully consider the shareholder vote resulting from the proposal, the final vote will not be binding, and is advisory in nature.
In considering your vote, please be advised that our compensation program for our named executive officers is guided by our design principles, as described in the Compensation Discussion and Analysis of this Proxy Statement:
The Board of Directors recommends that you vote "FOR" the advisory, non-binding approval of the compensation of our named executive officers as disclosed in the Compensation Discussion and Analysis, the accompanying compensation tables, and the related disclosure contained in this Proxy Statement.
PROPOSAL 4 – NON-BINDING RATIFICATION OF APPOINTMENT OF ERNST & YOUNG LLPAND BINDING AUTHORIZATION OF AUDIT COMMITTEE TO SET AUDITORS' REMUNERATION
At the 2015 AGM, shareholders will be asked to approve the appointment of Ernst & Young LLP as our independent auditors for the fiscal year ending July 1, 2016, and to authorize the Audit Committee of our Board of Directors to set the independent auditors' remuneration. Ernst & Young LLP has been acting as our independent auditors for many years and, both by virtue of its long familiarity with the Company's affairs and its ability, is considered best qualified to perform this important function.
Representatives of Ernst & Young LLP will be present at the 2015 AGM and will be available to respond to appropriate questions. They will have an opportunity to make a statement if they so desire.
The Board of Directors recommends a vote "FOR" the proposal to approve the appointment of Ernst & Young LLP as independent auditors of the Company and to authorize the Audit Committee of the Board of Directors to set the auditors' remuneration.
Our management is responsible for preparing and presenting our financial statements, and our independent auditors, Ernst & Young LLP, are responsible for performing an independent audit of our annual consolidated financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB) and for auditing the effectiveness of our internal control over financial reporting as of the end of our fiscal year. One of the Audit Committee's responsibilities is to monitor and oversee these processes. In connection with the preparation of the financial statements as of and for the fiscal year ended July 3, 2015, the Audit Committee performed the following tasks:
Based upon these reviews and discussions, the Audit Committee recommended, and the Board of Directors approved, that our audited financial statements be included in our Annual Report on Form 10-K for the fiscal year ended July 3, 2015, for filing with the SEC.
SEAGATE TECHNOLOGY PLC | 2017 Proxy Statement |
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Fees Paid to Independent Auditors
The aggregate fees paid or accrued by us for professional services provided by Ernst & Young LLP in fiscal years ended July 03, 2015 and June 27, 2014 are set forth below.
| Fiscal Year | ||||||
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| 2015 | 2014 | |||||
| (In thousands) | ||||||
Audit Fees | $ | 6,170 | $ | 6,438 | |||
Audit-Related Fees | 331 | 869 | |||||
Tax Fees | 46 | 309 | |||||
All Other Fees | 18 | 8 | |||||
| | | | | | | |
Total | $ | 6,565 | $ | 7,624 | |||
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Audit Fees. This category consists of professional services provided in connection with the integrated audit of our annual consolidated financial statements and the audit of internal control over financial reporting, the review of our unaudited quarterly consolidated financial statements, and audit services that are normally provided by the independent registered public accounting firm in connection with statutory and regulatory filings or engagements for those fiscal years. The fees for fiscal year 2015 included audit activities related to the acquisition of LSI's flash business and services in connection with our debt offerings, and in fiscal year 2014 included audit activities related to the acquisition of Xyratex Ltd and services in connection with our debt offerings.
Audit-Related Fees. This category consists of assurance and related services provided by Ernst & Young LLP that were reasonably related to the performance of the audit or review of our consolidated financial statements and which are not reported above under "Audit Fees". For fiscal years 2015 and 2014, this category includes: pension plan and grant or similar audits, agreed upon procedures engagements, and advisement on accounting matters that arose during those years in connection with the preparation of our annual and quarterly consolidated financial statements and fees related to due diligence procedures.
Tax Fees. This category consists primarily of professional services provided by Ernst & Young LLP primarily for tax compliance for fiscal years 2015 and 2014.
All Other Fees. This category consists of fees for the use of Ernst & Young LLP's online accounting research tool and iXBRL tagging services performed for fiscal years 2015 and 2014.
In fiscal years 2015 and 2014, all audit, audit related, tax and all other fees were pre-approved by the Audit Committee. Under the SEC rules, subject to certain permitted de minimis criteria, pre-approval is required for all professional services rendered by the Company's principal accountant. We are in compliance with these SEC rules. In making its recommendation to ratify the appointment of Ernst & Young LLP as our independent auditors for fiscal year 2016, the Audit Committee considered whether the services provided to us by Ernst & Young LLP are compatible with maintaining the independence of Ernst & Young LLP from us. The Audit Committee has determined that the provision of these services by Ernst & Young LLP is compatible with maintaining that independence.
Pre-Approval of Services by Independent Auditors
The Audit Committee pre-approves all audit and other permitted non-audit services provided to us by our independent auditors. These services may include audit services, audit-related services, tax services and other permissible non-audit services. The Audit Committee may also pre-approve particular services on a case-by-case basis. The Audit Committee has delegated the authority to grant pre-approvals to the Audit Committee Chair when the full Audit Committee is unable to do so. These pre-approvals are reviewed by the full Audit Committee at its next regular meeting. Our independent auditors and senior management periodically report to the Audit Committee regarding the extent of services provided by the independent auditors.
Corporate Governance Guidelines
Our Corporate Governance Guidelines, together with the Board of Directors committee charters, provide the framework for the corporate governance of the Company. Following is a summary of our Corporate Governance Guidelines. Our Corporate Governance Guidelines, as well as the charters of each of our Board committees, are available on our website at www.seagate.com, under "Investors—Corporate“Investors - Governance."”
Role of the Board of Directors
The Board, of Directors, elected annually by our shareholders, directs and oversees the management of the business and affairs of the Company. In this oversight role, the Board of Directors serves as the ultimatedecision-making body of the Company, except for those matters reserved to the shareholders.
The Board of Directors and its Committeescommittees have the primary responsibilities of:
Board Leadership Structure
The Board of Directors generally believes that the offices of Chairman and CEO should be held by separate persons to aid in the oversight of management, unless it is in the best interests of the Company that the same person holds both offices. The Board of Directors believes that having Mr. Luczo serving inWhile the combined role of Chairman and CEO has worked well for the Company, the Board believes that from a strategic and governance perspective, it is in the most effective structure forbest interests of the Company, at this time, to separate the offices of the CEO and Chairman. The Board believes that it has worked well forits succession strategy, with the Company.appointment of William D. Mosley as CEO effective October 1, 2017, and as a director of the Board effective July 25, 2017, will benefit from and be enhanced by Mr. Luczo’s continued service as the Chairman of the Board. The Board believes that the separation of the offices of the CEO and Chairman will ensure an effective implementation of its succession strategy. It is the Board of Directors'Board’s view that the Company'sCompany’s corporate governance principles, the quality, stature and substantive business knowledge of the members of the Board, of Directors, as well as the Board of Directors'Board’s culture of open communication with the CEO and senior management are currently conducive to Board of Directors effectiveness with a combinedthe separation of the Chairman and CEO position.positions.
In addition, the Board of Directors hascontinues to retain a Lead Independent Director and it believes this role addresses the need for independent leadership and perspective in addition to an organizational structure for
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the independent directors. The Board of Directors appoints the Lead Independent Director each year after the AGMannual general meeting for an aone-year term from among the Board of Directors' independent directors. term. The Lead Independent Director coordinates the activities of the othernon-employee directors, presides over meetings of the Board of Directors at which the Chairman of the Board is not present and at each executive session, facilitates the CEO evaluation process, serves as liaison between the Chairman of the Board and the independent directors, approves meeting schedules and agendas for the Board, of Directors, has authority to call meetings of the independent directors, and is available for consultation and direct communication if requested by major shareholders.
Dr. ParkMr. Cannon has served as our Lead Independent Director since October 26, 201119, 2016 having been re-appointedappointed by the Board of Directors annually sinceon that date.
Board Risk Oversight
The Board of Directors has oversight responsibility of the processes established to report and monitor systems for material risks applicable to the Company. The Board of Directors and its committees focus on the Company'sCompany’s general risk management strategy and the most significant risks facing the Company and ensure that appropriate risk mitigation strategies are implemented by management. The full Board of Directors is responsible for considering strategic risks and succession planning, and the committees oversee other categories of risk including:
Finally, as part of its oversight of the Company'sCompany’s executive compensation program, the Compensation Committee considers the impact of the Company'sCompany’s executive compensation program and the incentives created by the compensation awards that it administers on the Company'sCompany’s risk profile. In addition, the Company reviews all of its compensation policies and procedures, including the incentives that they create and factors that may reduce the likelihood of excessive risk taking, to determine whether they present a significant risk to the Company. Based on this review, the Company has concluded that its compensation policies and procedures are not reasonably likely to have a material adverse effect on the Company.
Director Compensation and Share Ownership
It is the Board of Directors'Board’s practice to maintain a fair and straightforward compensation program at the Board of Directors level, which is designed to be competitive with compensation programs from comparable companies. The Compensation Committee recommends and administers the policies that govern the level and form of director compensation, with oversight from the independent directors. In addition, the Compensation Committee believes that a substantial portion of the total director compensation package should be in the form of equity in the Company in order to better align the interests of the Company'sCompany’s directors with thelong-term interests of its shareholders. As such, the directors are subject to a share ownership requirement of four times the annual cash retainer paid to the directors as described in more detail later in this Proxy Statement.
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Board Composition
The Board of Directors consists of a substantial majority of independent,non-employee directors. In addition, our Corporate Governance Guidelines require that all members of the standing committees of the Board of Directors must be independent directors. The Board of Directors has the following four standing committees: Audit Committee, Compensation Committee, Nominating and Corporate Governance Committee, and Finance Committee. The Board of Directors has determined that each member of each of these committees is "independent"“independent” as defined in the NASDAQ listing standards and that each member of the Compensation Committee and Audit Committee meet applicable NASDAQ and SEC independence standards for such committees. Committee memberships and chairs are rotated periodically.
Table of Contentsperiodically and an independence analysis is conducted annually.
Board Diversity
While theThe Board of Directors has not adopted a formal policy with regard to the consideration of diversity in identifying director nominees, thenominees. The Nominating and Corporate Governance Committee considers the skills, expertise and background of director nominees. The Nominating and Corporate Governance Committee seeks director nominees that would complement and enhance the effectiveness of the existing Board of Directors and ensure that its members are appropriately diverse and consists of members with various and relevant backgrounds, skills, knowledge, perspectives and experience.experiences.
Board Advisors
The Board of Directors and its committees may, under their respective charters, retain their own external and independent advisors to carry out their responsibilities. For fiscal year 2017, the Compensation Committee retained FW Cook as its external and independent advisor.
Executive Sessions
The Company'sCompany’s independent directors meet privately in regularly scheduled executive sessions of the Board of Directors and Committees,committees, without management present, to consider such matters as the independent directors deem appropriate. These executive sessions are typically held at each Board of Directors and Committeecommittee meeting.
Board Evaluation
The Nominating and Corporate Governance Committee assists the Board of Directors in periodically evaluating its performance and the performance of the Board committees. Each committee also conducts periodic self-evaluation.self-evaluation and the Board conducts periodicpeer-to-peer evaluations. The effectiveness of individual directors is considered each year when the Board of Directors nominates directors to stand for election.
Director Orientation and Education
The Company has developed an orientation program for new directors and reimburses directors for continuing education. In addition, the directors are given full access to management and other employees as a means of providing additional information.
Director Nomination Process
The Nominating and Corporate Governance Committee reviews the composition of the full Board of Directors to identify the qualifications and areas of expertise needed to further enhance the composition of the Board, of Directors,
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SEAGATE TECHNOLOGY PLC | 2017 Proxy Statement |
2017 NOTICE OF MEETING AND PROXY STATEMENT |
makes recommendations to the Board of Directors concerning the appropriate size and needs of the Board of Directors and, on its own, with the assistance of other Board of Directors members or management, a search firm or others, identifies candidates with those qualifications. The Board reviews and considers the Nominating and Corporate Governance Committee’s recommendations and determines the Director Nominations. In considering candidates, the Nominating and Corporate Governance Committee takes into account all factors it considers appropriate, including breadth ofprofessional experience, understanding of business and financial issues, ability to exercise sound judgment, diversity, leadership, and achievements, knowledge and experience in matters affecting business and industry. The Nominating and Corporate Governance Committee considers the entirety of each candidate'scandidate’s credentials and believes that at a minimum, each nominee should satisfy the following criteria: highest character and integrity, experience and understanding of strategy, sufficient time to devote to Board of Directors matters, and no conflict of interest that would interfere with performance as a director. The Nominating and Corporate Governance Committee seeks to ensure that the Board of Directors is composed of members whose particular expertise, qualifications, attributes and skills, when taken together, allow the Board of Directors to satisfy its oversight responsibilities effectively. Shareholders may recommend candidates for consideration for Board of Directors membership by sending the recommendation to the Nominating and Corporate Governance Committee, care of the Company Secretary. Candidates recommended by shareholders are evaluated in the same manner as director candidates identified by any other means.
Term Limits and Retirement
The Board of Directors does not have a mandatory retirement age for directors and, because the Nominating and Corporate Governance Committee annually evaluates director nominees for the following year, the Board of Directors has decided not to adopt arbitrary term limits for its directors.
Director Independence
The Board, based on its review and the recommendation of Directorsthe Nominating and Corporate Governance Committee, has determined that all of our current directors and director nominees,Director Nominees, except Stephen J. Luczo and William D. Mosley, who is an employeeare employees of the Company, are independent under the NASDAQ listing standards and the Corporate Governance Guidelines, which are consistent with the NASDAQ listing standards. When assessing director independence, the Board of Directors considers the various commercial, charitable and employment transactions and relationships known to the Board of Directors (including those identified through annual directors'directors questionnaires) that exist between the Company and the entities with which our directors or members of their immediate families are, or have been, affiliated. The Board of Directors evaluated certain transactions that arose in the ordinary course of business between the Company and such entities and which occurred on the same terms and conditions available to other customers and suppliers. After reviewing these transactions and such other information as the Board of Directors deemed advisable, the Board of Directors determined that Messrs. Biondi,Adams, Cannon, Cheng, Coleman, Geldmacher Reyes and Zander, Mses. Onken andMs. Tilenius and Drs.Dr. Park and Moyo are independent under both the Company'sCompany’s Corporate Governance Guidelines and the applicable NASDAQ rules.
Director Changes
On October 19, 2016, Ms. Kristen M. Onken did not stand forre-election at the 2016 AGM. Mr. Gregorio Reyes, currently servingAdams was appointed as a member of our Board and of Directorsthe Audit Committee effective January 19, 2017 and Mr. Mosley was appointed as a member of our Board effective July 25, 2017. The Board believes that the appointments of Messrs. Adams and Mosley enhance the overall effectiveness of the Board.
Dr. Dambisa F. Moyo and Mr. Frank J. Biondi, Jr., currently serving as members of our Board, will retirenot stand forre-election to our Board at the 2015conclusion of their terms at the 2017 AGM. This is not due to any disagreement with the Company'sCompany’s management or Board of Directors.Board.
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SEAGATE TECHNOLOGY PLC | 2017 Proxy Statement |
2017 NOTICE OF MEETING AND PROXY STATEMENT |
Communications with Directors
Shareholders and other interested parties wishing to communicate with the Board, of Directors, thenon-employee directors or any individual director (including our Lead Independent Director and any Committee Chair) may do so by sending a communication to the Board of Directors and/or a particular member of the Board, of Directors, care of the Company Secretary.Secretary at Seagate Technology plc, 10200 S. De Anza Boulevard, Cupertino, California 95014. Depending upon the nature of the communication and to whom it is directed, the Company Secretary will: (a) forward the communication to the appropriate director or directors; (b) forward the communication to the relevant department within the Company; or (c) attempt to handle the matter directly (for example, a communication dealing with a share ownership matter).
The Company has adopted a Code of Ethics applicable to the Chief Executive Officer,CEO, the Chief Financial Officer,CFO, and the principal accounting officer or controller or persons performing similar functions ofat Seagate Technology plc. The Code of Ethics is available atwww.seagate.com, under "Investors."“Investors - Governance.” Amendments to, or waivers of the Code of Ethics will be disclosed promptly on our website or on a current report onForm 8-K. No such waivers were requested or granted in the fiscal year 2015.2017.
Securities Trading Policy and Other Restrictions
The Company prohibits its directors and executive officers from (i) purchasing any financial instruments designed to hedge or offset any decrease in the market value of Company securities and (ii) engaging in any form ofshort-term speculative trading in Company securities. Directors and
executive officers are also prohibited from holding Company securities in a margin account or pledging Company securities as collateral for a loan unless the General CounselChief Legal Officer or the Chief Financial Officer providespre-clearance after the director or executive officer clearly demonstrates the financial capability to repay the loan without resort to the pledged securities.
The following sets forth the name, age and position of each of the persons who were serving as executive officers as of September 4, 2015. There are no family relationships among any of our executive officers.25
SEAGATE TECHNOLOGY PLC | 2017 Proxy Statement |
2017 NOTICE OF MEETING AND PROXY STATEMENT |
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Our Board has adopted a written policy for approval of transactions with our directors, Director Nominees, executive officers, shareholders that beneficially own more than 5% of our shares and immediate family members of such persons (each, a “Related Person”). Pursuant to the policy, if any Related Person has a direct or indirect material interest in a transaction or potential transaction in which the amount involved exceeds $120,000, he or she must promptly report it to the Chief Legal Officer of the Company or her designee. The Nominating and Corporate Governance Committee then reviews any such transactions and determines whether or not to approve or ratify them. In doing so, the Nominating and Corporate Governance Committee takes into account, among other factors it deems to be appropriate, the extent of the Related Person’s interest; whether the transaction would interfere with the Related Person’s judgment in fulfilling his or her duties to the Company; whether the transaction is fair to the Company and on terms no less favorable than terms generally available to an unaffiliated third party under similar circumstances; whether the transaction is in the interest of the Company and its shareholders; and whether the transaction would present an improper conflict of interest.
In addition, if the transaction involves a director, the Nominating and Corporate Governance Committee will consider whether such transaction would impact such director’s independence under NASDAQ rules or qualifications to serve on committees under the Company’s Corporate Governance Guidelines and applicable NASDAQ and SEC rules. The Board has delegated authority to the Chair of the Nominating and Corporate Governance Committee to review and approve or ratify transactions where the aggregate amount is expected to be less than $1 million. A summary of any new transactions approved by the Chair is provided to the full Nominating and Corporate Governance Committee for its review at the next scheduled committee meeting after such approval.
Josip Relota, Mr. Luczo’sbrother-in-law, is employed as a software engineer by the Company. In connection with such employment, Mr. Relota receives a total annual cash compensation of approximately $204,186 and a retention bonus of $92,787. In addition, Mr. Relota is eligible to participate in our general employee benefit plans, including vacation and health plans. The Company’s Nominating and Corporate Governance Committee has ratified the terms of Mr. Relota’s employment and compensation.
On September 19, 2016, the Company entered into a Board Observer Rights Agreement (the “Observer Rights Agreement”) with ValueAct Capital Master Fund L.P. (“ValueAct”) which beneficially owns more than 5% of the Company’s ordinary shares as of August 11, 2017. Pursuant to the Observer Rights Agreement, ValueAct is entitled to one seat as a board observer provided that it continue to own not less than 2% of the ordinary shares of the Company. This board observer right was granted to ValueAct in connection with ValueAct’s purchase of 9.5 million ordinary shares of the Company. Under the terms of the Observer Rights Agreement, the Board retains the right to limit access to information and attendance at portions of the Board meetings at the Board’s discretion and ValueAct is required to comply with the terms of the Confidentiality Agreement with the Company, which was entered into on the same day. ValueAct was not a related party of the Company at the time the Company entered into these agreements.
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SEAGATE TECHNOLOGY PLC | 2017 Proxy Statement |
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Stephen J. Luczo. Mr. Luczo, 58, has served as our CEO since January 2009 and as Chairman of the Board since 2002. Mr. Luczo joined Seagate in October 1993 as Senior Vice President of Corporate Development. In September 1997, he was promoted to President and Chief Operating Officer of Seagate Technology (Seagate Technology plc's predecessor) and, in July 1998, he was promoted to CEO at which time he joined the Board as a director of Seagate Technology. Mr. Luczo resigned as CEO effective as of July 2004, but remained as Chairman of the Board. He served as non-employee Chairman from October 2006 to January 2009. From October 2006 until he rejoined us in January 2009, Mr. Luczo was a private investor. Mr. Luczo also served as our President from January 2009 until October 2013. Prior to joining Seagate in 1993, Mr. Luczo was Senior Managing Director of the Global Technology Group of Bear, Stearns & Co. Inc., an investment banking firm, from February 1992 to October 1993. Mr. Luczo served on the board of directors of Microsoft Corporation from May 2012 to March 2014.
Philip G. Brace. Mr. Brace, 44, has served as our President, Cloud Systems and Electronics Solutions since July 22, 2015. Mr. Brace joined Seagate in September 2, 2014 as Executive Vice President and Chief Technology Officer of Silicon Solutions, and was promoted to Interim President of Cloud Systems and Electronics Solutions on April 30, 2015. He was previously employed by LSI Corporation ("LSI") from August 2005 through September 2014. At LSI, he was the Executive Vice President of the Storage Solutions Group from July 2012 to September 2014, Senior Vice President and General Manager from January 2009 to July 2012, and Senior Vice President of Corporate Planning and Marketing from August 2005 to January 2009.
William D. Mosley. Mr. Mosley, 49, has served as our President, Operations and Technology since October 2013 and as Executive Vice President, Operations from March 2011 until October 2013. Prior to that, he served as Executive Vice President, Sales and Marketing from September 2009 through March 2011; Executive Vice President, Sales, Marketing and Product Line Management from February 2009 to September 2009; Senior Vice President, Global Disk Storage Operations from 2007 to 2009; and Vice President, Research and Development, Engineering from 2002 to 2007.
Albert A. "Rocky" Pimentel. Mr. Pimentel, 60, has served as our President of Global Markets and Customers since October 2013 and as Executive Vice President, Chief Sales and Marketing Officer from April 2011 until October 2013. Prior to that, Mr. Pimentel served as a director of Seagate from 2009 until his resignation from the Board of Directors in April 2011. Mr. Pimentel served as Chief Operating Officer and Chief Financial Officer ("CFO") at McAfee, Inc., from 2008 until he retired in August 2010. He served as the Executive Vice President and CFO of Glu Mobile from 2004 to 2008. Prior to joining Glu Mobile, Mr. Pimentel served as Executive Vice President and CFO at Zone Labs from 2003 to 2004, which was acquired by Check Point Software in 2004.
Patrick J. O'Malley. Mr. O'Malley, 53, has served as our Executive Vice President and Chief Financial Officer since August 2008. Previously, he served as our Senior Vice President, Finance from 2005 to August 2008. Prior to that, he was our Senior Vice President, Consumer Electronics from 2004 to 2005.
Mark Re. Mr. Re, 55, has served as our Senior Vice President, Research and Development since July 2013. Prior to that, he served as our Vice President, Research, from August 2003 to August 2006. Mr. Re currently serves on the Scientific Advisory Board for the Data Storage Institute, as well as on the Pittsburgh Technology Council and the Advanced Storage Technology Consortium.
Douglas DeHaan. Mr. DeHaan, 57, has been our General Manager, Samsung HDD Products since September 2012. Prior to that, he served as our Senior Vice President, Operations and Materials, from February 2009 until September 2012; Senior Vice President of Quality from 2008 to 2009; and Senior Vice President of Product and Process Development, Core Products, from 2003 to 2008.
David H. Morton Jr. Mr. Morton, 43, has served as our Senior Vice President, Finance, Treasurer and Principal Accounting Officer since April 2014 and our Vice President, Finance, Treasurer and Principal Accounting Officer from October 2009 to April 2014; Vice President of Finance, Sales and Marketing from March 2009 to October 2009; Vice President of Sales Operations from July 2007 to March 2009; Vice President of Finance, Storage Markets from October 2006 to July 2007; Executive Director of Consumer Electronics Finance from October 2005 to October 2006; and Executive Director of Corporate FP&A from June 2004 to October 2005.
Regan J. MacPherson. Ms. MacPherson, 52, has served as our Vice President and Interim General Counsel since August 2015. She served as Deputy General Counsel from September 2013 until August 2015. Prior to that, she was Assistant General Counsel from 2010 through 2013, Associate General Counsel from 2008 to 2010 and a Senior Manager in Legal from 2005 to 2008.
Audit Committee
Members: Dr. Chong Sup Park, Chair
Mark W. Adams
Members:Mei-Wei Kristen M. Onken, ChairMichael R. CannonMei-Wei ChengGregorio Reyes
Dr. Dambisa F. Moyo
Key Functions:
The Board of Directors has determined that all current members of the Audit Committee meet the applicable NASDAQ and SEC standards for membership on the Audit Committee, and that each of Dr. Park, Mr. Cannon,Adams, Mr. Cheng and Ms. OnkenDr. Moyo is an audit committee financial expert, as that term is defined by rules of the SEC.
A copy of the charter of the Audit Committee is available on our website,www.seagate.com, under the heading "Investors—Corporate“Investors - Governance."”
Compensation Committee
Members: Edward J. Zander, Chair
Frank J. Biondi, Jr.
Michael R. Cannon
Jay L. GeldmacherChong Sup Park
Key Functions:
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SEAGATE TECHNOLOGY PLC | 2017 Proxy Statement |
2017 NOTICE OF MEETING AND PROXY STATEMENT |
based on this evaluation. The Compensation Committee Chair presents all compensation decisions pertaining to the CEO to the full Board, however, all compensation decisions related to the CEO are determined by the Board’s independent directors. |
The Compensation Committee may form subcommittees composed of two or more of its members for any purpose the Compensation Committee deems appropriate and may delegate to such subcommittees such power and authority as the Compensation Committee deems appropriate. In addition, the Compensation Committee may delegate to one or more officers of the Company the authority to make grants and awards of cash or equity securities to any employee who is not a Section 16 officer of the Company under the Company’s incentive-compensation or other equity-based plans, provided that such delegation is in compliance with such plan, the Company’s Articles of Association and applicable law.
For a discussion concerning the processes and procedures for determining executive and director compensation and the role of executive officers and compensation consultants in determining or recommending the amount or form of compensation, see "Compensation“Compensation Discussion and Analysis"Analysis” and "Compensation“Compensation of Directors,"” respectively.
The Board has determined that each member of the Compensation Committee meets all applicable NASDAQ and SEC standards for membership on the Compensation Committee. In addition, the Board has determined that each member of the Compensation Committee qualifies as a "Non-Employee Director"“Non-Employee Director” within the meaning ofRule 16b-3 of the Securities Exchange Act of 1934
and an "outside director"“outside director” within the meaning of Section 162(m) of the Internal Revenue Code of 1986 (the "Code"“Code”).
A copy of the charter of the Compensation Committee is available on our website,www.seagate.com, under the heading "Investors—Corporate“Investors - Governance."”
Compensation Committee Interlocks and Insider Participation
None of the members of our Compensation Committee during fiscal year 2015: was an employee of the Company or any of its subsidiaries at any time during fiscal year 2015, has ever been an executive officer of the Company or any of its subsidiaries, or had a relationship with the Company during that period requiring disclosure pursuant to Item 404(a) of Regulation S-K. No executive officers of the Company served on the compensation committee of any other entity, or as a director of an entity that employed any of the members of the Compensation Committee during fiscal year 2015.
Nominating and Corporate Governance Committee
Members: Michael R. Cannon, Chair
William T. Coleman
Dr. Chong Sup Park
Stephanie Tilenius
Key Functions:
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SEAGATE TECHNOLOGY PLC | 2017 Proxy Statement |
2017 NOTICE OF MEETING AND PROXY STATEMENT |
The Board has determined that each member of the Corporate Governance and Nominating Committee is "independent"“independent” as defined in the NASDAQ listing standards and the Company'sCompany’s Corporate Governance Guidelines.
A copy of the charter of the Corporate Governance and Nominating Committee is available on our website,www.seagate.com, under the heading "Investors—Corporate“Investors - Governance."”
Finance Committee
Members: Frank J. Biondi, Jr., Chair
Mei-Wei Cheng
William T. ColemanGregorio Reyes
Dr. Dambisa F. Moyo
Stephanie Tilenius
Key Functions:
The Board has determined that each member of the Finance Committee is "independent"“independent” as defined in the NASDAQ listing standards and the Company'sCompany’s Corporate Governance Guidelines.
A copy of the charter of the Finance Committee is available on our website,www.seagate.com, under the heading "Investors—Corporate“Investors - Governance."”
Board, Committee and Annual Meeting Attendance
The Board of Directors and its committees held the following number of meetings during the fiscal year ended July 3, 2015:June 30, 2017:
Board | 6 | |||
Audit Committee | 6 | |||
Compensation Committee | 6 | |||
Nominating and Corporate Governance Committee | 4 | |||
| ||||
| ||||
| ||||
|
Each incumbent director attended over 75% or more of the total number of meetings of the Board of Directors and the committees on which he or she served during the fiscal year 2015.2017. The Company's Company’snon-employee directors
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SEAGATE TECHNOLOGY PLC | 2017 Proxy Statement |
2017 NOTICE OF MEETING AND PROXY STATEMENT |
held 8four executive sessions without management present during the fiscal year 2015.2017. It is the Board'sBoard’s general practice to hold twoan executive sessionssession of the independent directors in connection with regularly scheduled Board meetings.
The Company expects all Board members to attend the 2017 AGM, but from time to time other commitments prevent all directors from attending the meeting. All of the Company'sCompany’s directors who served in such capacity on October 19, 2016, attended the most recent AGM (the "2014 AGM"“2016 AGM”), which was held on October 22, 201419, 2016 in Dublin, Ireland.
Our director compensation program is designed to compensatenon-employee directors fairly for work required for a company of our size and scope and align their interests with thelong-term interests of our shareholders. The program reflects our desire to attract, retain and use the expertise of highly qualified people serving on the Company's Board of Directors. Company’s Board.Employee-directors do not receive any additional compensation for serving as a director.
Our 2015fiscal year 2017 director compensation program fornon-employee directors consisted of the following elements:
Board or Board Committee | Membership | Retainer as of October 21, 2015 | ||||
---|---|---|---|---|---|---|
Board of Directors | Non-executive Chairperson | $ | 150,000 | |||
Member | $ | 80,000 | ||||
Audit Committee | Chairperson | $ | 35,000 | |||
Member | $ | 15,000 | ||||
Compensation Committee | Chairperson | $ | 30,000 | |||
Member | $ | 10,000 | ||||
Nominating and Corporate Governance Committee | Chairperson | $ | 20,000 | |||
Member | $ | 10,000 | ||||
Finance Committee | Chairperson | $ | 20,000 | |||
Member | $ | 10,000 | ||||
Lead Independent Director | $ | 30,000 | ||||
Annual Restricted Share Unit Award | $ | 250,000 |
Board or Board Committee | Membership | Retainer as of October 19, 2016 | ||||
Board | Non-executive Chairperson | $ | 150,000 | |||
Member | $ | 100,000 | ||||
Audit Committee | Chairperson | $35,000 | ||||
Member | $15,000 | |||||
Compensation Committee | Chairperson | $30,000 | ||||
Member | $10,000 | |||||
Nominating and Corporate Governance Committee | Chairperson | $20,000 | ||||
Member | $10,000 | |||||
Finance Committee | Chairperson | $20,000 | ||||
Member | $10,000 | |||||
Lead Independent Director | $40,000 | |||||
Annual Restricted Share Unit Award | $ | 275,000 |
Each newly appointed or electednon-employee director (includingnon-employee directors reelectedre-elected at the AGM)annual general meeting) receives an initial restricted share unit award equal in number to $250,000$275,000 divided by the average closing share price for the quarter prior to the award, rounded to the nearest whole share. If the appointment occurred other than in connection with the annual election of directors at an AGMannual general meeting, this dollar amount would bepro-rated for the year of appointment. If, prior to commencement of Board service, the new director was an officer or member of the board of directors of an entity acquired by Seagate, the Board could award a lesser number of restricted share units.units (“RSUs”). The grant date for each such award is the date of the director'sdirector’s election or appointment. Generally, each restricted share unit award will vest on the earlier of, the one year anniversary of the grant date or the day prior to the next election of directors at an AGM.annual general meeting. All restricted share unit awards will become fully vested in the event of a "Change“Change of Control"Control” of Seagate (as such term is defined in the Seagate Technology plc 2012 Equity Incentive Plan (the "2012 Plan"“2012 Plan”)).
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SEAGATE TECHNOLOGY PLC | 2017 Proxy Statement |
2017 NOTICE OF MEETING AND PROXY STATEMENT |
In addition to the cash compensation and equity awards, all members of the Board of Directors are reimbursed for their reasonableout-of-pocket travel expenses incurred in attending Board of Directors related activities.
Share Ownership Requirement
To align the interests of directors with the Company’s shareholders, the Board adopted a share ownership requirement of four times the annual board cash retainer fornon-executive directors. Until a director satisfies the mandatory ownership level, he or she may not sell more than that number of (i) shares that vest pursuant to any outstanding restricted share award or restricted share unit award or (ii) shares that are obtained upon the exercise of any option as is necessary, in each case, to cover the tax liability associated with the vesting or exercise of the equity award. Once attaining the minimum level of Company share ownership, a director must maintain this minimum level of Company share ownership
until his or her resignation or retirement from the Board. In setting the share ownership requirement, the Board considered the input of the independent compensation consultant, the Company'sCompany’s current share price and the period of time it would take a director to reach the required ownership level. Executive directors are subject to the share ownership requirements described in the Compensation Discussion and Analysis section of this Proxy Statement.
20152017 Director Compensation
The compensation paid or awarded to ournon-employee directors for fiscal year 20152017 is summarized in the table below:
| Fees Earned or Paid in Cash ($) | Stock Awards ($)(1) | Total ($) | |||||||
---|---|---|---|---|---|---|---|---|---|---|
Frank J. Biondi, Jr. | 110,000 | 229,855 | 339,855 | |||||||
Michael R. Cannon | 106,785 | 229,855 | 336,640 | |||||||
Mei Wei Cheng | 105,000 | 229,855 | 334,855 | |||||||
William T. Coleman | 99,038 | 229,855 | 328,893 | |||||||
Jay L. Geldmacher | 90,000 | 229,855 | 319,855 | |||||||
Seh-Woong Jeong(2) | 24,835 | 0 | 24,835 | |||||||
Lydia M. Marshall(2) | 34,148 | 0 | 34,148 | |||||||
Kristen M. Onken | 118,022 | 229,855 | 347,877 | |||||||
Chong Sup Park | 129,038 | 229,855 | 358,893 | |||||||
Gregorio Reyes | 105,000 | 229,855 | 334,855 | |||||||
Stephanie Tilenius | 70,054 | 229,855 | 299,909 | |||||||
Edward J. Zander | 110,000 | 229,855 | 339,855 |
Fees or Paid in ($) | Stock Awards ($)(1) | Total ($) | ||||
Mark W. Adams. | 51,497(2) | 169,898 | 221,395 | |||
Frank J. Biondi, Jr. | 124,011 | 244,757 | 368,768 | |||
Michael R. Cannon | 153,571 | 244,757 | 398,328 | |||
Mei-Wei Cheng | 119,011 | 244,757 | 363,768 | |||
William T. Coleman | 114,011 | 244,757 | 358,768 | |||
Jay L. Geldmacher | 104,011 | 244,757 | 348,768 | |||
Dr. Dambisa F. Moyo | 119,011 | 244,757 | 363,768 | |||
Kristen M. Onken(3) | 34,753 | —(3) | 34,753 | |||
Dr. Chong Sup Park | 140,618 | 244,757 | 385,375 | |||
Stephanie Tilenius | 114,011 | 244,757 | 358,768 | |||
Edward J. Zander | 124,011 | 244,757 | 368,768 |
(1) | The amounts shown represent the aggregate grant date fair value of RSU awards granted in fiscal year 2017 for financial reporting purposes pursuant to the provisions of Financial Accounting Standards Board’s Accounting Standards Codification Topic 718, Compensation—Stock Compensation (“ASC 718”). Such amounts do not represent amounts paid to or realized by thenon-employee director. See Note 11, “Share-based Compensation” of the Notes to Consolidated Financial Statements in the Company’s Annual Report on Form 10 K for fiscal year 2017 regarding assumptions underlying valuation of equity awards. Additional information regarding the RSUs awarded to or held by eachnon-employee director on the last day of fiscal year 2017 is set forth in the table below. |
(2) | The amount shown represents thepro-rated amount of fees for fiscal year 2017 paid to Mr. Adams since his appointment to the Board on January 19, 2017. |
(3) | The amount shown represents thepro-rated amount of fees for fiscal year 2017 paid to Ms. Onken for her service on the Board until October 19, 2016. Ms. Onken served as a director until the 2016 AGM held on October 18, 2016, at which time she did not stand forre-election and did not receive RSUs awarded for fiscal year 2017. |
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SEAGATE TECHNOLOGY PLC | 2017 Proxy Statement |
2017 NOTICE OF MEETING AND PROXY STATEMENT |
The aggregate number of unvested RSUs and outstanding options for each of ournon-employee directors as of the fiscal year ended July 3, 2015June 30, 2017 is set forth in the table below:
Number of RSUs Granted in fiscal year 2017 | Aggregate Number of RSUs | Aggregate Number of Options | ||||
Mark W. Adams | 5,470(1) | 5,470(1) | — | |||
Frank J. Biondi, Jr. | 8,437 | 8,437 | — | |||
Michael R. Cannon | 8,437 | 8,437 | — | |||
Mei-Wei Cheng | 8,437 | 8,437 | — | |||
William T. Coleman | 8,437 | 8,437 | — | |||
Jay L. Geldmacher | 8,437 | 8,437 | — | |||
Dr. Dambisa F. Moyo | 8,437 | 8,437 | — | |||
Dr. Chong Sup Park | 8,437 | 8,437 | — | |||
Stephanie Tilenius | 8,437 | 8,437 | — | |||
Edward J. Zander | 8,437 | 8,437 | — |
(1) | The numbers shown represent thepro-rated number of RSUs granted to Mr. Adams for fiscal year 2017 following his appointment to the Board on January 19, 2017. |
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SEAGATE TECHNOLOGY PLC | 2017 Proxy Statement |
2017 NOTICE OF MEETING AND PROXY STATEMENT |
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act, as amended, requires our directors and officers, and persons who beneficially own more than 10% of the Company’s ordinary shares, to file reports of ownership and reports of changes in ownership with the SEC. To the Company’s knowledge, based solely on its review of such forms received by the Company and written representations that no other reports were required, all Section 16(a) filing requirements were complied with for the fiscal year 2017.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth as of August 25, 2017, the beneficial ownership of our ordinary shares for fiscal year 2017 by (i) each director and director nominee of the Company, (ii) each executive officer of the Company named in the Summary Compensation Table below, and (iii) all directors and executive officers of the Company as a group:
Name of Beneficial Owner | Number of | Percentage | ||||||
Directors, Director Nominees and Executive Officers: | ||||||||
Stephen J. Luczo | 1,776,126(2) | * | ||||||
David H. Morton, Jr. | 35,409(3) | * | ||||||
Philip G. Brace | 108,761(4) | * | ||||||
William D. Mosley | 302,148(5) | * | ||||||
James J. Murphy | 410(6) | * | ||||||
Mark W. Adams | -(7) | �� | * | |||||
Frank J. Biondi, Jr. | 35,699(8) | * | ||||||
Michael R. Cannon | 25,157(9) | * | ||||||
Mei-Wei Cheng | 20,718(10) | * | ||||||
William T. Coleman | 18,357(11) | * | ||||||
Jay L. Geldmacher | 17,118(12) | * | ||||||
Dr. Dambisa F. Moyo | 11,753(13) | * | ||||||
Dr. Chong Sup Park | 37,411(14) | * | ||||||
Stephanie Tilenius | 14,463(15) | * | ||||||
Edward J. Zander | 106,058(16) | * | ||||||
All Directors, Director Nominees and Executive Officers as a group (16 persons) | 2,509,588(17) | *% |
Director | Number of RSUs Granted in fiscal year 2015 | Aggregate Number of RSUs | Aggregate Number of Restricted Shares | Aggregate Number of Options | |||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Frank J. Biondi, Jr. | 4,235 | 4,235 | — | 1,251 | |||||||||
Michael R. Cannon | 4,235 | 4,235 | — | — | |||||||||
Mei Wei Cheng | 4,235 | 4,235 | — | — | |||||||||
William T. Coleman | 4,235 | 4,235 | — | — | |||||||||
Jay L. Geldmacher | 4,235 | 4,235 | — | — | |||||||||
Kristen M. Onken | 4,235 | 4,235 | — | — | |||||||||
Chong Sup Park | 4,235 | 4,235 | — | — | |||||||||
Gregorio Reyes | 4,235 | 4,235 | — | — | |||||||||
Stephanie Tilenius | 4,235 | 4,235 | — | — | |||||||||
Edward J. Zander | 4,235 | 4,235 | — | 65,000 |
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SEAGATE TECHNOLOGY PLC | 2017 Proxy Statement |
2017 NOTICE OF MEETING AND PROXY STATEMENT |
The following table sets forth each shareholder which is known by us to be the beneficial owner of more than 5% of the outstanding ordinary shares of the Company as of August 25, 2017 based solely on the information filed by such shareholder on Schedule 13G under the Exchange Act:
Name and Address of Beneficial Owner | Number of Ordinary Shares Beneficially Owned | Percentage of Class Beneficially Owned(1) | ||||||
Greater than five percent holders: | ||||||||
Clearbridge Investments, LLC | 30,450,651 | (18) | 10.58 | % | ||||
620 8th Ave. | ||||||||
New York, NY 10018 | ||||||||
BlackRock, Inc. | 20,209,803 | (19) | 7.02 | % | ||||
55 East 52nd Street | ||||||||
New York, NY 10055 | ||||||||
FMR LLC | 33,346,960 | (20) | 11.59 | % | ||||
245 Summer Street | ||||||||
Boston, MA 02210 | ||||||||
The Vanguard Group, Inc. | 29,987,592 | (21) | 10.42 | % | ||||
100 Vanguard Blvd. | ||||||||
Malvern, PA 19355 | ||||||||
ValueAct Capital Master Fund, L.P. | 21,000,000 | (22) | 7.30 | % | ||||
One Letterman Drive, Building D, Fourth Floor | ||||||||
San Francisco, CA 94129 |
* | Less than 1% of Seagate’s ordinary shares outstanding. |
(1) | Percentage of class beneficially owned is based on 287,832,764 ordinary shares outstanding as of August 25, 2017. Each ordinary share is entitled to one vote. Ordinary shares issuable upon the exercise of options currently exercisable or exercisable within 60 days of June 26, 2017, RSUs and performance share units (“PSUs”) vesting within 60 days of June 26, 2017, and all restricted shares and performance shares are deemed outstanding for the purpose of computing the percentage ownership of the person holding such options, RSUs, PSUs, restricted shares and/or performance shares, but are not deemed outstanding for computing the percentage of any other person or group. |
(2) | Includes 534,780 ordinary shares subject to options that are currently exercisable or which will become exercisable within 60 days of June 26, 2017, 1,214,158 ordinary shares held by the Stephen J. Luczo Revocable Trust and 27,188 shares held directly by Mr. Luczo. |
(3) | Includes 25,402 ordinary shares subject to options that are currently exercisable or which will become exercisable within 60 days of June 26, 2017 and 10,007 ordinary shares held directly by Mr. Morton. |
(4) | Includes 84,652 ordinary shares subject to options that are currently exercisable or which will become exercisable within 60 days of June 26, 2017 and 24,109 shares held directly by Mr. Brace. Mr. Brace will depart the Company effective October 2, 2017, and in the interim will remain with the Company in order to assist with the transition of his responsibilities. |
(5) | Includes 149,183 ordinary shares subject to options that are currently exercisable or which will become exercisable within 60 days of June 26, 2017 and 152,965 ordinary shares held directly by Mr. Mosley. |
(6) | Includes 410 ordinary shares of the Company held directly by Mr. Murphy. |
(7) | As of August 25, 2017, Mr. Adams does not own any ordinary shares of the Company or any ordinary shares subject to options that are currently exercisable or which will become exercisable within 60 days of June 26, 2017. |
(8) | Includes 11,753 ordinary shares held directly by Mr. Biondi and 23,946 ordinary shares held by the Biondi, Jr. Family Trust. |
(9) | Includes 18,272 ordinary shares held directly by Mr. Cannon and 6,885 ordinary shares held by the Michael R. Cannon Trust. |
(10) | Includes 20,718 ordinary shares held directly by Mr. Cheng. |
(11) | Includes 18,357 ordinary shares held directly by Mr. Coleman. |
(12) | Includes 17,118 ordinary shares held directly by Mr. Geldmacher. |
(13) | Includes 11,753 ordinary shares held directly by Dr. Moyo. |
(14) | Includes 11,753 shares held directly by Dr. Park and 25,658 ordinary shares held by the Park Family Trust. |
(15) | Includes 14,463 shares held directly by Ms. Tilenius. |
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SEAGATE TECHNOLOGY PLC | 2017 Proxy Statement |
2017 NOTICE OF MEETING AND PROXY STATEMENT |
(16) | Includes 11,753 ordinary shares held directly by Mr. Zander, 53,109 ordinary shares held by the Edward and Mona Zander Trust dated 4/19/1993, and 41,196 ordinary shares held by Zanadu Capital Partners, L.P. |
(17) | All directors, Director Nominees and executive officers as a group, directly hold 350,619 ordinary shares, indirectly hold 1,364,952, and hold 794,017 ordinary shares subject to options that are currently exercisable or which will become exercisable within 60 days of June 26, 2017. |
(18) | Based solely on information reported by Clearbridge Investments, LLC (“Clearbridge”) on the fifth amendment to Schedule 13G filed with the SEC on February 14, 2017, and reporting ownership as of December 31, 2016. Clearbridge has sole voting power over 29,615,395 ordinary shares and sole investment power over 30,450,651 ordinary shares. |
(19) | Based solely on information reported by BlackRock, Inc. (“BlackRock”) on the second amendment to the Schedule 13G filed with the SEC on January 26, 2017, and reporting ownership as of December 31, 2016. BlackRock has sole voting power over 18,309,616 ordinary shares and sole dispositive power over 20,209,803 ordinary shares. |
(20) | Based solely on information reported by FMR LLC (“FMR”) on the ninth amendment to Schedule 13G filed with the SEC on February 14, 2017 and reporting ownership as of December 31, 2016. FMR has sole voting power over 4,025,098 ordinary shares and sole investment power over 33,346,960 ordinary shares. |
(21) | Based solely on information reported by The Vanguard Group, Inc. (“Vanguard”) on the fifth amendment to Schedule 13G filed with the SEC on February 13, 2017, and reporting ownership as of December 31, 2016. Vanguard has sole voting power over 402,336 ordinary shares, shared voting power over 52,485 ordinary shares, sole investment power over 29,540,530 ordinary shares and shared dispositive power over 447,062 ordinary shares. |
(22) | Based solely on information reported by ValueAct Capital Master Fund, L.P. (“ValueAct”) on Schedule 13D filed with the SEC on August 11, 2017, and reporting ownership as July 31, 2017. ValueAct has shared voting and dispositive power over all 21,000,000 ordinary shares that it beneficially owns. |
35
SEAGATE TECHNOLOGY PLC | 2017 Proxy Statement |
2017 NOTICE OF MEETING AND PROXY STATEMENT |
COMPENSATION DISCUSSION & ANALYSIS
Fiscal Year 20152017 Executive Compensation Highlights
The key executive compensation decisions for fiscal year 2017 were as follows:
On September 2, 2014, Seagate announced it had completed the acquisition
On September 2, 2014, Mr. Philip G. Brace joined us as Seagate's Executive Vice President and Chief Technology Officer, Silicon Solutions. On April 30, 2015, Seagate combined the Electronic Solutions and Cloud Systems and Solutions groups into the Cloud System and Electronics Solutions group ("CSES"). On April 30, 2015, Mr. Brace was appointed Interim President of CSES and on July 22, 2015, he was appointed President of CSES.
On October 8, 2014, the Minnesota Supreme Court ruled that the arbitration award in favor of Seagate in its case against Western Digitalvotes cast for the misappropriationapproval of Seagate's trade secrets should be confirmed. In the arbitration award, issued on January 23, 2012, the arbitrator determined that Western Digital“Say-on-Pay” proposal at our 2016 annual general meeting of shareholders;
Highlights of the Company's fiscal year 2015 financial performance include:
Fiscal Year 2017 Company Highlights
Please see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report for a more detailed description of our fiscal year 2017 financial results.
Highlights of the Flash BusinessCompany’s fiscal year 2017 financial performance include:
The following table presents certain key financial metrics for the past three fiscal years:
(in millions except EPS and exabytes)
| Fiscal 2017
| Fiscal 2016
| Fiscal 2015
| |||||||||
Exabytes shipped | 263 | 233 | 228 | |||||||||
Revenues | $ | 10,771 | $ | 11,160 | $ | 13,739 | ||||||
Gross margin | $ | 3,174 | $ | 2,615 | $ | 3,809 | ||||||
Income from operations | $ | 1,054 | $ | 445 | $ | 2,058 | ||||||
Net income | $ | 772 | $ | 248 | $ | 1,742 | ||||||
Diluted earnings per share | $ | 2.58 | $ | 0.82 | $ | 5.26 |
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SEAGATE TECHNOLOGY PLC | 2017 Proxy Statement |
2017 NOTICE OF MEETING AND PROXY STATEMENT |
| Fiscal 2015 (in millions except EPS and exabytes) | Fiscal 2014 (in millions except EPS and exabytes) | Fiscal 2013 (in millions except EPS and exabytes) | |||||||
---|---|---|---|---|---|---|---|---|---|---|
Exabytes shipped | 228 | 202 | 185 | |||||||
Revenues | $ | 13,739 | $ | 13,724 | $ | 14,351 | ||||
Gross margin | $ | 3,809 | $ | 3,846 | $ | 3,940 | ||||
Income from operations | $ | 2,058 | $ | 1,776 | $ | 2,091 | ||||
Net income | $ | 1,742 | $ | 1,570 | $ | 1,838 | ||||
Diluted earnings per share | $ | 5.26 | $ | 4.52 | $ | 4.81 |
2015 Executive Compensation HighlightsPractices for Fiscal Year 2017
The keyOur executive compensation decisions for fiscal year 2015 were as follows:
Pay Practices Aligned with Shareholder Interests
Our compensation philosophy is designed to align our executive compensation programs with long-term shareholder interests, which include the following:
2015 Corporate Governance Highlights
In addition to implementing performance-based pay practices designed to align our compensation programs with shareholder interests, we also endeavor to maintain good governance standards, including the oversight of ourimplemented executive compensation policies and practices.practices that reinforce ourpay-for-performance philosophy and align with commonly viewed best practices and sound governance principles. The following keychart summarizes our policies and practices were in effect during the fiscal year 2015:practices:
What We maintain a non-classified Board structure, such that all Board members are elected annually by a majority vote of our shareholders;
✓ | Performance-based equity incentives |
✓ | Caps on performance-based cash and equity incentive compensation for our NEOs |
✓ | Balance of financial and operating performance metrics in cash incentives and equity incentive plans |
✓ | Significant portion of executive compensation at risk based on corporate performance |
✓ | Clawback on incentive compensation |
✓ | Annual review and approval of our compensation strategy |
✓ | Prohibition on short sales, hedging of share ownership positions and transactions involving derivatives of our ordinary shares |
✓ | Meaningful share ownership guidelines for executive officers and directors |
✓ | 100% independent directors on our Compensation Committee |
✓ | Independent compensation consultant engaged by our Compensation Committee |
✓ | Annual risk assessment of our compensation programs and practices |
What We prohibit our directors, executive officers and all other employees from engaging in short-term investment activity in our securities (such as trading in or writing options, arbitrage trading or "day trading") or in hedging and other monetization transactions with respect to our securities; we likewise caution such persons against establishing margin accounts or pledging their Seagate shares; and our Securities Trading Policy provides, among other things, that the first trade under a new plan established pursuant to Rule 10b5-1 promulgated under the Exchange Act will take place after a reasonable "seasoning period" has passed from the time of adoption of the plan, and an insider will only be permitted to use one 10b5-1 plan at a time; and
c | No “single trigger” change of control benefits |
c | No employment agreements, guaranteed salary increases or guaranteed bonus payments for our executives in fiscal year 2017 |
c | No defined benefit pension plan or supplemental executive pension plan |
c | No excise tax reimbursements or tax“gross-ups” in connection with a change in control |
c | No post-termination retirement or pension-typenon-cash benefits or perquisites for our executives |
c | Nore-pricing of options without shareholder approval |
c | No dividend equivalents on unvested RSUs and PSUs |
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SEAGATE TECHNOLOGY PLC | 2017 Proxy Statement |
2017 NOTICE OF MEETING AND PROXY STATEMENT |
Named Executive Officers
The NEOs for fiscal year 20152017 are:
Name | |||
---|---|---|---|
| Job Title | ||
Stephen J. Luczo(1) | Chairman and Chief Executive Officer | ||
David H. Morton, Jr. | Executive Vice President and Chief Financial Officer | ||
Philip G. Brace |
| ||
William D. Mosley(3) | President | ||
James J. Murphy | Executive Vice President, |
| (1) | Mr. Luczo will step down as the Company’s CEO and transition to the role of Executive Chairman effective October 1, 2017 and will continue serving as the Chairman of the Board until the 2017 AGM. |
| (2) | Mr. Brace will depart the Company effective October 2, 2017, and |
(3) | Mr. Mosley will transition to the role of CEO beginning October 1, 2017. Mr. Mosley was also appointed to the Board effective July 25, 2017. |
Our Executive Compensation Strategy
Our executive compensation strategy is designed to drive high performance, strengthen our market position, and increase shareholder value. The goals of our executive compensation programs are to:
Our Executive Compensation Programs
Compensation Element | Designed to Reward | Relationship to Compensation Strategy | |||||||
---|---|---|---|---|---|---|---|---|---|
Base Salary | Related job experience, knowledge of | Attract and retain talented executive officers through competitive pay programs | |||||||
Annual Incentive Executive Officer Performance Bonus Plan | Achievement of | Motivate executive officers to achieve and exceed annual business objectives Manage total compensation costs in support of financial performance | |||||||
Long-Term Equity Incentives Equity Awards | Increased shareholder value through achievement of long-term strategic goals such as earnings per share, return on invested capital and total shareholder return relative to peers | Align executive officers and shareholder interests to optimize shareholder return Motivate executive officers to achieve and exceed long-term business objectives |
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SEAGATE TECHNOLOGY PLC | 2017 Proxy Statement |
2017 NOTICE OF MEETING AND PROXY STATEMENT |
Role of Our Compensation Committee
The Compensation Committee is responsible to our Board for overseeing the design, development and administration of our compensation and benefits policies and programs. The Compensation Committee, which consists of four independent directors, is responsible for the review and approval of all aspects of our executive compensation programs and approvingapproval of all compensation recommendations for our executive officers, including:
The Compensation Committee recommends to the independent directors of the Board the compensation, compensation plans and equity grants specific to our CEO, and the independent directors of the Board determine the overall compensation package of our CEO. Our CEO does not participate in the determination of his own compensation. The Compensation Committee is supported in its work by our Senior Vice President of Human Resources, her staff, and an executive compensation consultant, as described below.
Role of the Compensation Consultant
The Compensation Committee retained F.W.FW Cook as its own independent consultant, for advice and counsel throughout fiscal year 20152017 to provide an external review of compensation proposals and to help align our compensation decisions to our executive compensation strategy. F.W. Cook'sFW Cook’s consulting during fiscal year 20152017 included oversight on the risk assessment of compensation programs directed by the Compensation Committee, as well as consultation in support of the Compensation Committee'sCommittee’s decisions regarding compensation programs involving NEOs, including salary changes, determination of equity awards, annual incentive plan design, and annual review of our severance plan and share ownership guidelines. F.W.FW Cook also developed recommendations to the Compensation Committee for the compensation of our CEO.
F.W.FW Cook also provided advice to the Compensation Committee regardingnon-employee director compensation. F.W.FW Cook is not permitted to provide services to Companythe Company’s management except as directed by the Compensation Committee, and did not provide any such services in fiscal year 2015.2017. The Compensation Committee retains sole authority to hire the compensation consultant, approve its compensation, determine the nature and scope of its services, evaluate its performance and terminate its engagement.
In connection with its engagement of F.W.FW Cook, the Compensation Committee considered various factors in determining F.W. Cook'sFW Cook’s independence including, but not limited to, the amount of fees received by F.W.FW Cook from Seagate as a percentage of F.W. Cook'sFW Cook’s total revenue, F.W. Cook'sFW Cook’s policies and procedures designed to prevent conflicts of interest, and the existence of any business or personal relationship that could impact F.W. Cook'sFW Cook’s independence. After reviewing these and other factors, the Compensation Committee determined that F.W.FW Cook was independent and that its engagement did not present any conflicts of interest.interest pursuant to the rules of the Securities and Exchange Commission and the listing rules of NASDAQ.
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SEAGATE TECHNOLOGY PLC | 2017 Proxy Statement |
2017 NOTICE OF MEETING AND PROXY STATEMENT |
Role of our CEO and Management in the Decision-Making Process
Within the framework of the compensation programs approved by the Compensation Committee and based on management'smanagement’s review of market competitive practices, each year our CEO, Mr. Luczo, recommends the amount of base salary increase (if any), the amount of the annual incentive bonus opportunity and the long-term incentive award value for our executive officers, including the other
NEOs. These recommendations are based upon his assessment of each executive officer'sofficer’s performance, as well as the Company'sCompany’s performance as a whole, and individual retention considerations. The Compensation Committee reviews Mr. Luczo'sLuczo’s recommendations and approves our executive officers'officers’ compensation, including any changes to such compensation, as it determines in its sole discretion. Mr. Luczo does not play any role with respect to any matter affecting his own compensation.
Our Senior Vice President of Human Resources, along with members of her staff, assists the Compensation Committee in its review of our executive compensation plans and programs, including providing market data on competitive pay practices, program design and changes in the corporate governance landscape concerning executive compensation matters.
Prior Year'sYear’s Shareholder Advisory Vote
At the 20142016 AGM, the Company'sCompany’s shareholders overwhelmingly approved the advisory proposal regarding the compensation of the Company's named executive officersCompany’s NEOs with approximately 94%more than 95% of the votes cast in favor of our executive compensation programs (excluding abstentions). The Board of Directors appreciates the shareholders'shareholders’ continued strong support of the Company'sCompany’s compensation philosophy and objectives, which reaffirms to the Board the appropriateness and effectiveness of the Company'sCompany’s executive compensation programs, including continued emphasis on programs that reward our Executivesexecutive officers for generating sustainable profitability and delivering long-term value for our shareholders. No significant changes were made to the Company'sCompany’s executive compensation strategy in fiscal year 2015.2017. The Board and the Compensation Committee will continue to consider the results of the Company'sCompany’s shareholder advisory votes when making future compensation decisions for the NEOs. The shareholder advisory vote occurs on an annual basis. We currently expect to hold the next shareholder vote on the frequency of "Say-on-Pay" proposals at the Company's 2017 Annual General Meeting of Shareholders.
Executive Market Comparison Peer Group
The Compensation Committee reviews NEO assignments and establishes ranges for each element of executive pay after reviewing similar information for a defined group of companies (the "NEO“NEO Peer Group"Group”) that compete for comparable executive talent. The Compensation Committee relies on analyses of disclosures and published surveys of compensation among the NEO Peer Group companies when considering compensation for executive officers in similar roles.
As part of our annual review cycle, the Compensation Committee reviewed the NEO Peer Group and made nodid not make changes to the selection criteria for fiscal year 2015.2017. NEO Peer Group companies were selected based on a similar industry classification (as defined by Global Industry Classification Standard (GICS)(“GICS”) 4520 Technology Hardware and Equipment or 4530 Semiconductors and Semiconductor Equipment, excluding companies that are not subject to U.S. securities reporting requirements and wholesale distributors), having a minimum market value of at least $3 billion and between $4-$4-$35 billion in trailing twelve-month sales.
The Compensation Committee introducedmonitors a "watch list"“watch list” of companies for fiscal year 2015 to support year-over-year consistency among companies in the NEO Peer Group. Companies identified as part of the "watch list"“watch list” will only be added to the NEO Peer Group after meeting sales and market value criteria for two consecutive years and once added to the NEO Peer Group will only be removed after failing to meet sales and market value criteria for two consecutive years, provided they meet at least 75% of the criteria minimum value.
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SEAGATE TECHNOLOGY PLC
| 2017 Proxy Statement |
2017 NOTICE OF MEETING AND PROXY STATEMENT |
For fiscal year 2015,2017, the NEO Peer Group included the following companies:
Peer Group for Fiscal Year 20152017(1)
| Sales | | ||||||||
---|---|---|---|---|---|---|---|---|---|---|
Company Name | TTM ($M) | FYE ($M) | Market Value ($M) | |||||||
Amphenol Corp. | $ | 4,515 | $ | 4,292 | $ | 12,779 | ||||
Applied Materials Inc. | $ | 7,509 | $ | 7,509 | $ | 21,498 | ||||
Broadcom Corp. | $ | 8,321 | $ | 8,006 | $ | 13,841 | ||||
Corning Inc. | $ | 8,009 | $ | 8,012 | $ | 24,733 | ||||
EMC Corp. | $ | 22,570 | $ | 21,714 | $ | 49,538 | ||||
Flextronics International Ltd. | $ | 23,620 | $ | 23,569 | $ | 4,830 | ||||
Harris Corp. | $ | 5,042 | $ | 5,112 | $ | 6,622 | ||||
Jabil Circuit Inc. | $ | 18,337 | $ | 18,337 | $ | 4,238 | ||||
Juniper Networks Inc. | $ | 4,536 | $ | 4,365 | $ | 9,447 | ||||
Micron Technology Inc. | $ | 9,073 | $ | 9,073 | $ | 18,597 | ||||
Motorola Solutions Inc. | $ | 8,633 | $ | 8,698 | $ | 16,175 | ||||
NCR Corp | $ | 6,095 | $ | 5,730 | $ | 6,078 | ||||
NetApp Inc. | $ | 6,413 | $ | 6,332 | $ | 13,199 | ||||
QUALCOMM Inc. | $ | 24,866 | $ | 24,866 | $ | 119,205 | ||||
SanDisk Corp. | $ | 5,984 | $ | 5,053 | $ | 15,698 | ||||
TE Connectivity Ltd. | $ | 13,280 | $ | 13,280 | $ | 21,293 | ||||
Texas Instruments Inc. | $ | 12,155 | $ | 12,690 | $ | 46,343 | ||||
Western Digital Corp. | $ | 15,120 | $ | 15,351 | $ | 16,455 | ||||
Xerox Corp. | $ | 21,789 | $ | 22,390 | $ | 12,237 | ||||
Peer Group Median | $ | 8,633 | $ | 8,698 | $ | 15,698 | ||||
Peer Group Average | $ | 11,888 | $ | 11,809 | $ | 22,779 | ||||
Seagate Technology plc | $ | 14,108 | $ | 14,351 | $ | 15,880 |
Sales | ||||||||||||
Company Name | TTM ($M) | FYE ($M) | Market Value ($M) | |||||||||
Amphenol Corp. | $ | 5,565 | $ | 5,346 | $ | 16,762 | ||||||
Applied Materials Inc. | $ | 9,659 | $ | 9,659 | $ | 20,134 | ||||||
ARRIS Group | $ | 4,960 | $ | 5,323 | $ | 4,143 | ||||||
Corning Inc. | $ | 9,284 | $ | 9,715 | $ | 22,004 | ||||||
EMC Corp.(2) | $ | 24,738 | $ | 24,440 | $ | 50,860 | ||||||
Flextronics International Ltd. | $ | 24,860 | $ | 26,148 | $ | 6,336 | ||||||
Harris Corp. | $ | 5,739 | $ | 5,083 | $ | 9,783 | ||||||
Jabil Circuit Inc. | $ | 17,899 | $ | 17,899 | $ | 4,349 | ||||||
Juniper Networks Inc. | $ | 4,640 | $ | 4,627 | $ | 12,067 | ||||||
Lam Research Corp. | $ | 5,707 | $ | 5,259 | $ | 12,140 | ||||||
Micron Technology Inc. | $ | 16,192 | $ | 16,192 | $ | 17,206 | ||||||
Motorola Solutions Inc. | $ | 5,837 | $ | 5,881 | $ | 12,365 | ||||||
NCR Corp. | $ | 6,461 | $ | 6,591 | $ | 4,519 | ||||||
NetApp Inc. | $ | 5,871 | $ | 6,123 | $ | 10,027 | ||||||
NVIDIA Corp. | $ | 4,860 | $ | 4,682 | $ | 15,291 | ||||||
QUALCOMM Inc. | $ | 25,281 | $ | 25,281 | $ | 93,361 | ||||||
TE Connectivity Ltd. | $ | 12,233 | $ | 12,233 | $ | 25,930 | ||||||
Texas Instruments Inc. | $ | 13,080 | $ | 13,045 | $ | 58,217 | ||||||
Western Digital Corp. | $ | 13,989 | $ | 14,572 | $ | 15,479 | ||||||
Peer Group Median | $ | 9,284 | $ | 9,659 | $ | 15,291 | ||||||
Peer Group Average | $ | 11,413 | $ | 11,479 | $ | 21,630 | ||||||
Seagate Technology plc | $ | 12,878 | $ | 13,739 | $ | 11,381 |
Freescale Semiconductor Ltd
(1) | The following table is based on information available as of October 31, 2015. |
(2) | Acquired by Dell, Inc. in September 2016 |
ARRIS Group and NVIDIA CorpLam Research Corporation were added to the watch list for fiscal year 2015 as potential companies to be added to the NEO Peer Group and willfrom the watch list upon meeting the NEO Peer Group selection criteria for two years. Broadcom Limited was placed on the watch
41
SEAGATE TECHNOLOGY PLC | 2017 Proxy Statement |
2017 NOTICE OF MEETING AND PROXY STATEMENT |
list as a potential company to be added to the NEO Peer Group for fiscal year 20162018 if these companies continuethe company continues to meet the applicable sales and market value criteria.
How We Determine Individual Compensation Amounts
Current Named Executive Officers
As discussed above in greater detail under the heading "Role“Role of our CEO and Management in the Decision-Making Process,"” Mr. Luczo and the Senior Vice President of Human Resources, along with members of her staff, review with the Compensation Committee all compensation elements for our NEOs at least annually, and the Compensation Committee determines the value of each compensation element as described below. The proportion of each pay element value (i.e., the compensation mix) relative to total compensation varies by individual, although for all NEOs the largest portion of pay is performance based and is variable and contingent on our financial performance. Variations in the compensation mix among NEOs reflect differences in scope of responsibility as well as NEO Peer Group market data. For fiscal year 2015, Mr. Luczo's total annual target compensation was higher than the other NEOs' total annual target compensation, reflecting the significantly greater job scope, level of responsibility and impact on business performance for our CEO compared with other NEOs, as well as the fact that a greater portion of Mr. Luczo's total annual target compensation was "at risk". The Compensation Committee has determined this differential is consistent with that found among our NEO Peer Group companies.
As a result, for fiscal year 2015, the mix of total annual target compensation for Mr. Luczo was 10% annual base salary, 15%14% target annual incentivesincentive and 75%76% target long-term equity incentive,incentives, and the average mix of total annual target compensation for our other NEOsMessrs. Brace, Morton, Mosley and Murphy was 14% annual base salary, 15%16% target annual incentives and 71%70% target long-term equity incentives.
For fiscal year 2017, Mr. Luczo’s total annual actual compensation was lower than the other NEOs’ total annual actual compensation, reflecting the fact that he did not receive an equity award in fiscal year 2017. As a result, for fiscal year 2017, the mix of total annual actual compensation for Mr. Luczo was 38% annual base salary and 62% annual incentive, and the average mix of total annual actual compensation for Messrs. Brace, Morton, Mosley and Murphy was 8% annual base salary, 10% annual incentives and 82% long-term equity incentives.
Total Annual Target Compensation Mix
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SEAGATE TECHNOLOGY PLC | 2017 Proxy Statement |
2017 NOTICE OF MEETING AND PROXY STATEMENT |
We do not benchmark the total annual compensation of our executive officers to a specific market percentile, although the total annual target compensation (including base salary, target annual incentive and target long-term incentives) for the NEOs generally falls near the median for similar positions within the NEO Peer Group. We believe the total executive pay opportunity is appropriate to attract and retain top leadership talent in a competitive labor market in our industry segment, particularly given our size relative to the NEO Peer Group and in light of the uncertainty of the actual amount of pay that each NEO can earn given the volatility of our business. Due to our emphasis on performance-based pay, the amounts actually received by our NEOs are heavily dependent on the Company'sCompany’s financial performance.
While we consider the pay practices of our NEO Peer Group companies in determining target compensation for our executive officers, we did not compare our performance with the performance of the NEO Peer Group companies when evaluating salary levels or determining the size of particular incentive awards. The target amounts and compensation mix vary for each NEO on the basis of various factors, none of which is specifically weighted, including the importance of the position to our organization, length of service, overall retention value, internal pay equity, and projected future value of the total compensation package.
New Named Executive Officer
Mr. Philip G. Brace received an offer letter in connection with his hiring as our Executive Vice President and Chief Technology Officer, Silicon Solutions, effective September 2, 2014. The Compensation Committee approved an annual base salary of $500,000 and a target bonus opportunity of 100% of base salary. In addition, Mr. Brace was granted 65,000 threshold performance share units and options to acquire 65,000 of the Company's ordinary shares under the Company's 2012 Equity Incentive Plan. In negotiating the new hire equity awards for Mr. Brace, the Compensation Committee considered multiple factors, including Mr. Brace's experience as a business leader who has led global lines of business and P&Ls with responsibility for strategy and execution across engineering, architecture, marketing, sales and related key functions, and the market value of new hire compensation packages offered by companies in the Company's NEO Peer Group for executive positions.
Base Salary
Base salaries are the fixed annual cash amounts paid to our NEOs on a biweekly basis. In reviewing and determining base salaries, the Compensation Committee considers:
The strategic positioning for our NEOs'NEOs’ base salaries is at or nearbased on a broad range of factors, which include the 50th percentilecompetitive marketplace, the role of the NEO, Peer Group.skills and performance. Salaries are reviewed annually and may be revised to reflect significant changes in the scope of an NEO'sNEO’s responsibilities and/or market conditions. Our goal is to be competitive with respect to base salary while distinguishing ourselves from the NEO Peer Group by providing a greater emphasis on compensating our executive officers through the use of performance-based incentives that are consistent with our strategy of motivating executive officers to achieve and exceed annual and multi-year business objectives.
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SEAGATE TECHNOLOGY PLC | 2017 Proxy Statement |
2017 NOTICE OF MEETING AND PROXY STATEMENT |
During fiscal year 2015, the Compensation Committee determined that the2017, Mr. Mosley’s base salary for each NEO was appropriateincreased from $600,018 to $800,010 to recognize his appointment as President and therefore did not make any adjustments to the annualCOO on July 25, 2016. The base salaries of the other NEOs did not change during fiscal year 2015.2017.
Executive Officer Performance Bonus
All NEOs participate in our shareholder-approved Executive Officer Performance Bonus Plan ("EOPB"(“EOPB”), which is designed to promote achievement of our annual financial and operational goals as approved by the Compensation Committee. The general target bonus for each NEO reflectsis based on the competitive market levels for comparable positions inmarketplace and the NEO Peer Group at or near the 60th percentile,NEO’s role, as well as taking internal pay equity into consideration. Actual payments under the EOPB may be above or below this level, based on performance results. Individual awards paid to each NEO following the end of the performance period are determined by the Compensation Committee after certifying our financial and operational performance. The Compensation Committee, together with the other independent directors of the Board, determine the material terms of Mr. Luczo'sLuczo’s bonus opportunity under the EOPB, including the amount of Mr. Luczo'sLuczo’s target bonus opportunity, and the payout level based on performance results.
On July 23, 2014,25 2016, the Compensation Committee approved the performance metrics and funding targets to be used for calculating annual bonus awards for each executive officer for fiscal year 20152017 under the EOPB. Funding of the EOPB for fiscal year 20152017 was determined based on the Company'sCompany’s performance with respect to the following metrics:
• | an independent quality metric, referred to asReliability Quality Competitiveness Best in Class(“RQC BiC”), which is a measure of how our key customers view Seagate’s product quality compared with the product quality of our competitors. |
While we track many operational and strategic performance goals throughout the year, operating margin and revenue together are considered a key measure of our success in achieving profitable growth and were selected for fiscal year 20152017 to continue to align payouts under the EOPB with the Company'sCompany’s profitability year over year.year-over-year. Adjustments to earnings for purposes of determining the operating margin excluded the impact ofnon-operating activities and material, unusual or nonrecurring gains and losses, accounting charges or other extraordinary events which were not budgeted and/or foreseen at the time the performance targets were established, and included estimated interest expenses, taxes and variable cash compensation. The adjustments are reviewed and approved by the Compensation Committee. RQC BiC was retained as a modifier to the overall bonus funding calculation for fiscal year 2015,2017, because quality is considered a critical part of our overall business performance.
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SEAGATE TECHNOLOGY PLC | 2017 Proxy Statement |
2017 NOTICE OF MEETING AND PROXY STATEMENT |
The combination of the three performance metrics noted above was used to determine the applicable percentage of our annual revenuesrevenue that would be allocated to the overall bonus pool to be used for the payment of bonuses to all eligible employees, including to our executive officers under the EOPB. For purposes of illustration, the range of overall bonus funding as a percentage of target for fiscal year 2015,2017, assuming annual revenues of $14$11 billion and the achievement of the minimum level of RQC BiC of 80%, would be as indicated below for the achievement of operating margin at the threshold, target and maximum levels for fiscal year 2015:2017:
Performance Level | Operating Margin | Funding as % of Target | |||||
---|---|---|---|---|---|---|---|
Threshold | 12.0 | % | 50 | % | |||
Target | 15.9 | % | 100 | % | |||
Maximum | 21.0 | % | 200 | % |
Performance Level | Operating Margin | Funding as % of Target | ||||||||||||||
Threshold | 12.6 | % | 50 | % | ||||||||||||
Target | 14.9 | % | 100 | % | ||||||||||||
Maximum | 20.0 | % | 200 | % |
Actual funding is determined based on the adjusted operating margin, the level of revenues and RQC BiC actually achieved during fiscal year 2015.2017. Once the Company achieves or exceeds the threshold operating margin, the combination of actual operating margin and revenuesrevenue determines preliminary funding. This amount is then reduced by 1.25% for each of our five key markets each quarter that doesdo not achieve the minimum RQC BiC performance requirement, with up to 25% of the funding subject to quality performance.
The funded amount, once approved by the Compensation Committee, is allocated among eligible participants. Funding for individual bonuses paid to our NEOs is based upon each executive'sexecutive officer’s target bonus expressed as a percentage of base salary. For fiscal year 2015,2017, Mr. Luczo had a target bonus equal to 150% of his annual base salary (reflecting that a larger portion of his total annual target cash compensation is subject to performance conditions than is the case for the other NEOs) and based on their role in the Company, the other NEOs had a target bonus equalranging from 100% to 100%125% of their individual annual base salaries. The Compensation Committee, with respect to all NEOs except our CEO, and the independent directors of the Board and with respect to our CEO, retain the discretion to reduce the amount of the bonus payout based on their overall
assessment of the Company'sCompany’s performance generally, including factors such as revenues,revenue, profitability, product quality, cost containment and expense management, market share, strategic objectives and legal and regulatory compliance.
Based on our actual performance for fiscal year 2015,2017, funding was set at 64.2%107.4% of target, on the basis of our adjusted operating margin of 13.5%15.8%, revenues of $13.7approximately $10.8 billion and an RQC BiC modifier of 95%96.3%. Based on the funded amount, the Compensation Committee determined to award the following bonuses for fiscal year 2015: Mr. Luczo, $1,155,654; Mr. O'Malley, $362,737; Mr. Brace, $263,901; Messrs. Mosley and Pimentel, $385,212.2017:
Named Executive Officer | Annual Salary |
Target Bonus Percentage | FY2017 EOPB Funding | FY2017 EOPB Payment | ||||||||||||||||||
Stephen J. Luczo | $ | 1,200,056 | 150 | % | 107.4 | % | $ | 1,933,290 | ||||||||||||||
David H. Morton, Jr. | $ | 525,013 | 100 | % | 107.4 | % | $ | 563,864 | ||||||||||||||
Philip G. Brace(1) | $ | 600,018 | 100 | % | 107.4 | % | $ | 644,419 | ||||||||||||||
William D. Mosley | $ | 800,010 | 100 | % | 107.4 | % | $ | 859,210 | ||||||||||||||
James J. Murphy(2) | $ | 575,016 | 100 | % | 107.4 | % | $ | 388,525 |
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SEAGATE TECHNOLOGY PLC | 2017 Proxy Statement |
2017 NOTICE OF MEETING AND PROXY STATEMENT |
(1) | Mr. Brace will depart the Company effective October 2, 2017, and in the interim will remain with the Company in order to assist with the transition of his responsibilities. |
(2) | Mr. Murphy’s EOPB payment is based on his employment with the Company for only a portion of the fiscal year 2017. |
Management-Based Objectives Component of EOPB for Presidents
As part of our strategic performance-based cash incentive program, in fiscal year 20152017, the Compensation Committee approved a cash bonus opportunity for each of our Presidents, Messrs. Mosley and PimentelBrace, to earn up to 25% of the executive'seach executive’s annual base salary based on achievement of key operational goals (the "MBO Bonus"“MBO Bonus”). The payout was based on the level of funding of the EOPB for the Company'sCompany’s fiscal year 2015,2017, up to target, as well as the CEO'sCEO’s assessment of achievement of individual goals tied to strategic objectives for each President'sPresident’s organization during the fiscal year 20152017 as follows:
In each case, we did not specify a quantitative target that must be achieved, but we considered the goals aggressive yet attainable within the fiscal year.
Based on the achievement of the applicable goals and considering the CEO’s assessment of the achievement, the Compensation Committee determined to awardawarded the following MBO Bonuses for fiscal year 2015:2017: Mr. Mosley, $78,005;$110,661; and Mr. Pimentel, $73,190.Brace, $67,502.
In fiscal year 2015,2017, the Compensation Committee awarded equity awards to the NEOs under the terms of the 2012 Plan. The 2012 Plan is designed to:
TableOur NEOs’ awards are based on the economic value of Contents
The Compensation Committee approves annual guidelinescomparable awards to help determine the type and size of equity awards for all executive officers and considers median, 60th and 75th percentiles for comparable positions in the NEOCompany’s Peer Group.Group, the NEO’s role, individual performance and potential future contributions. Our equity award guidelines and mix of the type of awards granted are based on an analysis of the unvested equity held by an NEO, the practices of NEO Peer Group companies in awarding equity for similar positions (including equity mix and award values), potential impact on earnings, and the pool of available shares. In determining the award for each NEO, the Compensation Committee also considers the Company'sCompany’s goals for retaining the NEO for the long term and the following factors related to each NEO including:
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SEAGATE TECHNOLOGY PLC | 2017 Proxy Statement |
2017 NOTICE OF MEETING AND PROXY STATEMENT |
NEOs are generally awarded equity on an annual basis, typically inmid-September, as part of our annual award cycle. For fiscal year 2015, the annualcycle and these equity awards granted to the NEOs consistedgenerally consist of a mix of time-vesting options, Threshold Performance Share Units and Performance Share Units (each as defined and described more fully below), reflecting a strong emphasis on pay for performancepay-for-performance and the alignment of interests between our NEOs and our shareholders.
For allExcept for Mr. Luczo, who did not receive an equity grant for fiscal year 2017, and Mr. Murphy, the equity grants made to each of our NEOs except Mr. Brace, the mixfor fiscal year 2017 are comprised of long-term equity incentives, 20% options, 30% Threshold Performance Share Units, and 50% Performance Share Units, reflectedreflecting the Compensation Committee'sCommittee’s review and assessment of market practices at peerNEO Peer Group companies, as well as its determination that a mix of options and full-value equity awards would provide an appropriate blend of incentives to sustain and improve the Company'sCompany’s financial performance and shareholder value. As part of Mr. BraceMurphy’s new hire package, he received a mix of 25% options and 75%50% Threshold Performance Share Units as his new hire grant of long-term equity incentives.and 50% options.
Options
Options generally vest over four years and have a seven-year term. Options are awarded with an exercise price equal to the fair market value of the Company'sCompany’s ordinary shares on the grant date. Fair market value is defined as the closing price of the Company'sCompany’s ordinary shares on NASDAQ on the grant date. The grant date and vesting schedule for options granted to our NEOs are generally the same as for other employees receiving options during the annual award process, but may be different in the case of a new hire or change in employment position.
Share Awards
Restricted Share Units
Restricted share units ("RSUs")RSUs generally vest in equal annual installments over four years, contingent on continued service. Due to the strong emphasis on pay for performance,pay-for-performance, our NEOsCEO, presidents and executive vice presidents are not eligible to receive RSUs. We believe that long-term equity awards made to our NEOsexecutives at these levels should consist only of options and performance-vesting shares or units.units to align with our emphasis onpay-for-performance.
Threshold Performance Shares and Threshold Performance Share Units
Threshold performance shares ("TPS") and threshold performance share units ("TPSUs"Performance Share Units (“TPSUs”) are equity awards with a maximum seven-year vesting period, contingent on continued service and the achievement of specified performance goals. TPS awards were granted in fiscal year 2011, with 25% annual vesting starting on the first anniversary of the grant date and 25% per year thereafter, subject to the satisfaction of the applicable performance goal, as discussed below. Beginning in fiscal year 2012, our NEOs were granted TPSU awards in lieu of TPS awards in order to facilitate the global
administration of our equity programs; however, the vesting criteria for this type of award remained the same as in prior years. Each TPSU represents the right to receive one of our ordinary shares. Under the terms of the TPSU award agreement, no dividend equivalent payments will be made on any of the ordinary shares underlying the TPSUs.
For each tranche of a TPS or TPSU award that is eligible to vest on a vesting date, vesting is contingent on the Company achieving a threshold adjusted earnings per share ("AEPS"(“AEPS”) goal of $1.00 for the fiscal year prior to the fiscal year in which the vesting date occurs. If the threshold goal is not achieved, vesting of that tranche is delayed to the next scheduled vesting date for which the AEPS goal is achieved. Unvested awards from prior years may vest cumulatively on the scheduled vesting date for a future year within the seven-year vesting period if the annual AEPS threshold for that year is achieved. For example, if AEPS performance prior to the first vesting date is below threshold, then vesting will be delayed. If the AEPS threshold is achieved prior to the second vesting opportunity, then 50% of the award will vest (25% from the first vesting date and 25% from the second vesting date due to the cumulative feature of the award). TPS and TPSU awards may become fully vested as early as four years from the grant date and, as noted above, remain eligible to vest for up to seven years
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SEAGATE TECHNOLOGY PLC | 2017 Proxy Statement |
2017 NOTICE OF MEETING AND PROXY STATEMENT |
following the grant date. If the AEPS threshold level has not been met by the end of the seven-year period, any unvested TPS or TPSUs will be forfeited. Vesting for these awards is uncertain yet considered likely due to the cumulative vesting feature. For market comparison purposes, we compare the value of TPS and TPSU awards for our NEOs with time-based restricted shares or RSUs awarded by other companies in the NEO Peer Group. For purposes of the TPS and TPSU awards, AEPS is based on diluted earnings per share, calculated in accordance with USU.S. GAAP, excluding the impact ofnon-operating activities and material, unusual or nonrecurring gains and losses, accounting charges or other extraordinary events which were not foreseen at the time the performance target was established, and includes estimated interest expenses, taxes and variable compensation. Under the terms of the TPSU award agreement, no dividend equivalent payment will be made on any of the ordinary shares underlying the TPSUs.
Our AEPS performance for fiscal year 20152017 was above the $1.00 AEPS threshold; therefore, an additional 25% of each of the outstanding TPSU awards will vest on their next scheduled vesting date following the end of fiscal year 2015 and the final tranche of the outstanding TPS awards will become vested on September 12, 2015.2017.
Performance Share Units
Performance share units ("PSUs"(“PSUs”) are performance-based RSUs that vest after the end of a three-year performance period, subject to continued employment and the achievement of annual return on invested capital ("ROIC"(“ROIC”) over the performance period, modified by a factor based on the Company'sCompany’s relative total shareholder return ("TSR"(“TSR”) percentile compared with a selected peer group, defined below. ROIC was selected as a key metric because of its ability to measure the efficiency of our use of capital and delivery of earnings above investment, considered a critical factor in the Company'sCompany’s long-term success. In addition, the relative TSR metric rewards financial performance as measured by the change in our share price and the dividends declared during the performance period relative to the performance of the select group of peers.peers (as described below). Payout of the targeted number of PSUs will occur if target ROIC is attained over the three-year measurement period and relative TSR is at least at the median of the selected peer group. For PSUs awarded prior to fiscal year 2014, the number of PSUs that will be earned will be determined on the basis of actual ROIC achieved, calculated by linear interpolation between a preset minimum and maximum, and increased or decreased on the basis of whether the relative TSR achieved is below median, between the 50th to 75th percentile, or above the 75th percentile in relation to the selected peer group. For PSUs awarded beginning in fiscal year 2014, ROIC achieved will be calculated based on a range rather than by linear interpolation between a preset minimum and maximum. The final ROIC metric is calculated as the average annual ROIC over the prior three fiscal years. Annual ROIC is calculated as (i) adjusted operating income multiplied by 1 minus the average tax rate, divided by (ii) (x) net plant, property and equipment plus total current
assets minus cash, minus (y) total current liabilities. Adjustments to operating income exclude the impact ofnon-operating activities and material, unusual or nonrecurring gains and losses, accounting charges or other extraordinary events which were not foreseen at the time the performance target was established. For fiscal year 2017, the relative TSR modifier is interpolated between 25th to 75th percentiles.
Each PSU represents the right to receive one of our ordinary shares. The Compensation Committee will determine the number of PSUs that will vest at the end of the three-year performance period according to apre-established vesting matrix. For awards granted in fiscal year 2015,2017, assuming the minimum performance threshold is achieved, the actual number of ordinary shares that may vest ranges from 38% of the target number of PSUs (for an ROIC of approximately 65%56% of target and relative TSR below the selected peer group median) to 200% of the target number of PSUs (for an ROIC in excess of approximately 135%139% of target and relative TSR equal to or above the 75th percentile of the selected peer group). The specific ROIC target values for the PSUs are not publicly disclosed at the time of grant due to the proprietary nature and competitive sensitivity of the information. Under the terms of the PSU award agreement, no dividend equivalent payments will be made on any of the ordinary shares underlying the PSUs.
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SEAGATE TECHNOLOGY PLC | 2017 Proxy Statement |
2017 NOTICE OF MEETING AND PROXY STATEMENT |
The selected peer group for PSUs awarded in September 20142016 included a broader range of companies than the NEO Peer Group to allow for comparison of our performance against a wider range of technology companies than the companies with whom we frequently compete for executive talent. The selected peer group for purposes of measuring our relative TSR performance consisted of the 2625 companies listed in the table below, meeting the following criteria:
Advanced Micro Devices, Inc. | ||||||
Juniper Networks, Inc. | ||||||
Amphenol Corp. | Lam Research Corp. | |||||
Apple Inc. | Micron Technology Inc. | |||||
Applied Materials Inc. | Motorola Solutions | Inc. | ||||
ARRIS International plc | NCR | Corp. | ||||
Cisco Systems, Inc. | NetApp, Inc. | |||||
Corning Inc. | ||||||
Flextronics International Ltd. | QUALCOMM | |||||
Harris Corp. | Sanmina Corp. | |||||
Hewlett Packard Enterprise Co. | TE Connectivity | Ltd | ||||
HP Inc. | Texas Instruments Inc. | |||||
Intel Corp. | Western Digital Corp. | |||||
Jabil Circuit Inc. | ||||||
In fiscal year 2012,2014, we granted PSUs to Messrs. Luczo, O'MalleyMorton and Mosley that were eligible to vest after the end of a three-year performance period ending on June 27, 2014,July 1, 2016, subject to continued employment and the achievement of target ROIC over the performance period, modified by a factor based on our TSR percentile compared with a selected peer group. On September 11, 2014,26, 2016, the Compensation Committee certified the level of achievement of the financial performance metrics for
the three-year period, such that the PSUs became vested at 200%98% of target based on a three-year average annual ROIC of 76%54%, and relative TSR at the 100th18th percentile over the three-year period. As a result, the following numbers of ordinary shares were issued to the executive officers: Mr. Luczo, 481,400; and each of Messrs. O'Malley and Mosley, 108,400.
Named Executive Officer | Target PSUs | FY2014 PSUs Earned | ||||||||||
David H. Morton, Jr. | 2,160 | 2,117 | ||||||||||
William D. Mosley | 50,000 | 49,000 |
As the certification of our financial performance with respect to the PSUs granted in fiscal year 2013,2015, which have a three-year performance period ending on July 3, 2015,June 30, 2017, could not be completed in advance of the filing date of this Proxy Statement, the vesting of these awards (if any) will be disclosed onForm 8-K within four business days following written certification by the Compensation Committee.
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SEAGATE TECHNOLOGY PLC | 2017 Proxy Statement |
2017 NOTICE OF MEETING AND PROXY STATEMENT |
We established share ownership guidelines to ensure that our NEOs hold a meaningful equity stake in the Company and, by doing so, to link their interests with those of our shareholders. Shares directly or indirectly owned (for example, through a trust), along with unvested RSUs that do not have a performance requirement, are included in the calculation of ordinary shares owned for purposes of the ownership guidelines, but time-based and performance-based options unvested TPS, unvested TPSUs, unvested performance shares, unvested PSUs and unvested TSR PSUsperformance-based awards are not counted until they are exercised or vested, as applicable. NEOs are expected to meet the ownership requirements within five years of becoming subject to the guidelines. NEOs are measured against the applicable guideline on the last day of each fiscal year, and the results are reported to the Compensation Committee.
Our NEOs will be required to own shares in an amount equal to an applicable target value based on a multiple of annual salary. Our NEOs were required to meet the guidelines by July 1, 2015,2016, with the exception of Mr.Messrs. Morton, Brace, and Murphy who isare required to meet the guidelines by September 2, 2019.October 21, 2020, April 30, 2020 and November 14, 2021, respectively. The share ownership guidelines are as follows:
Role | Ownership Guideline– Multiple of Salary | Equivalent Dollar Value(1) | |||||
---|---|---|---|---|---|---|---|
CEO | 6x | $ | 7,200,300 | ||||
President | 4x | $ | 2,266,700 | ||||
Other NEOs | 3x | $ | 1,695,000 |
Role | Ownership Guideline– Multiple of Salary | |
CEO | 6x | |
Presidents | 4x | |
Executive Vice Presidents | 3x |
All of the NEOs meethave met or are on track to meet ownership guidelines by the applicable deadline.
Benefits and Perquisites
Our NEOs are eligible to participate in a broad range of benefits in the same manner asnon-executive employees. Seagate does not offer separate benefits for executive officers, other than vacation and severance benefits (see "Severance“Severance and Change in Control Benefits,"” below).
We do not generally provide perquisites to our NEOs except that we provide the use of our corporate aircraft to our NEOs which may be used for travel with a personal element, provided they fully reimburse us for the aggregate incremental cost of any such usage. We do however consider the value of perquisites, to the extent provided at the NEO Peer Group companies, in assessing the competitiveness of our total compensation package for our NEOs. Two of our NEOs continue to participateUntil January 1, 2017, Mr. Luczo participated in a group replacement life insurance plan (“GRIP”) that was closed to new participants as of January 2002. Effective January 1, 2017, the GRIP plan was discontinued and Mr. Luczo was enrolled in the Seagate Basic Life plan, which is available to all eligible employees, with a benefit amount of 2x annual salary up to $1,000,000. Mr. Luczo was given the option of transitioning his GRIP coverage to an individual plan at his expense, or canceling it.
Nonqualified Deferred Compensation Plan
The 2015 Seagate Deferred Compensation Plan (the "SDCP"“SDCP”) effective January 1, 2015 allows our NEOs (and other eligible employees) whose annual base pay salary is $165,000 or more, or whose target commissions and annual base salary in the aggregate is $165,000 or more to defer on apre-tax basis (i) up to 70% of their base salary, (ii) up to 70% of commissions, and (iii) up to 100% of their annual performance-based cash bonus. Deferrals and notional earnings related to those deferrals are reflected on the Company'sCompany’s books as an unfunded obligation of the Company. We do not make any contributions to the SDCP, and notional earnings on deferrals
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SEAGATE TECHNOLOGY PLC | 2017 Proxy Statement |
2017 NOTICE OF MEETING AND PROXY STATEMENT |
are based on the performance of investment funds selected by each participant from a menu of investment options offered pursuant to the SDCP. Deferral amounts, earnings andyear-end balances for our NEOs are set forth in the table below titled "Fiscal“Fiscal Year 20152017 Nonqualified Deferred Compensation."” The SDCP is a successor plan to the Seagate Deferred Compensation Plan, as amended, which became frozen with respect to all deferrals made thereunder on or prior to December 31, 2014.2015.
Severance and Change in Control Benefits
We provide severance benefits to assist in aligning NEO and shareholder interests during the evaluation of an ownership change, to remain competitive in attracting and retaining NEOs and to support organizational changes necessary to achieve our business strategy. The purpose of the Fifth Amended and Restated Seagate Technology Executive Severance and Change in Control Plan (the "Severance Plan"“Severance Plan”) is to:
(1) provide for the payment of severance benefits to our NEOs in the event their employment with the Company or any applicable subsidiary is involuntarily terminated;
(1) | provide for the payment of severance benefits to our NEOs in the event their employment with the Company or any applicable subsidiary is involuntarily terminated; |
(2) | encourage our NEOs to continue employment in the event of a potential “change in control” (as such term is defined in the section titled “Compensation of Named Executive Officers—Potential Payments upon Qualifying Termination or Change in Control,” below); and |
(3) | ensure that our NEOs generally receive the same severance benefits in connection with a qualifying termination of employment. |
(2) encourage our NEOs to continue employment in the event of a potential "change in control" (as such term is defined in the section titled "Compensation of Named Executive Officers—Potential Payments upon Termination or Change in Control," below); and
�� (3) ensure that our NEOs generally receive the same severance benefits in connection with a qualifying termination of employment.
All of our NEOs except our CEO, receive the same level and type of severance benefits; thea level of severance benefits payable to our CEO under the terms of the Severance Plan is higher than for the other NEOs to reflect histhat reflects their level of responsibility within our organization, the strategic importance of histheir position and a market-competitive level of severance for comparable positions within the NEO Peer Group.
The Severance Plan provisions were developed based on a comparison of severance benefits typically available at the NEO Peer Group companies, in consultation with F.W.FW Cook, following review by the independent directors of the Board. Consistent with our compensation philosophy, the Severance Plan provides for severance only in the event of an involuntary termination (i.e., a termination by us without "cause"“cause” or by the Executive for "good reason"“good reason”). The Severance Plan includes the following features:
In the event that the benefits payable following a change in control exceed the safe harbor limits established in Section 280G of the Code, we cap benefits at the safe harbor limit if theafter-tax benefit to the NEO of the capped amount is greater than theafter-tax benefit of the full amount (which would otherwise be subject to excise taxes imposed by Section 4999 of the Code). We do not provide agross-up for any taxes payable on severance benefits and the NEO is responsible for the payment of all personal taxes, including any excise taxes imposed on change in control payments and benefits.
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SEAGATE TECHNOLOGY PLC | 2017 Proxy Statement |
2017 NOTICE OF MEETING AND PROXY STATEMENT |
For further details on the Severance Plan, see the section titled "Compensation“Compensation of Named Executive Officers—Potential Payments upon Qualifying Termination or Change in Control."”
Other Company Policies and Compensation Considerations
Impact of Section 162(m) of the Internal Revenue Code
The Compensation Committee seeks to qualify NEO compensation for deductibility under applicable tax laws to the greatest extent possible. Section 162(m) of the Code (as interpreted by IRS Notice2007-49) places a limit of $1 million on the amount that a public company may deduct for compensation in any taxable year to any of the CEO and each of the next three most highly compensated NEOs employed at the end of the year (other than the Company'sCompany’s CFO), unless such compensation is considered "performance-based"“performance-based” under Section 162(m).
Both the EOPB and the Amended and Restated 2012 Plan have been approved by our shareholders and are administered by the Compensation Committee. Each plan has been structured such that compensation paid or awarded thereunder may qualify as "performance-based"“performance-based” and therefore not be subject to the Section 162(m) limit. We received shareholder approval for the EOPB at the 2013 AGM in order to preserve the Company's ability to pay annual incentive bonuses to our executive officers that may qualify as "performance-based" compensation under Section 162(m). However, in order to maintain flexibility in compensating our NEOs in a manner designed to promote varying corporate goals, the Compensation Committee retains the discretion to pay compensation that may not be tax deductible.
Securities Trading
The Board believes that short-term investment activity in our securities (such as trading in or writing options, arbitrage trading or "day trading") is not appropriate under any circumstances; therefore, such conduct is prohibited by Seagate'sSeagate’s Securities Trading Policy. In addition,Policy prohibits all employees (including our NEOs) and Board members are prohibited from taking "short"“short” positions in our securities or engaging in hedging or other monetization transactions with respect to our securities. We discourage ourThe Company prohibits its directors and executive officers from using our shares(i) purchasing any financial instruments designed to hedge or offset any decrease in the market value of Company securities and (ii) engaging in any form ofshort-term speculative trading in Company securities. Directors and executive officers are also prohibited from holding Company securities in a margin accountsaccount or otherwise pledging sharesCompany securities as collateral.collateral for a loan unless the Chief Legal Officer or the Chief Financial Officer providespre-clearance after the director or executive officer clearly demonstrates the financial capability to repay the loan without resort to the pledged securities. We have also amended our Securities Trading Policy to, among other things, require the first trade under a new plan established pursuant toRule 10b5-1 promulgated under the Exchange Act take place after a reasonable "seasoning period"“seasoning period” has passed from the time of adoption of the plan; in addition, an insider will only be permitted to useone 10b5-1 plan at a time.
Pay Recovery Policy
Our Pay Recovery Policy is intended to eliminate any reward for fraudulent accounting. It provides standards for recovering compensation from an NEO where such compensation was based on incorrectly reported financial results due to the fraud or willful misconduct of such NEO. The NEO'sNEO’s repayment obligation applies to any bonus paid, share award issued (whether or not vested) or options exercised during the period commencing with the date that is four years prior to the beginning of the fiscal year in which a restatement is announced, and ending on the date recovery is sought. We intend
to review our Pay Recovery Policy following the enactment of final rules pursuant to the provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act.
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SEAGATE TECHNOLOGY PLC | 2017 Proxy Statement |
2017 NOTICE OF MEETING AND PROXY STATEMENT |
The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis with management and the Board. In reliance on the review and discussions referred to above, the Compensation Committee recommended to the Board, and the Board approved, the inclusion of the Compensation Discussion and Analysis in the Company'sCompany’s Proxy Statement for fiscal year 2015.2017.
Respectfully submitted, THE COMPENSATION COMMITTEE | ||
Edward J. Zander, Chairman Frank J. Biondi, Jr. Michael R. Cannon Jay L. Geldmacher |
Compensation Committee Interlocks and Insider Participation
None of the members of our Compensation Committee during fiscal year 2017 was an employee of the Company or any of its subsidiaries at any time during fiscal year 2017, has ever been an officer of the Company or any of its subsidiaries, or had a relationship with the Company during that period requiring disclosure pursuant to Item 404(a) ofRegulation S-K. No executive officers of the Company served on the compensation committee of any other entity, or as a director of an entity that employed any of the members of the Compensation Committee during fiscal year 2017.
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SEAGATE TECHNOLOGY PLC | 2017 Proxy Statement |
2017 NOTICE OF MEETING AND PROXY STATEMENT |
COMPENSATION OF NAMED EXECUTIVE OFFICERS
The tablesOur Summary Compensation Table below show fiscal year 2015, 2014 and 2013shows the total compensation awardedpaid to andor earned by each of our CEO, CFONEOs with respect to the fiscal years 2017, 2016 and our three most highly compensated executive officers other than our CEO and CFO.2015. The amounts reported reflect rounding, which may result in slight variations between amounts shown in the Total columnscolumn and the sum of theirits components as reflected in the tables.table.
Name and Principal Position | Year | Salary ($) | Stock Awards ($)(1) | Option Awards ($)(1) | Non-Equity Incentive Plan Compensation ($) | All Other Compensation ($)(2)(3) | Total ($) | |||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Stephen J. Luczo | 2015 | 1,200,056 | 7,555,140 | 1,732,557 | 1,155,654 | 3,884 | 11,647,291 | |||||||||||||||
Chairman and Chief Executive Officer | 2014 | 1,153,886 | — | — | 1,458,068 | 3,563 | 2,615,517 | |||||||||||||||
2013 | 1,037,015 | 12,920,085 | 3,577,285 | 2,220,761 | 3,260 | 19,758,406 | ||||||||||||||||
Patrick J. O'Malley | 2015 | 565,011 | 1,422,150 | 244,405 | 362,737 | 23,656 | 2,617,959 | |||||||||||||||
Executive Vice President and Chief Financial Officer | 2014 | 560,710 | 2,156,210 | 346,172 | 457,659 | 7,860 | 3,528,611 | |||||||||||||||
2013 | 549,037 | 1,796,880 | 363,611 | 774,142 | 5,582 | 3,489,252 | ||||||||||||||||
Philip Gordon Brace(4) | 2015 | 392,316 | 3,588,650 | 777,129 | 263,901 | 4,500 | 5,026,496 | |||||||||||||||
Interim President, Cloud Systems and Electronics Solutions | ||||||||||||||||||||||
William D. Mosley | 2015 | 600,018 | 2,488,763 | 427,708 | 463,217 | 29,470 | 4,009,176 | |||||||||||||||
President, Operations and Technology | 2014 | 579,561 | 3,080,300 | 494,532 | 573,497 | 4,500 | 4,732,390 | |||||||||||||||
2013 | 524,035 | 1,796,880 | 363,611 | 738,890 | 4,500 | 3,427,916 | ||||||||||||||||
Albert A. Pimentel | 2015 | 600,018 | 2,488,763 | 427,708 | 458,402 | 181,460 | 4,156,351 | |||||||||||||||
President, Global Markets and Customers | 2014 | 600,018 | 2,156,210 | 346,172 | 583,217 | 23,428 | 3,709,045 | |||||||||||||||
2013 | 600,018 | 1,796,880 | 363,611 | 846,025 | 24,866 | 3,631,400 | ||||||||||||||||
James J. Lerner(5) | 2015 | 525,013 | 2,488,763 | 427,708 | — | 1,713,475 | 5,154,959 | |||||||||||||||
Former President, Cloud Systems and Solutions | 2014 | 141,350 | 8,353,500 | 1,671,382 | 157,133 | 1,817 | 10,325,182 |
Name and Principal Position
| Year
| Salary ($)
| Bonus ($)
| Stock Awards ($)(1)
| Option Awards ($)(1)
| Non-Equity Incentive Plan Compensation ($)(7)
| All Other Compensation ($)(2)(3)
| Total ($)
| ||||||||||||||||||||||||
Stephen J. Luczo | ||||||||||||||||||||||||||||||||
Chief Executive Officer | 2017 | 1,200,056 | — | — | — | 1,933,290 | 3,392 | 3,136,738 | ||||||||||||||||||||||||
2016 | 1,246,212 | — | 7,339,382 | 1,831,036 | — | 4,215 | 10,420,845 | |||||||||||||||||||||||||
2015 | 1,200,056 | — | 7,555,140 | 1,732,557 | 1,155,654 | 3,884 | 11,647,291 | |||||||||||||||||||||||||
David H. Morton, Jr.(4) | ||||||||||||||||||||||||||||||||
Executive Vice President and Chief Financial Officer | 2017 | 525,013 | — | 3,680,010 | 958,517 | 563,864 | 5,700 | 5,733,104 | ||||||||||||||||||||||||
2016 | 484,625 | — | 710,240 | 240,927 | — | 4,500 | 1,440,292 | |||||||||||||||||||||||||
Philip G. Brace(8) | ||||||||||||||||||||||||||||||||
President, Cloud Systems and Silicon Group | 2017 | 600,018 | — | 3,999,595 | 1,041,748 | 711,921 | 5,354 | 6,358,636 | ||||||||||||||||||||||||
2016 | 610,017 | — | 2,935,781 | 732,418 | — | 7,974 | 4,286,190 | |||||||||||||||||||||||||
2015 | 392,316 | — | 3,588,650 | 777,129 | 263,901 | 4,500 | 5,026,496 | |||||||||||||||||||||||||
William D. Mosley | ||||||||||||||||||||||||||||||||
President and Chief Operating Officer | 2017 | 784,626 | — | 4,922,537 | 1,282,149 | 969,872 | 5,700 | 7,964,884 | ||||||||||||||||||||||||
2016 | 623,095 | — | 2,935,781 | 732,418 | — | 12,355 | 4,303,649 | |||||||||||||||||||||||||
2015 | 600,018 | — | 2,488,763 | 427,708 | 463,217 | 29,470 | 4,009,176 | |||||||||||||||||||||||||
James J. Murphy(5) | ||||||||||||||||||||||||||||||||
Executive Vice President, Sales & Marketing | 2017 | 353,856 | 1,500,000(6) | 2,803,944 | 3,251,624 | 388,525 | 5,700 | 8,303,649 |
(1) | Stock Awards and Option Awards: These amounts do not reflect the actual value realized by the NEO. In accordance with SEC rules, these columns represent the aggregate grant date fair value calculated in accordance with ASC 718, excluding the effect of estimated forfeitures. For time-based share units, the grant date fair value was determined using the closing share price of Seagate ordinary shares on the date of grant, adjusted for the present value of expected dividends. For all performance share units whose vesting is subject to performance conditions as defined by ASC 718, we have assumed the probable outcome of related performance conditions at target levels. The aggregate grant-date fair value for these PSUs and TPSUs, assuming the achievement of the highest level of performance, is $0 for Mr. Luczo, $6,137,429 for Mr. Morton, $6,670,423 for Mr. Brace, $8,209,675 for Mr. Mosley and $2,803,944 for Mr. Murphy. For additional information on the valuation assumptions, see Note 11, “Share-based Compensation” in the Notes to the Consolidated Financial Statements in the Company’s Annual Report on Form10-K for the fiscal year ended June 30, 2017. |
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SEAGATE TECHNOLODGY PLC | 2017 Proxy Statement |
2017 NOTICE OF MEETING AND PROXY STATEMENT |
(2) | All Other Compensation: The amounts shown in this column consist of the following: |
Name | Personal Guest Travel ($)(a) | 401k Match ($)(b) | Executive Life Insurance ($) | Accrued Dividends ($)(c) | Other Comp ($)(d) | Total ($) | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Stephen J. Luczo | — | — | 3,884 | — | — | 3,884 | |||||||||||||
Patrick J. O'Malley | — | 3,001 | 2,495 | 18,160 | — | 23,656 | |||||||||||||
Philip Gordon Brace | — | 4,500 | — | — | — | 4,500 | |||||||||||||
William D. Mosley | — | 4,500 | — | 24,970 | — | 29,470 | |||||||||||||
Albert A. Pimentel | 21,005 | 4,500 | — | 155,955 | — | 181,460 | |||||||||||||
James J. Lerner | — | 7,183 | — | — | 1,706,292 | 1,713,475 |
Name
| Personal Guest Travel ($)
| 401k Match ($)(9)
| Company Contribution to HSA ($)
| Executive Life Insurance ($)
| Total ($)
| |||||
Stephen J. Luczo | — | — | 1,200 | 2,192 | 3,392 | |||||
David H. Morton, Jr. | — | 4,500 | 1,200 | — | 5,700 | |||||
Philip G. Brace(8) | — | 4,154 | 1,200 | — | 5,354 | |||||
William D. Mosley | — | 4,500 | 1,200 | — | 5,700 | |||||
James J. Murphy | — | 4,500 | 1,200 | — | 5,700 |
(3) | We provide the use of our corporate aircraft to our NEOs primarily so that they can travel to business functions and different facilities in the course of their duties. Certain trips taken by our NEOs in fiscal year 2017 may have had a personal element. To the extent that a travel leg has a personal element to it, our NEOs have fully reimbursed the Company for the aggregate incremental cost of such leg to us. Such reimbursement includes the costs of “wheels up time”, a portion of fuel and insurance costs, catering, excise taxes, and crew expenses. |
(4) | Mr. Morton was not an NEO in fiscal year 2015. |
(5) | Mr. Murphy was not an NEO in fiscal years 2015 and 2016. |
(6) | Represents theone-timesign-on bonus amount paid to Mr. Murphy in connection with his employment offer. |
(7) | Represents amounts payable under the EOPB. For a description of the EOPB, refer to the section above entitled “Annual Bonus Plan.” |
(8) | Mr. Brace will depart the Company effective October 2, 2017, and in the interim will remain with the Company in order to assist with the transition of his responsibilities. |
(9) | 401(k) match is for the 401(k) Plan contribution provided to all U.S. employees who participate in the 401(k) Plan. The maximum amount is $4,500 per calendar year, but it may be higher or lower for a particular fiscal year depending on the timing and amount of the employee’s contribution. |
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SEAGATE TECHNOLODGY PLC | 2017 Proxy Statement |
2017 NOTICE OF MEETING AND PROXY STATEMENT |
Grants of Plan-Based Awards Table for Fiscal Year 2015
2017
Estimated Future Payouts Under Non-Equity Incentive Plan Awards(1) | Estimated Future Payouts Under Equity Incentive Plan Awards(2) | |||||||||||||||||||||||||||||||||||||||||||||||||||
Name
| Type of
| Grant Date
| Compensation Committee Action Date
| Threshold ($)
| Target ($)
| Maximum ($)
| Threshold (#)
| Target (#) (2)
| Maximum (#) (2)
| All Other Stock Awards: Number of Shares of Stock or Units (#)
| All Other Option Awards: Number of Securities Underlying Options (#)(3)
| Exercise or Base Price of Option Awards ($/ Share)
| Grant Date Fair Value of Stock and Option Awards ($)(5)
| |||||||||||||||||||||||||||||||||||||||
Stephen J. Luczo(6) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Cash Bonus | — | — | 900,042 | 1,800,084 | 3,600,168 | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||
David H. Morton, Jr. | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Cash Bonus | — | — | 262,507 | 525,013 | 1,050,026 | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||
Time Option | 9/9/2016(3) | 7/25/2016 | — | — | — | — | — | — | — | 148,665 | 36.09 | 958,517 | ||||||||||||||||||||||||||||||||||||||||
PSU | 9/9/2016(4) | 7/25/2016 | — | — | — | — | 76,034(2) | 152,068(2) | — | — | — | 2,457,419(2) | ||||||||||||||||||||||||||||||||||||||||
TPSU | 9/9/2016(5) | 7/25/2016 | — | — | — | — | 39,772(2) | — | — | — | — | 1,222,591(2) | ||||||||||||||||||||||||||||||||||||||||
Philip G. Brace(8) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Cash Bonus | — | — | 300,009 | 750,022 | 1,200,035 | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||
Time Option | 9/9/2016(3) | 7/25/2016 | — | — | — | — | — | — | — | 161,574 | 36.09 | 1,041,748 | ||||||||||||||||||||||||||||||||||||||||
PSU | 9/9/2016(4) | 7/25/2016 | — | — | — | — | 82,637(2) | 165,274(2) | — | — | — | 2,670,828(2) | ||||||||||||||||||||||||||||||||||||||||
TPSU | 9/9/2016(5) | 7/25/2016 | — | — | — | — | 43,226(2) | — | — | — | — | 1,328,767(2) | ||||||||||||||||||||||||||||||||||||||||
William D. Mosley | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Cash Bonus | — | — | 400,005 | 1,000,012 | 1,600,019 | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||
Time Option | 9/9/2016(3) | 7/25/2016 | — | — | — | — | — | — | — | 198,860 | 36.09 | 1,282,149 | ||||||||||||||||||||||||||||||||||||||||
PSU | 9/9/2016(4) | 7/25/2016 | — | — | — | — | 101,706(2) | 203,412(2) | — | — | — | 3,287,138(2) | ||||||||||||||||||||||||||||||||||||||||
TPSU | 9/9/2016(5) | 7/25/2016 | — | — | — | — | 53,201(2) | — | — | — | — | 1,635,399(2) | ||||||||||||||||||||||||||||||||||||||||
James J. Murphy(7) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Cash Bonus | — | — | 180,878 | 361,755 | 723,510 | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||
Time Option | 12/20/2016(3) | 10/18/2016 | — | — | — | — | — | — | — | 398,774 | 38.76 | 3,251,624 | ||||||||||||||||||||||||||||||||||||||||
TPSU | 12/20/2016(5) | 10/18/2016 | — | — | — | — | 83,850(2) | — | — | — | — | 2,803,944(2) |
(1) | Amounts represent the potential range of payments for fiscal year 2017 for the NEOs under the EOPB. This range varied based on the individual’s position and bonus target as a percentage of fiscal year 2017 ending base salary (150% percent of base salary for Mr. Luczo, 100% for Messrs. Brace and Mosley, Morton and Murphy). Each of Messrs. Brace and Mosley have an additional bonus target of 25% of their annual base salary based on the achievement of individual goals tied to strategic objectives for each their organization during fiscal year 2017. For a description of the EOPB, refer to the section above entitled “Annual Bonus Plan.” |
(2) | In accordance with SEC rules, this column represents the aggregate grant date fair value calculated in accordance with ASC 718, excluding the effect of estimated forfeitures. For all performance share units, we have assumed the probable outcome of related performance conditions as defined by ASC 718 at target levels. The aggregate grant-date fair value for these PSUs and TPSUs, assuming the achievement of the highest level of performance, is $0 for Mr. Luczo, $6,137,429 for Mr. Morton, $6,670,423 for Mr. Brace, $8,209,675 for Mr. Mosley and $2,803,944 for Mr. Murphy. For additional information on the valuation assumptions, see Note 11, “Share-based Compensation” in the Notes to the Consolidated Financial Statements in the Company’s Annual Report onForm 10-K for the fiscal year ended June 30, 2017. |
(3) | Options awarded during fiscal year 2017 under the 2012 Plan are subject to a four-year vesting schedule. 25% of the shares subject to the option vest on the first anniversary of the vesting commencement date and the remaining 75% of the shares subject to option will vest proportionally on a monthly basis for the next three years, contingent on continuous service. For a description of the options, refer to the section entitled “Compensation Discussion and Analysis—Long-Term Equity Incentives—Options.” |
(4) | PSUs awarded during fiscal year 2017 under the 2012 Plan. These units vest after the end of a three-year performance period, subject to both continuous service and the achievement of the applicable performance criteria. For a description of the PSUs, refer to the section entitled “Compensation Discussion and Analysis—Long-Term Equity Incentives—Share Awards—Performance Share Units.” |
(5) | TPSUs awarded during fiscal year 2017 under the 2012 Plan. Vesting is contingent on continuous service and satisfaction of performance vesting requirements. The first tranche vests no sooner than the first anniversary of the vesting commencement date, subject to the satisfaction of specified performance criteria. The remaining tranches continue to vest annually thereafter subject to the achievement of the subsequent annual performance goals, with the ability tocatch-up vesting each year if a given annual performance goal is not achieved. If threshold performance is not achieved, no awards will vest and the shares will be forfeited at the end of the performance period. For a description of the TPSUs, refer to the section entitled “Compensation Discussion and Analysis—Long-Term Equity Incentives—Share Awards—Threshold Performance Share Units.” |
(6) | Mr. Luczo did not receive any equity awards for fiscal year 2017. |
56
SEAGATE TECHNOLODGY PLC | 2017 Proxy Statement |
2017 NOTICE OF MEETING AND PROXY STATEMENT |
| | | | | | | Estimated Future Payments Under Equity Incentive Plan Awards | All Other Stock Awards: Number of Shares of stock or units (#) | All Other Option Awards: Number of Securities Underlying Options (#) | | | |||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | | | Estimated Possible Payouts Under Non-Equity Incentive Plan Awards(1) | | Grant Date Fair Value of Stock and Option Awards(2) ($) | ||||||||||||||||||||||||||||||
| | | | Exercise or Base Price of Option Awards ($/Sh) | ||||||||||||||||||||||||||||||||
| | Date of Compensation Committee Action | | |||||||||||||||||||||||||||||||||
Name | Type of Award | Grant Date | Threshold ($) | Target ($) | Maximum ($) | Target (#) | Maximum (#) | |||||||||||||||||||||||||||||
Stephen J. Luczo | Cash Bonus | 900,042 | 1,800,084 | 3,600,168 | ||||||||||||||||||||||||||||||||
Time Option | 7/22/2014 | 9/9/2014 | (3) | 127,600 | 60.83 | 1,732,557 | ||||||||||||||||||||||||||||||
PSU | 7/22/2014 | 9/9/2014 | (4) | 79,700 | 159,400 | 4,647,466 | ||||||||||||||||||||||||||||||
TPSU | 7/22/2014 | 9/9/2014 | (5) | 47,800 | 2,907,674 | |||||||||||||||||||||||||||||||
Patrick J. O'Malley | Cash Bonus | 282,506 | 565,011 | 1,130,022 | ||||||||||||||||||||||||||||||||
Time Option | 7/22/2014 | 9/9/2014 | (3) | 18,000 | 60.83 | 244,405 | ||||||||||||||||||||||||||||||
PSU | 7/22/2014 | 9/9/2014 | (4) | 15,000 | 30,000 | 874,680 | ||||||||||||||||||||||||||||||
TPSU | 7/22/2014 | 9/9/2014 | (5) | 9,000 | 547,470 | |||||||||||||||||||||||||||||||
Philip Gordon Brace | Cash Bonus | 196,158 | 392,316 | 784,633 | ||||||||||||||||||||||||||||||||
Time Option | 7/22/2014 | 10/21/2014 | (3) | 65,000 | 55.21 | 777,129 | ||||||||||||||||||||||||||||||
TPSU | 7/22/2014 | 10/21/2014 | (5) | 65,000 | 3,588,650 | |||||||||||||||||||||||||||||||
William D. Mosley | Cash Bonus | 300,009 | 750,023 | 1,350,041 | ||||||||||||||||||||||||||||||||
Time Option | 7/22/2014 | 9/9/2014 | (3) | 31,500 | 60.83 | 427,708 | ||||||||||||||||||||||||||||||
PSU | 7/22/2014 | 9/9/2014 | (4) | 26,250 | 52,500 | 1,530,690 | ||||||||||||||||||||||||||||||
TPSU | 7/22/2014 | 9/9/2014 | (5) | 15,750 | 958,073 | |||||||||||||||||||||||||||||||
Albert A. Pimentel | Cash Bonus | 300,009 | 750,023 | 1,350,041 | ||||||||||||||||||||||||||||||||
Time Option | 7/22/2014 | 9/9/2014 | (3) | 31,500 | 60.83 | 427,708 | ||||||||||||||||||||||||||||||
PSU | 7/22/2014 | 9/9/2014 | (4) | 26,250 | 52,500 | 1,530,690 | ||||||||||||||||||||||||||||||
TPSU | 7/22/2014 | 9/9/2014 | (5) | 15,750 | 958,073 | |||||||||||||||||||||||||||||||
James J. Lerner | Cash Bonus | |||||||||||||||||||||||||||||||||||
Time Option | 7/22/2014 | 9/9/2014 | (3) | 31,500 | 60.83 | 427,708 | ||||||||||||||||||||||||||||||
PSU | 7/22/2014 | 9/9/2014 | (4) | 26,250 | 52,500 | 1,530,690 | ||||||||||||||||||||||||||||||
TPSU | 7/22/2014 | 9/9/2014 | (5) | 15,750 | 958,073 |
(7) | Mr. Murphy did not receive any PSUs for fiscal year 2017. |
(8) | Mr. Brace will depart the Company effective October 2, 2017, and in the interim will remain with the Company in order to assist with the transition of his responsibilities. |
Outstanding Equity Awards at Fiscal Year 2015
2017
Option Awards
| Stock Awards
| |||||||||||||||||
Name
| Number of Securities Underlying Unexercised Options (#) Exercisable
| Number of Securities Underlying Unexercised Options (#) Unexercisable
| Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options
| Option Exercise Price ($)
| Option Expiration Date
| Number of Shares or Units of Stock That Have Not Vested (#)
| Market Not
| Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (#)
| Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($)(1)
| |||||||||
Stephen J. Luczo | ||||||||||||||||||
34,375(2)
| —
| —
| 11.07
| 9/13/2017
| —
| —
| —
| —
| ||||||||||
107,922(2)
| —
| —
| 30.23
| 8/1/2019
| —
| —
| —
| —
| ||||||||||
206,300(4)
| —
| —
| 30.23
| 8/1/2019
| —
| —
| —
| —
| ||||||||||
—
| —
| —
| —
| —
| —
| —
| 79,700(5)(7)
| 3,088,375
| ||||||||||
—
| —
| —
| —
| —
| —
| —
| 23,900(3)(8)
| 926,125
| ||||||||||
87,724(2)
| 39,876
| —
| 60.83
| 9/9/2021
| —
| —
| —
| —
| ||||||||||
—
| —
| —
| —
| —
| —
| —
| 42,665(3)(9)
| 1,653,269
| ||||||||||
—
| —
| —
| —
| —
| —
| —
| 101,369(5)(10)
| 3,928,049
| ||||||||||
85,043(2)
| 109,341
| —
| 50.10
| 9/9/2022
| —
| —
| —
| —
| ||||||||||
David H. Morton, Jr. | ||||||||||||||||||
2,407(2)
| —
| —
| 29.87
| 09/10/2019
| —
| —
| —
| —
| ||||||||||
4,387(2)
| 507
| —
| 40.16
| 09/09/2020
| —
| —
| —
| —
| ||||||||||
—
| —
| —
| —
| —
| —
| —
| 1,350(6)(11)
| 52,313(32)
| ||||||||||
5,671(2)
| 2,579
| —
| 60.83
| 09/09/2021
| —
| —
| —
| —
| ||||||||||
—
| —
| —
| —
| —
| —
| —
| 2,200(6)(12)
| 85,250
| ||||||||||
—
| —
| —
| —
| —
| —
| —
| 3,850(5)(7)
| 149,188
| ||||||||||
11,189(2)
| 14,388
| —
| 50.10
| 09/09/2022
| —
| —
| —
| —
| ||||||||||
—
| —
| —
| —
| —
| —
| —
| 20,000(3)(13)
| 775,000
| ||||||||||
—
| —
| —
| —
| —
| —
| —
| 5,989(6)(14)
| 232,074
| ||||||||||
—
| —
| —
| —
| —
| —
| —
| 7,470(5)(10)
| 289,463
| ||||||||||
—
| —
| —
| —
| —
| —
| —
| 76,034(5)(15)
| 2,946,318
| ||||||||||
—
| —
| —
| —
| —
| —
| —
| 39,772(3)(16)
| 1,541,165
| ||||||||||
—
| 148,665
| —
| 36.09
| 09/09/2023
| —
| —
| —
| —
|
57
SEAGATE TECHNOLOGY PLC | 2017 Proxy Statement |
2017 NOTICE OF MEETING AND PROXY STATEMENT |
Option Awards
| Stock Awards
| |||||||||||||||||
Name
| Number of Securities Underlying Unexercised Options (#) Exercisable
| Number of Securities Underlying Unexercised Options (#) Unexercisable
| Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options
| Option Exercise Price ($)
| Option Expiration Date
| Number of Shares or Units of Stock That Have Not Vested (#)
| Market Not
| Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (#)
| Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($)(1)
| |||||||||
Philip G. Brace(21) | ||||||||||||||||||
44,687(2)
| 20,313
| —
| 55.21
| 10/21/2021
| —
| —
| —
| —
| ||||||||||
—
| —
| —
| —
| —
| —
| —
| 32,500(17)
| 1,259,375
| ||||||||||
34,017(2)
| 43,737
| —
| 50.10
| 09/09/2022
| —
| —
| —
| —
| ||||||||||
—
| —
| —
| —
| —
| —
| —
| 17,066(9)
| 661,308
| ||||||||||
—
| —
| —
| —
| —
| —
| —
| 40,548(10)
| 1,571,235
| ||||||||||
—
| 161,574
| —
| 36.09
| 09/09/2023
| —
| —
| —
| —
| ||||||||||
—
| —
| —
| —
| —
| —
| —
| 43,226(16)
| 1,675,008
| ||||||||||
—
| —
| —
| —
| —
| —
| —
| 82,637(15)
| 3,202,184
| ||||||||||
William D. Mosley | ||||||||||||||||||
40,000(2)
| —
| —
| 29.87
| 09/10/2019
| —
| —
| —
| —
| ||||||||||
46,875(2)
| 3,125
| —
| 40.16
| 09/09/2020
| —
| —
| —
| —
| ||||||||||
—
| —
| —
| —
| —
| —
| —
| 7,500(18)
| 290,625
| ||||||||||
21,656(2)
| 9,844
| —
| 60.83
| 09/09/2021
| —
| —
| —
| —
| ||||||||||
—
| —
| —
| —
| —
| —
| —
| 7,875(8)
| 305,156
| ||||||||||
—
| —
| —
| —
| —
| —
| —
| 26,250(7)
| 1,017,188
| ||||||||||
34,017(2)
| 43,737
| —
| 50.10
| 09/09/2022
| —
| —
| —
| —
| ||||||||||
—
| —
| —
| —
| —
| —
| —
| 17,066(9)
| 661,308
| ||||||||||
—
| —
| —
| —
| —
| —
| —
| 40,548(10)
| 1,571,235
| ||||||||||
—
| —
| —
| —
| —
| —
| —
| 101,706(15)
| 3,941,108
| ||||||||||
—
| —
| —
| —
| —
| —
| —
| 53,201(16)
| 2,061,539
| ||||||||||
—
| 198,860
| —
| 36.09
| 09/09/2023
| —
| —
| —
| —
| ||||||||||
James J. Murphy | ||||||||||||||||||
—
| 398,774
| —
| 38.76
| 12/20/2023
| —
| —
| —
| —
| ||||||||||
—
| —
| —
| —
| —
| —
| —
| 83,850(19)
| 3,249,188
|
(1) | Value based on the closing price of our ordinary shares on June 30, 2017 of $38.75. |
(2) | Options vest as to 25% of the shares subject thereto one year after the vesting commencement date, and then with respect to 1/48th of the shares subject to monthly thereafter see “Compensation Discussion and Analysis—Long-Term Equity Incentives—Options”). |
(3) | These TPSU awards, issued under the 2012 Plan, are subject to both continuous service and the satisfaction of applicable performance vesting requirements. The first tranche may vest no sooner than after the first anniversary of the grant date, with |
58
SEAGATE TECHNOLOGY PLC | 2017 Proxy Statement |
2017 NOTICE OF MEETING AND PROXY STATEMENT |
| Option Awards | Stock Awards | |||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Name | Stock Option Grant Date | Number of Securities Underlying Unexercised Options (#) Exercisable | Number of Securities Underlying Unexercised Options (#) Unexercisable | Option Exercise Price ($) | Option Expiration Date | Stock Award Date | Number of Shares or Units of Stock That have not Vested (#) | Market Value of Shares or Units of Stock that have not Vested ($)(1) | Equity Incentive Plan Awards: Number of unearned shares, units or other rights that have not Vested (#) | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights that have not Vested ($)(1) | |||||||||||||||||||||
Stephen J. Luczo | 9/13/2010 | (2) | 34,375 | — | 11.065 | 9/13/2017 | |||||||||||||||||||||||||
9/12/2011 | (3) | 65,000 | 3,129,750 | ||||||||||||||||||||||||||||
8/1/2012 | (2) | 51,962 | 55,960 | 30.230 | 8/1/2019 | ||||||||||||||||||||||||||
8/1/2012 | (4) | — | 206,300 | 30.230 | 8/1/2019 | ||||||||||||||||||||||||||
8/1/2012 | (3) | 43,170 | 2,078,636 | ||||||||||||||||||||||||||||
8/1/2012 | (5) | 287,790 | 13,857,089 | ||||||||||||||||||||||||||||
8/1/2012 | (6) | 112,130 | 5,399,060 | ||||||||||||||||||||||||||||
9/9/2014 | (2) | — | 127,600 | 60.830 | 9/9/2021 | ||||||||||||||||||||||||||
9/9/2014 | (3) | 47,800 | 2,301,570 | ||||||||||||||||||||||||||||
9/9/2014 | (5) | 79,700 | 3,837,555 | ||||||||||||||||||||||||||||
Patrick J. O'Malley | 9/12/2011 | (3) | 14,625 | 704,194 | |||||||||||||||||||||||||||
9/10/2012 | (2) | 6,666 | 12,501 | 29.870 | 9/10/2019 | ||||||||||||||||||||||||||
9/10/2012 | (3) | 12,000 | 577,800 | ||||||||||||||||||||||||||||
9/10/2012 | (5) | 40,000 | 1,926,000 | ||||||||||||||||||||||||||||
9/9/2013 | (2) | 5,833 | 19,688 | 40.160 | 9/9/2020 | ||||||||||||||||||||||||||
9/9/2013 | (3) | 15,750 | 758,363 | ||||||||||||||||||||||||||||
9/9/2013 | (5) | 35,000 | 1,685,250 | ||||||||||||||||||||||||||||
9/9/2014 | (2) | — | 18,000 | 60.830 | 9/9/2021 | ||||||||||||||||||||||||||
9/9/2014 | (3) | 9,000 | 433,350 | ||||||||||||||||||||||||||||
9/9/2014 | (5) | 15,000 | 722,250 | ||||||||||||||||||||||||||||
Philip Gordon Brace | 10/21/2014 | (2) | — | 65,000 | 55.210 | 10/21/2021 | |||||||||||||||||||||||||
10/21/2014 | (3) | 65,000 | 3,129,750 | ||||||||||||||||||||||||||||
William D. Mosley | 9/13/2010 | (2) | 38,581 | — | 11.065 | 9/13/2017 | |||||||||||||||||||||||||
9/12/2011 | (3) | 14,625 | 704,194 | ||||||||||||||||||||||||||||
9/10/2012 | (2) | 27,499 | 12,501 | 29.870 | 9/10/2019 | ||||||||||||||||||||||||||
9/10/2012 | (3) | 12,000 | 577,800 | ||||||||||||||||||||||||||||
9/10/2012 | (5) | 40,000 | 1,926,000 | ||||||||||||||||||||||||||||
9/9/2013 | (2) | 21,875 | 28,125 | 40.160 | 9/9/2020 | ||||||||||||||||||||||||||
9/9/2013 | (3) | 22,500 | 1,083,375 | ||||||||||||||||||||||||||||
9/9/2013 | (5) | 50,000 | 2,407,500 | ||||||||||||||||||||||||||||
9/9/2014 | (2) | — | 31,500 | 60.830 | 9/9/2021 | ||||||||||||||||||||||||||
9/9/2014 | (3) | 15,750 | 758,363 | ||||||||||||||||||||||||||||
9/9/2014 | (5) | 26,250 | 1,263,938 | ||||||||||||||||||||||||||||
Albert A. Pimentel | 3/3/2009 | (2) | 15,000 | 3.845 | 3/3/2016 | ||||||||||||||||||||||||||
10/28/2009 | (2) | 10,000 | 14.825 | 10/28/2016 | |||||||||||||||||||||||||||
4/6/2011 | (2) | 597,500 | 14.810 | 4/6/2018 | |||||||||||||||||||||||||||
9/10/2012 | (2) | 27,499 | 12,501 | 29.870 | 9/10/2019 | ||||||||||||||||||||||||||
9/10/2012 | (3) | 12,000 | 577,800 | ||||||||||||||||||||||||||||
9/10/2012 | (5) | 40,000 | 1,926,000 | ||||||||||||||||||||||||||||
9/9/2013 | (2) | 15,312 | 19,688 | 40.160 | 9/9/2020 | ||||||||||||||||||||||||||
9/9/2013 | (3) | 15,750 | 758,363 | ||||||||||||||||||||||||||||
9/9/2013 | (5) | 35,000 | 1,685,250 | ||||||||||||||||||||||||||||
9/9/2014 | (2) | 31,500 | 60.830 | 9/9/2021 | |||||||||||||||||||||||||||
9/9/2014 | (3) | 15,750 | 758,363 | ||||||||||||||||||||||||||||
9/9/2014 | (5) | 26,250 | 1,263,938 | ||||||||||||||||||||||||||||
James J. Lerner | 4/21/2014 | (2) | 39,062 | 55.690 | 10/1/2015 |
vesting subject to satisfying specified performance criteria. The remaining tranches of these awards continue to vest annually thereafter, subject to the achievement of performance requirements. If threshold performance is not achieved, no awards will vest and the shares underlying the award will be forfeited at the end of the performance period. The TPSU awards are described in more detail above under “Compensation Discussion and Analysis—Long-Term Equity Incentives—Share Awards—Threshold Performance Share Units.” |
(4) | The TSR Options granted to our CEO vest three years following their grant date, contingent on continuous service. The performance condition associated with these options was satisfied as of July 23, 2013 (see “Compensation Discussion and Analysis—Long-Term Equity Incentives—Options—TSR Performance-Vesting Options” in Seagate’s Proxy Statement filed on September 3, 2014). |
(5) | These PSUs were issued under the Seagate Technology plc 2004 Share Compensation Plan, as amended (the “2004 SCP”) and the 2012 Plan. The PSUs vest after the end of a three-year performance period, subject to both continuous service and the achievement of performance criteria. If the minimum performance threshold is not achieved, no PSUs will vest and the PSUs will be forfeited at the end of the performance period. The PSUs are described in more detail above under “Compensation Discussion and Analysis—Long-Term Equity Incentives—Share Awards—Performance Share Units.” |
(6) | RSUs awarded, issued under the 2012 Plan are subject to a four-year vesting schedule. These units vest 25% annually, contingent on continuous service. For a description of the RSUs, refer to the section entitled “Compensation Discussion and Analysis—Long-Term Equity Incentives—Share Awards—Restricted Share Units.” |
(7) | PSUs granted on September 9, 2014; |
(8) | TPSUs granted on September 9, 2014; |
(9) | TPSUs granted on September 9, 2015; |
(10) | PSUs granted on September 9, 2015; |
(11) | RSUs granted on September 9, 2013; |
(12) | RSUs granted on September 9, 2014; |
(13) | TPSUs granted on February 20, 2015; |
(14) | RSUs granted on September 9, 2015; |
(15) | PSUs granted on September 9, 2016; |
(16) | TPSUs granted on September 9, 2016; |
(17) | TPSUs granted on October 21, 2014; |
(18) | TPSUs granted on September 9, 2013; |
(19) | TPSUs granted on December 20, 2016; |
(20) | Mr. Brace will depart the Company effective October 2, 2017, and in the interim will remain with the Company in order to assist with the transition of his responsibilities. |
59
SEAGATE TECHNOLOGY PLC | 2017 Proxy Statement |
2017 NOTICE OF MEETING AND PROXY STATEMENT |
Option Exercises and Stock Vested for Fiscal Year 2015
2017
| Option Awards | Stock Awards | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Name | Number of Shares Acquired on Exercise (#) | Value Realized on Exercise ($) | Number of Shares Acquired on Vesting (#) | Value Realized on Vesting ($) | |||||||||
Stephen J. Luczo | — | — | 567,985 | 34,121,991 | |||||||||
Patrick J. O'Malley | 76,146 | 3,158,833 | 138,275 | 8,436,713 | |||||||||
Philip Gordon Brace | — | — | — | — | |||||||||
William D. Mosley | 115,743 | 6,506,460 | 142,025 | 8,554,564 | |||||||||
Albert A. Pimentel | 50,000 | 2,491,711 | 39,000 | 2,302,800 | |||||||||
James J. Lerner | — | — | 95,235 | (1) | 4,786,829 |
Name
| Option Awards
| Stock Awards
| ||||||
Number of Shares Acquired on Exercise (#)
| Value Realized on Exercise ($)
| Number of Shares Acquired on Vesting (#)
| Value Realized on Vesting ($)
| |||||
Stephen J. Luczo | — | — | 47,757 | 1,644,549 | ||||
David H. Morton, Jr. | — | — | 19,313 | 809,856 | ||||
Philip G. Brace | — | — | 21,939 | 756,516 | ||||
William D. Mosley | 38,581 | 1,397,431 | 72,126 | 2,657,417 | ||||
James J. Murphy | — | — | — | — |
Nonqualified Defined Contribution and Other Nonqualified Deferred Compensation Plans
Name | Executive Contributions in FY2015 ($)(a) | Registrant Contributions in Last FY ($) | Aggregate Earnings in FY2015 ($) | Aggregate Withdrawals/ Distributions ($) | Aggregate Balance in FY2015 ($) | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Stephen J. Luczo | — | — | — | — | — | |||||||||||
Patrick J. O'Malley | 796,776 | — | 160,365 | — | 4,835,619 | |||||||||||
Philip Gordon Brace | — | — | — | — | — | |||||||||||
William D. Mosley | — | — | 6,739 | — | 541,645 | |||||||||||
Albert A. Pimentel | — | — | — | — | — | |||||||||||
James J. Lerner | — | — | — | — | — |
Name
| Executive Contributions in FY 2017 ($)
| Registrant Contributions in FY 2017 ($)
| Aggregate Earnings in FY 2017 ($)
| Aggregate Withdrawals/ Distributions ($)
| Aggregate Balance at FY 17 End ($)(a)
| |||||
Stephen J. Luczo | — | — | — | — | — | |||||
David H. Morton, Jr. | — | — | — | — | — | |||||
Philip G. Brace | 240,007 | — | 32,830 | — | 367,307 | |||||
William D. Mosley | — | — | 22,984 | — | 569,307 | |||||
James J. Murphy | 86,252 | — | 2,634 | — | 88,886 |
(a) | The amounts reported as Executive contributions represent compensation already reported in the Summary Compensation Table, with the exception of earnings on contributions, as such earnings are not considered at above-market rates. |
The SDCP is a nonqualified deferred compensation plan allowing participants to defer on apre-tax basis up to 70% of their base salary, 70% of their commissions and up to 100% of their annual performance-based cash bonus, and to select from several mutual fund investment options used to determine notional earnings on the deferred amounts. The deferrals and notional earnings related to those deferrals are reflected on our books as an unfunded obligation of the Company, and remain part of our general assets. A grantor (or rabbi) trust was established for the purpose of accumulating funds to satisfy our obligations and process payments due under the SDCP for plans in effect for the performance period through December 31, 2014. A successor SDCP was implemented effective January 1, 2015, which is no longer supported by a grantor (rabbi) trust.
Participants may elect to receive distributions upon retirement or termination of employment or at a specified time while still employed. Participants may elect to receive distributions following retirement or termination in a lump sum or in quarterly installments over 3, 5, 10, or 15 years. Participants may elect to receivein-service distributions in a lump sum or annual installments payable over 2, 3, 4 or 5 years. Upon disability, a participant'sparticipant’s account will be distributed in accordance with his or her retirement/termination distribution elections. Additionally, upon death, a participant'sparticipant’s accounts will be paid to his or her beneficiary or beneficiaries in a cashlump-sum payment payable before the later of the end of the calendar year in which the participant dies, and two andone-half months after the participant dies. Unless otherwise determined by the Compensation Committee prior to a change in control, the SDCP will be terminated upon the occurrence of a change in control and the aggregate balance credited to and held in a participant'sparticipant’s account shall generally be distributed to him or her in a lump sum not later than the thirtieth day following the change in control.
60
SEAGATE TECHNOLOGY PLC | 2017 Proxy Statement |
2017 NOTICE OF MEETING AND PROXY STATEMENT |
Potential Payments Upon Qualifying Termination or Change in Control
As discussed above under the heading titled "Compensation“Compensation Discussion and Analysis—Severance and Change in Control Benefits,"” the Compensation Committee adopted the Severance Plan to provide, among other things, consistent severance benefits to NEOs who are terminated without cause or resign for good reason, in lieu of severance protections that might otherwise have been included in individually negotiated employment agreements. In addition to severance, participating NEOs are entitled to receive payment of deferred amounts in the event of a termination of employment or a change in control, as described under the immediately preceding heading titled "Nonqualified Defined Contribution and Other Nonqualified“Nonqualified Deferred Compensation Plans".Plans.”
Involuntary Termination Without Cause or For Good Reason Outside of a Change in Control Period
Under the Severance Plan in effect during fiscal year 2015,2017, if an NEO'sNEO’s employment were to have been terminated by the Company without "cause"“cause” (as defined below) or by the NEO for "good reason"“good reason” (as defined below), the NEO would have been entitled to receive a severance payment equal to a pre- determinedpre-determined number of months of base salary, based on the NEO'sNEO’s job level. In the event of such an involuntary termination outside of a "change“change in control period"period” (as defined below), the CEO would be entitled to receive 24 months of base salary, the Presidents and the other NEOsExecutive Vice Presidents would be entitled to receive 20 months of base salary, and the Senior Vice Presidents would be entitled to receive 16 months of base salary, as well as apro-rata bonus for the year of termination based on the number of days elapsed from the beginning of the fiscal year until the termination date at the most recent accrued performance level, and, if applicable, the prior year bonus (if earned but unpaid at the time of termination). The severance benefits are generally payable within 20 business days following the "payment“payment confirmation date"date” (as defined in the Severance Plan) in an amount equal to the lesser of (a) 50% of the severance benefit and (b) $530,000 (for calendar year 2015)2017), with the remaining amount payable twelve months following the date of termination.termination for CEO, Presidents and Executive Vice Presidents and 6 months and one day following the date of termination for Senior Vice Presidents. The Company would also provide paid outplacement services for a period of two years24 months following termination.termination for the CEO, Presidents and Executive Vice Presidents, and a period of 18 months following termination for the Senior Vice Presidents. The receipt of these severance benefits would generally be subject to the NEO'sNEO’s execution of an effective release of claims against the Company and compliance with certainnon-competition,non-solicitation and confidentiality covenants during the applicable severance period.
Under the Severance Plan, "cause"“cause” means (i) an NEO'sNEO’s continued failure to substantially perform the material duties of his or her office, (ii) fraud, embezzlement or theft by an NEO of Company property, (iii) the conviction of an NEO of, or plea of nolo contendere by the NEO to, a felony, (iv) an NEO'sNEO’s willful malfeasance or willful misconduct in connection with such NEO'sNEO’s duties or any other act or omission which is materially injurious to the financial condition or business reputation of Seagate, or (v) a material breach by an NEO of any of the provisions of (A) the Severance Plan, (B) anynon-compete,non-solicitation or confidentiality provisions to which such NEO is subject, or (C) any company policy or other agreement to which such NEO is subject. subject; and “good reason” means an NEO’s resignation of his or her employment with the Company as a result of the occurrence of one or more of the following actions without such NEO’s express written consent, which action(s) remain uncured for at least 30 days following written notice from such NEO to the Company describing the occurrence of such action(s) and asserting that such action(s) constitute(s) grounds for a good reason resignation, which notice must be provided by the NEO no later than 90 days after the initial existence of such condition; provided, that such resignation occurs no later than 60 days after the expiration of the cure period: (w) any material diminution in the level of the NEO’s level or title, authority or duties; (x) a reduction of 10% or more in the level of the base salary or target bonus opportunity, other than a reduction that is equivalent to the reduction in base salaries and/or target bonus opportunities, as applicable, imposed on all other executives of the Company at a similar level; (y) the relocation of the NEO to a principal place of employment that increases
61
SEAGATE TECHNOLOGY PLC | 2017 Proxy Statement |
2017 NOTICE OF MEETING AND PROXY STATEMENT |
his or herone-way commute by more than 50 miles; or (z) the failure of any successor to the business of the Company or to substantially all of the assets and/or business of the Company to assume the Company’s obligations under the Severance Plan.
If an NEO is involuntarily terminated for any reason outside a change in control period, the Severance Plan does not provide for any accelerated vesting of outstanding equity awards. Instead, the terms of any vesting acceleration are governed by the applicable award agreement. Upon termination of an NEO'sNEO’s continuous service for any reason (other than death or disability): (i) the award agreements (including those evidencing the TPSUs) provide that vesting will cease and, where applicable, Seagate will automatically reacquire all unvested shares without payment of consideration, and (ii) the option agreements provide that all unvested options will be cancelled effective as of the termination date, although NEOs, as all other option holders, would have three months to exercise options that are vested as of the date of termination.
Involuntary Termination Without Cause or For Good Reason During a Change in Control Period
The Severance Plan provides for enhanced severance benefits if an NEO is terminated by the Company without cause or resigns for good reason during a "change“change in control period"period”. This period is
defined as the period commencing six months prior to the effective date of a "change“change in control"control” (as defined below) and ending 24 months following such date. In the event of an involuntary termination within a change in control period (often called a "double trigger"“double trigger”), the NEO would be entitled to receive the following: (i) 36 months of base salary and target bonus in the case of the CEO, or 24 months of base salary and target bonus in the case of the other NEOs,Presidents and Executive Vice Presidents or 18 months of base salary and target bonus in the case of the Senior Vice Presidents, (ii) a lump sum cash payment equal to two times thebefore-tax annual cost of the applicable COBRA premiums for the NEO and his or her eligible dependents, if any, (iii) paid outplacement services for a period of two years,24 months for the CEO, Presidents and Executive Vice Presidents and 18 months for the Senior Vice Presidents, and (iv) full vesting of all unvested equity-based awards (whether or not awarded prior to or following the adoption of the Severance Plan). All other rights and obligations imposed under the Severance Plan upon such a termination of employment outside of the context of a change in control (as described above) would also be generally applicable in the event of a termination during a change in control period, except that the severance benefits would generally be payable within 20 business days following the "payment“payment confirmation date"date” in an amount equal to the lesser of (a) 100% of the severance benefit and (b) $530,000 (for calendar year 2015)2017), with the remainder, if any, payable six months and one day following the termination date.
Under the Severance Plan, "change“change in control"control” or "CIC"“CIC” means the consummation or effectiveness of any of the following events: (i) the sale, exchange, lease or other disposition of all or substantially all of the assets of Seagate to a person or group of related persons; (ii) a merger, reorganization, recapitalization, consolidation or other similar transaction involving Seagate in which the voting securities of Seagate owned by the shareholders of Seagate immediately prior to such transaction do not represent more than fifty percent (50%) of the total voting power of the surviving controlling entity outstanding immediately after such transaction; (iii) any person or group of related persons is or becomes the beneficial owner, directly or indirectly, of more than 50% of the total voting power of the voting securities of Seagate; (iv) during any period of two consecutive years, individuals who at the beginning of such period constituted the Board (together with any new directors whose election by such Board or whose nomination for election by the shareholders of Seagate was approved by a vote of a majority of the directors of Seagate then still in office, who were either directors at the beginning of such period or whose election or nomination for election was previously so approved) cease for any reason to constitute a majority of the Board then in office; or (v) a dissolution or liquidation of Seagate.
62
SEAGATE TECHNOLOGY PLC | 2017 Proxy Statement |
2017 NOTICE OF MEETING AND PROXY STATEMENT |
In addition, under the terms of our equity award agreements with each NEO and consistent with the treatment of equity awards under the Severance Plan, if a change in control (which is generally defined in a similar manner as under the Severance Plan) occurs and the successor company does not assume or replace the awards with alternatives that preserve both the intrinsic value and the rights and benefits of the award immediately prior to the CIC, then all awards accelerate and become fully vested at least 10 days prior toon the consummationlater of (i) the closing date of the CIC, or (ii) the date of the “termination event” (as defined in the Severance Plan), based on the Company’s performance through the closing date of the CIC. The PSU award agreement further provides that the number of shares that will vest on the later of the closing of a CIC and an NEO'sNEO’s involuntary termination within the change in control period will be based on the Company'sCompany’s performance through the closing date of the CIC, with relative TSR performance measured by using the average closing pricesprice over the30-day trading period preceding the CIC. The vesting of the TSR Options and TSR PSUs issued to our CEO will accelerate in full upon the later of a CIC and a qualifying termination of employment.
In the event that the benefits payable following a CIC exceed the safe harbor limits established in Section 280G of the Code, we cap benefits at the safe harbor limit if theafter-tax benefit to the NEO of the capped amount is greater than theafter-tax benefit of the full amount (which would be subject to excise taxes imposed by Section 4999 of the Code). We do not provide anygross-up for excise taxes and the NEO is responsible for payment of all personal taxes, including excise taxes.
Termination due to Death or Disability
In the event a termination of employment occurs due to an NEO'sNEO’s death or disability, the NEO would not be entitled to any benefits under the Severance Plan. Under the Severance Plan, "disability"“disability” means that the NEO is physically or mentally incapacitated and therefore unable to substantially perform his duties for six consecutive months or an aggregate of nine months in any consecutive24-month period. However, in the event of termination of employment due to an NEO'sNEO’s death or disability, the Compensation Committee has the discretion under the terms of the EOPB to pay to the NEO or the NEO'sNEO’s estate apro-rated target bonus for the fiscal year in which the termination occurs.
The terms of the restricted shareRSUs and performance share awardTPSUs agreements for our NEOs provide that vesting will cease upon a termination due to disability (as defined above), and the Company will automatically reacquire all unvested shares without payment of consideration. However, for a termination due to death, the NEO will be deemed to have completed an additional year of service as of the termination date so that an additional 25% of the award will vest immediately.immediately for the purposes of acceleration for RSUs and TPSUs.
Similarly, the option agreements provide that upon termination due to death, the NEO will be deemed to have completed an additional year of service for purposes of determining the portion of an option award that will be vested at termination. For our CEO, both the TSR Option agreement and the TSR PSU award agreement provides that the CEO will vestpro-rata in the option or award based on the number of days from the beginning of the performance period until the termination date upon termination due to death or disability. Additionally, the PSU agreements for our NEOs provide that in the event of a termination due to death or disability, the awards will vestpro-rata based on the number of days from the beginning of the performance period until the termination date, based on actual Company performance, and will be settled in ordinary shares after the end of the performance period.
Finally, for those executive officers who participate in the group replacement life insurance plan, the Company will continue to pay its portion of the insurance premiums through the end of the calendar year in which the Executive becomes disabled.
63
SEAGATE TECHNOLOGY PLC | 2017 Proxy Statement |
2017 NOTICE OF MEETING AND PROXY STATEMENT |
Potential Payments Upon Termination
Severance Benefits Upon Termination Without Cause or For Good Reason outsideOutside a Change in Control Period; Upon Termination Due to Death; Upon Termination Without Cause or For Good Reason within a Change in Control Period
The following table sets forth the estimated value of the potential payments and severance benefits to each NEO assuming termination of the NEO by the Company without cause or by the NEO for good reason on July 3, 2015.
Name | Monthly Base Salary ($) | Months of Base Pay (#) | Prior Year Bonus ($)(1) | Outplacement Benefit ($)(2) | Total ($) | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Stephen J. Luczo | 100,005 | 24 | 1,155,654 | 15,000 | 3,570,766 | |||||||||||
Patrick J. O'Malley | 47,084 | 20 | 362,737 | 15,000 | 1,319,422 | |||||||||||
Philip Gordon Brace | 41,668 | 20 | 263,901 | 15,000 | 1,112,253 | |||||||||||
William D. Mosley | 50,002 | 20 | 463,217 | 15,000 | 1,478,247 | |||||||||||
Albert A. Pimentel | 50,002 | 20 | 458,402 | 15,000 | 1,473,432 |
Severance Benefits Upon Termination Due to Death
The following table sets forthJune 30, 2017; the estimated value as of July 3, 2015June 30, 2017 of the potential payments and severance benefits to each NEO, assuming termination of the NEO due to death on such date.
Name | Target Bonus ($)(1) | Vesting of Stock Options ($)(2) | Accelerated Vesting of Stock Awards ($)(3) | Total ($) | |||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Stephen J. Luczo(4) | 1,800,084 | 4,556,429 | 24,531,462 | 30,887,975 | |||||||||
Patrick J. O'Malley(4) | 565,011 | 252,713 | 4,373,513 | 5,191,237 | |||||||||
Philip Gordon Brace | 500,011 | — | 782,438 | 1,282,449 | |||||||||
William D. Mosley | 750,023 | 282,675 | 5,146,681 | 6,179,379 | |||||||||
Albert A. Pimentel | 750,023 | 252,713 | 3,897,478 | 4,900,214 |
Name | Accelerated Vesting of PSU Awards ($) | Accelerated Vesting of Options ($) | ||||||
---|---|---|---|---|---|---|---|---|
Stephen J. Luczo | 24,531,462 | 3,696,896 | ||||||
Patrick J. O'Malley | 4,373,513 | — | ||||||
Philip G. Brace | 782,438 | — | ||||||
William D. Mosley | 5,146,681 | — | ||||||
Albert A. Pimentel | 3,897,478 | — |
Severance Benefits Upon Termination Without Cause or For Good Reason within a Change in Control Period
The following table sets forth the estimated value calculated as of July 3, 2015June 30, 2017 of the potential payments to each NEO, assuming termination of the NEO by the Company without cause or by the NEO for good reason on such date in connection with a change in control, during a change in control period, as defined in the Severance Plan.
Name
| Type of Benefit
| Involuntary Termination ($)
| Qualifying Termination Following a ($)
| Separation Due to Death ($)
| ||||
Stephen J. Luczo | ||||||||
Severance | 2,400,112 | 3,600,168 | — | |||||
Outplacement Benefit(1) | 15,000 | 15,000 | — | |||||
Bonus | —(2) | 5,400,252 | 1,800,084(3) | |||||
Accelerated Vesting of Stock Options | — | —(4) | —(5) | |||||
Accelerated Vesting of Restricted Share Units | — | —(6) | —(7) | |||||
Accelerated Vesting of Performance-Based Restricted Share Units | — | 9,595,818(8) | 6,272,685(9) | |||||
Health Care Benefit | — | 43,470 | — | |||||
Total | 2,415,112 | 18,654,708(10) | 8,072,769 | |||||
David H. Morton, Jr. | ||||||||
Severance | 875,022 | 1,050,026 | — | |||||
Outplacement Benefit(1) | 15,000 | 15,000 | — | |||||
Bonus | —(2) | 1,050,026 | 525,013(3) | |||||
Accelerated Vesting of Stock Options | — | 395,449(4) | 173,006(5) | |||||
Accelerated Vesting of Restricted Share Units | — | 369,636(6) | 172,282(7) | |||||
Accelerated Vesting of Performance-Based Restricted Share Units | — | 5,701,133 | 2,265,403 | |||||
Health Care Benefit | — | 43,470 | — | |||||
Total | 890,022 | 8,624,740(10) | 3,135,704 |
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SEAGATE TECHNOLOGY PLC | 2017 Proxy Statement |
2017 NOTICE OF MEETING AND PROXY STATEMENT |
Name | Monthly Base Salary ($) | Monthly Target Bonus ($) | Total Monthly Severance Pay ($) | Months of Pay (#) | Total Severance Pay ($) | Total Health Care Benefit ($) | Outplacement Benefit ($)(1) | Accelerated Vesting of Stock Options ($)(2) | Accelerated Vesting of Stock Awards ($)(3) | Total ($)(4) | |||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Stephen J. Luczo | 100,005 | 150,007 | 250,012 | 36 | 9,000,420 | 41,608 | 15,000 | 4,699,699 | 30,603,659 | 44,360,386 | |||||||||||||||||||||
Patrick J. O'Malley | 47,084 | 47,084 | 94,169 | 24 | 2,260,044 | 25,840 | 15,000 | 385,825 | 6,807,206 | 9,493,915 | |||||||||||||||||||||
Philip Gordon Brace | 41,668 | 41,668 | 83,335 | 24 | 2,000,045 | 41,608 | 15,000 | — | 3,129,750 | 5,186,403 | |||||||||||||||||||||
William D. Mosley | 50,002 | 62,502 | 112,503 | 24 | 2,700,081 | 41,608 | 15,000 | 453,237 | 8,721,169 | 11,931,095 | |||||||||||||||||||||
Albert A. Pimentel | 50,002 | 62,502 | 112,503 | 24 | 2,700,081 | 41,608 | 15,000 | 385,825 | 6,969,713 | 10,112,227 |
Name
| Type of Benefit
| Involuntary Termination ($)
| Qualifying Termination Following a ($)
| Separation Due to Death ($)
| ||||
Philip G. Brace | ||||||||
Severance | 1,000,029 | 1,200,035 | — | |||||
Outplacement Benefit(1) | 15,000 | 15,000 | — | |||||
Bonus | —(2) | 1,500,044 | 750,022(3) | |||||
Accelerated Vesting of Stock Options | — | 429,787(4) | 188,030(5) | |||||
Accelerated Vesting of Restricted Share Units | — | —(6) | —(7) | |||||
Accelerated Vesting of Performance-Based Restricted Share Units | — | 8,369,109 | 3,075,636 | |||||
Health Care Benefit | — | 43,470 | — | |||||
Total | 1,015,029 | 11,557,445(10) | 4,013,688 | |||||
William D. Mosley | ||||||||
Severance | 1,333,349 | 1,600,019 | — | |||||
Outplacement Benefit(1) | 15,000 | 15,000 | — | |||||
Bonus | —(2) | 2,000,024 | 1,000,012(3) | |||||
Accelerated Vesting of Stock Options | — | 528,968(4) | 231,423(5) | |||||
Accelerated Vesting of Restricted Share Units | — | —(6) | —(7) | |||||
Accelerated Vesting of Performance-Based Restricted Share Units | — | 9,848,158 | 4,136,311 | |||||
Health Care Benefit | — | 43,470 | — | |||||
Total | 1,348,349 | 14,035,639(10) | 5,367,746 |
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SEAGATE TECHNOLOGY PLC | 2017 Proxy Statement |
2017 NOTICE OF MEETING AND PROXY STATEMENT |
Name
| Type of Benefit
| Involuntary Termination ($)
| Qualifying Termination Following a ($)
| Separation Due to Death ($)
| ||||||||||
James J. Murphy | ||||||||||||||
Severance | 958,360 | 1,150,032 | — | |||||||||||
Outplacement Benefit(1) | 15,000 | 15,000 | — | |||||||||||
Bonus | — | (2) | 1,150,032 | 575,016 | (3) | |||||||||
Accelerated Vesting of Stock Options | — | — | (4) | — | (5) | |||||||||
Accelerated Vesting of Restricted Share Units | — | — | (6) | — | (7) | |||||||||
Accelerated Vesting of Performance-Based Restricted Share Units | — | 3,249,188 | 812,297 | |||||||||||
Health Care Benefit | — | 44,483 | — | |||||||||||
Total | 973,360 | 5,608,735 | (10) | 1,387,313 |
(1) | Represents the estimated amounts payable for outplacement services for thetwo-year period following termination. |
(2) | Represents full-year bonus earned but unpaid at the time of termination. |
(3) | Amounts represent the bonus component of the death benefit assuming that the Compensation Committee elects to exercise its discretion to pay the NEO’s estate a bonus for the fiscal year in which death occurs. In addition, the amount represented has been calculated assuming that the Compensation Committee elects to award the bonus at the NEO’s target bonus opportunity for that year. However, the EOPB does not obligate the Compensation Committee to pay a bonus at the target bonus level or otherwise in the event of an NEO’s death. |
(4) | Amounts represent the value of options that receive accelerated vesting as a result of the termination assuming that the market price per share of Seagate’s ordinary shares on the date of termination of employment was equal to the closing price on June 30, 2017, or $38.75 per share, and are based on the difference between this price and the exercise price of options held by the NEO. As a result, the amounts represented do not include any value for the acceleration of options that have an exercise price greater than $38.75 or for options that were already vested as of June 30, 2017. |
(5) | Amounts represent the value of options that receive accelerated vesting as a result of the termination assuming that the market price per share of Seagate’s ordinary shares on the date of termination of employment was equal to the closing price on June 30, 2017, or $38.75 per share, and are based on the difference between this price and the exercise price of options held by the NEO. As a result, the amounts represented do not include any value for the acceleration of options that have an exercise price equal to or greater than $38.75 or for options that were already vested as of June 30, 2017. Under the terms of the TSR Options issued to our CEO, the same number of options would accelerate in the event of disability as in the event of death because the performance condition was satisfied as of July 23, 2013. |
(6) | Amounts represent the value of share awards that receive accelerated vesting as a result of the termination assuming that the market price per share of Seagate’s ordinary shares on the date of termination of employment was equal to the closing price on June 30, 2017 or $38.75 per share. |
(7) | Represents amounts for an additional year of service as of the termination date so that an additional 25% of the unvested award will vest immediately. |
(8) | Amounts represent the value of share awards that receive accelerated vesting as a result of the termination assuming that the market price per share of Seagate’s ordinary shares on the date of termination of employment was equal to the closing price on June 30, 2017 or $38.75 per share. In addition, the value of accelerated PSUs is calculated assuming that we would have achieved the target level of performance at the end of the three-year performance measurement cycle, except for the TSR PSUs issued to our CEO which would accelerate in full because the performance condition had been satisfied as of July 23, 2013. |
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SEAGATE TECHNOLOGY PLC | 2017 Proxy Statement |
2017 NOTICE OF MEETING AND PROXY STATEMENT |
(9) | Amounts represent the value of share awards that receive accelerated vesting as a result of the termination assuming that the market price per share of Seagate’s ordinary shares on the date of termination of employment was equal to the closing price on June 30, 2017 or $38.75 per share. In addition, the value of accelerated PSUs is calculated assuming that we would have achieved the target level of performance at the end of the three-year performance measurement cycle. In the event of disability, the NEOs would receive the same number of shares under the terms of the PSU award agreements as in the event of death. In addition, under the terms of the TSR PSUs issued to our CEO, the same number of PSUs would accelerate in the event of disability as in the event of death because the performance condition was satisfied as of July 23, 2013. |
(10) | Calculations do not include the impact of any potential cutback pursuant to the application of the Code Section 280G safe harbor limit under the relevant provisions of the Severance Plan. |
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SEAGATE TECHNOLOGY PLC | 2017 Proxy Statement |
2017 NOTICE OF MEETING AND PROXY STATEMENT |
PROPOSAL 2 – AN ADVISORY,NON-BINDING VOTE ON THE COMPANY’S EXECUTIVE COMPENSATION –SAY-ON-PAY VOTE
(Ordinary Resolution)
The Board is presenting the following proposal, commonly known as a“Say-on-Pay” proposal, which gives you as a shareholder the opportunity to endorse or not endorse, in an advisory,non-binding vote, the compensation of our NEOs, as required by Section 14A of the Exchange Act and the related rules of the SEC. The Board currently intends to hold such votes annually, although it will consider the outcome of the advisory vote on frequency ofSay-on-Pay described in Proposal 3 below in determining the future frequency of such vote. You may endorse or not endorse, respectively, the compensation paid to our NEOs by voting for or against the following resolution:
“RESOLVED, as an ordinary resolution, that, on an advisory,non-binding basis, the compensation of the Company’s named executive officers, as disclosed in the Compensation Discussion and Analysis, the accompanying compensation tables and the related disclosure contained in the Company’s Proxy Statement is hereby approved.”
While our Board intends to carefully consider the shareholder vote resulting from the proposal, the final vote will not be binding, and is advisory in nature.
In considering your vote, please be advised that our compensation program for our NEOs is guided by our design principles, as described in the Compensation Discussion and Analysis of this Proxy Statement:
• | Cash compensation tied to performance. At least half of the cash compensation opportunity for our NEOs is based on Company and individual performance. The cash compensation of our NEOs has fluctuated from year to year, reflecting the Company’s financial results. In addition, we have implemented a cap on annual bonus funding. |
• | Long-term equity incentive compensation tied to performance. In fiscal year 2017, a majority of ourlong-term equity incentive awards were granted in the form ofperformance-based restricted share units, which vest dependent upon the achievement ofpre-established performance objectives, including return on invested capital, relative total shareholder return and adjusted earnings per share (as described in further detail in this Proxy Statement). |
• | Compensation unrelated to performance is limited. We do not have executive employment agreements, guaranteed incentive awards, “golden parachutes,” single trigger change of control severance provisions, executive pensions or taxgross-ups for our NEOs. |
• | Share Ownership Guidelines. Our share ownership guidelines for our NEOs directly tie executive performance and retained value from our shares to the value returned to our shareholders. |
Vote Required; Recommendation of the Board
A simple majority of all votes cast by holders of ordinary shares on the Record Date represented in person or by proxy at the 2017 AGM is required to approve Proposal 2.
THE BOARD RECOMMENDS THAT YOU VOTE “FOR” THE ADVISORY,NON-BINDING APPROVAL OF THE COMPENSATION OF OUR NAMED EXECUTIVE OFFICERS AS DISCLOSED IN THE COMPENSATION DISCUSSION AND ANALYSIS, THE ACCOMPANYING COMPENSATION TABLES, AND THE RELATED DISCLOSURE CONTAINED IN THIS PROXY STATEMENT.
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SEAGATE TECHNOLOGY PLC | 2017 Proxy Statement |
2017 NOTICE OF MEETING AND PROXY STATEMENT |
PROPOSAL 3 – AN ADVISORY,NON-BINDING VOTE ON THE FREQUENCY OF THE VOTE ON COMPANY’S EXECUTIVE COMPENSATION – FREQUENCY OFSAY-ON-PAY
(Resolution requiring affirmative plurality of votes cast)
Every six years, in accordance with the requirements of Section 14A of the Exchange Act (which was added by the Dodd-Frank Act), shareholders are entitled to indicate, on anon-binding basis, their preference as to how frequently they would like to cast anon-binding vote on the compensation of our NEOs. Shareholders may indicate whether they would prefer such vote occur every one, two or three years or abstain from voting. While the Board intends to consider carefully the results of this vote, the vote is advisory in nature and is not binding on the Company or the Board. The Board believes that anon-binding vote on executive compensation every year is appropriate for the two-yearCompany and its shareholders based on a number of considerations, including the views of its shareholders. At our 2011 Annual General Meeting, our shareholders indicated that they would preferSay-on-Pay votes to occur annually and we have heldSay-on-Pay votes every year since that time.
The text of the resolution in respect of Proposal 3 is as follows:
“RESOLVED, that the shareholders wish the Company to include an advisory vote on the compensation of the Company’s named executive officers pursuant to Section 14A of the Exchange Act every:
Vote Required; Recommendation of the Board
The affirmative vote of a plurality of all the votes cast by holders of ordinary shares on the Record Date represented in person or by proxy at the 2017 AGM is required to approve any of the foregoing choices.
The Board advises you to vote for shareholder review of the Company’s executive compensation policies and procedures every year. We believe that an annual review will give shareholders the most effective voice on executive compensation, since shareholders will be able to provide input on our compensation philosophy, policies and practices, as disclosed in our Proxy Statement each year. Since our Board reviews, adjusts and approves our executive compensation programs and pay practices on an annual basis, it was determined that annual input from our shareholders would be preferable.
THE BOARD RECOMMENDS THAT YOU VOTE FOR “ONE YEAR” SHAREHOLDER REVIEW OF THE COMPANY’S EXECUTIVE COMPENSATION POLICIES AND PROCEDURES.
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SEAGATE TECHNOLOGY PLC | 2017 Proxy Statement |
2017 NOTICE OF MEETING AND PROXY STATEMENT |
PROPOSAL 4 – APPROVAL OF AMENDED AND RESTATED SEAGATE TECHNOLOGY PUBLIC LIMITED COMPANY EMPLOYEE STOCK PURCHASE PLAN
(Ordinary Resolution)
We are seeking the approval by our shareholders of the Second Amended and Restated Seagate Technology plc Employee Stock Purchase Plan (the “ESP Plan”), which amends and restates in its entirety the Amended and Restated Seagate Technology plc Employee Stock Purchase Plan (the “Prior ESP Plan”) in the following material respects:
General
The Board is seeking the approval of our shareholders for an amendment to the ESP Plan that would provide for an additional 10,000,000 ordinary shares to offer for sale to eligible Seagate employees and employees of certain of Seagate’s subsidiaries. The ESP Plan was adopted by the Compensation Committee on October 24, 2002 and approved by our shareholders on December 3, 2002, and became effective December 10, 2002. Currently, a total of 3,750,770 ordinary shares of Seagate are available for issuance. The maximum number of shares that can be issued under the ESP Plan over the lifetime of the plan is 50,000,000. The full text of the ESP Plan is included as Appendix B to this Proxy Statement as it would read if this proposal were to be approved by our shareholders with the proposed changes. Below is a summary of certain key provisions of the ESP Plan, which is qualified in its entirety by reference to the full text of the ESP Plan.
The Board is recommending the addition of 10,000,000 shares to the total shares available under the ESP Plan to ensure that eligible employees have the opportunity to invest in Seagate shares in order to take part in our future growth potential.
Description of the ESP Plan
Purpose and General Information about the ESP Plan. We adopted the ESP Plan to provide employees of Seagate and its designated subsidiaries with an opportunity, during specified periods (“Offering Periods”), to purchase ordinary shares through accumulated payroll deductions. The ESP Plan provides eligible employees (including officers and directors who are employees) of Seagate and certain designated subsidiaries with the right to purchase ordinary shares of Seagate at a discount. For U.S. taxpayers, the ESP Plan is intended to satisfy the requirements to receive the tax advantages allowed under Section 423 of the Internal Revenue Code. The ESP Plan is not a qualified deferred compensation plan under Section 401(a) of the Internal Revenue Code, and is not subject to the provisions of the U.S. Employee Retirement Income Security Act of 1974.
Eligibility. Employees of Seagate or a designated subsidiary who are employed as of the first day of a given Offering Period to purchase ordinary shares of Seagate (an “Offering Date”) are eligible provided that they have satisfied the minimum employment period following termination.
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SEAGATE TECHNOLOGY PLC | 2017 Proxy Statement |
2017 NOTICE OF MEETING AND PROXY STATEMENT |
Directors who are not employees of a participating employer in the ESP Plan, consultants, independent contractors, temporary workers employed by a third party, and employees ofnon-designated subsidiaries of Seagate are not eligible to participate in the ESP Plan.
Administration. The ESP Plan is administered by a committee appointed by the Board. Currently, the ESP Plan is being administered by Seagate’s Benefits Administrative Committee (the “Administrative Committee”). The Administrative Committee has full power, in a manner not inconsistent with the ESP Plan, to adopt, amend and rescind any rules for the administration of the ESP Plan, to construe and interpret the ESP Plan, to exercise any and all powers allocated to the Board under the ESP Plan, and to make all other determinations necessary or advisable for the administration of the ESP Plan. Members of the Administrative Committee receive no additional compensation for their services in connection with the administration of the ESP Plan. Members of the Administrative Committee will serve for such time as the Board may specify and may be removed at any time by the Board or the Compensation Committee.
Offering Periods. The ESP Plan will be implemented by a series of Offering Periods during which shares are purchased through payroll deductions (“Purchase Periods”). Each Offering Period is six months and consists of one Purchase Period that runs concurrently with the Offering Period. The last trading day of each Purchase Period is called a “Purchase Date.”
Purchase of Shares. An employee who has satisfied the eligibility criteria will automatically be granted an option to participate in the ESP Plan on the first Offering Date on which he or she is eligible. Assuming an eligible employee has appropriately completed the applicable paperwork, payroll deductions will commence with the first payroll following the Offering Date and will end on the last payroll paid on or prior to the last Purchase Date of the Offering Period, unless the employee terminated his or her participation earlier in accordance with the ESP Plan. Thereafter, on each Offering Date of each Offering Period, participants are granted an option to buy ordinary shares, which will be exercised automatically on each Purchase Date.
Purchase Price. The purchase price for a Purchase Period will generally be equal to 85% of the lesser of (a) the closing price for our ordinary shares on the Offering Date or (b) the closing price for our ordinary shares on the Purchase Date.
Securities to be Purchased. The securities to be purchased under the ESP Plan are ordinary shares of Seagate. Ordinary shares are issued directly to an ESP Plan participant from Seagate and are registered with the SEC under a special form of registration statement applicable to employee benefit plans.
Plan Amendment and Termination. The Board has the power to terminate or amend the ESP Plan at any time subject to specified restrictions protecting the rights of participating employees. Upon a termination of the ESP Plan, the Board may, in its discretion, (a) return, without interest, the payroll deductions credited to the participants’ accounts to such participants, or (b) set an earlier Purchase Date with respect to the Offering Periods and Purchase Periods then in progress.
Certain Federal Income Tax Consequences
Generally, participants in the ESP Plan will recognize income for purposes of U.S. federal income tax in the year in which they make a disposition of the purchased ordinary shares. The U.S. federal income tax liability will depend on whether such disposition is “disqualifying” or “qualifying.” A disqualifying disposition is any sale or other disposition which is made within two years after the Offering Date or within one year after the Purchase Date. A qualifying disposition will occur if the sale or other disposition of the ordinary shares is made after the participant has held the ordinary shares for more than two years after the Offering Date and more than one year after the Purchase Date.
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SEAGATE TECHNOLOGY PLC | 2017 Proxy Statement |
2017 NOTICE OF MEETING AND PROXY STATEMENT |
Upon a disqualifying disposition, a participant will recognize ordinary income equal to the excess of (a) the fair market value of options that receive accelerated vestingthe ordinary shares on the Purchase Date over (b) the purchase price paid for the ordinary shares. Seagate will be entitled to an income tax deduction in an amount equal to such excess for the taxable year in which such disposition occurs. Any additional gain recognized upon the disqualifying disposition will be capital gain. The capital gain will be long-term if the participant has held the ordinary shares more than one year after the Purchase Date, and will be short-term if the participant has held the ordinary shares not more than one year from the Purchase Date. In general, the current maximum U.S. federal income tax rate on long-term capital gains is 15%, and short-term capital gains are taxed at the same rates as ordinary income. The current general maximum U.S. federal income tax rate for ordinary income (and therefore short-term capital gains) is 39.6%.
Upon a resultqualifying disposition, a participant will recognize ordinary income equal to the lesser of: the amount by which the fair market value of the termination are calculated assuming that the market price per share of Seagate's ordinary shares on the date of terminationthe qualifying disposition exceeds the purchase price paid for the ordinary shares, or the amount by which the fair market value of employment was equal to the closing price on July 2, 2015, or $48.15 per share, and are basedordinary shares on the difference between this price andOffering Date exceeds the exercise pricediscounted Offering Price (that amount is typically 15% of options held by the NEO. As a result, the amounts shown do not include any value for the acceleration of options that have an exercise price greater than $48.15 or for options that were already vested as of July 3, 2015.
Generally, if the fair market value of the termination are calculated assuming that the market price per share of Seagate's ordinary shares on the date of terminationa qualifying disposition is less than the purchase price paid for the ordinary shares, the participant will not recognize ordinary income, and any loss recognized will be a long-term capital loss. However, if the loss arises in connection with a disqualifying disposition, the participant may still recognize as ordinary income, and be taxed on, the excess of employment(a) the fair market value of the ordinary shares on the Purchase Date over (b) the purchase price paid for the ordinary shares.
New Plan Benefits
Future issuances of shares under the ESP Plan to our employees and the benefits such employees will receive as a result are not determinable at this time, since participation in the ESP Plan is voluntary; accordingly, we have not included a table reflecting such benefits.
Through August 3, 2017 we have issued a total of approximately 46,249,230 shares to employee participants under the ESP Plan.
Vote Required; Recommendation of the Board
A simple majority of all votes cast by holders of ordinary shares on the Record Date represented in person or by proxy at the 2017 AGM is required to approve Proposal 4.
The Board believes that it is in the best interests of the Company and its shareholders to continue to provide employees with the opportunity to acquire an ownership interest in the Company through their participation in the ESP Plan and thereby more closely align their interests with those of our shareholders and to provide employees with a valuable retention incentive.
THE BOARD RECOMMENDS THAT YOU VOTE “FOR” THE APPROVAL OF AMENDMENT OF THE AMENDED AND RESTATED EMPLOYEE STOCK PURCHASE PLAN.
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SEAGATE TECHNOLOGY PLC | 2017 Proxy Statement |
2017 NOTICE OF MEETING AND PROXY STATEMENT |
PROPOSAL 5 – ANON-BINDING RATIFICATION OF THE APPOINTMENT OF ERNST & YOUNG LLP AND BINDING AUTHORIZATION OF AUDIT COMMITTEE TO SET AUDITORS’ REMUNERATION
(Ordinary Resolution)
At the 2017 AGM, shareholders will be asked to approve the appointment of Ernst & Young LLP as our independent auditors for the fiscal year ending June 29, 2018, and to authorize the Audit Committee of our Board to set the independent auditors’ remuneration. Ernst & Young LLP has been acting as our independent auditor for many years and, both by virtue of its long familiarity with the Company’s affairs and its ability, is considered best qualified to perform this important function.
Representatives of Ernst & Young LLP will be present at the 2017 AGM and will be available to respond to appropriate questions. They will have an opportunity to make a statement if they so desire.
Vote Required; Recommendation of the Board
A simple majority of all votes cast by holders of ordinary shares on the Record Date represented in person or by proxy at the 2017 AGM is required to approve Proposal 5.
THE BOARD RECOMMENDS A VOTE “FOR” THE PROPOSAL TO APPROVE THE APPOINTMENT OF ERNST & YOUNG LLP AS INDEPENDENT AUDITORS OF THE COMPANY AND TO AUTHORIZE THE AUDIT COMMITTEE OF THE BOARD TO SET THE AUDITORS’ REMUNERATION.
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SEAGATE TECHNOLOGY PLC | 2017 Proxy Statement |
2017 NOTICE OF MEETING AND PROXY STATEMENT |
Our management is responsible for preparing and presenting our financial statements, and our independent auditors, Ernst & Young LLP, are responsible for performing an independent audit of our annual consolidated financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB) and for auditing the effectiveness of our internal control over financial reporting as of the end of our fiscal year. One of the Audit Committee’s responsibilities is to monitor and oversee these processes. In connection with the preparation of the financial statements as of and for the fiscal year ended June 30, 2017, the Audit Committee performed the following tasks:
(1) | reviewed and discussed the audited financial statements for fiscal year 2017 with management and with Ernst & Young LLP; |
(2) | reviewed and discussed with management its assessment and report on the effectiveness of our internal control over financial reporting as of June 30, 2017, which it made based on the criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 Framework) (the COSO Criteria); |
(3) | reviewed and discussed with Ernst & Young LLP its attestation report on the effectiveness of our internal control over financial reporting as of June 30, 2017, which report was included in our Annual Report on Form10-K for the fiscal year ended June 30, 2017; |
(4) | discussed with Ernst & Young LLP the matters required to be discussed by the PCAOB Auditing Standard No. 16 “Communications with Audit Committees (AS16)”, including Ernst & Young LLP’s judgment about the quality, in addition to the acceptability, of our accounting principles and underlying estimates in our financial statements; and |
(5) | received the written disclosures and the letter from Ernst & Young LLP required by the applicable requirements of the PCAOB regarding the independent auditor’s communications with the Audit Committee concerning independence, and discussed with Ernst & Young LLP their independence. |
Based upon these reviews and discussions, the Audit Committee recommended, and the Board approved, that our audited financial statements be included in our Annual Report onForm 10-K for the fiscal year ended June 30, 2017, for filing with the SEC.
Respectfully submitted, THE AUDIT COMMITTEE | ||
Dr. Chong Sup Park, Chair Mark W. Adams Mei-Wei Cheng Dr. Dambisa F. Moyo |
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SEAGATE TECHNOLOGY PLC | 2017 Proxy Statement |
2017 NOTICE OF MEETING AND PROXY STATEMENT |
Fees Paid to Independent Auditors
The aggregate fees paid or accrued by us for professional services provided by Ernst & Young LLP in fiscal years ended June 30, 2017 and July 1, 2016 are set forth below.
Fiscal Year
| ||||||||
2017
| 2016
| |||||||
(In thousands) | ||||||||
Audit Fees | $5,542 | $5,586 | ||||||
Audit-Related Fees | 231 | 502 | ||||||
Tax Fees | 103 | 90 | ||||||
All Other Fees | 5 | 3 | ||||||
|
|
|
| |||||
Total | $5,881 | $6,181 | ||||||
|
|
|
|
Audit Fees. This category consists of professional services provided in connection with the integrated audit of our annual consolidated financial statements and the audit of internal control over financial reporting, the review of our unaudited quarterly consolidated financial statements, and audit services that are normally provided by the independent registered public accounting firm in connection with statutory and regulatory filings or engagements for those fiscal years. The fees for fiscal year 2017 included services in connection with our debt offering, and in fiscal year 2016 included audit activities related to the acquisition of Dot Hill Systems Corp.
Audit-Related Fees. This category consists of assurance and related services provided by Ernst & Young LLP that were reasonably related to the performance of the audit or review of our consolidated financial statements and which are not reported above under “Audit Fees”. For fiscal years 2017 and 2016, this category includes: pension plan and grant or similar audits, agreed upon procedures, engagements, and advisement on accounting matters that arose during those years in connection with the preparation of our annual and quarterly consolidated financial statements; and in 2016, fees related to due diligence procedures.
Tax Fees. This category consists primarily of professional services provided by Ernst & Young LLP primarily for tax compliance for fiscal years 2017 and 2016.
All Other Fees. This category consists of fees for the use of Ernst & Young LLP’s online accounting research tool for fiscal years 2017 and 2016 and iXBRL tagging services performed for fiscal year 2017.
In fiscal years 2017 and 2016, all audit, audit related, tax and all other fees werepre-approved by the Audit Committee. Under the SEC rules, subject to certain permitted de minimis criteria,pre-approval is required for all professional services rendered by the Company’s principal accountant. We are in compliance with these SEC rules. In making its recommendation to ratify the appointment of Ernst & Young LLP as our independent auditors for fiscal year 2018, the Audit Committee considered whether the services provided to us by Ernst & Young LLP are compatible with maintaining the independence of Ernst & Young LLP from us. The Audit Committee has determined that the provision of these services by Ernst & Young LLP is compatible with maintaining that independence.
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SEAGATE TECHNOLOGY PLC | 2017 Proxy Statement |
2017 NOTICE OF MEETING AND PROXY STATEMENT |
Pre-Approval of Services by Independent Auditors
The Audit Committeepre-approves all audit and other permittednon-audit services provided to us by our independent auditors. These services may include audit services,audit-related services, tax services and other permissiblenon-audit services. The Audit Committee may alsopre-approve particular services on acase-by-case basis. The Audit Committee has delegated the authority to grantpre-approvals to the Audit Committee Chair when the full Audit Committee is unable to do so. Thesepre-approvals are reviewed by the full Audit Committee at its next regular meeting. Our independent auditors and senior management periodically report to the Audit Committee regarding the extent of services provided by the independent auditors.
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SEAGATE TECHNOLOGY PLC | 2017 Proxy Statement |
2017 NOTICE OF MEETING AND PROXY STATEMENT |
PROPOSAL 6 – GRANT BOARD AUTHORITY TO ALLOT AND/OR ISSUE SHARES
(Ordinary Resolution)
Under Irish law, directors of an Irish company must have authority from its shareholders to allot and/or issue any of its authorized but unissued share capital. Because our current authority will expire on July 1, 2018, we are presenting this Proposal 6 to renew the Board’s authority to allot and/or issue our authorized shares on the terms set forth below.
We are seeking approval to authorize our Board, effective upon expiration of our existing authority noted above, to issue up to 33%, or 66% pursuant to a fullypre-emptive rights issue, of our issued ordinary share capital as of the latest practicable date before this Proxy Statement, for a period expiring 18 months from July 1, 2018, unless otherwise renewed, varied or revoked.
Granting the Board this authority is a routine matter for public companies incorporated in Ireland and is consistent with Irish market practice. This authority is fundamental to our business and enables us to issue shares, including in connection with our equity compensation plans (where required) and, if applicable, funding acquisitions and raising capital. We are not asking you to approve an increase in our authorized share capital or to approve a specific issuance of shares. Instead, approval of this Proposal 6 will only grant the Board the authority to issue shares that are already authorized under our Articles of Association upon the terms below. In addition, we note that, because we are a NASDAQ Global Select Market (“NASDAQ”) listed company, our shareholders continue to benefit from the protections afforded to them under the rules and regulations of the NASDAQ and SEC, including those rules that limit our ability to issue shares in specified circumstances. Furthermore, we note that this authorization is required as a matter of Irish law only and is not otherwise required for other U.S. companies listed on the NASDAQ with whom we compete. Accordingly, approval of this resolution would merely place us on par with NASDAQ-listed companies incorporated in the United States.
The text of this resolution is as follows:
“RESOLVED, as an ordinary resolution, that the directors be and are hereby generally and unconditionally authorized pursuant tosub-section (1) of Section 1021 of the Companies Act 2014 with effect from the passing of this resolution to exercise all powers of the Company to allot and/or issue relevant securities (within the meaning ofsub-section (12) of Section 1021 of the Companies Act 2014) up to an aggregate nominal amount of $949.81 (94,981,463 shares) (being equivalent to approximately 33% of the aggregate nominal value of the issued ordinary share capital of the Company as of August 16, 2017 (the latest practicable date before this Proxy Statement)), and pursuant to a fullypre-emptive rights issue, up to an aggregate of $1,899.63 (189,962,927 shares being equivalent to approximately 66% of the aggregate nominal value of the issued ordinary share capital of the Company as of August 16, 2017 (the latest practicable date before this Proxy Statement)), and the authority conferred by this resolution shall expire 18 months from the date this authority takes effect, unless otherwise renewed, varied or revoked; provided that the Company may make an offer or agreement before the expiry of this authority, which would or might require any such securities to be allotted after this authority has expired, and in that case, the directors may allot relevant securities in pursuance of any such offer or agreement as if the authority conferred hereby had not expired.”
Vote Required; Recommendation of the Board
As required under Irish law, the resolution with respect to this Proposal 6 is an ordinary resolution that requires the affirmative vote of a simple majority of the votes cast by holders of ordinary shares on the Record Date represented in person or by proxy at the 2017 AGM.
THE BOARD RECOMMENDS THAT YOU VOTE “FOR” GRANTING THE BOARD AUTHORITY TO ALLOT AND/OR ISSUE SHARES.
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SEAGATE TECHNOLOGY PLC | 2017 Proxy Statement |
2017 NOTICE OF MEETING AND PROXY STATEMENT |
PROPOSAL 7 – GRANT BOARD AUTHORITY TOOPT-OUT OF STATUTORYPRE-EMPTION RIGHTS
(Special Resolution)
Under Irish law, unless otherwise authorized, when an Irish company issues shares for cash, it is required first to offer those shares on the same or more favorable terms to existing shareholders of the company on apro-rata basis (commonly referred to as the statutorypre-emption right). Because our current authority will expire on July 1, 2018, we are presenting this Proposal 7 to renew the Board’s authority toopt-out of thepre-emption right on the terms set forth below. Our directors may issue shares for cash in pursuance of any offer or agreement under our current authority until its expiry.
We are seeking shareholder approval to authorize our Board, upon expiration of our existing authority, toopt-out of the statutorypre-emption rights provision in the event of (1) the allotment of shares for cash in connection with any rights issue, and (2) the allotment of shares for cash, if the allotment is limited to up to 10% of our issued ordinary share capital as of August 16, 2017 (the latest practicable date before this Proxy Statement), provided that any amount above 5% is to be used for the purposes of an acquisition or a specified capital investment and, provided further that, in each case, such authorities commence as of July 1, 2018 and be limited to a period expiring 18 months from the date this authority takes effect, unless otherwise renewed, varied or revoked.
Granting the Board this authority is a routine matter for public companies incorporated in Ireland and is consistent with Irish market practice. Similar to the authorization sought for Proposal 6, this authority is fundamental to our business and enables us to issue shares under our equity compensation plans (where required) and if applicable, will facilitate our ability to fund acquisitions and otherwise raise capital. We are not asking you to approve an increase in our authorized share capital. Instead, approval of this Proposal 7 will only grant the Board the authority to issue shares in the manner already permitted under our articles upon the terms below. Without this authorization, in each case where we issue shares for cash, we would first have to offer those shares on the same or more favorable terms to all of our existing shareholders. This requirement could undermine the operation of our compensation plans and cause delays in the completion of acquisitions and capital raising for our business. Furthermore, we note that this authorization is required as a matter of Irish law and is not otherwise required for other U.S. companies listed on the NASDAQ with whom we compete. Accordingly, approval of this resolution would merely help us compete with other NASDAQ-listed companies.
“RESOLVED, as a special resolution, that, subject to the passing of the resolution with respect to Proposal 6 as set out above and with effect as of July 1, 2018, the directors be and are hereby empowered pursuant to Section 1023 of the Companies Act 2014 to allot equity securities (as defined in Section 1023 of that Act) for cash, pursuant to the authority conferred by Proposal 6 as if Section 1022 did not apply to any such allotment, provided that this power shall be limited to:
a) | the allotment of equity securities in connection with a rights issue in favor of the holders of ordinary shares (including rights to subscribe for, or convert into, ordinary shares) where the equity securities respectively attributable to the interests of such holders are proportional (as nearly as may be) to the respective numbers of ordinary shares held by them (but subject to such exclusions or other arrangements as the directors may deem necessary or expedient to deal with fractional entitlements that would otherwise arise, or with legal or practical problems under the laws of, or the requirements of any recognized regulatory body or any stock exchange in, any territory, or otherwise); and |
b) | the allotment (otherwise than pursuant tosub-paragraph (a) above) of equity securities up to an aggregate nominal value of $287.82 (28,782,262 shares) (being equivalent to |
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2017 NOTICE OF MEETING AND PROXY STATEMENT |
approximately 10% of the aggregate nominal value of the issued ordinary share capital of the Company as of August 16, 2017 (the latest practicable date before this Proxy statement)) provided that any such issuance above 5% of the aggregate nominal value of the issued ordinary share capital of the Company as of August 16, 2017 (the latest practicable date before this Proxy Statement) is to be used for the purposes of an acquisition or a specified capital investment; |
and, in each case, the authority conferred by this resolution shall expire 18 months from the date this authority takes effect, unless otherwise renewed, varied or revoked; provided that the Company may make an offer or agreement before the expiry of this authority, which would or might require any such securities to be allotted after this authority has expired, and in that case, the directors may allot equity securities in pursuance of any such offer or agreement as if the authority conferred hereby had not expired.”
Vote Required; Recommendation of the Board
As required under Irish law, the resolution with respect to this Proposal 7 is a special resolution that requires the affirmative vote of at least 75% of the votes cast by holders of ordinary shares on the Record Date represented in person or by proxy at the 2017 AGM.
THE BOARD RECOMMENDS THAT YOU VOTE “FOR” GRANTING THE BOARD AUTHORITY TOOPT-OUT OF STATUTORYPRE-EMPTION RIGHTS.
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2017 NOTICE OF MEETING AND PROXY STATEMENT |
PROPOSAL 8 – DETERMINE THE PRICE RANGE AT WHICH THE COMPANY CANRE-ALLOT SHARES HELD AS TREASURY SHARES
(Special Resolution)
Ouropen-market share repurchases and other share buyback activities, all effected by way of redemptions in accordance with our Articles of Association, may result in ordinary shares being acquired and held by the Company as treasury shares. We mayre-allot treasury shares that we may acquire through our various share buyback activities including in connection with our executive and director compensation programs.
Under Irish law, our shareholders must authorize the price range at which we mayre-allot any shares held in treasury. In this Proposal 8, that price range is expressed as a minimum and maximum percentage of the closing market price of our ordinary shares on the NASDAQ the day preceding the day on which the relevant share isre-allotted. Under Irish law, this authorization must expire no later than 18 months after its passing unless renewed.
“RESOLVED, as a special resolution, that for purposes of Section 1078 of the Companies Act 2014, there-allotment price at which any treasury shares (as defined by Section 106(1) of the Companies Act of 2014) held by the Company may bere-allottedoff-market shall be as follows:
(a) The maximum price at which a treasury share may bere-allottedoff-market shall be an amount equal to 120% of the closing price on July 2, 2015. In addition, the NASDAQ for shares of that class on the day preceding the day on which the relevant share isre-allotted by Seagate.
(b) The minimum price at which a treasury share may bere-allotted shall be the nominal value of accelerated PSUsthe share where such a share is calculated assumingrequired to satisfy an obligation under an employees’ share scheme (as defined under Section 64(1) of the Companies Act 2014) or any share incentive plan operated by Seagate or, in all other cases, an amount equal to 90% of the closing price on the NASDAQ for shares of that we would have achievedclass on the target levelday preceding the day on which the relevant share isre-allotted by Seagate.
(c) There-allotment price range as determined by paragraphs (a) and (b) shall expire 18 months from the date of performancethe passing of this resolution, unless previously varied, revoked or renewed in accordance with the provisions of Section 109 and/or Section 1078 (as applicable) of the Companies Act 2014 (and/or any corresponding provision of any amended or replacement legislation) and is without prejudice or limitation to any other authority of the Company tore-allot treasury shareson-market.”
Vote Required; Recommendation of the Board
As required under Irish law, the resolution with respect to this Proposal 8 is a special resolution that requires the affirmative vote of at least 75% of the votes cast by holders of ordinary shares on the Record Date represented in person or by proxy at the end of the three-year performance measurement cycle, except for the TSR PSUs issued to our CEO which would accelerate in full because the performance condition had been satisfied as of July 23, 2013.
THE BOARD RECOMMENDS THAT SHAREHOLDERS VOTE “FOR” THE PROPOSAL TO DETERMINE THE PRICE AT WHICH THE COMPANY CANRE-ALLOT SHARES HELD AS TREASURY SHARES.
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EQUITY COMPENSATION PLAN INFORMATION
The following table sets forth information concerning the Company'sCompany’s equity compensation plans as of July 3, 2015.
Equity compensation plans | Number of Securities to be Issued upon Exercise of Outstanding Options, Warrants and Rights | Weighted Average Exercise Price of Outstanding Options, Warrants and Rights | Number of Securities Remaining Available for Future Issuance under Equity Compensation Plans | |||||||
---|---|---|---|---|---|---|---|---|---|---|
Equity compensation plans approved by shareholders | 4,868,534 | (1) | $ | 27.95 | (2) | 48,935,311 | (3) | |||
Equity compensation plans not approved by shareholders | 854 | (4) | $ | 12.61 | (5) | |||||
| | | | | | | | | | |
Total | 4,869,388 | $ | 27.94 | 48,935,311 |
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
June 30, 2017.
The following table sets forth as of August 28, 2015, the beneficial ownership of our ordinary shares by (i) each director and director nominee of the Company, (ii) each executive officer of the Company named in the Summary Compensation Table below, and (iii) all directors and executive officers of the Company as a group:
Equity compensation plans | Number of Securities to be Issued upon Exercise of Outstanding Options, Warrants and Rights | Weighted Average Exercise Price of Outstanding Options, Warrants and Rights | Number of Securities Remaining Available for Future Issuance under Equity Compensation Plans | |||||||||
Equity compensation plans approved by shareholders | 5,665,250(1) | $39.24(2) | 31,589,031(3) | |||||||||
Equity compensation plans not approved by shareholders | ||||||||||||
|
|
|
|
|
| |||||||
Total | 5,665,250 | $39.24 | 31,589,031 |
Name of Beneficial Owner | Number of Ordinary Shares Beneficially Owned | Percentage of Class Beneficially Owned(1) | |||||
---|---|---|---|---|---|---|---|
Directors and named executive officers: | |||||||
Philip Brace | 33,854 | (2) | * | ||||
James J. Lerner | 75,593 | * | |||||
Stephen J. Luczo | 1,594,241 | (3) | * | ||||
David Mosley | 204,654 | (4) | * | ||||
Patrick J. O'Malley | 553,100 | (5) | * | ||||
Albert A. Pimentel | 775,417 | (6) | * | ||||
Frank J. Biondi, Jr. | 39,641 | (7) | * | ||||
Michael R. Cannon | 14,929 | (8) | * | ||||
Mei-Wei Cheng | 11,997 | (9) | * | ||||
William T. Coleman | 14,760 | (10) | * | ||||
Jay L. Geldmacher | 6,890 | (11) | * | ||||
Dambisa F. Moyo | — | * | |||||
Kristen M. Onken | 21,938 | (12) | * | ||||
Chong Sup Park | 34,260 | (13) | * | ||||
Gregorio Reyes | 5,989 | (14) | * | ||||
Stephanie Tilenius | 4,235 | (15) | * | ||||
Edward J. Zander | 124,030 | (16) | * | ||||
All directors, director nominees and executive officers as a group (21 persons) | 3,794,349 | (17) | 1.28 | % |
(1) | This number includes 39,766 ordinary shares that were subject to issuance upon the exercise of share options granted under our Seagate Technology plc 2001 Share Option Plan (the “SOP”), 99,238 ordinary shares that were subject to issuance upon the exercise of share options granted under the 2004 SCP, 5,084,652 ordinary shares that were subject to issuance upon the exercise of shares options granted under the 2012 Plan, and 441,594 ordinary shares that were subject to issuance upon the exercise of shares options granted under the Dot Hill 2009 Equity Incentive Plan. |
(2) | This value is calculated based on the exercise price of options outstanding under the SOP, the 2004 SCP and the 2012 Plan. |
(3) | This number includes 30,761,435 ordinary shares available for future issuance under the 2012 Plan, 827,596 ordinary shares available for future issuance under the Dot Hill 2009 Equity Incentive Plan. |
The following table sets forth each shareholder which is known by us to be the beneficial owner of more than 5% of the outstanding ordinary shares of the Company as of August 28, 2015 based solely
on the information filed by such shareholder on Schedule 13G under the Securities Exchange Act of 1934:81
SEAGATE TECHNOLOGY PLC | 2017 Proxy Statement |
Name and Address of Beneficial Owner | Number of Ordinary Shares Beneficially Owned | Percentage of Class Beneficially Owned(1) | |||||
---|---|---|---|---|---|---|---|
Greater than five percent holders: | |||||||
FMR LLC | 32,400,508 | (18) | 10.92 | % | |||
245 Summer Street | |||||||
Boston, MA 02210 | |||||||
Vanguard Group, Inc. | 24,423,723 | (19) | 8.23 | % | |||
100 Vanguard Blvd., | |||||||
Malvern, PA 19355 | |||||||
Clearbridge Investments, LLC | 23,922,849 | (20) | 8.06 | % | |||
620 8th Ave. | |||||||
New York, NY 10018 | |||||||
BlackRock, Inc. | 16,747,458 | (21) | 5.64 | % | |||
55 East 52nd Street | |||||||
New York, NY 10022 |
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
2017 NOTICE OF MEETING AND PROXY STATEMENT |
Our Board has adopted a written policy for approval of transactions with our directors, director nominees, executive officers, shareholders that beneficially own more than 5% of our shares and immediate family members of such persons (each, a "Related Person"). Pursuant to the policy, if any Related Person has a direct or indirect material interest in a transaction or potential transaction in which the amount involved exceeds $120,000, he or she must promptly report it to the General Counsel of the Company or his designee. The Nominating and Corporate Governance Committee then reviews any such transactions and determines whether or not to approve or ratify them. In doing so, the Nominating and Corporate Governance Committee takes into account, among other factors it deems to be appropriate, the extent of the Related Person's interest; whether the transaction would interfere with the Related Person's judgment in fulfilling his or her duties to the Company; whether the transaction is fair to the Company and on terms no less favorable than terms generally available to an unaffiliated third party under similar circumstances; whether the transaction is in the interest of the Company and its shareholders; and whether the transaction would present an improper conflict of interest.
In addition, if the transaction involves a director, the Nominating and Corporate Governance Committee will consider whether such transaction would impact such director's independence under NASDAQ rules or qualifications to serve on committees under the Company's Corporate Governance Guidelines and applicable NASDAQ and SEC rules. The Board has delegated authority to the Chair of the Nominating and Corporate Governance Committee to review and approve or ratify transactions where the aggregate amount is expected to be less than $1 million. A summary of any new transactions approved by the Chair is provided to the full Nominating and Corporate Governance Committee for its review at the next scheduled committee meeting after such approval.
Christine Silva, Mr. O'Malley's spouse, is employed as a Senior Staff Program/Project Manager by the Company and receives total annual cash compensation from the Company of approximately $159,601 and is eligible to participate in the Company's general employee benefit plans, including vacation and health plans. Ms. Silva did not receive any equity grants for fiscal year 2015. Ms. Silva's compensation is commensurate with that of other employees in similar positions. The Company's Nominating and Corporate Governance Committee has ratified the terms of Ms. Silva's employment and compensation.
Josip Relota, Mr. Luczo's brother-in-law, has been employed as a software engineer by one of our subsidiaries since June 24, 2013. On August 21, 2015, such subsidiary became one of our wholly owned subsidiaries (the "Reorganization"). In connection with such employment, Mr. Relota receives total annual cash compensation of approximately $230,000. In addition, Mr. Relota is eligible to participate in our general employee benefit plans, including vacation and health plans. In fiscal year 2015, Mr. Relota was granted 20,000 stock options of such subsidiary with an exercise price of $0.09 per share. In connection with the Reorganization, Mr. Relota received $11,632 for his vested equity in such subsidiary, $11,648 for his unvested equity in such subsidiary, which will vest over 3 years conditioned upon his continued employment, $185,000 cash bonus, which will vest over 2 years conditioned upon his continued employment and $120,000 new hire equity grant that will vest over 4 years conditioned upon his continued employment. Mr. Relota's compensation and his treatment in connection with the Reorganization, including the amount received for the liquidation of his vested and unvested equity, his cash bonus and new hire equity grant, are commensurate with that of other employees of such subsidiary in similar positions. The Company's Nominating and Corporate Governance Committee has ratified the terms of Mr. Relota's employment and compensation.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires our directors and officers, and persons who beneficially own more than 10% of the Company's ordinary shares, to file reports of ownership and reports of changes in ownership with the SEC. To the Company's knowledge, based solely on its review of such forms received by the Company and written representations that no other reports were required, all Section 16(a) filing requirements were complied with for the fiscal year 2015.
SHAREHOLDER PROPOSALS AND NOMINATIONS
Any proposal by a shareholder intended to be included in our proxy statementProxy Statement for the 20162018 AGM must be received by the Company at its registered office at38/ 38/39 Fitzwilliam Square, Dublin 2, Ireland, Attn: Company Secretary, no later than May 7, 2016.2, 2018. Any such proposal must meet the requirements set forth in the rules and regulations of the SEC, includingRule 14a-8, to be eligible for inclusion in our 2016 proxy statement.2018 Proxy Statement.
The Company'sCompany’s Articles of Association set forth procedures to be followed by shareholders who wish to nominate candidates for election to the Board of Directors in connection with annual general meetings of shareholders or who wish to bring other business before a shareholders'shareholders’ general meeting. All such nominations must be accompanied by certain background and other information specified in the Articles of Association. A shareholder wishing to nominate a director for the 20162018 AGM must provide written notice to the Company Secretary of their intention to make such nomination no earlier than April 7, 20162, 2018 and no later than May 7, 2016,2, 2018, that is by a date not less than 120 nor more than 150 days before the dateanniversary of the proxy statementmailing of the Proxy Statement for our prior year'syear’s annual general meeting.meeting and if such date occurs on a public holiday or a weekend, the next business day following such date. If the date of the 20162018 AGM occurs more than 30 days before or after the anniversary of the 20152017 AGM, then the written notice must be provided to the Company Secretary earlier than the 150th day prior to the date of the 20162018 AGM and not later than the later of the 120th day prior to the date of the 20162018 AGM or the 10th day following the day on which public announcement of the date of such meeting is first made.
Unless a shareholder who wishes to bring business before the 20162018 AGM outside the processes ofRule 14a-8 (other than a nomination as outlined above, and subject to applicable rules) provides written notice of such business received by the Company Secretary, at the address specified above, no later than July 21, 2016,16, 2018, the Company designatedCompany-designated proxy holders will have discretionary authority to vote on any such proposal at the 20162018 AGM with respect to all proxies submitted to us, even when we do not include in our proxy statementProxy Statement advice on the nature of the matter and how the Company designatedCompany-designated proxy holders intend to exercise their discretion to vote on the matter. If the date of the 20162018 AGM occurs more than 30 days before or after the anniversary of the 20152017 AGM, then such notice must be received by the Company Secretary, at the address specified above, not later than the later of the 75th day prior to the date of the 20162018 AGM or the 10th day following the day on which public announcement of the date of such meeting is first made. The notice must include a description of the proposed item and the reasons the proposing Shareholdershareholder believes its position concerning the item. These requirements are separate from and in addition to the requirements a shareholder must meet to have a proposal included in our 2016 proxy statement.2018 Proxy Statement.
The Nominating and Corporate Governance Committee will consider all shareholder recommendations for candidates for Board membership, which should be sent to that Committee, care of the Company Secretary, at the address set forth above. In addition to considering candidates recommended by shareholders, the Committee considers potential candidates recommended by current directors, Seagate officers, employees and others. As stated in the Company'sCompany’s Corporate Governance Guidelines, all candidates for Board membership are selected based upon their professional experience, recognized achievement in his or her respective field, willingness to make the commitment of time and effort required, good judgment, strength of character, reputation for integrity and personal and professional ethics, and an independent mind. Candidates recommended by shareholders are evaluated in the same manner as director candidates identified by any other means.
Irish law provides that any shareholder or shareholders holding not less than 50% of thepaid-up share capital of the Company carrying voting rights may convene an extraordinary general meeting of the Company. Irish law provides any shareholder or shareholders holding not less than 10% of thepaid-up share capital of the
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2017 NOTICE OF MEETING AND PROXY STATEMENT |
Company carrying voting rights may requisition the directors to call an extraordinary general meeting at any time. The shareholders who wish to requisition an extraordinary
general meeting must deposit a written notice at Seagate'sSeagate’s registered office, which is signed by the shareholders requisitioning the meeting and states the objects of the meeting. If the directors do not within 21 days of the date of deposit of the requisition proceed to convene a meeting to be held within two months of that date, those shareholders (or any of them representing more than half of the total voting rights of all of them) may themselves convene a meeting but any meeting so convened cannot be held after the expiration of three months from the date of deposit of the requisition. These provisions of Irish law are in addition to, and separate from, the requirements that a shareholder must meet in order to have a proposal included in the proxy statementProxy Statement under the rules of the SEC.
If a shareholder wishes to communicate with the Board of Directors for any other reason, all such communications should be sent in writing, care of the Company Secretary, at the address set forth above.
IRISH COMPANIES ACT 2014
DISCLOSURE OF INTERESTS
New Irish company legislation, the Companies Act 2014, came into force on 1 June 2015.
Persons holding an interest in our shares should be aware of a change to the previous law in respect of the notification of interests. Under the Irish Companies Act 2014, persons must notify us if, as a result of a transaction, they will become interested in 3% or more of our shares or, if as a result of a transaction, the person who was interested in 3% or more of our shares ceases to be so interested. Where a person is interested in 3% or more of our shares, that person must notify us of any alteration in his or her interest that brings his or her total interest through the nearest whole percentage, whether an increase or a reduction. The relevant percentage figure is calculated by reference to the aggregate nominal value of our issued share capital (or any such class of share capital in issue). Where the percentage level of that person'sperson’s interest does not amount to a whole percentage, this figure may be rounded down to the next whole number. We must be notified within five business days of the transaction or alteration of the person'sperson’s interests that gave rise to the notification requirement. If a person fails to comply with these notification requirements, the person'sperson’s interest inwith respect ofto any of our ordinary shares that it holds will not be enforceable, either directly or indirectly. However, such person may apply to the Irish High Court to have the rights attaching to such shares reinstated.
To the extent that this Proxy Statement is incorporated by reference into any other filing by us under the Securities Act of 1933, as amended, or the Exchange Act, the sections of this Proxy Statement entitled "Report“Report of the Compensation Committee"Committee” and "Report“Report of the Audit Committee"Committee” (to the extent permitted by the rules of the SEC) will not be deemed incorporated, unless specifically provided otherwise in that other filing.
Information contained on, or accessible through, our website is not a part of this Proxy Statement and is not deemed incorporated by reference hereunder for any purpose.
A copy of our Annual Report onForm 10-K (excluding exhibits) and our Irish Statutory Accounts, both for the fiscal year ended July 3, 2015,June 30, 2017, accompany this Proxy Statement. A printed copy of either document, including exhibits, will be furnished without charge to beneficial shareholders or shareholders of record upon request to Investor Relations, Seagate Technology plc, 10200 S. De Anza Boulevard, Cupertino, California 95014, or upon calling 1+ +1(408) 658-1222.
SEC rules permit a single set of annual reports and proxy statements to be sent to any household at which two or more shareholders reside if they appear to be members of the same family. Each shareholder
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SEAGATE TECHNOLOGY PLC | 2017 Proxy Statement |
2017 NOTICE OF MEETING AND PROXY STATEMENT |
continues to receive a separate proxy card. This procedure is referred to as householding.“householding.” While the Company does not household in mailings to its shareholders of record, a number of brokerage firms with account holders who are Company shareholders have instituted householding. In these cases, a single proxy statementProxy Statement and annual reportAnnual Report will be delivered to multiple shareholders sharing an address unless contrary instructions have been received from the affected shareholders. Once a shareholder has received notice from his or her broker that the broker will be householding communications to the shareholder'sshareholder’s address, householding will continue until the shareholder is notified otherwise or until the shareholder revokes his or her consent. If at any time a shareholder no longer wishes to participate in householding and would prefer to receive a separate proxy statement and annual report, he or she should notify his or her broker. Any shareholder can receive a copy of the Company's proxy statementCompany’s Proxy Statement and annual reportAnnual Report by contacting the Company at Investor Relations, Seagate Technology plc, 10200 S. De Anza Boulevard, Cupertino, California 95014. Shareholders who hold their shares through a broker or other nominee who currently receive multiple copies of the proxy statementProxy Statement and annual reportAnnual Report at their address and would like to request householding of their communications should contact their broker.
By Order of the Board, | |||
Katherine E. Schuelke Senior Vice President, Chief Legal Officer and CompanySecretary |
August 30, 2017
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SEAGATE TECHNOLOGY PLC |
September 4, 2015
2017 NOTICE OF MEETING AND PROXY STATEMENT |
APPENDIX A: DIRECTORS’ REPORT AND FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2017
APPENDIX B: PROPOSED AMENDMENTS TO AMENDED AND RESTATED SEAGATE TECHNOLOGY PLC EMPLOYEE STOCK PURCHASE PLAN
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SEAGATE TECHNOLOGY PLC | 2017 Proxy Statement |
Appendix A
Seagate Technology plc | ||||
Directors’ Report and Financial Statements | ||||
For the Year Ended |
SEAGATE TECHNOLOGY PLC DIRECTORS’ REPORT AND FINANCIAL STATEMENTS FOR THE YEAR ENDED DIRECTORS'3 JULY 2015
Company Information | A-3 | |||
| A-4 | |||
Independent | A-48 | |||
Consolidated Profit and Loss Account | ||||
Consolidated Statement of Comprehensive Income | ||||
Consolidated Balance Sheet | ||||
Consolidated Statement of Cash Flows | ||||
Notes to the Consolidated Financial Statements | ||||
Parent Company | ||||
A-110 | ||||
A-111 | ||||
Notes to the Parent Company |
COMPANY INFORMATION
FOR THE YEAR ENDED 3 JULY 2015
30 June 2017
DIRECTORS | ||||
Mark W. Adams (United States) | ||||
Frank J. Biondi, Jr. (United States) | ||||
Michael R. Cannon (United States) | ||||
Mei-Wei Cheng (United States) | ||||
William Coleman (United States) | ||||
Jay L. Geldmacher (United States) | ||||
Stephen J. Luczo (United States) | ||||
Willam D. Mosley (United States) | ||||
Dr. Dambisa F. Moyo (United States) | ||||
Stephanie Tilenius (United States) | ||||
Edward J. Zander (United States) | ||||
SECRETARY | Katherine E. Schuelke | |||
REGISTERED OFFICE | 38/39 Fitzwilliam Square, | |||
Dublin 2, Ireland. | ||||
REGISTERED NUMBER OF INCORPORATION | 480010 | |||
SOLICITORS | Arthur Cox, | |||
Ten Earlsfort Terrace, | ||||
Dublin 2 | ||||
D02 T380. | ||||
AUDITORS | Ernst & Young, | |||
Chartered Accountants, | ||||
Ernst & Young Building, | ||||
Harcourt Centre, | ||||
Harcourt Street, | ||||
Dublin 2. |
SEAGATE TECHNOLOGY PLCDIRECTORS'
DIRECTORS’ REPORT
FOR THE YEAR ENDED 3 JULY 2015
30 June 2017
The directors present herewith their report and audited consolidated financial statements for the year ended 3 July 2015.30 June 2017.
In this Directors'Directors’ Report, unless the context indicates otherwise, as used herein, the terms "we," "us," "Seagate,"“we,” “us,” “Seagate,” the "Company"“Company” and "our"“our” refer to the Seagate Group.
REVIEW OF THE DEVELOPMENT OF THE BUSINESS
We are a leading provider of electronic 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 electronic data storage products including solid state drives (“SSD”) and their related controllers, solid state hybrid drives ("SSHD"(“SSHD”), solid state drives ("SSD"), PCIe cards and SATA controllers. Our storage technology portfolio also includes storage subsystems, high performance computing (HPC) solutions, and data storage services.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-based flash memory. In addition to HDDs and SSDs, Solid-state hybrid drives (SSHDs)SSHDs combine the features of SSDs and HDDs in the same unit, containing a large hard disk drive and an SSD cache to improve performance of frequently accessed data.
Our products are designed for mission critical and nearline applications in enterprise servers and storage systems in mission critical and nearline applications;systems; client compute applications, where our products are designed primarily for desktop and mobile computing; and clientnon-compute applications, where our products are designed for a wide variety of end user devices such as digital video recorders ("DVRs"), personal data backup systems, portable external storage systems, surveillance systems, network-attached storage (“NAS”), digital mediavideo recorders (“DVRs”) and gaming consoles.
Our cloud systems and surveillance systems.solutions extend innovation from the device into the information infrastructure, onsite and in the cloud. Our portfolio includes modular original equipment manufacturer (“OEM”) storage systems andscale-out storage servers.
Our product and solution portfolio for the enterprise data storage industry includes storage enclosures, integrated application platforms and high performance computing ("HPC") data storage solutions. Our storage subsystems support a range of high-speed interconnect technologies to meet demanding cost and performance specifications. Our modular subsystem architecture allows us to support many segments within the networked storage market by enabling different specifications of storage subsystem designs to be created from a standard set of interlocking technology modules.
Our data storage services provide online backup, data protection and recovery solutions for small to medium-sized businesses.
Industry Overview
Electronic Data Storage Industry
The electronic data storage industry is comprised of companies that manufacture components or subcomponents designed for electronic data storage devices and companies that provide storage solutions, software and services for enterprise cloud, big data and computing platforms.
Markets
The principal markets served by the electronic data storage industry are:
Enterprise Storage.We define enterprise storage as dedicated storage area networks and hyperscale cloud storage environments. Enterprise data centers run solutions which are designed for mission critical performance and nearline high capacity applications.
Mission critical applications are defined as those that are vital to the operation of large-scale enterprise work loads,workloads, requiring high performance and high reliability storage solutions. We expect the market for mission
critical enterprise storage solutions to continue to be driven by enterprises utilizing dedicated storage area networks. Our storage solutions are comprised principally of high performance enterprise class disk drives with sophisticated firmware and communications technologies.
Nearline applications are defined as those which require high capacity and energy efficient storage solutions. We expect such applications, which include storage for cloud computing, content delivery and backup services, will continue to grow and drive demand for solutions designed with these attributes. With the increased requirements for storage driven by the creation and consumption of media-rich digital content, we expect the increased exabyte demand will require furtherbuild-out of datacentersdata centers by cloud service providers and other enterprises which utilize high capacity nearline devices.
Enterprise SASserial attached SCSI (“SAS”) SSDs are designed to deliver superior performance, reliability and enterprise features to meet the demands ofI/O-intensive applications, with potential for substantial power savings. PCIe acceleratorNon-Volatile Memory Express (“NVMe”) SSDs andadd-in cards are designed to optimize enterprise applications with a persistent, high-performance, high-capacity memory design. Accelerated flashThey also targetsleverage flash and software to accelerate any server virtualized deployment and moves any big data to the realm of real time. From industry solutions perspective, PCIe cards are changing the storage architecture in many industries including the financial sector, government, telecommunications and media and entertainment.
Client Compute.We define client compute applications as solutions designed for desktop and mobile compute applications ranging from traditional laptops, tablets and convertible systems, and gaming consoles. We believe that the demand resulting from growing economies of certain countries and the continued proliferation of digital content will continue to maintain demand for the client compute market.systems. As the storage of digital content in the cloud becomes more prominent and accessible, some client compute applications rely less onbuilt-in storage, which is supplemented by cloud computing solutions and Brandedbranded external hard drives.
Client Client Non-Compute. We define clientnon-compute applications as solutions designed for consumer electronic devices and disk drives used for external storage and network-attached storage ("NAS").storage. Disk drives designed for consumer electronic devices are primarily used in applications such as DVRssurveillance systems, NAS and surveillance systemsDVRs that require a higher capacity, lowcost-per-gigabyte storage solution. Disk drives for external storage and NAS devices areis designed for purposes such as personal data backup and portable external storage, and to augment storage capacity in the consumer'sconsumer’s current desktop, notebook, tablet or DVR devices. We believe the proliferation and personal creation of media-rich digital content will continue to create increasing consumer demand for higher capacity storage solutions.
Cloud Systems and Solutions. We define cloud systems and solutions as applications that provide cloud based solutions to businesses for the purpose of high performance computing, scale-out storage solutions and modular systems, remote on-line digital storage archival offerings, and backup & recovery products and services.systems. Systems can contain HDDs and SSDs and can offer file management systems, software, and even compute power.
Participants in the electronic data storage industry include:
Major subcomponent manufacturers.Companies that manufacture components or subcomponents used in electronic data storage devices or solutions include companies that supply spindle motors, heads and media, application specific integrated circuits ("ASICs"(“ASICs”) and glass substrates..
Hardware storage solutions manufacturers. Companies that transform components into storage products include disk drive manufacturers and semiconductor storage manufacturers which include integrating flash memory into storage products such as SSDs.
System integrators. Companies, such as original equipment manufacturers ("OEM"),OEMs, that bundle and package storage solutions into client compute, clientnon-compute or enterprise applications as well as enterprise storage solutions. Distributors that integrate storage hardware and software intoend-user applications and Cloud Service Providers (“CSP”) that provide cloud based solutions to businesses for the purpose ofscale-out storage solutions and modular systems that are also included in this category.
Storage services. Companies that provide and host services and solutions, which include storage, backup, archiving, recovery and discovery of electronic data.
Hyperscale Data Centers.
Demand for Electronic Data Storage
The continued advancement of the cloud, the proliferation of a variety of mobile devices globally, development of the internetInternet of things,Things (“IoT”), increasingly pervasive use of video surveillance, evolution of consumer electronic devices, and enterprise use of big data analytics are driving the growth of digital content. Factors contributing to thisthe growth of digital content include:
As a result of these factors, the nature and volume of content being created requires greater storage, which is more efficiently and economically facilitated by higher capacity storage devices in order to store, manage, distribute, analyze and backup such content. We expect this to support the growth in demand for electronic data storage solutions in developed and emerging economies well into the future.
The amount of data created as well as where and how data is stored continues to evolve with the proliferation of mobile devices, the growth of cloud computing, and the evolving internet of things.IoT. In addition, the economics of storage infrastructure are also evolving with the utilization of public and private hyper-scale storage and open-source solutions reducing the total cost of ownership of storage while increasing the speed and efficiency with which customers can leverage massive computing and storage devices. Accordingly, we expect these trends will continue to create significant demand for electronic data storage solutions going forward.
Demand Trends for Disk Drives
We believe that continued growth in digital content requires increasingly higher storage capacity in order to store, aggregate, host, distribute, analyze, manage, backup and use such content. We also believe that as architectures evolve to serve the growing commercial and consumer user base throughout the world, the manner in which hard drives are delivered to market and utilized by our customers will evolve as well.
We believe that in the foreseeable future the traditional enterprise and client compute markets that require high capacityhigh-capacity storage solutions, and the data intensive clientnon-compute markets will continue to be best served by hard disk drives due to the industry'sindustry’s ability to deliver the most cost effective, reliable and energy efficient mass storage devices.devices although the advance of solid state technology in the above markets is expected to increase as well. Furthermore, the increased use of clientnon-compute devices that both consume media-rich digital content streamed from the cloud and create rich digital content that is stored in the cloud, increases the demand for high capacity hard disk drives in enterprise Nearlinenearline applications.
We also believe that as hard disk drive capacities continue to increase, unit demand does not reflect the increase in exabytes demand. In recent years, this trend has resulted in demand for fewer units, but with higher average capacity per drive. Industry Supply Balance
From time to time the HDD industry has experienced periods of imbalance between supply and demand. To the extent that the disk drive industry builds or maintains capacity based on expectations of demand that do not materialize, price erosion may become more pronounced. Conversely, during periods where demand exceeds supply, price erosion is generally muted.
Our Business
Disk Drive Technology
The design and manufacturing of disk drives depends on highly advanced technology and manufacturing techniques and therefore requires high levels of research and development spending and capital equipment investments. We design, fabricate and assemble a number of the most important components found in our disk drives, including read/write heads and recording media. Our design and manufacturing operations are based on technology platforms that are used to produce various disk drive products that serve multiple data storage applications and markets. Our core technology platforms are focused around the areal density of media and read/write head technologies. Using an integrated platform design and manufacturing leverage approach allows us to deliver a portfolio of disk drive products to service a wide range of electronic data storage applications and industries.
Disk drives that we manufacture are commonly differentiated by the following key characteristics:
Areal density is a measure ofmeasured by storage capacity per square inch on the recording surface of a disk. The storage capacity of a disk drive is determined by the number of disks it contains as well as the areal density capability of these disks. We have been pursuing, and will continue to pursue, a number of technologies to increase areal densities across the entire range of our products for expanding disk drive capacities and reducing the number of disks and heads per drive to further reduce product costs.
Manufacturing
We design and produce our own read/write heads and recording media, which are critical technologies for disk drives. This integrated approach enables us to lower costs and to improve the functionality of components so that they work together efficiently.
We believe that because of our vertical design and manufacturing strategy, we are well suited to take advantage of the opportunities to leverage the close interdependence of components for disk drives. Our manufacturing efficiency and flexibility are critical elements of our integrated business strategy. We continuously seek to improve our manufacturing efficiency and reduce manufacturing cost by:
A vertically integrated model, however, tends to have less flexibility when demand moderates as it exposes us to higher unit costs as capacity utilization is not optimized.
Components and Raw Materials
Disk drives incorporate certain components, including a head disk assembly and a printed circuit board mounted to the head disk assembly, which are sealed inside a rigid base and top cover containing the recording components in a contamination controlled environment. We maintain a highly integrated approach to our business by designing and manufacturing a significant portion of the components we view as critical to our products, such as recording heads and media.
Read/Write Heads.The function of the read/write head is to scan across the disk as it spins, magnetically recording or reading information. The tolerances of recording heads are extremely demanding and requirestate-of-the-art equipment and processes. Our read/write heads are manufactured with thin-film and photolithographic processes similar to those used to produce
semiconductor integrated circuits, though challenges in magnetic film properties and topographical structures are unique to the disk drive industry. We perform all primary stages of design and manufacture of read/write heads at our facilities. We use a combination of internally manufactured and externally sourced read/write heads, the mix of which varies based on product mix, technology and our internal capacity levels.
Media.Information is written to the media, or disk, as it rotates at very high speeds past the read/write head. The media is made fromnon-magnetic material, usually aluminum alloy or glass, and is coated with thin layers of magnetic materials. We use a combination of internally manufactured and externally sourced finished media and aluminum substrates, the mix of which varies based on product mix, technology and our internal capacity levels. We purchase all of our glass substrates from third parties, which we use in the disk drives we make for mobile products.parties.
Printed Circuit Board Assemblies.The printed circuit board assemblies (PCBAs)(“PCBAs”) are comprised of standard and custom ASICs and ancillary electronic control chips. The ASICs control the movement of data to and from the read/write heads and through the internal controller and interface, which communicates with the host computer. The ASICs and control chips form electronic circuitry that delivers instructions to a head
positioning mechanism called an actuator to guide the heads to the selected track of a disk where the data is recorded or retrieved. Disk drive manufacturers use one or more industry standard interfaces such as serial advanced technology architecture (SATA)(“SATA”); small computer system interface (SCSI)(“SCSI”); serial attached SCSI (SAS);SAS; or Fibre Channel (FC)(“FC”) to communicate to the host systems. We outsource to third parties the manufacture and assembly of the PCBAs used in our disk drives. We do not manufacture any ASICs, but we participate in their proprietary design.
Head Disk Assembly.The head disk assembly consists of one or more disks attached to a spindle assembly powered by a spindle motor that rotates the disks at a high constant speed around a hub. Read/write heads, mounted on an arm assembly, similar in concept to that of a record player, fly extremely close to each disk surface and record data on and retrieve it from concentric tracks in the magnetic layers of the rotating disks. The read/write heads are mounted vertically on anE-shaped assembly (E-block)(“E-block”) that is actuated by a voice-coil motor to allow the heads to move from track to track. TheE-block and the recording media are mounted inside the head disk assembly. We purchase spindle motors from outside vendors and from time to time participate in the design of the motors that go into our products. We use a combination of internally manufactured and externally sourced head disk assemblies.
Disk Drive Assembly.Following the completion of the head disk assembly, it is mated to the PCBA, and the completed unit goes through extensive defect mapping and testing prior to packaging and shipment. Disk drive assembly and test operations occur primarily at facilities located in China and Thailand. We perform subassembly and component manufacturing operations at our facilities in China, Malaysia, Northern Ireland, Singapore, Thailand and in the United States. In addition, third parties manufacture and assemble components and disk drive assemblies for us in various countries worldwide.
Suppliers of Components and Industry Constraints.There are a limited number of independent suppliers of components, such as recording heads and media, available to disk drive manufacturers. Vertically integrated disk drive manufacturers, who manufacture their own components, are less dependent on external component suppliers than less vertically integrated disk drive manufacturers.
Commodity and Other Manufacturing Costs.The production of disk drives requires rare earth elements, precious metals, scarce alloys and industrial commodities, which are subject to fluctuations in prices and the supply of which has at times been constrained. In addition to increased costs of components and commodities, volatility in fuel costs may also increase our costs related to commodities, manufacturing and freight. As a result, we may increase our use of ocean shipments to help offset any increase in freight costs.
Products
Products
We offer a broad range of storage solutions for the enterprise, data center, client compute and clientnon-compute applications. We offer more than one product within each product category and differentiate products on the basis of price, performance, form factor, capacity, interface, power consumption efficiency, security features, and other customer integration requirements. Our industry is characterized by continuous and significant advances in technology which contribute to rapid product life cycles. We list our main current product offerings below.
Enterprise Storage
Enterprise Performance HDDs.Our 10,000 and 15,000 RPM Enterprise Performance disk drives feature increased throughput and improved energy efficiency, targeted at high random performance server application needs. Performance 10,000 RPM HDDs ship in storage capacities ranging from 300GB to 1.8TB,2.4TB, and our 15,000 RPM HDDs ship in storage capacities ranging from 146GB to 600GB.900GB.
Enterprise Capacity and Archive HDDs.Our Enterprise Capacity disk drives ship in2.5-inch and3.5-inch form factors and in storage capacities of up to 6TB12TB that mainly rotate at a speed of 7,200 RPM speeds.RPM. These products
are designed for bulk data storage and server environments that require high capacity, enterprise reliability, energy efficiency, integrated security, and SATA and SAS interfaces. Our Archive HDDs provide up to 8TB oflow-cost storage designed specifically for active archive storage environments in cloud data centers where very low cost and power are paramount. Our Kinetic HDDs are the world's first Ethernet-connected HDD with an open source object application program interface ("API") designed specifically for hyper scale and scale-out object storage environments.
Enterprise SSDs. Available Our SAS SSD are available in capacities up to 800GB, the SSD features3.8TB and feature 12GB per second SAS, and deliversinterface to deliver the speed and consistency needed for demanding enterprise storage and server applications. We also offer a wide range of NVMe and SATA interface SSDs andadd-in cards in our Nytro family of accelerator cards with capacitycapacities up to 4 TB.7.7TB.
Client Compute
Desktop HDDs and SSHDs. Our3.5-inch Our 3.5-inch desktop drives ship in both traditional HDD and SSHD configurations and offer up to 4TB10TB of capacity. Desktop drives are designed for applications such as personal computers and workstations.
Mobile HDDs and SSHDs. Our family of2.5-inch laptop drives ship in a variety of form factors (5mmcapacities (up to 9.5mm drive height), capacities (250GB to 2TB)5TB) and technologies (HDD and SSHD) to support mobile needs. Used in applications ranging from traditional laptops, tablets, convertible systems and gaming consoles,external storage, our drives are built to address a range of performance needs and sizes for affordable, high capacity storage.
ClientNon-Compute
Video HDDs. Our Video HDDs are used in video applications like DVR's and media centers. These disk drives are optimized for video streaming in always-on applications with capacities up to 4TB to support leading-edge digital entertainment.
Surveillance HDDs. Our surveillance drives are built to support the high-write workload of analways-on, always-recording video surveillance system. These surveillance optimized drives are built to support the growing needs of the surveillance market with support for multiple hard drive ("HD"(“HD”) streams and capacities up to 6TB.10TB.
NAS HDDs. Our network attached storage (NAS)NAS drives are built to support the performance and reliability demanded by small and medium businesses, and incorporate interface software with
custom-built error recovery controls, power settings, and vibration tolerance. Our NAS HDD solutions are available in capacities up to 6TB.10TB.
Video HDDs. Our Video HDDs are used in video applications like DVR’s and media centers. These disk drives are optimized for video streaming inalways-on applications with capacities up to 4TB to support leading-edge digital entertainment.
Gaming HDDs. Gaming HDDs are specifically optimized for console gaming usage. These products are designed to enhance gaming experience during game-load and game-play and are available in capacities up to 2TB.
Branded Solutions. Our external backup storage solutions are shipped under the Backup Plus and Expansion product lines, as well as under the SamsungMaxtor and LaCie brand names. These product lines are available in capacities ranging from 500GB to 8TB, respectively. Our Seagate and Samsung Wireless drives provide tablet and smartphone users with additional storage for media content, with capacities up to 2TB. Our NAS and Personal Cloud solutions provide centralized network storage in capacities up to 40TB and secure, anywhere file access for users on-the-go.120TB.
Customers
We sell our products to major OEMs, distributors and retailers.
The following table summarizes our HDD revenue by channel and by geography:
| Fiscal Years Ended | ||||||
---|---|---|---|---|---|---|---|
| 3 July 2015 | 27 June 2014 | |||||
Revenues by Channel (%) | |||||||
OEM | 71 | % | 68 | % | |||
Distributors | 17 | % | 20 | % | |||
Retail | 12 | % | 12 | % | |||
Revenues by Geography (%)(1) | |||||||
Americas | 28 | % | 27 | % | |||
EMEA | 17 | % | 19 | % | |||
Asia Pacific | 55 | % | 54 | % |
Fiscal Years Ended | ||||||||
30 June 2017 | 1 July 2016 | |||||||
Revenues by Channel (%) | ||||||||
OEM | 67 | % | 69 | % | ||||
Distributors | 18 | % | 17 | % | ||||
Retail | 15 | % | 14 | % | ||||
Revenues by Geography (%)(1) | ||||||||
Americas | 31 | % | 29 | % | ||||
EMEA | 17 | % | 17 | % | ||||
Asia Pacific | 52 | % | 54 | % |
(1) | Revenue is attributed to countries based on the shipping location. |
OEM customers typically enter into master purchase agreements with us. These agreements provide for pricing, volume discounts, order lead times, product support obligations and other terms and conditions including sales programs offered to promote selected products. Deliveries are scheduled only after receipt of purchase orders. In addition, with limited lead-time, customers may defer most purchase orders without significant penalty. Anticipated orders from many of our customers have in the past failed to materialize or OEM delivery schedules have been deferred or altered as a result of changes in their business needs.
Our distributors generally enter intonon-exclusive agreements for the resale of our products. They typically furnish us with anon-binding indication of their near-term requirements and product deliveries are generally scheduled accordingly. The agreements and related sales programs typically provide the distributors with limited right of return and price protection rights. In addition, we offer sales programs to distributors on a quarterly and periodic basis to promote the sale of selected products in the sales channel.
Our retail channel consists of our branded storage products sold to retailers either by us directly or by our distributors. Retail sales made by us or our distributors typically require greater marketing support, sales incentives and price protection periods.
In fiscal years 20152017 and 2014,2016, Dell Inc. accounted for approximately 14%10% and 13% of consolidated revenue, respectively, while Hewlett-Packard Company accounted for approximately 12% and 13% of consolidated revenue, respectively. In fiscal year 2016, HP Inc., formerly known as Hewlett-Packard Company, completed its separation with Hewlett Packard Enterprise Company, and each company accounted for less than 10% of our consolidated revenue in both fiscal year 2017 and 2016. See "Principal“Principal Risks and Uncertainties-Risks Related to Our Business-WeUncertainties-We may be adversely affected by the loss of, or reduced, delayed or canceled purchases by, one or more of our larger customers."
Competitionmajor customers”
Competition
We compete primarily with manufacturers of hard drives used in the enterprise, client compute and clientnon-compute applications, in addition to manufacturers applications. We are also a supplier of solid-state drivesEnterprise SSDs, NVMeadd-in cards, cloud storage solutions and PCIe accelerator cards.storage subsystems through our acquisitions. The markets that we competeparticipate in are highly competitive. Disk drive manufacturers compete for a limited number of major disk drive customers but also compete with other companies in the electronic data storage industry that provide SSDs and PCIeNVMeadd-in technology. Some of the principal factors used by customers to differentiate among electronic data storage solutions manufacturers are storage capacity, product performance, product quality and reliability, price per unit and price per gigabyte,time-to-market andtime-to-volume leadership, storage/retrieval access times, data transfer rates, form factor,
product warranty and support capabilities, supply continuity and flexibility, power consumption, total cost of ownership, and brand. While different markets and customers place varying levels of emphasis on these factors, we believe that our products are competitive with respect to eachmany of these factors in the markets that we currently address.
Principal Disk Drive Competitors. There are three companies in the electronic data storage industry that manufacture disk drives:
Other Competition. Other Competitors.We mayare seeing direct competition from SSD’s that is adversely impacting demand for HDD in some markets including Notebook and Enterprise Mission Critical. We expect that this trend will continue although we believe both product types will be required in the future face indirect competition from customers who from timemarket to time evaluate whether to offer electronicsatisfy the growing demand for data storage products that may compete with our products.storage.
Price Erosion. Historically, our industry has been characterized by price declines for disk drive products with comparable capacity, performance and feature sets ("(“like-for-like products" products”). Price declines forlike-for-like products ("(“price erosion"erosion”) have beentend to be more pronounced during periods of:
Disk drive manufacturers typically attempt to offset price erosion with an improved mix of disk drive products characterized by higher capacity, better performance and additional feature sets and/orand product cost reductions.
We believe the HDD industry experienced benignmodest price erosion in fiscal years 2013, 20142017 and moderate price erosion in fiscal year 2015.2016.
Product Life Cycles and Changing Technology. Success in our industry has been dependent to a large extent on the ability to balance the introduction and transition of new products withtime-to-volume, performance, capacity and quality metrics at a competitive price, level of service and support that our customers expect. Generally, the drive manufacturer that introduces a new product first benefits from improved product mix, favorable profit margins and less pricing pressure until comparable products are introduced. Changing technology also necessitateson-going investments in research and development, which may be difficult to recover due to rapid product life cycles and economic declines. Further, there is a continued need to successfully execute product transitions and new product introductions, as factors such as quality, reliability and manufacturing yields continue to be of significant competitive importance.
Seasonality
The disk drive industry traditionally experiences seasonal variability in demand with higher levels of demand in the second half of the calendar year. This seasonality is driven by consumer spending in theback-to-school season from late summer to fall and the traditional holiday shopping season from fall to winter. In fiscal years 2013year 2016, beyond traditional seasonality, variability of sales was a reflection of more cyclical demand from CSPs based on the timing of large systems installations and 2014, our industry experienced muted seasonal patterns as supply and demand were relatively in balance. However, wethe shift of the underlying technology. We believe fiscal year 20152017 reflected a seasonal patternseasonality consistent with historical patterns.
Research and Development
We are committed to developing new component technologies, products and alternative storage technologies. Our research and development focus is designed to bring new products to market in high volume, with quality attributes that our customers expect, before our competitors. Part of our product development strategy is to leverage a design platform and/or subsystem within product families to serve different market needs. This platform strategy allows for more efficient resource utilization, leverages best design practices, reduces exposure to changes in demand, and allows for achievement of lower costs through purchasing economies. Our advanced technology integration effort focuses disk drive and component research on recording subsystems, including read/write heads and recording media; market-specific product technology; and technology focused towards new business opportunities. The primary purpose of our advanced technology integration effort is to ensure timely availability of mature component technologies to our product development teams as well as allowing us to leverage and coordinate those technologies in the design centers across our products in order to take advantage of opportunities in the marketplace. During fiscal years 20152017 and 2014,2016, we had product development expenses of approximately $1,353$1,232 million and $1,226$1,237 million respectively, which represented 10%11% and 9%11% of our consolidated revenue, respectively.
Patents and Licenses
As of 3 July 2015,30 June 2017, we had 5,194 U.S.approximately 5,600 US patents and 1,2071,300 patents issued in various foreign jurisdictions as well as 1,351 U.S.approximately 1,100 US and 1,296900 foreign patent applications pending. The number of patents and patent applications will vary at any given time as part of our ongoing patent portfolio management activity. Due to the rapid technological change that characterizes the electronic data storage industry, we believe that, in addition to patent protection, the improvement of existing products, reliance upon trade secrets, protection of unpatented proprietaryknow-how and development of new products are also important to our business in establishing and maintaining a competitive advantage. Accordingly, we intend to continue our efforts to broadly protect our intellectual property, including obtaining patents, where available, in connection with our research and development program.
We have patent licenses with a number of companies. Additionally, as part of our normal intellectual property practices, we may be engaged in negotiations with other major electronic data storage companies and component manufacturers with respect to patent licenses.
The electronic data storage industry is characterized by significant litigation arising from time to time relating to patent and other intellectual property rights. Because of rapid technological development in the electronic data storage industry, some of our products have been, and in the future could be, alleged to infringe existing patents of third parties. From time to time, we receive claims that our products infringe patents of third parties. Although we have been able to resolve some of those claims or potential claims by obtaining licenses or rights under the patents in question without a material adverse affecteffect on us, other claims have resulted in adverse decisions or settlements. In addition, other claims are pending, which if resolved unfavorably to us could have a material adverse effect on our business and results of operations. For more information on these claims, see "Note“Note 14. Legal, Environmental and Other
Contingencies."” The costs of engaging in intellectual property litigation in the past have been, and in the future may be, substantial, irrespective of the merits of the claim or the outcome.
Backlog
In view of industry practice, whereby customers may cancel or defer orders with little or no penalty, we believe backlog in the disk drive industry is of limited indicative value in estimating future performance and results.
Environmental Matters
Our operations are subject to U.S.US and foreign laws and regulations relating to the protection of the environment, including those governing discharges of pollutants into the air and water, the management and disposal of hazardous substances and wastes and the cleanup of contaminated sites. Some of our operations require environmental permits and controls to prevent and reduce air and water pollution, and these permits are subject to modification, renewal and revocation by issuing authorities.
We have established environmental management systems and continually update environmental policies and standard operating procedures for our operations worldwide. We believe that our operations are in material compliance with applicable environmental laws, regulations and permits. We budget for operating and capital costs on an ongoing basis to comply with environmental laws. If additional or more stringent requirements are imposed on us in the future, we could incur additional operating costs and capital expenditures.
Some environmental laws, such as the Comprehensive Environmental Response Compensation and Liability Act of 1980 (as amended, the "Superfund"“Superfund” law) and its state equivalents, can impose liability for the cost of cleanup of contaminated sites upon any of the current or former site owners or operators or upon parties who sent waste to these sites, regardless of whether the owner or operator owned the site at the time of the release of hazardous substances or the lawfulness of the original disposal activity. We have been identified as a potentially responsible party at several sites. At each of these sites, we have an assigned portion of the financial liability based on the type and amount of hazardous substances disposed of by each party at the site and the number of financially viable parties. We have fulfilled our responsibilities at some of these sites and remain involved in only a few at this time.
While our ultimate costs in connection with these sites is difficult to predict with complete accuracy, based on current estimates of cleanup costs and our expected allocation of these costs, we do not expect costs in connection with these sites to be material.
We may be subject to various state, federal and international laws and regulations governing the environment, including those restricting the presence of certain substances in electronic products. For example, the European Union ("EU"(“EU”) enacted the Restriction of the Use of Certain Hazardous Substances in Electrical and Electronic Equipment, which prohibits the use of certain substances, including lead, in certain products, including disk drives and server storage products, put on the market after 1 July 1, 2006. Similar legislation has been or may be enacted in other jurisdictions, including in the United States, Canada, Mexico, Taiwan, China, Japan and others. The European Union REACH Directive (Registration, Evaluation, Authorization, and Restriction of Chemicals, EC 1907/2006) also restricts substances of very high concern ("SVHCs"(“SVHCs”) in products.
Employees
At 3 July 2015 ,30 June 2017, we employed approximately 52,35041,000 employees and temporary employees worldwide, of which approximately 41,800 employees33,000 were located in our Asian operations. We believe
that our future success will depend in part on our ability to attract and retain qualified employees at all levels. We believe that our employee relations are good.
REVIEW OF THE PERFORMANCE OF THE BUSINESS
Fiscal Year 20152017 Summary
During the fiscal year 2015,2017, we shipped 212 million units totaling 228263 exabytes, generating revenue of $13.7$10.8 billion and gross marginsmargin of 28% of revenue.29%. Our operating cash flow was $2.6 billion, which included $773$1.9 billion. We repurchased approximately 12 million received from Western Digital as partial payment of our ordinary
shares during the final award plus accrued interest in our arbitration case against Western Digital and a $225 million payment related to the final audit assessment received from the Jiangsu Province State Tax Bureau of the People's Republic of Chinayear for tax and interest associated with changes to our tax filings for the calendar years 2007 through 2013.approximately $460 million. We issued $500$750 million of 5.75%4.25% Senior Notes due 20342022 and $700$500 million of 4.875% Senior Notes due 2027 during2024 and paid $316 million for the December 2014redemption and June 2015 quarters, respectively. We repurchased approximately 19 millionrepurchase of our ordinary shares during the year for approximately $1.1 billion,outstanding debt, as well as paid $0.9 billion for the early repurchase and redemption of debt, paid dividends during the year of $0.7 billion, and completed our acquisition of certain assets and liabilities of LSI Corporation's ("LSI") Accelerated Solutions Division and Flash Components Division (collectively, the "Flash Business") from Avago Technologies Limited for $450$561 million in cash.dividends in fiscal year 2017.
Results of Operations
We list in the tables below summarized information from our Consolidated Profit and Loss Account by dollars and as a percentage of revenue:
| Fiscal Years Ended | ||||||
---|---|---|---|---|---|---|---|
(US Dollars in millions) | 3 July 2015 | 27 June 2014 | |||||
Revenue | $ | 13,739 | $ | 13,724 | |||
Cost of revenue | 9,930 | 9,878 | |||||
| | | | | | | |
Gross profit | 3,809 | 3,846 | |||||
Product development | 1,353 | 1,226 | |||||
Marketing and administrative | 857 | 722 | |||||
Amortization of intangibles | 129 | 98 | |||||
Restructuring and other, net | 32 | 24 | |||||
Gain on arbitration award, net | (620 | ) | — | ||||
| | | | | | | |
Operating earnings | 2,058 | 1,776 | |||||
Other income and charges, net | (88 | ) | (220 | ) | |||
| | | | | | | |
Income before taxes | 1,970 | 1,556 | |||||
Income tax expense (benefit) | 228 | (14 | ) | ||||
| | | | | | | |
Net income | $ | 1,742 | $ | 1,570 | |||
| | | | | | | |
| | | | | | | |
| | | | | | | |
| Fiscal Years Ended | ||||||
---|---|---|---|---|---|---|---|
(as a percentage of Revenue) | 3 July 2015 | 27 June 2014 | |||||
Revenue | 100 | % | 100 | % | |||
Cost of revenue | 72 | 72 | |||||
| | | | | | | |
Gross profit | 28 | 28 | |||||
Product development | 10 | 9 | |||||
Marketing and administrative | 7 | 5 | |||||
Amortization of intangibles | 1 | 1 | |||||
Restructuring and other, net | — | — | |||||
Gain on arbitration award, net | (5 | ) | — | ||||
| | | | | | | |
Operating earnings | 15 | 13 | |||||
Other income and charges, net | (1 | ) | (2 | ) | |||
| | | | | | | |
Income before taxes | 14 | 11 | |||||
Income tax expense (benefit) | 2 | — | |||||
| | | | | | | |
Net income | 12 | % | 11 | % | |||
| | | | | | | |
| | | | | | | |
| | | | | | | |
Fiscal Years Ended | ||||||||
(US Dollars in millions) | 30 June 2017 | 1 July 2016 | ||||||
Revenue | $ | 10,771 | $ | 11,160 | ||||
Cost of revenue | 7,597 | 8,545 | ||||||
|
|
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| |||||
Gross profit | 3,174 | 2,615 | ||||||
Product development | 1,232 | 1,237 | ||||||
Marketing and administrative | 606 | 635 | ||||||
Amortization of intangibles | 104 | 123 | ||||||
Restructuring and other, net | 178 | 175 | ||||||
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Operating earnings | 1,054 | 445 | ||||||
Other income and charges, net | (239) | (171) | ||||||
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Income before taxes | 815 | 274 | ||||||
Income tax expense | 43 | 26 | ||||||
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Net income | $ | 772 | $ | 248 | ||||
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Revenue | 100% | 100% | ||||||
Cost of revenue | 71 | 77 | ||||||
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Gross profit | 29 | 23 | ||||||
Product development | 11 | 11 | ||||||
Marketing and administrative | 5 | 6 | ||||||
Amortization of intangibles | 1 | 1 | ||||||
Restructuring and other, net | 2 | 2 | ||||||
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Operating earnings | 10 | 4 | ||||||
Other income and charges, net | (2) | (2) | ||||||
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Income before taxes | 8 | 2 | ||||||
Income tax expense | 1 | — | ||||||
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Net income | 7% | 2% | ||||||
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The following table summarizes HDD information regarding average drive selling prices ("ASPs"(“ASPs”) excluding storage systems; drive volume shipments,, exabytes shipped, and revenues by channel and geography:
| Fiscal Years Ended | ||||||
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(US Dollars in millions, except percentages and ASPs) | 3 July 2015 | 27 June 2014 | |||||
Net Revenue | $ | 13,739 | $ | 13,724 | |||
Unit Shipments: | |||||||
Enterprise | 36 | 31 | |||||
Client Compute | 132 | 144 | |||||
Client Non-Compute | 44 | 45 | |||||
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Total Units Shipped | 212 | 220 | |||||
ASP (per unit) | $ | 61 | $ | 61 | |||
Exabytes Shipped | 228 | 202 | |||||
Revenues by Channel (%) | |||||||
OEM | 71 | % | 68 | % | |||
Distributors | 17 | % | 20 | % | |||
Retail | 12 | % | 12 | % | |||
Revenues by Geography (%) | |||||||
Americas | 28 | % | 27 | % | |||
EMEA | 17 | % | 19 | % | |||
Asia Pacific | 55 | % | 54 | % |
Fiscal Years Ended | ||||||||
30 June 2017 | 1 July 2016 | |||||||
ASPs (US Dollars per unit) | $ | 66 | $ | 61 | ||||
Exabytes Shipped | 263 | 233 | ||||||
Revenues by Channel (%) | ||||||||
OEMs | 67% | 69% | ||||||
Distributors | 18% | 17% | ||||||
Retailers | 15% | 14% | ||||||
Revenues by Geography (%) | ||||||||
Americas | 31% | 29% | ||||||
EMEA | 17% | 17% | ||||||
Asia Pacific | 52% | 54% |
Revenue
| Fiscal Years Ended | ||||||||||||
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(US Dollars in millions) | 3 July 2015 | 27 June 2014 | Change | % Change | |||||||||
Revenue | $ | 13,739 | $ | 13,724 | $ | 15 | 0.1 | % |
Fiscal Years Ended | ||||||||||||||||
(US Dollars in millions) | 30 June 2017 | 1 July 2016 | Change | % Change | ||||||||||||
Revenue | $ | 10,771 | $ | 11,160 | $ (389) | (3)% |
Revenue in fiscal year 2015 remained flat2017 decreased approximately 3% or $0.4 billion, from fiscal year 2014,2016, as a result of revenue contributed from our acquisitions of Xyratex and LSI's Flash Business and a favorable product mix,price erosion partially offset by a 4% decreasean increase in units shipped and moderate price erosion.exabytes shipped.
Gross Profit
| Fiscal Years Ended | ||||||||||||
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(US Dollars in millions) | 3 July 2015 | 27 June 2014 | Change | % Change | |||||||||
Cost of revenue | $ | 9,930 | $ | 9,878 | $ | 52 | 1 | % | |||||
Gross profit | $ | 3,809 | $ | 3,846 | $ | (37 | ) | (1 | )% | ||||
Gross profit percentage | 28 | % | 28 | % |
Fiscal Years Ended | ||||||||||||||||
(US Dollars in millions) | 30 June 2017 | 1 July 2016 | Change | % Change | ||||||||||||
Cost of revenue | $ | 7,597 | $ | 8,545 | $ | (948) | (11)% | |||||||||
Gross profit | $ | 3,174 | $ | 2,615 | $ | 559 | 21 % | |||||||||
Gross profit percentage | 29% | 23% |
For fiscal year 2015,2017, gross profitmargin as a percentage of revenue remained flat fromincreased by 600 basis points compared to the prior fiscal year asdue to a result of improvedfavorable product mix and improved factory utilization resulting from cost savings due to increased operational efficiencies,our ongoing workforce reductions and manufacturing consolidation activities, partially offset by moderate price erosion.
Operating Expenses
| Fiscal Years Ended | Fiscal Years Ended | |||||||||||||||||||||||||||
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(US Dollars in millions) | 3 July 2015 | 27 June 2014 | Change | % Change | 30 June 2017 | 1 July 2016 | Change | % Change | |||||||||||||||||||||
Product development | $ | 1,353 | $ | 1,226 | $ | 127 | 10 | % | $ | 1,232 | $ | 1,237 | $ | (5) | — % | ||||||||||||||
Marketing and administrative | 857 | 722 | 135 | 19 | % | 606 | 635 | (29) | (5)% | ||||||||||||||||||||
Amortization of intangibles | 129 | 98 | 31 | 32 | % | 104 | 123 | (19) | (15)% | ||||||||||||||||||||
Restructuring and other, net | 32 | 24 | 8 | 33 | % | 178 | 175 | 3 | 2 % | ||||||||||||||||||||
Gain on arbitration award, net | (620 | ) | — | (620 | ) | (100 | )% | ||||||||||||||||||||||
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Operating expenses | $ | 1,751 | $ | 2,070 | $ | (319 | ) | $ | 2,120 | $ | 2,170 | $ | (50) | ||||||||||||||||
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Product Development Expense.2015 increased2017 decreased from fiscal year 2014 mostly2016 primarily due to increased headcounta $102 million decrease in salaries and related costsbenefits as a result of $111an increase in operational efficiencies in our business and the restructuring of our workforce in the prior periods, offset by a $71 million attributedincrease in variable compensation and share-based compensation driven by better financial performance and a $26 million increase in impairment charges related to the consolidationclosure of Xyratex and LSI's Flash Business as well as a 53-week fiscal year in 2015 compared to 52 weeks in 2014.our Korea design center.
Marketing and Administrative Expense. Marketing and administrative expenses for fiscal year 2015 increased2017 decreased from fiscal year 20142016 primarily due to a decrease in salaries and related benefits of $52 million as a result of the restructuring of our workforce in prior periods, a $28 million cost reduction resulting from an increase in headcount related costsoperational efficiencies in our business and the completion of $50 million attributed to the consolidation of Xyratexcertain promotional and LSI's Flash Business, non-recurring legal cost reimbursement receivedbranding activities in fiscal year 2014 of $242016, partially offset by a $51 million as well as a 53-week fiscal yearincrease in 2015 compared to 52 weeks in 2014.variable compensation and share-based compensation driven by better financial performance.
Amortization of Intangibles. Amortization of intangibles for fiscal year 2015 increased2017 decreased by $31$19 million, as compared to fiscal year 2014, as a result2016, due to certain intangible assets reaching the end of the acquisitions of LSI's Flash Business and Xyratex.their useful life.
Restructuring and Other, net. Restructuring and other, net for fiscal year 2015 increased by $8 million, as compared to fiscal year 20142017 was comprised primarily due to aof restructuring chargecharges recorded during the September 2016 quarter and March 20152017 quarter to reduce work forceour workforce by approximately 6,800 employees, as a result ofwe continue to consolidate our ongoing focus on cost efficiencies in all areas of our business.global footprint across Asia, EMEA and the Americas.
Gain on arbitration award, net. Gain on arbitration award,Restructuring and other, net for fiscal year 2016 comprised of restructuring charges recorded during the September 2015 increased from fiscal year 2014 duequarter, March 2016 quarter and June 2016 quarter, to final award received in the amount of $630 million, less litigationreduce our workforce by approximately 4,600 employees and other related costs of $10 million, in the Company's case against Western Digital for the misappropriation of the Company's trade secrets.align our manufacturing footprint with current macroeconomic conditions.
Other income and charges, net
| Fiscal Years Ended | ||||||||||||
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(US Dollars in millions) | 3 July 2015 | 27 June 2014 | Change | % Change | |||||||||
Other income and charges, net | $ | (88 | ) | $ | (220 | ) | $ | 132 | (60 | )% |
Fiscal Years Ended | ||||||||||||||||
(US Dollars in millions) | 30 June 2017 | 1 July 2016 | Change | % Change | ||||||||||||
Other income and charges, net | $ | (239) | $ | (171) | $ | (68) | 40% |
Other income and charges, net for fiscal year 2015 decreased2017 increased by $132$68 million, as compared to fiscal year 20142016 primarily due to the partial$33 million of other income associated with the final payment of $143 million forunpaid interest accrued on the final arbitration award amount in ourthe Company’s case against Western Digital and a decrease in losses from early redemption and repurchase of debt of $15 million, partially offset byfiscal year 2016 which did not recur in fiscal year 2017, a $12 million increase infrom impairment of certain strategic investments and $24 million interest expense.expense on the issuance of $750 million of 4.25% Senior Notes due 2022 and $500 million of 4.875% Senior Notes due 2024.
Income Taxes
| Fiscal Years Ended | ||||||||||||
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(US Dollars in millions) | 3 July 2015 | 27 June 2014 | Change | % Change | |||||||||
Income tax expense (benefit) | $ | 228 | $ | (14 | ) | $ | 242 | (1,729 | )% |
Fiscal Years Ended | ||||||||||||||||
(US Dollars in millions) | 30 June 2017 | 1 July 2016 | Change | % Change | ||||||||||||
Income tax expense | $ | 43 | $ | 26 | $ | 17 | 65% |
We recorded an income tax expense of $228$43 million for fiscal year 20152017 compared to an income tax benefitexpense of $14$26 million for fiscal year 2014.2016. Our fiscal year 20152017 income tax expense included approximately $193$2 million of net tax expense associated with variousnon-recurring items. Our fiscal year 2016 income tax expense due to the final audit assessment received from the Jiangsu Province State Tax Bureau of the People's Republic of China (China assessment) for calendar years 2007 through 2013. Our fiscal year 2014 benefit from income taxes included $58approximately $22 million of income tax benefits relatedprimarily associated with the release of tax reserves due to the reversalexpiration of a portioncertain statutes of the valuation allowances recorded in prior periods and a net decrease in tax reserves related to audit settlements offset by tax reserves on non-U.S. tax positions taken in prior fiscal years.limitation.
Our Irish tax resident parent holding company owns various U.S.US and non-U.S.non-US subsidiaries that operate in multiplenon-Irish income tax jurisdictions. Our worldwide operating income is either subject to varying rates of income tax or is exempt from income tax due to tax holiday programs we operate under in Malaysia, Singapore and Thailand. These tax holidays are scheduled to expire in whole or in part at various dates through 2022.2024.
Our income tax expense recorded for fiscal year 20152017 differed from the income tax expense 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 to non-U.S.non-US earnings generated in jurisdictions that are subject to tax holidays or tax incentive programs and are considered indefinitely reinvested outside of Ireland, (ii) tax expense associated with the China assessment recorded during the December 2014 quarter, and (iii) an increasea decrease in valuation allowance for certain deferred tax assets. The acquisition of LSI's Flash Business did not have a material impact on our effective tax rate.assets, and (iii) permanent differences. Our income tax benefitexpense recorded for fiscal year 20142016 differed from the income taxestax expense 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 to non-U.S.non-US earnings generated in jurisdictions that are subject to tax holidays or tax incentive programs and are considered indefinitely reinvested outside of Ireland, (ii) tax benefits associated with the reversal of previously recorded taxes, and (ii)(iii) a decrease in valuation allowance for certain deferred tax assets. The acquisition of XyratexDot Hill System Corporation did not have a material impact on our effective tax rate in fiscal year 2014. Fiscal year 2014 included a valuation allowance release associated with post-acquisition restructuring.rate.
Based on our non-U.S.non-US ownership structure and subject to (i) potential future increases in our valuation allowance for deferred tax assets; and (ii) a future change in our intention to indefinitely reinvest earnings from our subsidiaries outside of Ireland, we anticipate that our effective tax rate in future periods will generally be less than the Irish statutory rate.
At 3 July 2015,30 June 2017, our deferred tax asset valuation allowance was approximately $929$966 million.
At 3 July 2015,30 June 2017, we had net deferred tax assets of $612 million.$602 million, excluding $2 million of deferred taxes on intra-entity transactions. The realization of most of these deferred tax assets is primarily dependent on our ability to generate sufficient U.S.US and certainnon-US taxable income in future periods. Although realization is not assured, we believe that it is more likely than not that these deferred tax assets will be realized. The amount of deferred tax assets considered realizable, however, may increase or decrease in subsequent periods when were-evaluate the underlying basis for our estimates of future U.S.US and certain non-U.S.non-US taxable income.
As of 3 July 2015,30 June 2017, approximately $422$560 million and $90$101 million of our total U.S.US net operating loss and tax credit carry forwards,carryforwards, respectively, are subject to an aggregate annual limitation of $46limitations from $1 million to $45 million pursuant to U.S.US tax law.
As of 3 July 2015 and 27 June 2014, we had approximately $83 million and $115 million, respectively, of unrecognized tax benefits excluding interest and penalties. The unrecognized tax benefits that, if recognized, would impact the effective tax rate are $83 million and $115 million as of 3 July 2015 and 27 June 2014, respectively, subject to certain future valuation allowance offsets.
It is our policy to include interest and penalties related to unrecognized tax benefits in the income tax expense on the Consolidated Profit and Loss Account. During fiscal year 2015, we recognized a net income tax expense for interest and penalties of $26 million and $8 million during fiscal year 2014. As of 3 July 2015, we had $20 million of accrued interest and penalties related to unrecognized tax benefits compared to $27 million in fiscal year 2014.
During the fiscal year ended 3 July 2015, our unrecognized tax benefits excluding interest and penalties decreased by approximately $32 million primarily due to (i) reductions associated with audit settlements of $45 million, (ii) increases in current year unrecognized tax benefits of $9 million, (iii) net increases in prior years' unrecognized tax benefits of $8 million, (iv) reductions associated with the expiration of certain statutes of limitation of $3 million, (v) net reductions from other activity, including non-U.S. exchange gains, of $1 million.
During the 12 months beginning 4 July 2015, we expect that our unrecognized tax benefits could be reduced by approximately $11 million as a result of the expiration of certain statutes of limitation.
We are subject to taxation in many jurisdictions globally and are required to file U.S.US federal, U.S.US, state, and non-U.Snon-US income tax returns. In June 2014, we received the Revenue Agent's Report and Notices of Proposed Adjustments for our U.S. federal income tax returns for fiscal years 2008, 2009 and 2010. We are currently contesting certain of these proposed adjustments through the IRS Appeals Office. We believe that the resolution of these disputed issues will not have a material impact on our financial statements. As discussed above, on 31 December 2014, we received a final audit assessment from the Jiangsu Province State Tax Bureau of the People's Republic of China. As a result of the assessment, we made payments of $225 million related to tax and interest associated with changes to our tax filings in China for calendar years 2007 through 2013. In connection with resolving our tax audit with the Chinese tax authorities, we obtained an Advance Pricing Agreement (APA) from the Jiangsu Province State Tax Bureau during the third quarter. The APA covers the periods through 2018 and provides the company a predictable future tax expense that provides stability to our business model.
We are no longer subject to tax examination of U.S.US federal income tax returns for years prior to fiscal year 2008.2014. With respect to U.S.US state and non-U.S.non-US income tax returns, we are generally no longer subject to tax examination for years ending prior to fiscal year 2005.2006.
The Company generated a profitnet income of $1,742$772 million and $1,570$248 million for the fiscal years ended 330 June 2017 and 1 July 2015 and 27 June 2014,2016, respectively. These amounts have been transferred to reserves.
PRINCIPAL RISKS AND UNCERTAINTIES
The Company'sCompany’s operations expose it to a variety of risks and uncertainties that could cause actual results to differ materially from those anticipated. Such risks and uncertainties include, but are not limited to, the following:
If we fail to predict demand accurately for our products in any quarter, we may not be able to recapture the cost of our investments.investments which may materially adversely affect our financial results and the results of our operations.
Our industry operates primarily on quarterly purchasing cycles, with much of the order flow in any given quarter typically coming at the end of that quarter. Our quarterly results are subject to substantial fluctuations
and can be difficult to predict. Our manufacturing process requires us to make significant product-specific investments in inventory in each quarter for that quarter'squarter’s production. Since we typically receive the bulk of our orders late in a quarter after we have made our investments, there is a risk that our orders will not be sufficient to allow us to recapture the costs of our investment before the products resulting from that investment have become obsolete. We cannot assure youprovide any assurance that we will be able to accurately predict demand in the future.
Our revenues in any quarter are substantially dependent upon customer orders in that quarter. We attempt to project future orders based in part on estimates from our major customers. Our customers'customers’ estimated requirements are not always accurate and we therefore cannot predict our quarterly revenues with any degree of certainty. In addition, we derive a portion of our revenues in each quarter from a number of relatively large orders. If one or more of our major customers decide to defer a purchase order or delays product acceptance in any given quarter, this is likely to result in reduced total revenues for that quarter.
The difficulty in forecasting demand also increases the difficulty in anticipating our inventory requirements, which may cause us to over-produce finished goods, resulting in inventory write-offs,increased working capital requirements, or under-produce finished goods, adversely affecting our ability to meet customer requirements and maintain our market share. Additionally, the risk of inventory write-offs could increase if we were to continue to hold higher inventory levels. Our uneven sales cycle makes inventory management challenging and future financial results less predictable. We cannot be certain that we will be able to recover the costs associated with increased inventory.
Other factors that may negatively impact our ability to recapture the cost of investments in any given quarter include:
In addition, the demand for clientnon-compute products can be even more volatile and unpredictable than the demand for client compute products. In some cases, our products manufactured for clientnon-compute applications are uniquely configured for a single customer'scustomer’s application, which creates a risk of unwanted and unsellable inventory if the anticipated volumes are not realized. This potential for unpredictable volatility is
increased by the possibility of competing alternative storage technologies like flash memory meeting the customers'customers’ cost and capacity metrics, resulting in a rapid shift in demand from our products and disk drive technology, generally, to alternative storage technologies. Unpredictable fluctuations in demand for our products or rapid shifts in demand from our products to alternative storage technologies in new clientnon-compute applications could materially adversely impact our future results of operations.
Market acceptance of new product introductions cannot be accurately predicted, and our results of operations will suffer if there is less demand for our new products than is anticipated.
The markets for our products are characterized by rapid technological change, frequent new product introductions and technology enhancements, uncertain product life cycles and changes in customer demand. The success of our new product introductions is dependent on a number of factors, including market acceptance, our ability to manage the risks associated with product transitions, the effective management of inventory levels in line with anticipated product demand and the risk that our new products will have quality problems or other defects in the early stages of introduction that were not anticipated in the design of those products. Accordingly, we cannot accurately determine the ultimate effect that our new products will have on our results of operations. Failure to accurately anticipate customers’ need and accurately identify the shift in technological changes could materially adversely affect our long-term financial results.
Historically, our results of operations have substantially depended upon our ability to be among the first-to-maturityfirst-to-market with new product offerings. We may face technological, operational and financial challenges in developing new products. In addition, our investments directed toward new product development may not yield the anticipated benefits. Our market share and results of operations in the future may be adversely affected if we fail to:
In addition, the success of our new product introductions is dependent upon our ability to qualify as a primary source of supply with our OEM customers. In order for our products to be considered by our customers for qualification, we must be among the leaders intime-to-market with those new products. Once a product is accepted, any failure or delay in the qualification process or a requirement that we requalify can result in our losing sales to that customer until new products are introduced. The limited number of high-volume OEMs magnifies the effect of missing a product qualification opportunity. These risks are further magnified because we expect competitive pressures to result in declining sales, eroding prices, and declining gross margins on our current generation products. If the delivery of our products is delayed, our OEM customers may use our competitors'competitors’ products to meet their production requirements. We cannot assure that we will be among the leaders intime-to-market with new products or that we will be able to successfully qualify new products with our customers in the future.
We face the related risk that consumers and businesses may wait to make their purchases if they want to buy a new product that has been shipped or announced but not yet released. If this were to occur, we may be unable to sell our existing inventory of products that may be less efficient and cost effective compared to new products. As a result, even if we are among the first-to-maturityfirst-to-market with a given product, subsequent introductions or announcements by our competitors of new products could cause us to lose revenue and not achieve a positive return on our investment in existing products and inventory.
If we cannot successfully deliver competitive products, our future results of operations may be adversely affected.
Our industries are highly competitive and our failure to anticipate and respond to technological and market developments could harm our ability to compete.
We operate in markets that are highly competitive and subject to rapid change and that are significantly affected by new product introductions, substantial price erosion and lower prices as part of a strategy to gain or retain market share and customers. Should these practices continue, we may need to continually reduce our prices for existing products to retain our market share, which could adversely affect our results of operations.
Our ability to offset the effect of price erosion through new product introductions at higher average prices is diminished to the extent competitors introduce products into particular markets ahead of our similar, competing products. Our ability to offset the effect of price erosion is also diminished during times when supply exceeds demand for a particular product.
Market share for our products can be negatively affected by our customers'customers’ diversifying their sources of supply as our competitors enter the market for particular products, as well as by our ability to ramp volume production of new product offerings. When our competitors successfully introduce product offerings that are competitive with our recently introduced products, our customers may quickly diversify their sources of supply. Any significant decline in our market share in any of our principal market applications would adversely affect our results of operations.
Our principal sources of competition include:
We also experience competition from other companies that produce alternative storage technologies like flash memory, where increasing capacity, decreasing cost, energy efficiency and improvements in performance ruggedness have resulted in competition with our lower capacity, smaller form factor disk drives. While thisThis competition has traditionally been in the markets for handheld consumer electronics applications these competitors have announced solid state drives (SSDs)and now it also includes SSDs for tablet, notebook and enterprise compute applications. Certain customers for both notebook and enterprise compute applications are adopting SSDs as alternatives to hard drives in certain applications. Further adoption of these alternative storage technologies may impact the competitiveness of our product portfolio and reduce our market share and adversely affect our results of operation.
The markets for our data storage system products are also characterized by technological change driven in part by the adoption of new industry standards. These standards provide mechanisms to ensure technology component interoperability can occur and may reduce our capability for differentiation or innovation and our affected products would revert to commodity status. This could lower the barriers to entry to our market away from our specialist research and development skills and enable entry for the general-purpose design skills found in some large EMS and CEM companies. Commodity markets are driven by extremely low margins and very aggressive competitive pricing. If our market becomes more commoditized and we fail to deliver innovative value-added alternatives to our customers, we will have difficulty competing against the larger EMS and CEM companies. If we are unable to compete successfully against our current and future competitors, we could experience profit margin reductions or loss of market share, which could significantly harm our financial condition.
We may be unable to effectively plan and make strategic changes in our business which may materially adversely affect our financial and business results. Additionally, we may not achieve the intended benefits of our strategic change efforts.
We may not be able to identify suitable strategic alliances, acquisitions, joint ventures or investment opportunities, to successfully acquire and integrate companies that provide complementary products or technologies or to realize the anticipated benefits of such transactions.
Our growth strategy involves pursuing strategic alliances with, making acquisitions of, forming joint ventures with or making investments in other companies that are complementary to our business. There is substantial competition for attractive strategic alliance, acquisition, joint venture and investment candidates. Additionally, the current trend of consolidation in the data storage industry may materially adversely affect our business and financial results and our future growth prospects. Accordingly, we may not be able to identify suitable strategic alliances, acquisition, joint venture, or investment candidates. Even if we can identify them, we cannot assure you that we will be able to partner with, acquire or invest in suitable candidates, or integrate acquired technologies or operations successfully into our existing technologies and operations. Moreover, our ability to finance potential strategic alliances, acquisitions, joint ventures or investments may be limited by our leverage level, the covenants contained in the instruments that govern our outstanding indebtedness, and any agreements governing any other debt we may incur.
If we are successful in forming strategic alliances or acquiring, forming joint ventures or making investments in other companies, any of these transactions may have an adverse effect on our results of operations, particularly while the operations of an acquired business are being integrated. It is also likely that integration of acquired companies would lead to the loss of key employees from those companies or the loss of customers of those companies. In addition, the integration of any acquired companies would require substantial attention from our senior management, which may limit the amount of time available to be devoted to ourday-to-day operations or to the execution of our strategy. Growth by strategic alliance, acquisition, joint venture or investment involves an even higher degree of risk to the extent we combine new product offerings and enter new markets in which we have limited experience, and no assurance can be given that acquisitions of entities with new or alternative business models will be successfully integrated or achieve their stated objectives. There can be no assurance that we will realize the anticipated benefits of any strategic alliance, acquisition, joint venture or investment that we make or, if we do, how long it will take to achieve such benefits.
Furthermore, the expansion of our business involves the risk that we might not manage our growth effectively, that we would incur additional debt to finance these acquisitions or investments, that we may have impairment of goodwill or acquired intangible assets associated with these acquisitions and that we would incur substantial charges relating to thewrite-off ofin-process research and development. Each of these items could have a material adverse effect on our financial condition and results of operations.
In addition, we could issue additional ordinary shares in connection with future strategic alliances, acquisitions, joint ventures or investments. Issuing shares in connection with such transactions would have the effect of diluting your ownership percentage of the ordinary shares and could cause the price of our ordinary shares to decline.
If we do not develop products in time to keep pace with technological changes, our results of operations will be adversely affected.
Our customers have demandeddemand new generations of disk drive products as advances in computer hardware and software have created the need for improved storage products, with features such as increased storage capacity, improved performance and reliability and lower cost. We, and our competitors, have developed improved products, and we will need to continue to do so in the future. Such product development requires significant investments in research and development. We cannot assure you that we will be able to successfully complete the design or introduction of new products in a timely manner, that we will be able to manufacture new products in sufficient volumes with acceptable manufacturing yields, that we will be able to successfully
market these new products or that these products will perform to specifications on a long-term basis. In addition, the impact of slowing areal density growth may adversely impact our ability to be successful.
When we develop new products with higher capacity and more advanced technology, our results of operations may decline because the increased difficulty and complexity associated with producing these products increases the likelihood of reliability, quality or operability problems. If our products suffer increases in failures, are of low quality or are not reliable, customers may reduce their purchases of our products and our manufacturing rework and scrap costs and service and warranty costs may increase. In addition, a decline in the reliability of our products may make us less competitive as compared with other disk drive manufacturers or competing technologies.
We may fail to successfully anticipate technological shifts, business opportunities and market demand. Additionally, the barriers to entry in developing NAND flash memory products and SSDs may materially adversely affect our future growth prospects. We may fail to develop new products, identify business strategies and introduce competitive product offerings to meet those technological shifts which may materially adversely affect our ability to compete effectively and may impact our future financial results.
Servicing our indebtedness requires a significant amount of cash, and we may not have sufficient cash flow from our business to pay our substantial debt.
We are leveraged and have significant debt service obligations. Our significant debt and debt service requirements could adversely affect our ability to operate our business and may limit our ability to take advantage of potential business opportunities and reduce our options for capital allocation. For example, our high level of debt presents the following risks:
In the event that we need to refinance all or a portion of our outstanding debt as it matures, we may not be able to obtain terms as favorable as the terms of our existing debt or refinance our existing debt at all. If prevailing interest rates or other factors existing at the time of refinancing result in higher interest rates upon refinancing, then the interest expense relating to the refinanced debt would increase. Furthermore, if any rating agency changes our credit rating or outlook, our debt and equity securities could be negatively affected, which could adversely affect our ability to refinance existing debt or raise additional capital.
In addition, our business may not generate cash flow in an amount sufficient to enable us to pay the principal of, or interest on, our indebtedness or to fund our other liquidity needs, including working capital, capital expenditures, product development efforts, strategic acquisitions, investments and alliances and other general corporate requirements.
Our ability to generate cash is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control. We cannot assure you that:
If we cannot fund our liquidity needs, we will have to take actions such as reducing or delaying capital expenditures, product development efforts, strategic acquisitions, investments and alliances, and other general corporate requirements. We cannot assure you that any of these remedies could, if necessary, be effected on commercially reasonable terms, or at all, or that they would permit us to meet our scheduled debt service obligations. In addition if we incur additional debt, the risks associated with our substantial leverage, including the risk that we will be unable to service our debt or generate enough cash flow to fund our liquidity needs, could intensify.
Changes in demand for computer systems and storage subsystems may in the future cause a decline in demand for our products.
Our products are components in computers, data storage systems, and consumer electronics devices. The demand for these products has been volatile. Unexpected slowdowns in demand for computer systems, storage subsystems or consumer electronics devices generally cause sharp declines in demand for our products. Declines in consumer spending could have a material adverse effect on demand for our products and services and on our financial condition and results of operations.
While sales to ClientNon-Compute and Cloud Systems and Solutions markets are becoming a more significant source of revenue, sales to the Client Compute market remain an important part of our business. The Client Compute market, however, has been, and we expect it to continue to be, adversely affected by the growth of tablet computers, smart phones and similar devices and that perform many of the same capabilities as computers, the lengthening of product life cycles and macroeconomic conditions. We believe that the deterioration of the Client Compute market has accelerated recently, and that this accelerated deterioration may continue or further accelerate, which could cause our operating results to suffer. Additionally, if demand in the Client Compute market is worse than expected as a result of these or other conditions, demand for our products in the Client Compute market may decrease at a faster rate and our operating results may be adversely affected.
The Enterprise Storage market has been adversely affected by the growth of the utilization of NAND flash in mission critical applications. This deterioration of the Enterprise Storage market could cause our operating results to suffer. The potential migration of the Enterprise Storage market to NAND flash memory products and an acceleration of the pace of migration may materially adversely affect our financial results.
Causes of declines in demand for our products in the past have included weakness in macroeconomic environments, announcements or introductions of major new operating systems or semiconductor
improvements or changes in consumer preferences, such as the shift to mobile devices. We believe these announcements and introductions have from time to time caused consumers to defer their purchases and made inventory obsolete. Whenever an oversupply of our products causes participants in our industry to have higher than anticipated inventory levels, we experience even more intense price competition from other manufacturers than usual.usual which may materially adversely affect our financial results.
Increases in the areal density of disk drives may outpace customers'customers’ demand for storage capacity.
The rate of increase in areal density, or storage capacity per square inch on a disk, may be greater than the increase in our customers'customers’ demand for aggregate storage capacity, particularly in certain market applications like client compute. As a result, our customers'customers’ storage capacity needs may be satisfied with lower priced, low capacity disk drives. These factors could decrease our sales, especially when combined with continued price erosion, which could adversely affect our results of operations.
We may not be successful in our efforts to grow our cloud systems and solutions business.silicon group.
We have made and are continuing to make investments to expand and develop our cloud systemsCloud Systems and solutions business.Silicon group. Our cloud systemsCloud Systems and solutions businessSilicon group is subject to the following risks:
Our results of operations and share price may be adversely affected if we are not successful in our efforts to grow our cloud computing business as anticipated. In addition, our growth in this sector may bring us into closer competition with some of our customers or potential customers, which may decrease their willingness to do business with us.
Changes in the macroeconomic environment have negatively impacted, and may continue to, negatively impact our results of operations.
Due to the continuing uncertainty about current macroeconomic conditions affecting consumer and enterprise spending, we believe our customers may postpone spending in response to tightervolatility in credit unemployment,and equity markets, negative financial news and/or declines in income or asset values, all of which could have a material adverse effect on the demand for our products. Continuing high unemployment rates, low levels of consumer liquidity, risk of default on sovereign debt and volatility in credit and equity markets have weakened consumer confidence and decreased consumer andAdditionally, enterprise spending continues to remain cautious in many regions around the world. Other factors that could influence demand include conditions in the residential real estate and mortgage markets, labor andmarket, healthcare costs, access to credit, consumer confidence and other macroeconomic factors affecting consumer spending behavior. These and other economic factors could have a material adverse effect on demand for our products and on our financial condition and operating results.
If we do not control our operating expenses, we will not be able to compete effectivelyMacroeconomic developments like the ongoing withdrawal of the United Kingdom from the European Union, the debt crisis in our industry.
We continually seek to make our cost structure and business processes more efficient. We are focused on increasing workforce flexibility and scalability, and improving overall competitiveness by leveraging our global capabilities, as well as external talent and skills, worldwide. Our strategy involves, to a substantial degree, increasing revenue and product volume while at the same time controlling operating expenses. If we do not control our operating expenses, our ability to competecertain countries in the marketplace may be impaired. In the past, activities to reduceEuropean Union and slowing economies in parts of Asia and South America could negatively affect our business, operating costs have included closures and transfers of facilities, significant personnel reductions and efforts to increase automation. The reduction of personnel and closure of facilities mayresults or financial condition which, in turn, could adversely affect our abilitystock price. A general weakening of, and related declining corporate confidence in, the global economy or the curtailment in government or corporate spending could cause current or potential customers to manufacturereduce their IT budgets or be unable to fund hardware systems, which could cause customers to delay, decrease or cancel purchases of our products in required volumesor cause customers not to meet customer demand and may result in other disruptions that affect ourpay us or to delay paying us for previously purchased products and customer service. Our efforts to make our operations more efficient may result in restructuring and other charges.services.
Our quarterly results of operations fluctuate, sometimes significantly, from period to period, and may cause our share price to decline.
In the past, ourOur quarterly revenue and results of operations have fluctuated,may fluctuate, sometimes significantly, from period to period. These fluctuations, which we expect to continue, may be occasioned by a variety of factors, including:
As a result, we believe thatquarter-to-quarter and year-over-year comparisons of our revenue and results of operations may not be meaningful, and that these comparisons may not be an accurate indicator of our future performance. Our results of operations in one or more future quarters may fail to meet the expectations of investment research analysts or investors, which could cause an immediate and significant decline in the trading price of our ordinary shares.
Because we experience seasonality in the sales of our products, our results of operations will generally be adversely impacted during the second half of our fiscal year.
Sales of computer systems, storage subsystems and consumer electronics tend to be seasonal, and therefore we expect to continue to experience seasonality in our business as we respond to variations in our customers'customers’ demand for our products. In particular, we anticipate that sales of our products will continue to be lower during the second half of our fiscal year. In the client compute and clientnon-compute market applications of our disk drive business, this seasonality is partially attributable to
the historical trend in our results derived from our customers'customers’ increased sales of desktop computers, notebook computers, and consumer electronics during theback-to-school and winter holiday season. In the enterprise market our sales are seasonal because of the capital budgeting and purchasing cycles of our end users. Since our working capital needs peak during periods in which we are increasing production in anticipation of orders that have not yet been received, our results of operations will fluctuate seasonally even if the forecasted demand for our products proves accurate. Furthermore, it is difficult for us to evaluate the degree to which this seasonality may affect our business in future periods because of the rate and unpredictability of product transitions and new product introductions, particularly in the clientnon-compute market, as well as macroeconomic conditions.
We have a long and unpredictable sales cycle for enterprise data storage solutions.
Our enterprise data storage solutions are technically complex and we typically supply them in high quantities to a small number of customers. Many of our products are also tailored to meet the specific requirements of individual customers, and are often integrated by our customers into the systems and products that they sell. Factors that affect the length of our sales cycle include:
As a result, our sales cycle for enterprise data storage solutions is often in excess of one year, and the length of our sales cycle is frequently unpredictable. In addition, the emerging and evolving nature of the market for the products that we sell may lead prospective customers to postpone their purchasing decisions. We invest resources and incur costs during this cycle that may not be recovered if we do not successfully conclude sales. These factors lead to difficulty in matching revenues with expenses, and to increased expenditures which together may adversely impact our results of operations.
We may be adversely affected by the loss of, or reduced, delayed or canceled purchases by, one or more of our major customers.
Some of our key customers account for a large portion of our disk drive revenue. While we have longstanding relationships with many of our customers, if any of our key customers were to significantly reduce their purchases from us, our results of operations would be adversely affected. While sales to major customers may vary from period to period, a major customer that permanently discontinues or significantly reduces its relationship with us could be difficult to replace. In line with industry practice, new customers usually require that we pass a lengthy and rigorous qualification process at the customer’s cost. Accordingly, it may be difficult or costly for us to attract new major customers. Additionally, mergers, acquisitions, consolidations or other significant transactions involving our customers generally entail risks to our business. If a significant transaction involving any of our key customers results in the loss of or reduction in purchases by these key customers, it could have a materially adverse effect on our business, results of operations, financial condition and prospects.
We are dependent on sales to distributors and retailers, which may increase price erosion and the volatility of our sales.
A substantial portion of our sales has been to distributors of disk drive products. Certain of our distributors may also market other products that compete with our products. Product qualification programs in this distribution channel are limited, which increases the number of competing products that are available to satisfy demand, particularly in times of lengthening product cycles. As a result, purchasing decisions in this channel are based largely on price, terms and product availability. Sales volumes through this channel are also less predictable and subject to greater volatility than sales to our OEM customers. In addition, deterioration in business and economic conditions could exacerbate price erosion and volatility as distributors lower prices to compensate for lower demand and higher inventory levels. Our distributors'distributors’ ability to access credit for purposes of funding their operations may also affect purchases of our products by these customers.
If distributors reduce their purchases of our products or prices decline significantly in the distribution channel or if distributors experience financial difficulties or terminate their relationships with us, our revenues and results of operations would be adversely affected.
We believe that industry demand for storage products in the long-term is increasing due to the proliferation of media-rich digital content in consumer applications and is fueling increased consumer demand
for storage. This has led to the expansion of our branded solutions such as external storage products to provide additional storage capacity and to secure data in case of disaster or system failure, or to provide independent storage solutions for multiple users in home or small business environments. Consumer spending on retail sales of our branded solutions has deteriorated in some markets and may continue to do so if poor global economic conditions continue and higher levels of unemployment
persist. This could have a material adverse effect on demand for our products and services and on our financial condition and results of operations.
In addition, such retail sales of our branded solutions traditionally experience seasonal variability in demand with higher levels of demand in the first half of our fiscal year driven by consumer spending in theback-to-school season from late summer to fall and the traditional holiday shopping season from fall to winter. Additionally, our ability to reach such consumers depends on ourus maintaining effective working relationships with major retailers and distributors. Failure to anticipate consumer demand for our branded solutions as well as an inability to maintain effective working relationships with retail and online distributors may adversely impact our future results of operations.
We may be adversely affected by the loss of, or reduced, delayed or canceled purchases by, one or more of our larger customers.
Some of our key customers account for a large portion of our disk drive revenue. While we have longstanding relationships with many of our customers, if any of our key customers were to significantly reduce their purchases from us, our results ofOur international sales and manufacturing operations would be adversely affected. While sales to major customers may vary from period to period, a major customer that permanently discontinues or significantly reduces its relationship with us could be difficult to replace. In line with industry practice, new customers usually require that we pass a lengthy and rigorous qualification process at the customer's cost. Accordingly, it may be difficult or costly forsubject us to attract new major customers. Additionally, mergers, acquisitions, consolidations or otherrisks related to disruptions in foreign markets, currency exchange fluctuations, longer payment cycles, seasonality, limitations imposed by a variety of legal and regulatory regimes, potential adverse tax consequences, increased costs, our customers’ credit and access to capital, health-related risks, and access to personnel.
We have significant transactions involving our customers generally entail riskssales and manufacturing operations in foreign countries, including manufacturing facilities, sales personnel and customer support operations. We have manufacturing facilities in China, Malaysia, Northern Ireland, Singapore and Thailand, in addition to our business. If a significant transaction involving any of our key customers resultsthose in the lossUnited States. Additionally, the manufacturing of or reduction in purchases by these key customers, it could have a materially adverse effect on our business, results of operations, financial condition and prospects.
If we experience shortages or delays in the receipt of, or cost increases in, critical components, equipment or raw materials necessary to manufacture our products, we may suffer lower operating margins, production delays and other material adverse effects.
The cost, quality and supply of components, subassemblies, certain equipment and raw materials used to manufacture our products and key components like recording media and heads are critical to our success. The equipment we use to manufacture our products and components is frequently custom made and comes from a few suppliers and the lead times required to obtain manufacturing equipment can be significant. Particularly important for our products include read/write heads, aluminum or glass substrates for recording media, ASICs, spindle motors, printed circuit boards, and suspension assemblies.
We rely on sole suppliers or a limited number of suppliers for some of these components that we do not manufacture, including aluminum and glass substrates, read/write heads, ASICs, spindle motors, printed circuit boards, and suspension assemblies. Many of such component suppliers are geographically concentrated, in particular, in Thailand, which makes our supply chain more vulnerable to regional disruptions such as the severe flooding in Thailand in October 2011, which had a material impact on the production and availability of many components. If our vendors for these components are unable to meet our cost, quality, and supply requirements, we could experience a shortage in supply or an increase in production costs, which would adversely affect our results of operations.
Certain rare earth elements are critical in the manufacture of our products. We purchase components that contain rare earth elements from a number of countries, including the People's Republic of China. We cannot predict whether any nation will impose regulations, quotas or embargoes upon the rare earth elements incorporated into our products that would restrict the worldwide supply of such metals or increase their cost. We have experienced increased costs and production delays when we were unable to obtain the necessary equipment or sufficient quantities of some components, and/or
have been forced to pay higher prices or make volume purchase commitments or advance deposits for some components, equipment or raw materials that were in short supply in the industry in general. If any major supplier were to restrict the supply available to us or increase the cost of the rare earth elements used in our products, we could experience a shortage in supply or an increase in production costs, which would adversely affect our results of operations.
Consolidation among component manufacturers has resulted and may continue to result in some component manufacturers exiting the industry or not making sufficient investments in research to develop new components.
If there is a shortage of, or delay in supplying us with, critical components, equipment or raw materials, then:
We cannot assure you that we will be able to obtain critical components in a timely and economic manner.
We often aim to lead the market in new technology deployments and leverage unique and customized technology from single source suppliers who are early adopters in the emerging market. Our options in supplier selection in these casescertain drive subassemblies are limited and the supplier based technology may consequently be single sourced until wider adoption of the technology occurs and any necessary licenses become available. In such cases any technical issues in the supplier's technology may cause us to delay shipments of our new technology deploymentsThailand and therefore harm our financial position.
Our substantial leverage may place us at a competitive disadvantage in our industry.
We are leveraged and have significant debt service obligations. Our significant debt and debt service requirements could adversely affect our ability to operate our business and may limit our ability to take advantage of potential business opportunities. For example, our high level of debt presents the following risks:
borrow more money for operations or capital in the future and implement our business strategies;
In the event that we need to refinance all or a portion of our outstanding debt as it matures, we may not be able to obtain terms as favorable as the terms of our existing debt or refinance our existing debt at all. If prevailing interest rates or other factors existing at the time of refinancing result in higher interest rates upon refinancing, then the interest expense relating to the refinanced debt would increase. Furthermore, if any rating agency changes our credit rating or outlook, our debt and equity securities could be negatively affected, which could adversely affect our ability to refinance existing debt or raise additional capital.
Servicing our debt requires a significant amount of cash and our ability to generate cash may be affected by factors beyond our control.
Our business may not generate cash flow in an amount sufficient to enable us to pay the principal of, or interest on, our indebtedness or to fund our other liquidity needs, including working capital, capital expenditures, product development efforts, strategic acquisitions, investments and alliances and other general corporate requirements.
Our ability to generate cash is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control. We cannot assure you that:
If we cannot fund our liquidity needs, we will have to take actions such as reducing or delaying capital expenditures, product development efforts, strategic acquisitions, investments and alliances, and other general corporate requirements. We cannot assure you that any of these remedies could, if necessary, be effected on commercially reasonable terms, or at all, or that they would permit us to meet our scheduled debt service obligations. In addition if we incur additional debt, the risks associated with our substantial leverage, including the risk that we will be unable to service our debt or generate enough cash flow to fund our liquidity needs, could intensify.
If revenues fall or customer demand decreases significantly, we may not meet all of our purchase commitments to certain suppliers.
From time to time, we enter into long-term, non-cancelable purchase commitments or make large up-front investments with certain suppliers in order to secure certain components or technologies for the production of our products ormedia is limited to supplement our internal manufacturing capacity for certain components. If our actual revenuesSingapore. Disruptions in the future are lower than our projectionseconomic, environmental, political, legal or if customer demand decreases significantly below our projections, we may not meet all of our purchase commitments withregulatory landscape in these suppliers. As a result, it is possible that our revenues will not be sufficient to recoup our up-front investments, in which case we will have to shift output from our internal manufacturing facilities to these suppliers or make penalty-type payments under these contracts.
The loss of key executive officers and employees could negatively impact our business prospects.
Our future performance depends to a significant degree upon the continued service of key members of management as well as marketing, sales and product development personnel. The loss of one or more of our key personnelcountries may have a material adverse effectimpact on our business, results of operations and financial condition. We believe our future success will also depend in large part upon our ability to attract, retain and further motivate highly skilled management, marketing, sales and product development personnel. We have experienced intense competition for personnel, and we cannot assure you that we will be able to retain our key employees or that we will be successful in attracting, assimilating and retaining personnel in the future.
Due to the complexity of our products, some defects may only become detectable after deployment.
Our products are highly complex and are designed to operate in and form part of larger complex networks and storage systems. Defects in our products, or in the networks and systems of which they form a part, directly or indirectly, have resulted in and may in the future result in:
Defects in our products could also result in legal actions by our customers for property damage, injury or death. Product liability claims could exceed the level of insurance coverage that we have obtained to cover defects in our products. Any significant uninsured claims could significantly harm our financial condition.
We may not be able to identify suitable strategic alliances, acquisitions, joint ventures or investment opportunities, to successfully acquire and integrate companies that provide complementary products or technologies or to realize the anticipated benefits of such transactions.
Our growth strategy involves pursuing strategic alliances with, making acquisitions of, forming joint ventures with or making investments in other companies that are complementary to our business. There is substantial competition for attractive strategic alliance, acquisition, joint venture and investment candidates. Accordingly, we may not be able to identify suitable strategic alliances, acquisition, joint venture, or investment candidates. Even if we can identify them, we cannot assure you that we will be able to partner with, acquire or invest in suitable candidates, or integrate acquired technologies or operations successfully into our existing technologies and operations. Moreover, our ability to finance potential strategic alliances, acquisitions, joint ventures or investments will be limited by our high degree of leverage, the covenants contained in the instruments that govern our outstanding indebtedness, and any agreements governing any other debt we may incur.
If we are successful in forming strategic alliances or acquiring, forming joint ventures or making investments in other companies, any of these transactions may have an adverse effect on our results of operations, particularly while the operations of an acquired business are being integrated. It is also likely that integration of acquired companies would lead to the loss of key employees from those companies or the loss of customers of those companies. In addition, the integration of any acquired
companies would require substantial attention from our senior management, which may limit the amount of time available to be devoted to our day-to-day operations or to the execution of our strategy. Growth by strategic alliance, acquisition, joint venture or investment involves an even higher degree of risk to the extent we combine new product offerings and enter new markets in which we have limited experience, and no assurance can be given that acquisitions of entities with new or alternative business models will be successfully integrated or achieve their stated objectives. There can be no assurance that we will realize the anticipated benefits of any strategic alliance, acquisition, joint venture or investment that we make or, if we do, how long it will take to achieve such benefits.
Furthermore, the expansion of our business involves the risk that we might not manage our growth effectively, that we would incur additional debt to finance these acquisitions or investments, that we may have impairment of goodwill or acquired intangible assets associated with these acquisitions and that we would incur substantial charges relating to the write-off of in-process research and development, similar to that which we incurred in connection with several of our prior acquisitions. Each of these items could have a material adverse effect on our financial condition and results ofmanufacturing operations.
In addition, we could issue additional ordinary shares in connection with future strategic alliances, acquisitions, joint ventures or investments. Issuing shares in connection with such transactions would have the effect of diluting your ownership percentage of the ordinary shares and could cause the price of our ordinary shares to decline.
We are at times subject to intellectual property legal proceedings and claims which could cause us to incur significant additional costs or prevent us from selling our products, and which could adversely affect our results ofOur international operations and financial condition.
We are subject from time-to-time to legal proceedings and claims, including claims of alleged infringement of the patents, trademarks and other intellectual property rights of third parties by us, or our customers, in connection with their use of our products. Intellectual property litigation can be expensive and time-consuming, regardless of the merits of any claim, and could divert our management's attention from operating our business. In addition, intellectual property lawsuits are subject to economic risks inherent uncertainties due to the complexity of the technical issues involved, which may cause actual results to differ materially from our expectations. Patent litigation has increased due to the current uncertainty of the law and the increasing competition and overlap of product functionality in the field. Some of the actions that we face from time-to-time seek injunctions against the sale of our products and/or substantial monetary damages, which if granted or awarded, could materially harm ourdoing business financial condition and operating results.
We cannot be certain that our products do not and will not infringe issued patents or other intellectual property rights of others. We may not be aware of currently filed patent applications that relate to our products or technology. If patents are later issued on these applications, we may be liable for infringement. If our products were found to infringe the intellectual property rights of others, we could be required to pay substantial damages, cease the manufacture, use and sale of infringing products in one or more geographic locations, expend significant resources to develop non-infringing technology, discontinue the use of specific processes or obtain licenses to the technology infringed. We might not be able to obtain the necessary licenses on acceptable terms, or at all, or be able to reengineer our products successfully to avoid infringement. Any of the foregoing could cause us to incur significant costs and prevent us from selling our products, which could adversely affect our results of operations and financial condition. See Note 14. Legal, Environmental and Other Contingencies contained in this report for a description of pending intellectual property proceedings.
We may be unable to protect our intellectual property rights, which could adversely affect our business, financial condition and results of operations.
We rely on a combination of patent, trademark, copyright and trade secret laws, confidentiality procedures and licensing arrangements to protect our IP rights. In the past, we have been involved in significant and expensive disputes regarding our IP rights and those of others, including claims that we may be infringing patents, trademarks and other IP rights of third-parties. We expect that we will be involved in similar disputes in the future.
There can be no assurance that:
In addition, our competitors may be able to design their products around our patents and other proprietary rights. Enforcement of our rights often requires litigation. If we bring a patent infringement action and are not successful, our competitors would be able to use similar technology to compete with us. Moreover, the defendant in such an action may successfully countersue us for infringement of their patents or assert a counterclaim that our patents are invalid or unenforceable.
Furthermore, we have significant operations and sales in foreign countries, where intellectual property laws and enforcement policies are often less developed, less stringent or more difficult to enforce than inincluding the United States.
We are heavily dependent on our proprietary technology and our competitors may gain access to this technology.following:
We depend heavily on our proprietary technology and rely on a combination of patent, copyright and trade secret laws to protect our intellectual property and expertise. We also attempt to protect our trade secrets and other proprietary information through confidentiality agreements with our customers, suppliers and employees and through other security measures. Despite these efforts, we cannot give assurances that others will not gain access to our trade secrets or that we can fully protect our intellectual property. In addition, effective trade secret protection may be unavailable or limited in certain countries in which we operate. Nor can we guarantee that our competitors will not independently develop comparable technologies. We cannot rely on our patents to provide us with any significant competitive advantage. Failure to protect our proprietary rights could significantly harm our financial condition.
• | Disruptions in Foreign Markets. Disruptions in financial markets and the deterioration of the underlying economic conditions in the past in some countries, including those in Asia, United Kingdom and the European Union have had an impact on our sales to customers located in, or whoseend-user customers are located in, these countries. |
• | Fluctuations in Currency Exchange Rates. Prices for our products are denominated predominately in US dollars, even when sold to customers that are located outside the United States. An increase in the value of the dollar could increase the real cost to our customers of our products in those markets outside of the US where we sell in dollars. This could adversely impact our sales and market share in such areas or increase pressure on us to lower our price, and adversely impact our profit margins. A weakened dollar could increase the cost of expenses such as payroll, utilities, tax, and marketing expenses, as well as overseas capital expenditures. Any of these events could have a material adverse effect on our results of operations. We may attempt to manage the impact of foreign currency exchange rate changes by, among other things, entering into foreign currency forward exchange contracts. However, these contracts may not cover our full exposure and subject us to certain counterparty credit risks. See “Financial Risk Management disclosures” of this report for additional information about our foreign currency exchange risk. |
• | Longer Payment Cycles. Our customers outside of the United States are sometimes allowed longer time periods for payment than our US customers. This increases the risk of nonpayment due to the possibility that the financial condition of particular customers may worsen during the course of the payment period. |
• Seasonality. Seasonal reductions in the business activities of our customers during the summer months, particularly in Europe, and the impact of international holidays like the Chinese New Year, typically result in lower earnings during those periods. • Legal and Regulatory Limitations. Our international operations are affected by limitations on imports, tariffs, duties, currency exchange control regulations, price controls, export control laws, antitrust matters including the trade and economic sanctions administered by the Office of Foreign Assets Control, and other restraints on trade. In addition, China, Malaysia, Northern Ireland, Singapore and Thailand, in which we have significant operating assets, and the European Union have exercised and continue to exercise significant influence over many aspects of their domestic economies including, but not limited to, fair competition, tax practices, anti-corruption, antitrust, price controls and international trade. Although we have implemented policies and procedures designed to ensure compliance, there can be no assurance that our employees, contractors, or agents will not violate these or other applicable laws, rules and regulations to which we may be subject. Violations of these laws and regulations could lead to significant penalties, restraints on our export or import privileges, monetary fines, government investigations, disruption of our operating activities, criminal proceedings and regulatory or other actions that could materially adversely affect our results of operations. • Potential Adverse Tax Consequences. Our international operations create a risk of potential adverse tax consequences, including imposition of withholding or other taxes on payments by our subsidiaries. In addition, our taxable income in any jurisdiction is dependent upon acceptance of our operational practices and intercompany transfer pricing by local tax authorities as being on an arm’s length basis. Due to inconsistencies in application of the arm’s length standard among taxing authorities, as well as a lack of adequate treaty-based protection, transfer pricing challenges by tax authorities could, if successful, substantially increase our income tax expense. We are subject to tax audits around the world, and are under audit in various jurisdictions, and such jurisdictions may assess additional income tax against us. Although we believe our tax positions are reasonable, the final determination of tax audits could be materially different from our recorded income tax provisions and accruals. The ultimate results of an audit could have a material adverse effect on our operating results or cash flows in the period or periods for which that determination is made and could result in increases to our overall tax expense in subsequent periods. In light of the ongoing fiscal challenges many countries are facing, various levels of government are increasingly focused on tax reform and other legislative action to increase tax revenue. In addition, the Organization for Economic Cooperation and Development’s Base Erosion and Profit Shifting recommendations are reshaping international tax rules in numerous countries. These actual and potential changes in the relevant tax laws applicable to corporate multinationals along with potential changes in accounting and other laws, regulations, administrative practices, principles, and interpretations could increase the risk of double taxation, cause increased tax audit activity, and could impact our effective tax rate. • Increased Costs. The shipping and transportation costs associated with our international operations are typically higher than those associated with our US operations, resulting in decreased operating margins in some foreign countries. • Credit and Access to Capital Risks. Our international customers could have reduced access to working capital due to higher interest rates, reduced bank lending resulting from contractions in the money supply or the deterioration in the customer’s or its bank’s financial condition, or the inability to access other financing. • Global Health Outbreaks. The occurrence of a pandemic disease may adversely impact our operations, and some of our key customers. Such diseases could also potentially disrupt the timeliness and reliability of the distribution network we rely on.
• | Tariffs or Other Restrictions on Foreign Imports. The US government could impose tariffs or other restrictions on foreign imports. The implementation of a border tax, tariff or higher customs duties on our products manufactured abroad or components that we import into the US, or any potential corresponding actions by other countries in which we do business, could negatively impact our financial performance. |
• | Access to Personnel. There is substantial competition for qualified and capable personnel in certain jurisdictions in which we operate, including China, which may make it difficult for us to recruit and retain qualified employees in sufficient numbers. Increased difficulty in recruiting or retaining sufficient and adequate personnel in our international operations may lead to increased manufacturing and employment compensation costs, which could adversely affect our results of operations. |
We could suffer a loss of revenue and increased costs, exposure to significant liability including legal and regulatory consequences, reputational harm, and other serious negative consequences if we sustainencounter cyber-attacks, ransomware or other data security breaches that disrupt our operations or result in the dissemination of proprietary or confidential information about us or our customers or other third-parties.
Our operations are dependent upon our ability to protect our computer equipment and the electronic data stored in our databases from damage by, among other things, earthquake, floods, fire, natural disasters, accidents, power disruptions, telecommunications failures, acts of terrorism or war, employee misconduct, physical or electronicbreak-ins, cyber-attacks, ransomware, system security breaches or similar events or disruptions. We manage and store various proprietary information and sensitive or confidential data relating to our operations. In addition, our outsourcing services and cloud computing businesses routinely process, store, and
transmit large amounts of data for our customers and vendors, including sensitive and personally identifiable information. As our operations become more automated and increasingly interdependent, our exposure to the risks posed by these types of events will increase. We have been, and will likely continue to be, subject to computer viruses or other malicious codes, cyber-attacks, or other computer-related attempts to breach the information technology (“IT”) systems we use for these purposes. We may also be subject to information technologyIT system failures and network disruptions due to these factors. Experienced computer programmers and hackers may be able to penetrate our network security and misappropriate or compromise our confidential information or that of third-parties, create system disruptions, or cause shutdowns. Computer programmers and hackers also may be able to develop and deploy viruses, worms, and other malicious software programs that attack our products or otherwise exploit any security vulnerabilities of our products. In addition, sophisticated hardware and operating system software and applications that we produce or procure from third-parties may contain defects in design or manufacture, including "bugs"“bugs” and other problems that could unexpectedly interfere with the operation of the system.
The costs to us to eliminate or address the foregoing security problems and security vulnerabilities before or after a cyber-incident could be significant. System redundancy may be ineffective or inadequate, and our disaster recovery planning may not be sufficient for all eventualities. Our remediation efforts may not be successful and could result in interruptions, delays, or cessation of service, and loss of existing or potential customers that may impede our sales, manufacturing, distribution, or other critical functions. We could lose existing or potential customers for outsourcing services or other information technologyIT solutions in connection with any actual or perceived security vulnerabilities in our products. In addition, breaches of our security measures and the unapproved dissemination of proprietary information or sensitive or confidential data about us or our customers or other third-parties, could expose us, our vendors and customers, or other third-parties affected to a risk of loss or misuse of this information, result in litigation and potential liability for us, damage our brand and reputation, or otherwise harm our business. In addition, we rely in certain limited capacities on third-party data management providers whose possible security problems and security vulnerabilities may have similar effects on us.
We are subject to laws, rules, and regulations in the U.S.US, UK, European Union and other countries relating to the collection, use, and security of user data. In many cases, these laws apply not only to third-party transactions, but also to transfers of information between us and our subsidiaries, and among us, our subsidiaries and other parties with which we have commercial relations. Our ability to execute transactions and to possess and use personal information and data in conducting our business subjects us to legislative and regulatory burdens that may require us to notify vendors, customers or employees of a data security breach. We have incurred, and will continue to incur, significant expenses to comply with mandatory privacy and security standards and protocols imposed by law, regulation, industry standards, or contractual obligations. These laws, protocols and standards continue to develop and may be inconsistent from jurisdiction to jurisdiction. Complying with emerging and changing international requirements may cause us to incur substantial costs or require us to change our business practices. If we fail to comply with applicable federal, state or international privacy-related or data protection laws we may be subject to proceedings by governmental entities and incur penalties or significant legal liability.
Our internationalFrom time to time, we may be subject to litigation, government investigations or governmental proceedings, which may adversely impact our results of operations subject usand financial condition.
From time to risks related to disruptionstime, the Company may be involved in foreign markets, currency exchange fluctuations, longer payment cycles, seasonality, limitations imposed by a variety ofvarious legal, and regulatory regimes, potential adverse tax consequences, increased costs, our customers' credit and access to capital, health-related risks, and access to personnel.
We have significant operations in foreign countries, including manufacturing facilities, sales personnel and customer support operations. We have manufacturing facilities in China, Malaysia,
Northern Ireland, Singapore and Thailand, in addition to thoseor administrative investigations, negotiations or proceedings arising in the United States. A substantial portionnormal course of our client compute disk drive assembly occurs in our facility in China.business.
Our international operationsIn the event of litigation, government investigations or governmental proceedings, we are subject to economicthe inherent risks inherentand uncertainties that may result if outcomes differ from our expectations. In the event of adverse outcomes in doing business in foreign countries, includingany litigation, investigation or government proceeding, we could be required to pay substantial damages, fines or penalties, and cease certain practices or activities, which could materially harm our business.
The costs associated with litigation and government investigations can also be unpredictable depending on the following:
If we do not control our fixed costs, we will not be able to compete effectively in those markets outside of the U.S. where we sell in dollars. This could adversely impact our salesindustry.
We continually seek to make our cost structure and market share in such areas or increase pressurebusiness processes more efficient. We are focused on us to lowerincreasing workforce flexibility and scalability, and improving overall competitiveness by leveraging our price, and adversely impact our profit margins. A weakened dollar could increase the cost of expenses such as payroll, utilities, tax, and marketing expenses,global capabilities, as well as overseas capital expenditures. Anyexternal talent and skills, worldwide. Our strategy involves, to a substantial degree, increasing revenue and product volume while at the same time controlling operating expenses. If we do not control our operating expenses, our ability to compete in the marketplace may be impaired. In the past, activities to reduce operating costs have included closures and transfers of these events could have a material adverse effect on our results of operations. We may attemptfacilities, significant personnel reductions, restructuring efforts and efforts to manage the impact of foreign currency exchange rate changes by, among other things, entering into foreign currency forward exchange contracts. However, these contractsincrease automation. Our restructuring efforts may not cover our full exposureyield the intended benefits and subject us to certain counterparty credit risks. See Note 8 Derivative Financial Instruments of this report for additional information about our foreign currency exchange risk.
If we experience shortages or delays in the receipt of, operations.
The cost, quality and supply of components, subassemblies, certain equipment and raw materials used to manufacture our products and key components like recording media and heads are critical to our success. The equipment we use to manufacture our products and components is frequently custom made and comes from a riskfew suppliers and the lead times required to obtain manufacturing equipment can be significant. Particularly
important for our products include read/write heads, aluminum or glass substrates for recording media, ASICs, spindle motors, printed circuit boards, and suspension assemblies.
We rely on sole suppliers or a limited number of potential adverse tax consequences,suppliers for some or all of these components that we do not manufacture, including impositionaluminum and glass substrates, read/write heads, ASICs, spindle motors, printed circuit boards, and suspension assemblies. Many of withholding or other taxes on payments bysuch component suppliers are geographically concentrated which makes our subsidiaries. In addition, our taxable income in any jurisdiction is dependent upon acceptancesupply chain more vulnerable to regional disruptions such as severe weather, acts of our operational practicesterrorism and intercompany transfer pricing by local tax authorities as being on an arm's length basis. Due to inconsistencies in application of the arm's length standard among taxing authorities, as well as a lack of adequate treaty-based protection, transfer pricing challenges by tax authorities could, if successful, substantially increase our income tax expense. We are subject to tax audits around the world, and are under audit in various jurisdictions, andunpredictablegeo-political
such jurisdictions climate which may assess additional income tax against us. Although we believe our tax positions are reasonable, the final determination of tax audits could be materially different from our recorded income tax provisions and accruals. The ultimate results of an audit could have a material adverse effectimpact on the production and availability of many components. If our operating resultsvendors for these components are unable to meet our cost, quality, and supply requirements, continue to remain financially viable or cash flowsfulfill their contractual commitments and obligations, we could experience a shortage in the period or periods for which that determination is made and could result in increases to our overall tax expense in subsequent periods. In light of the ongoing fiscal challenges many countries are facing, various levels of government are increasingly focused on tax reform and other legislative action to increase tax revenue. In response, the Organization for Economic Cooperation and Development's Base Erosion and Profit Shifting project recommendations, due out by the end of calendar year 2015, will reshape international tax rules for countries to implement. These potential changes in the relevant tax laws applicable to corporate multinationals along with potential changes in accounting and other laws, regulations, administrative practices, principles, and interpretations could increase the risk of double taxation, cause increased tax audit activity, and could impact our effective tax rate.
Political events, war, terrorism, natural disasters, public health issues and other circumstances couldwould materially adversely affect our results of operations and our financial condition.results.
War, terrorism, geopolitical uncertainties, natural disasters, public health issues, and other business interruptions have caused and could cause damageCertain rare earth elements are critical in the manufacture of our products. We purchase components that contain rare earth elements from a number of countries, including the People’s Republic of China. We cannot predict whether any nation will impose regulations, quotas or disruption to international commerce andembargoes upon the global economy, and thus could have a strong negative effect on our business, our suppliers, logistics providers, manufacturing vendors and customers. Our business operations are subject to interruption by natural disasters such as floods and earthquakes, fire, power shortages, terrorist attacks, other hostile acts, labor disputes, public health issues, and other events beyond our control. Such events could decrease demand forrare earth elements incorporated into our products that would restrict the worldwide supply of such metals or increase their cost. We have experienced increased costs and production delays when we were unable to obtain the necessary equipment or sufficient quantities of some components, and/or have been forced to pay higher prices or make it difficultvolume purchase commitments or impossibleadvance deposits for some components, equipment or raw materials that were in short supply in the industry in general. If any major supplier were to restrict the supply available to us to make and deliver products to our customers, or to receive components from our suppliers, and create delays and inefficienciesincrease the cost of the rare earth elements used in our supply chain. In the event of a natural disaster, losses and significant recovery time could be required to resume operations and our financial condition and operating results could be materially adversely affected. Should major public health issues, including pandemics, arise,products, we could be negatively affected by stringent employee travel restrictions, additional limitationsexperience a shortage in freight services, governmental actions limiting the movement of products between regions, delayssupply or an increase in production ramps of new products, and disruptions in our operations and some of our key customers.
Macroeconomic developments like the debt crisis in certain countries in the European Union and slowing economies in parts of Asia and South America could negatively affect our business, operating results or financial conditioncosts, which in turn, could adversely affect our stock price. A general weakening of, and related declining corporate confidence in, the global economy or the curtailment in government or corporate spending could cause current or potential customers to reduce their information technology (IT) budgets or be unable to fund hardware systems, which could cause customers to delay, decrease or cancel purchases of our products or cause customers not to pay us or to delay paying us for previously purchased products and services.
Deterioration in global credit and financial market conditions could negatively impact the value of our current portfolio of cash equivalents or short-term investments and our ability to meet our financing objectives.
Our cash and cash equivalents are maintained in highly liquid investments with remaining maturities of 90 days or less at the time of purchase. Our short-term investments consist primarily of readily marketable debt securities with remaining maturities of more than 90 days at the time of purchase. Our investment policy has as its principal objectives the preservation of principal and maintenance of liquidity. We mitigate default risk by investing in high-quality investment grade securities, limiting the time to maturity and by monitoring the counter-parties and underlying obligors closely.
While as of the date of this filing, we are not aware of any material downgrades, losses, or other significant deterioration in the fair value of our cash equivalents or short-term investments, no assurance can be given that future deterioration in conditions of the global credit and financial markets would not negatively impact our current portfolio of cash equivalents or short-term investments or our ability to meet our financing objectives.
The price of our ordinary shares may be volatile and could decline significantly.
The stock market, in general, and the market for technology stocks in particular, has recently experienced volatility that has often been unrelated to the operating performance of companies. If these market or industry-based fluctuations continue, the trading price of our ordinary shares could decline significantly independent of our actual operating performance, and you could lose all or a substantial part of your investment. The market price of our ordinary shares could fluctuate significantly in response to several factors, including among others:
Any decision to reduce or discontinue the payment of cash dividends to our shareholders or the repurchase of our ordinary shares pursuant to our previously announced share repurchase program could cause the market price of our ordinary shares to decline significantly.
Although we have announced targeted regular cash dividend amounts and a share repurchase program, we are under no obligation to pay cash dividends to our shareholders in the future at the announced targeted levels or at all or to repurchase our ordinary shares at any particular price or at all. The declaration and payment of any future dividends is at the discretion of our Board of Directors and our previously announced share repurchase program may be suspended or discontinued at any time. Our payment of quarterly cash dividends and the repurchase of our ordinary shares pursuant to our share repurchase program are subject to, among other things, our financial position and results of operations, available cash and cash flow, capital and regulatory requirements, market and economic conditions, our ordinary share price, and other factors. Any reduction or discontinuance by us of the payment of quarterly cash dividends or the repurchase of our ordinary shares pursuant to our share repurchase program could cause the market price of our ordinary shares to decline significantly, Moreover, in the event our payment of quarterly cash dividends or repurchases of our ordinary shares are reduced or discontinued, our failure to resume such activities at historical levels could result in a persistent lower market valuation of our ordinary shares.
Significant fluctuations in the market price of our ordinary shares could result in securities class action claims against us.
Significant price and value fluctuations have occurred with respect to the publicly traded securities of technology companies. The price of our ordinary shares is likely to be volatile in the future. In the past, following periods of decline in the market price of a company's securities, class action lawsuits have often been pursued against that company. If similar litigation were pursued against us, it could result in substantial costs and a diversion of management's attention and resources, which could materially adversely affect our results of operations, financial conditionoperations.
Consolidation among component manufacturers has resulted and liquidity.may continue to result in some component manufacturers exiting the industry or not making sufficient investments in research to develop new components.
Our abilityIf there is a shortage of, or delay in supplying us with, critical components, equipment or raw materials, then:
We cannot assure you that we will be able to obtain critical components in a timely and economic manner.
The useWe often aim to lead the market in new technology deployments and leverage unique and customized technology from single source suppliers who are early adopters in the emerging market. Our options in supplier selection in these cases are limited and the supplier based technology may consequently be single sourced until wider adoption of a portionthe technology occurs and any necessary licenses become available. In such cases any technical issues in the supplier’s technology may cause us to delay shipments of our U.S. net operating lossnew technology deployments and tax credit carryforwards is subjecttherefore harm our financial position.
If revenues fall or customer demand decreases significantly, we may not meet all of our purchase commitments to annual limitations pursuantcertain suppliers.
From time to U.S. tax law. Section 382time, we enter into long-term,non-cancelable purchase commitments or make largeup-front investments with certain suppliers in order to secure certain components or technologies for the production of our products or to supplement our internal manufacturing capacity for certain components. If our actual revenues in the U.S. Internal Revenue Code generally imposes an annual limitation on the amountfuture are lower than our projections or if customer demand decreases significantly below our projections, we may not meet all of net operating loss or tax credit carryforwards that might be used to offset taxable income when a corporation has undergone significant changes in ownership.our purchase commitments with these suppliers. As a result, future changesit is possible that our revenues will not be sufficient to recoup ourup-front investments, in ownership could put further limitations on the availability ofwhich case we will have to shift output from our net operating lossinternal manufacturing facilities to these suppliers or tax credit carryforwards.make penalty-type payments under these contracts.
Failure to comply with applicable environmental laws and regulations could have a material adverse effect on our business, results of operations and financial condition.
The sale and manufacturing of products in certain states and countries may subject us and our suppliers to state, federal and international laws and regulations governing protection of the environment, including those governing discharges of pollutants into the air and water, the management and disposal of hazardous substances and wastes, the cleanup of contaminated sites, restrictions on the presence of certain substances in electronic products and the responsibility for environmentally safe disposal or recycling. We endeavor to ensure that we and our suppliers comply with all applicable environmental laws and regulations, however, compliance may increase our operating costs and otherwise impact future financial results. If additional or more stringent requirements are imposed on us in the future, we could incur additional operating costs and capital expenditures. If we fail to comply with applicable environmental laws, regulations, initiatives, or standards of conduct, our customers may refuse to purchase our products and we could be subject to fines, penalties and possible prohibition of sales of our products into one or more states or countries, liability to our customers and damage to our
reputation, which could result in a material adverse effect on the financial condition or results of operations.
Conflict minerals regulations may cause us to incur additional expenses and could limit the supply and increase the cost of certain metals used in manufacturing our products.
In August 2012, the SEC adopted new rules establishing additional disclosure and reporting requirements regarding the use of specified minerals, or conflict minerals, that are necessary to the functionality or production of products manufactured or contracted to be manufactured. These new rules will require us to determine, disclose and report whether or not such conflict minerals originate from the Democratic Republic of the Congo or an adjoining country. The most recent report was filed on 29 May 2015. These new rules could affect our ability to source certain materials used in our products at competitive prices and could impact the availability of certain minerals used in the manufacture of our products, including gold, tantalum, tin and tungsten. As there may be only a limited number of suppliers of "conflict free"“conflict free” minerals, we cannot be sure that we will be able to obtain necessary conflict free minerals in sufficient quantities or at competitive prices. Our customers, including our OEM customers, may require that our products be free of conflict minerals, and our revenues and margins may be harmed if we are unable to procure conflict free minerals at a reasonable price, or at all, or are unable to pass through any increased costs associated with meeting these demands. Additionally, we may face reputational challenges with our customers and other stakeholders if we are unable to sufficiently verify the origins of all minerals used in our products through the due diligence procedures that we implement. We may also face challenges with government regulators and our customers and suppliers if we are unable to sufficiently verify that the metals used in our products are conflict free. We expect that there may be material costs associated with complying with the disclosure requirements, such as costs related to determining the source of certain minerals used in our products, as well as costs related to possible changes to products, processes, or sources of supply as a consequence of such verification and disclosure requirements. Additionally, the regulatory and compliance framework for conflict minerals may undergo changes which may further increase the cost of compliance. Our stakeholders and customers may place increased demands on our compliance framework which may in turn negatively impact our relationships with our suppliers.
The loss of key executive officers and employees could negatively impact our business prospects.
Our future performance depends to a significant degree upon the continued service of key members of management as well as marketing, sales and product development personnel. The loss of one or more of our key personnel may have a material adverse effect on our business, results of operations and financial condition. We believe our future success will also depend in large part upon our ability to attract, retain and further motivate highly skilled management, marketing, sales and product development personnel. We have experienced intense competition for personnel, and we cannot assure you that we will be able to retain our key employees or that we will be successful in attracting, assimilating and retaining personnel in the future.
Due to the complexity of our products, some defects may only become detectable after deployment.
Our products are highly complex and are designed to operate in and form part of larger complex networks and storage systems. Defects in our products, or in the networks and systems of which they form a part, directly or indirectly, have resulted in and may in the future result in:
Defects in our products could also result in legal actions by our customers for property damage, injury or death. Product liability claims could exceed the level of insurance coverage that we have obtained to cover defects in our products. Any significant uninsured claims could significantly harm our financial condition.
Political events, war, terrorism, natural disasters, public health issues and other circumstances could materially adversely affect our results of operations and financial condition.
War, terrorism, geopolitical uncertainties, natural disasters, public health issues, and other business interruptions have caused and could cause damage or disruption to international commerce and the global economy, and thus could have a strong negative effect on our business, our suppliers, logistics providers, manufacturing vendors and customers. Our business operations are subject to interruption by natural disasters such as floods and earthquakes, fires, power shortages, terrorist attacks, other hostile acts, labor disputes, public health issues, and other events beyond our control. Such events could decrease demand for our products, make it difficult or impossible for us to make and deliver products to our customers, or to receive components from our suppliers, and create delays and inefficiencies in our supply chain. In the event of a natural disaster, losses and significant recovery time could be required to resume operations and our financial condition and operating results could be materially adversely affected. Should major public health issues, including pandemics, arise, we could be negatively affected by stringent employee travel restrictions, additional limitations in freight services, governmental actions limiting the movement of products between regions, delays in production ramps of new products, and disruptions in our operations and some of our key customers.
Failure to comply with applicable environmental laws and regulations could have a material adverse effect on our business, results of operations and financial condition.
The sale and manufacturing of products in certain states and countries may subject us and our suppliers to state, federal and international laws and regulations governing protection of the environment, including those governing discharges of pollutants into the air and water, the management and disposal of hazardous substances and wastes, the cleanup of contaminated sites, restrictions on the presence of certain substances in electronic products and the responsibility for environmentally safe disposal or recycling. We endeavor to ensure that we and our suppliers comply with all applicable environmental laws and regulations, however, compliance may increase our operating costs and otherwise impact future financial results. If additional or more stringent requirements are imposed on us in the future, we could incur additional operating costs and capital expenditures. If we fail to comply with applicable environmental laws, regulations, initiatives, or standards of conduct, our customers may refuse to purchase our products and we could be subject to fines, penalties and possible prohibition of sales of our products into one or more states or countries, liability to our customers and damage to our reputation, which could result in a material adverse effect on the financial condition or results of operations.
Any cost reduction initiatives that we undertake may not deliver the results we expect, and these actions may adversely affect our business.
From time to time, we engage in restructuring plans that may result in workforce reduction and consolidation of our real estate facilities and our manufacturing footprint. In addition, management will continue to evaluate our global footprint and cost structure, and additional restructuring plans are expected to be formalized. As a result of our restructuring, we may experience a loss of continuity, loss of accumulated knowledge, disruptions to our operations and/or inefficiency during transitional periods. Any cost-cutting measures could impact employee retention. In addition, we cannot be sure that the cost reduction and global footprint consolidation will be successful in reducing our overall expenses as we expect or that additional costs will not offset any such reductions or global footprint consolidation. If our operating costs are higher than we expect or if we do not maintain adequate control of our costs and expenses, our result of operations may suffer.
Our ability to use our net operating loss and tax credit carryforwards might be limited.
The use of a portion of our US net operating loss and tax credit carryforwards is subject to annual limitations pursuant to US tax law. Section 382 of the US Internal Revenue Code generally imposes an annual limitation on the amount of net operating loss or tax credit carryforwards that might be used to offset taxable income when a corporation has undergone significant changes in ownership. As a result, future changes in ownership could put further limitations on the availability of our net operating loss or tax credit carryforwards.
Deterioration in global credit and financial market conditions could negatively impact the value of our current portfolio of cash equivalents or short-term investments and our ability to meet our financing objectives.
Our cash and cash equivalents are maintained in highly liquid investments with remaining maturities of 90 days or less at the time of purchase. Our short-term investments consist primarily of readily marketable debt securities with remaining maturities of more than 90 days at the time of purchase. Our investment policy has as its principal objectives the preservation of principal and maintenance of liquidity. We mitigate default risk by investing in high-quality investment grade securities, limiting the time to maturity and by monitoring the counter-parties and underlying obligors closely.
While as of the date of this filing, we are not aware of any material downgrades, losses, or other significant deterioration in the fair value of our cash equivalents or short-term investments, no assurance can be given that future deterioration in conditions of the global credit and financial markets would not negatively impact our current portfolio of cash equivalents or short-term investments or our ability to meet our financing objectives.
We are at times subject to intellectual property legal proceedings and claims which could cause us to incur significant additional costs or prevent us from selling our products, and which could adversely affect our results of operations and financial condition.
We are subject fromtime-to-time to legal proceedings and claims, including claims of alleged infringement of the patents, trademarks and other intellectual property rights of third parties by us, or our customers, in connection with their use of our products. Intellectual property litigation can be expensive and time-consuming, regardless of the merits of any claim, and could divert our management’s attention from operating our business. In addition, intellectual property lawsuits are subject to inherent uncertainties due to the complexity of the technical issues involved, which may cause actual results to differ materially from our expectations. Patent litigation has increased due to the current uncertainty of the law and the increasing competition and overlap of product functionality in the field. Some of the actions that we face fromtime-to-time seek injunctions against the sale of our products and/or substantial monetary damages, which if granted or awarded, could materially harm our business, financial condition and operating results.
We cannot be certain that our products do not and will not infringe issued patents or other intellectual property rights of others. We may not be aware of currently filed patent applications that relate to our products or technology. If patents are later issued on these applications, we may be liable for infringement. If our products were found to infringe the intellectual property rights of others, we could be required to pay substantial damages, cease the manufacture, use and sale of infringing products in one or more geographic locations, expend significant resources to developnon-infringing technology, discontinue the use of specific processes or obtain licenses to the technology infringed. We might not be able to obtain the necessary licenses on acceptable terms, or at all, or be able to reengineer our products successfully to avoid infringement. Any of the foregoing could cause us to incur significant costs and prevent us from selling our products, which could adversely affect our results of operations and financial condition. See Note 14. Legal, Environmental and Other Contingencies” contained in this report for a description of pending intellectual property proceedings.
We may be unable to protect our intellectual property rights, which could adversely affect our business, financial condition and results of operations.
We rely on a combination of patent, trademark, copyright and trade secret laws, confidentiality procedures and licensing arrangements to protect our IP rights. In the past, we have been involved in significant and expensive disputes regarding our IP rights and those of others, including claims that we may be infringing patents, trademarks and other IP rights of third-parties. We expect that we will be involved in similar disputes in the future.
There can be no assurance that:
In addition, our competitors may be able to design their products around our patents and other proprietary rights. Enforcement of our rights often requires litigation. If we bring a patent infringement action and are not successful, our competitors would be able to use similar technology to compete with us. Moreover, the defendant in such an action may successfully countersue us for infringement of their patents or assert a counterclaim that our patents are invalid or unenforceable.
Furthermore, we have significant operations and sales in foreign countries where intellectual property laws and enforcement policies are often less developed, less stringent or more difficult to enforce than in the United States.
The price of our ordinary shares may be volatile and could decline significantly.
The stock market, in general, and the market for technology stocks in particular, has recently experienced volatility that has often been unrelated to the operating performance of companies. If these market or industry-based fluctuations continue, the trading price of our ordinary shares could decline significantly independent of our actual operating performance, and you could lose all or a substantial part of your investment. The market price of our ordinary shares could fluctuate significantly in response to several factors, including among others:
Any decision to reduce or discontinue the payment of cash dividends to our shareholders or the repurchase of our ordinary shares pursuant to our previously announced share repurchase program could cause the market price of our ordinary shares to decline significantly.
Although we have announced targeted regular cash dividend amounts and a share repurchase program, we are under no obligation to pay cash dividends to our shareholders in the future at the announced targeted levels or at all or to repurchase our ordinary shares at any particular price or at all. The declaration and payment of any future dividends is at the discretion of our Board of Directors and our previously announced share repurchase program may be suspended or discontinued at any time. Our payment of quarterly cash dividends and the repurchase of our ordinary shares pursuant to our share repurchase program are subject to, among other things, our financial position and results of operations, available cash and cash flow, capital and regulatory requirements, market and economic conditions, our ordinary share price, and other factors. Any reduction or discontinuance by us of the payment of quarterly cash dividends or the repurchase of our ordinary shares pursuant to our share repurchase program could cause the market price of our ordinary shares to decline significantly. Moreover, in the event our payment of quarterly cash dividends or repurchases of our ordinary shares are reduced or discontinued, our failure to resume such activities at historical levels could result in a persistent lower market valuation of our ordinary shares.
Significant fluctuations in the market price of our ordinary shares could result in securities class action claims against us.
Significant price and value fluctuations have occurred with respect to the publicly traded securities of technology companies. The price of our ordinary shares is likely to be volatile in the future. In the past, following periods of decline in the market price of a company’s securities, class action lawsuits have often been pursued against that company. If similar litigation were pursued against us, it could result in substantial costs and a diversion of management’s attention and resources, which could materially adversely affect our results of operations, financial condition and liquidity.
Liquidity and Capital Resources
The following sections discuss the effects of changes in our balance sheet and cash flows, contractual obligations, and other commitments on our liquidity and capital resources.
Cash and cash equivalents, investments, and restricted cash and investments
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(US Dollars in millions) | 3 July 2015 | 27 June 2014 | Change | |||||||
Cash and cash equivalents | $ | 2,479 | $ | 2,634 | $ | (155 | ) | |||
Investments | 6 | 20 | (14 | ) | ||||||
Restricted cash and investments | 7 | 4 | 3 | |||||||
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Total | $ | 2,492 | $ | 2,658 | $ | (166 | ) | |||
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Our cash and cash equivalents are maintained in investments with remaining maturities of 90 days or less at the time of purchase. Our short-term investments consist primarily of money market funds, time deposits and certificates of deposit. The principal objectives of our investment policy are the preservation of principal and maintenance of liquidity. We believe our cash equivalents and short-term investments are liquid and accessible. We operate in some countries that have restrictive regulations over the movement of cash and/or foreign exchange across their borders. However, we believe our sources of cash have been and will continue to be sufficient to meet our cash needs for the next 12 months. We are not aware of any downgrades, losses or other significant deterioration in the fair value of our cash equivalents or short-term investments and restrictedwe do not believe the fair value of our short-term investments has significantly changed from the values reported as of 30 June 2017.
Cash and cash equivalents and investments
As of | ||||||||||||
(US Dollars in millions) | 30 June 2017 | 1 July 2016 | Change | |||||||||
Cash and cash equivalents | $ | 2,539 | $ | 1,125 | $ | 1,414 | ||||||
Investments | — | 6 | (6) | |||||||||
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Total | $ | 2,539 | $ | 1,131 | $ | 1,408 | ||||||
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Our cash and cash equivalents and investments decreasedincreased from 27 June 20141 July 2016 as a result of net cash outflowprovided by operating activities and the proceeds from the issuance of $750 million of 4.25% Senior Notes due 2022 and $500 million of 4.875% Senior Notes due 2024. These cash inflows were partially offset by net cash outflows for repurchasescapital expenditures of our ordinary shares, early redemption and repayments of long-term debt,$434 million, dividends paid to our shareholders capital expenditures, the acquisition of LSI's Flash Business, and a $225$561 million, payment related to the final audit assessment received from the Jiangsu Province State Tax Bureau of the People's Republic of China. These cash outflows were partially offset by our cash provided by operating activities, which included an arbitration award partial payment of $773 million from Western Digital, and the aggregate proceeds of $1.2 billion from the aggregated issuancerepurchase of our 5.75% Senior Notes due 2034ordinary shares of $460 million and 4.875% Senior Notes due 2027,
as discussed below.early redemption and repurchase of debt of $316 million. The following table summarizes results from the statement of cash flows for the periods indicated:
| Fiscal Years Ended | ||||||
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(US Dollars in millions) | 3 July 2015 | 27 June 2014 | |||||
Net cash flow provided by (used in): | |||||||
Operating activities | $ | 2,647 | $ | 2,558 | |||
Investing activities | (1,287 | ) | (322 | ) | |||
Financing activities | (1,495 | ) | (1,311 | ) | |||
Effect of foreign currency exchange rates | (20 | ) | 1 | ||||
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Net (decrease) increase in cash and cash equivalents | $ | (155 | ) | $ | 926 | ||
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Fiscal Years Ended | ||||||||
(US Dollars in millions) | 30 June 2017 | 1 July 2016 | ||||||
Net cash flow provided by (used in): | ||||||||
Operating activities | $ | 1,916 | $ | 1,680 | ||||
Investing activities | (459) | (1,211) | ||||||
Financing activities | (46) | (1,820) | ||||||
Effect of foreign currency exchange rates | — | (3) | ||||||
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Net increase (decrease) in cash, cash equivalents and restricted cash | $ | 1,411 | $ | (1,354) | ||||
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Cash Provided by Operating Activities
Cash provided by operating activities for fiscal year2015year 2017 was approximately $2.6$1.9 billion and includes the effects of net income adjusted fornon-cash items including depreciation and amortization, share-based compensation, and:
Cash provided by operating activities for fiscal year 20142016 was approximately $2.6$1.7 billion and includes the effects of net income adjusted fornon-cash items including depreciation and amortization, stock-basedshare-based compensation, and:
Cash Used in Investing Activities
In fiscal year 2015,2017, we used $1.3$459 million for net cash investing activities, which was primarily due to payments for the purchase of tangible assets of approximately $434 million.
In fiscal year 2016, we used $1.2 billion for net cash investing activities, which was primarily due to payments for tangible assetsthe purchase of property, equipment and leasehold improvements of approximately $747$587 million and the acquisition of LSI's Flash Business,Dot Hill, net of cash acquired for $450$634 million.
In fiscal year 2014, we used $0.3 billion for net cash investing activities, which was primarily due to payments for tangible assets of approximately $559 million and the acquisition of Xyratex, for $285 million, partially offset by $508 million of proceeds from sales of investments.
Cash Used in Financing Activities
Net cash used in financing activities of $1.5 billion$46 million for fiscal year 20152017 was primarily attributable to the following activities:
Net cash used in financing activities of $1.8 billion for fiscal year 2016 was primarily attributable to the following activities:
Net cash used in financing activities of $1.3 billion for fiscal year 2014 was primarily attributable to the following activities:Dividends
Dividends
From the closing of our initial public offering in December 2002 through 2015,2017, we have paid dividends, pursuant to our dividend policy then in effect, totaling approximately $3.1$4.9 billion in the aggregate.
Liquidity Sources
Our primary sources of liquidity as of 3 July 2015,30 June 2017, consisted of: (1) approximately $2.5 billion in cash and cash equivalents, (2) a $700 million senior revolving credit facility and investments, (2)(3) cash we expect to generate from operations and (3) a $700 million senior revolving credit facility.operations.
As of 3 July 2015,30 June 2017, no borrowings havehad been drawn under the revolving credit facility or had been utilized for letters of credit issued under this credit facility. The line of credit is available for borrowings through 15 January 2020, subject to compliance with financial covenants, and other customary conditions to borrowing.borrowing and investment grade ratings. If the Company does not have investment grade ratings (as defined in the revolving credit facility) on 15 August 2018, then the maturity date will be August 16, 2018 unless certain extension conditions have been satisfied.
The credit agreement that governs our revolving credit facility, as amended, contains certain covenants that we must satisfy in order to remain in compliance with the credit agreement, as amended. The agreement includes three financial covenants: (1) minimum cash, cash equivalents and marketable securities; (2) a fixed charge coverage ratio; and (3) a net leverage ratio. As of 3 July 2015, weratio on 28 April 2016, the Revolving Credit Agreement was
amended in order to increase the allowable net leverage ratio to adjust for our current financial liquidity position. We were in compliance with allthe modified covenants as of 30 June 2017 and expect to be in compliance for the covenants under our Revolving Credit Facility and debt agreements.next 12 months.
As of 3 July 2015,30 June 2017, cash and cash equivalents held bynon-Irish subsidiaries was $2.5 billion. This amount is potentially subject to taxation in Ireland upon repatriation by means of a dividend into our Irish parent. However, it is our intent to indefinitely reinvest earnings ofnon-Irish subsidiaries outside of Ireland and our current plans do not demonstrate a need to repatriate such earnings by means of a taxable Irish dividend. Should funds be needed in the Irish parent company and should we be unable to fund parent company activities through means other than a taxable Irish dividend, we would be required to accrue and pay Irish taxes on such dividend.
We believe that our sources of cash will be sufficient to fund our operations and meet our cash requirements for at least the next 12 months.
Cash Requirements and Commitments
Our liquidity requirements are primarily to meet our working capital, research andproduct development and capital expenditure needs, to fund scheduled payments of principal and interest on our indebtedness, and to fund our quarterly dividend. Our ability to fund these requirements will depend on our future cash flows, which are determined by future operating performance, and therefore, subject to prevailing global macroeconomic conditions and financial, business and other factors, some of which are beyond our control.
On 2125 July 2015,2017, our Board of Directors approveddeclared a quarterly cash dividend of $0.54$0.63 per share, which will be payable on 25 August 20154 October 2017 to shareholders of record as of the close of business on 11 August 2015.20 September 2017.
As of 3 July 2015,30 June 2017, we were in compliance with all of the covenants under our debt agreements. Based on our current outlook, we expect to be in compliance with the covenants of our debt agreements over the next 12 months.
The carrying value of our long-term debt as of 330 June 2017 and 1 July 2015 and 27 June 20142016 was $4.2$5.0 billion and $3.9$4.1 billion, respectively. The table below presents the principal amounts of our outstanding long-term debt:
| As of | |||||||||
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(US Dollars in millions) | 3 July 2015 | 27 June 2014 | Change | |||||||
6.8% Senior Notes due October 2016 | $ | — | $ | 335 | $ | (335 | ) | |||
3.75% Senior Notes due November 2018 | 800 | 800 | — | |||||||
6.875% Senior Notes due May 2020 | — | 534 | (534 | ) | ||||||
7.00% Senior Notes due November 2021 | 158 | 251 | (93 | ) | ||||||
4.75% Senior Notes due June 2023 | 1,000 | 1,000 | — | |||||||
4.75% Senior Notes due January 2025 | 1,000 | 1,000 | — | |||||||
4.875% Senior Notes Due 2027 | 700 | — | 700 | |||||||
5.75% Senior Notes Due 2034 | 500 | — | 500 | |||||||
Other | — | — | — | |||||||
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Total | $ | 4,158 | $ | 3,920 | $ | 238 | ||||
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As of | ||||||||||||
(US Dollars in millions) | 30 June 2017 | 1 July 2016 | Change | |||||||||
3.75% Senior Notes due November 2018 | $ | 710 | $ | 800 | $ | (90) | ||||||
7.00% Senior Notes due November 2021 | — | 158 | (158) | |||||||||
4.250% Senior Notes due March 2022 | 750 | — | 750 | |||||||||
4.75% Senior Notes due June 2023 | 951 | 990 | (39) | |||||||||
4.875% Senior Notes due March 2024 | 500 | — | 500 | |||||||||
4.75% Senior Notes due January 2025 | 975 | 995 | (20) | |||||||||
4.875% Senior Notes due June 2027 | 697 | 700 | (3) | |||||||||
5.75% Senior Notes due December 2034 | 490 | 490 | — | |||||||||
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$ | 5,073 | $ | 4,133 | $ | 940 | |||||||
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From time to time we may repurchase any of our outstanding ordinary shares through private, open market, tender offers, broker assisted purchases or other means. During fiscal year 2015,2017, we repurchased approximately 1913 million of our ordinary shares.shares including statutory tax withholdings related to vesting of employee equity awards. As of 3 July 2015, $2.930 June 2017, $1.3 billion remained available for repurchase under our existing repurchase authorization limit. All repurchases are effected as redemptions in accordance with the Company'sCompany’s Articles of Association.
For fiscal year 2016,2018, we expect capital expenditures to be at or below our long-term targeted range of 6% to 8%less than 5% of revenue. We require substantial amounts of cash to fund any increased working capital requirements, future capital expenditures, scheduled payments of principal and interest on our indebtedness future capital expenditures and any increased working capital requirements.payments of dividends. We will continue to evaluate and manage the retirement and replacement of existing debt and associated obligations, including evaluating the issuance of new debt securities, exchanging existing debt securities for other debt securities and retiring debt pursuant to privately negotiated transactions, open market purchases, tender offers or other means or otherwise. In addition, we may selectively pursue strategic alliances, acquisitions and investments, which may require additional capital.
Contractual Obligations and Commitments
Our contractual cash obligations and commitments as of 3 July 2015,30 June 2017, have been summarized in the table below:
| | Fiscal Year(s) | ||||||||||||||
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(US Dollars in millions) | Total | 2016 | 2017- 2018 | 2019- 2020 | Thereafter | |||||||||||
Contractual Cash Obligations: | ||||||||||||||||
Long-term debt | $ | 4,158 | $ | — | $ | — | $ | 800 | $ | 3,358 | ||||||
Interest payments on debt | 1,996 | 201 | 369 | 353 | 1,073 | |||||||||||
Capital expenditures | 147 | 134 | 13 | — | — | |||||||||||
Operating leases(1) | 218 | 41 | 53 | 32 | 92 | |||||||||||
Purchase obligations(2) | 1,019 | 916 | 103 | — | — | |||||||||||
Other funding requirements(3) | 48 | 30 | 12 | 6 | — | |||||||||||
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Subtotal | 7,586 | 1,322 | 550 | 1,191 | 4,523 | |||||||||||
Commitments: | ||||||||||||||||
Letters of credit or bank guarantees | 109 | 109 | — | — | — | |||||||||||
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Total | $ | 7,695 | $ | 1,431 | $ | 550 | $ | 1,191 | $ | 4,523 | ||||||
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Fiscal Year(s) | ||||||||||||||||||||
(US Dollars in millions) | Total | 2018 | 2019-2020 | 2021-2022 | Thereafter | |||||||||||||||
Contractual Cash Obligations: | ||||||||||||||||||||
Long-term debt | $ | 5,073 | $ | — | $ | 710 | $ | 750 | $ | 3,613 | ||||||||||
Interest payments on debt | 1,848 | 241 | 433 | 420 | 754 | |||||||||||||||
Purchase obligations(1) | 1,484 | 959 | 525 | — | — | |||||||||||||||
Operating leases(2) | 135 | 19 | 26 | 15 | 75 | |||||||||||||||
Capital expenditures | 107 | 107 | — | — | — | |||||||||||||||
Other funding requirements(3) | 30 | 12 | 18 | — | — | |||||||||||||||
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Subtotal | 8,677 | 1,338 | 1,712 | 1,185 | 4,442 | |||||||||||||||
Commitments: | ||||||||||||||||||||
Letters of credit or bank guarantees | 106 | 106 | — | — | — | |||||||||||||||
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Total | $ | 8,783 | $ | 1,444 | $ | 1,712 | $ | 1,185 | $ | 4,442 | ||||||||||
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(1) | Purchase obligations are defined as contractual obligations for the purchase of goods or services, which are enforceable and legally binding on us, and that specify all significant terms. |
(2) | Includes total future minimum rent expense undernon-cancelable leases for both occupied and vacated facilities (rent expense is shown net of sublease income). |
(3) | Consists of funding requirements related to strategic commitments. |
As of 3 July 2015,30 June 2017, we had a liability for unrecognized tax benefits and an accrual for the payment of related interest totaling $33$15 million, none of which is expected to be settled within one year. Outside of one year, we are unable to make a reasonably reliable estimate of when cash settlement with a taxing authority will occur.
Off-Balance Sheet Arrangements
As of 3 July 2015,30 June 2017, we did not have any materialoff-balance sheet arrangements.
Financial Risk Management
We have exposure to market risks due to the volatility of interest rates, foreign currency exchange rates, credit rating changes, equity and bond markets. A portion of these risks aremay be hedged, but fluctuations could impact our results of operations, financial position and cash flows. Additionally, we have exposure to downgrades in the credit ratings of our counterparties as well as exposure related to our credit rating changes.
Interest Rate Risk.3 July 2015,30 June 2017, the Company had no material available-for-sale securities that had been in a continuous unrealized loss position for a period greater than 12 months. The Company determined no material available-for-sale securities were other-than-temporarily impaired as of 3 July 2015.30 June 2017. We currently do not use derivative financial instruments in our investment portfolio.
We have fixed rate debt obligations. We enter into debt obligations for general corporate purposes including capital expenditures and working capital needs.
The table below presents principal amounts and related weighted-average interest rates by year of maturity for our investment portfolio and debt obligations as of 30 June 2017.
Fiscal Years Ended | ||||||||||||||||||||||||||||||||
(US Dollars in millions, except percentages) | 2018 | 2019 | 2020 | 2021 | 2022 | Thereafter | Total | Fair Value at 30 June 2017 | ||||||||||||||||||||||||
Assets | ||||||||||||||||||||||||||||||||
Cash equivalents: | ||||||||||||||||||||||||||||||||
Fixed rate | $ | 1,178 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 1,178 | $ | 1,178 | ||||||||||||||||
Average interest rate | 1.21% | 1.21% | ||||||||||||||||||||||||||||||
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Total fixed income | $ | 1,178 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 1,178 | $ | 1,178 | ||||||||||||||||
Debt | ||||||||||||||||||||||||||||||||
Fixed rate | $ | — | $ | 710 | $ | — | $ | — | $ | 750 | $ | 3,613 | $ | 5,073 | $ | 5,159 | ||||||||||||||||
Average interest rate | 3.75% | 4.25% | 4.93% | 4.66% |
Foreign Currency Exchange Risk.
denominated expenditures. Our policy prohibits us from entering into derivative financial instruments for speculative or trading purposes. At this time, we have not identified any material exposure associated with the changes as a result of the British vote to exit the European Union.
We also hedge a portionportions of our foreign currency denominated balance sheet positions with foreign currency forward exchange contracts to reduce the risk that our earnings will be adversely affected by changes in currency exchange rates. The changes in fair value of these hedges are recognized in earnings in the same period as the gains and losses from the remeasurement of the assets and liabilities. These foreign currency forward exchange contracts are not designated as hedging instruments under ASC 815,Derivatives and Hedging. All these The Company has no outstanding foreign currency forward exchange contracts mature within 12 months.as of 30 June 2017.
We evaluate hedging effectiveness prospectively and retrospectively and record any ineffective portion of the hedging instruments in Cost of revenue on the Consolidated Profit and Loss Account. We did not have any material net gains (losses) recognized in Cost of revenue for cash flow hedges due to hedge ineffectiveness or discontinued cash flow hedges during the fiscal years 20152017 and 2014.2016.
Other Market Risks. We have exposure to counterparty credit downgrades in the form of credit risk related to our foreign currency forward exchange contracts and our fixed income portfolio. We monitor and limit our credit exposure for our foreign currency forward exchange contracts by performing ongoing credit evaluations. We also manage the notional amount of contracts entered into with any one counterparty, and we maintain limits on maximum tenor of contracts based on the credit rating of the financial institution. Additionally, the investment portfolio is diversified and structured to minimize credit risk. As of 3 July 2015, we had no material credit exposure related to our foreign currency forward exchange contracts. Changes in our corporate issuer credit ratings have minimal impact on our financial results, but downgrades may negatively impact our future transaction costs and our ability to execute transactions with various counterparties.
We are subject to equity market risks due to changes in the fair value of the notional investments selected by ourits employees as part of ouritsNon-qualified Deferred Compensation Plan—the Seagate Deferred Compensation Plan (the "SDCP"“SDCP”). In fiscal year 2014, the Company entered into a Total Return Swap ("TRS"(“TRS”) in order to manage the equity market risks associated with the SDCP liabilities. The Company pays a floating rate, based on LIBOR plus an interest rate spread, on the notional amount of the TRS. The TRS is designed to substantially offset changes in the SDCP liability due to changes in the value of the investment options made by employees.
LIKELY FUTURE DEVELOPMENT
We are committed to developing new component technologies, products and alternative storage technologies. Our research and development focus is designed to bring new products to market in high volume, with quality attributes that our customers expect, before our competitors. Part of our product development strategy is to leverage a design platform and/or subsystem within product families to serve different market needs. This platform strategy allows for more efficient resource utilization, leverages best design practices, reduces exposure to changes in demand, and allows for achievement of lower costs through purchasing economies. Our advanced technology integration effort focuses disk drive and component research on recording subsystems, including read/write heads and recording media; market-specific product technology; and technology focused towards new business opportunities. The primary purpose of our advanced technology integration effort is to ensure timely availability of mature component technologies to our product development teams as well as allowing us to leverage and coordinate those technologies in the design centers across our products in order to take advantage of opportunities in the marketplace. During fiscal years 20152017 and 2014,2016, we had product development expenses of approximately $1,353$1,232 million and $1,226$1,237 million, respectively, which represented 10%11% and 9%11% of our consolidated revenue, respectively.
DIRECTORS
The directors are as listed on page A-3. Mr. Seh-Woong Jeong and3. Ms. LydiaKristen M. MarshallOnken resigned from the board on 2219 October 2014 and were replaced by 2016. Mr. Mark W. Adams was appointed as a director on 19 January 2017. Mr. William D. Mosley was appointed as a director on 25 July 2017.
SECRETARY
Ms. Stephanie TileniusRegan J. MacPherson resigned as the secretary effective 2 June 2017. Ms. Katherine E. Schuelke was appointed as the secretary on the same date.26 June 2017.
DIRECTORS'DIRECTORS’ AND SECRETARY'SSECRETARY’S INTERESTS IN SHARES
Details of directors'directors’ and secretary'ssecretary’s interests in the ordinary shares of Seagate Technology plc as at 3 July 201530 June 2017 were as follows:
| Interests held as at 3 July 2015(1) | |||||||||||||||
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Director | Shares | Vested options | Unvested options | Restricted share units | Restricted shares | |||||||||||
Stephen J. Luczo(2) | 1,218,320 | 90,334 | 179,563 | — | — | |||||||||||
Frank J. Biondi, Jr. | 34,155 | 1,251 | — | 4,235 | — | |||||||||||
Michael R. Cannon | 10,694 | — | — | 4,235 | — | |||||||||||
Mei Wei Cheng | 7,762 | — | — | 4,235 | — | |||||||||||
William Coleman | 10,525 | — | — | 4,235 | — | |||||||||||
Jay L. Geldmacher | 2,655 | — | — | 4,235 | — | |||||||||||
Kristen M. Onken | 17,703 | — | — | 4,235 | — | |||||||||||
C.S. Park | 32,125 | — | — | 4,235 | — | |||||||||||
Gregorio Reyes | 1,753 | — | — | 4,235 | — | |||||||||||
Edward J. Zander | 54,795 | 65,000 | — | 4,235 | — | |||||||||||
Stephanie Tilenius | — | — | — | 4,235 | — | |||||||||||
Secretary | ||||||||||||||||
Kenneth M. Massaroni(3) | 127,569 | 42,811 | 50,189 | — | — |
Interests held as at 30 June 2017(1) | ||||||||||||||||||||
Director | Shares | Vested options | Unvested options | Restricted share units | Restricted shares | |||||||||||||||
Stephen J. Luczo(2) | 1,251,346 | 521,364 | 149,217 | — | — | |||||||||||||||
Frank J. Biondi, Jr. | 27,262 | — | — | 8,437 | — | |||||||||||||||
Mark W. Adams(3) | — | — | — | 5,470 | — | |||||||||||||||
Michael R. Cannon | 16,720 | — | — | 8,437 | — | |||||||||||||||
Mei-Wei Cheng | 12,281 | — | — | 8,437 | — | |||||||||||||||
William T. Coleman | 9,920 | — | — | 8,437 | — | |||||||||||||||
Jay L. Geldmacher | 8,681 | — | — | 8,437 | — | |||||||||||||||
Dr. Dambisa F. Moyo | 3,316 | — | — | 8,437 | — | |||||||||||||||
Dr. Chong Sup Park | 28,974 | — | — | 8,437 | — | |||||||||||||||
Stephanie Tilenius | 6,026 | — | — | 8,437 | — | |||||||||||||||
Edward J. Zander | 97,621 | — | — | 8,437 | — | |||||||||||||||
Secretary | ||||||||||||||||||||
Katherine E. Schuelke | — | — | — | — | — |
(1) | All interests declared are in the ordinary shares of $0.00001 par value of Seagate Technology plc. |
(2) | Mr. Luczo’s interests held as at 30 June 2017 excludes 247,634 unvested awards that contain certain performance and market conditions. |
(3) | Mr. Adams’ interests held at the date of appointment consisted of 5,470 restricted share units. |
Details of directors'directors’ and secretary'ssecretary’s interests in the ordinary shares of Seagate Technology plc as at 27 June 2014,1 July 2016, or subsequent date of appointment, were as follows:
| Interests held as at 27 June 2014(1) or subsequent date of appointment | |||||||||||||||
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Director | Shares | Vested options | Unvested options | Restricted share units | Restricted shares | |||||||||||
Stephen J. Luczo(2) | 1,627,395 | 12,590 | 129,707 | — | — | |||||||||||
Frank J. Biondi, Jr. | 46,298 | 11,251 | — | 5,952 | — | |||||||||||
Michael R. Cannon | 12,837 | — | — | 5,952 | — | |||||||||||
Mei-Wei Cheng | 10,858 | — | — | 5,952 | — | |||||||||||
William Coleman | 21,618 | — | — | 5,952 | — | |||||||||||
Jay L. Geldmacher | 9,798 | — | — | 5,952 | — | |||||||||||
Kristen M. Onken | 19,846 | — | — | 5,952 | — | |||||||||||
C.S. Park | 38,518 | 1,251 | — | 5,952 | — | |||||||||||
Gregorio Reyes | 7,696 | 1,459 | — | 5,952 | — | |||||||||||
Edward J. Zander | 56,938 | 65,000 | — | 5,952 | — | |||||||||||
Stephanie Tilenius | — | — | — | 4,235 | — | |||||||||||
Secretary | ||||||||||||||||
Kenneth M. Massaroni(3) | 45,455 | 31,592 | 60,158 | 2,550 | — |
Interests held as at 1 July 2016(1) | ||||||||||||||||||||
Director | Shares | Vested options | Unvested options | Restricted share units | Restricted shares | |||||||||||||||
Stephen J. Luczo(2) | 1,826,969 | 400,423 | 270,158 | — | — | |||||||||||||||
Frank J. Biondi, Jr. | 23,946 | 1,251 | — | 5,182 | — | |||||||||||||||
Michael R. Cannon | 13,404 | — | — | 5,182 | — | |||||||||||||||
Mei-Wei Cheng | 9,794 | — | — | 5,182 | — | |||||||||||||||
William T. Coleman | 13,235 | — | — | 5,182 | — | |||||||||||||||
Jay L. Geldmacher | 5,365 | — | — | 5,182 | — | |||||||||||||||
Dr. Dambisa F. Moyo(3) | — | — | — | 5,182 | — | |||||||||||||||
Dr. Chong Sup Park | 32,735 | — | — | 5,182 | — | |||||||||||||||
Stephanie Tilenius | 2,710 | — | — | 5,182 | — | |||||||||||||||
Edward J. Zander | 67,996 | 10,000 | — | 5,182 | ||||||||||||||||
Secretary | ||||||||||||||||||||
Katherine E. Schuelke | — | — | — | — | — |
(1) | All interests declared are in the ordinary shares of $0.00001 par value of Seagate Technology plc. |
(2) | Mr. Luczo’s interests held as at 1 July 2016 excludes 295,391 unvested options and awards that contain certain performance and market conditions. |
(3) | Dr. Moyo’s interests held at the date of appointment includes 5,182 restricted share units. |
The directors and the company secretary had no interests in any other group company as required to be disclosed in accordance with Section 329 of the Companies Act 2014.
IMPORTANT EVENTS SINCE THE PERIOD END
Dividends
On 2125 July 2015,2017, our Board of Directors approveddeclared a quarterly cash dividend of $0.54$0.63 per share, which will be payable on 25 August 20154 October 2017 to shareholders of record as of the close of business on 11 August 2015.20 September 2017.
Dot Hill AcquisitionJuly 2017 Restructuring Plan
On 18 August 2015,July 25, 2017, the Company committed to an additional 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, which the Company expects to be substantially completed by the end of the first quarter of fiscal year 2018, is expected to result in totalpre-tax charges of approximately $50 million, primarily in the first quarter of fiscal year 2018. These charges are expected to be comprised of cash expenditures on severance and employee-related costs.
Planned Leadership Transition
On July 25, 2017 the Company’s Board of Directors appointed William D. Mosley to serve as Chief Executive Officer, of the Company effective October 1, 2017. The Board of Directors also appointed Mr. Mosley to serve as a director of the Company, effective July 25, 2017. Mr. Mosley will serve as a director until the Company’s next annual general meeting of shareholders when he is expected to stand for election by a vote of the Company’s shareholders. On July 25, 2017, the Company also announced that Stephen J. Luczo will step down from his position as Chief Executive Officer, effective October 1, 2017. Mr. Luczo will remain with the Company in the role of Executive Chairman effective October 1, 2017 and will continue to serve as Chairman of the Board of Directors.
As previously announced on June 2, 2017, Philip G. Brace, President of Cloud Systems and Silicon group, will be leaving the Company. On July 20, 2017, the Company and Dot Hill Systems Corp. ("Dot Hill") announcedMr. Brace agreed that they have entered into a definitive agreement under which a wholly-owned indirect subsidiarythe effective date of the Companyhis departure will commence a tender offer for all of the outstanding shares of Dot Hill in an all-cash transaction valued at $9.75 per share, or a total of approximately $694 million on a fully-diluted equity value basis. The transaction is currently expected to close during the Company's second fiscal quarter of 2016, subject to the satisfaction of customary closing conditions and the receipt of certain regulatory approvals.be October 2, 2017.
POLITICAL DONATIONS
During the year ended 330 June 2017 and 1 July 2015,2016, the Company made no political donations.
BRANCHES OUTSIDE THE STATE
InAs required to be disclosed in accordance with Section 326 of the Companies Act 2014, the Companygroup has established branches, within the meaning of EUEuropean Communities Council Directive 89/666/EEC in Brazil, China, Russia, the Netherlands, Singapore, Northern Ireland (Springtown), India, Korea and Northern Ireland.Thailand.
ACCOUNTING RECORDS
The directors are responsible for ensuring that adequate accounting records, as outlined in Sections 281 to 285 of the Companies Act 2014, are kept by the Company. To achieve this, the directors have appointed experienced bookkeepers who are professionally qualified, who report to the Chief Financial Officer and ensure that the requirements of Sections 281 to 285 of the Companies Act 2014 are complied with.
The books and accounting records are maintained at the Company'sCompany’s principal accounting offices at 10200 South De Anza Boulevard, Cupertino, California, United States of America, and are open at all reasonable times to inspection by the directors. Accounts and returns relating to the business dealt with in the accounting records are kept in order to disclose with reasonable accuracy the assets, liabilities, financial position and profit or loss of the Company. These records are returned to the Company'sCompany’s registered office at intervals not exceeding six months.
RELEVANT AUDIT INFORMATION
The directors believe that they have taken all steps necessary to make themselves aware of any “relevant audit information” (as defined in Section 330(2) of the Companies Act 2014) and have established that the Group’s statutory auditors are aware of that information. In so far as they are aware, there is no relevant audit information of which the Group’s statutory auditors are unaware.
AUDIT COMMITTEE
In accordance with Section 167(3) of the Companies Act 2014, the Group has established an Audit Committee with responsibility for oversight of the financial reporting process, the audit process, the system of internal controls and compliance with laws and regulations.
STATEMENT OF DIRECTORS'DIRECTORS’ RESPONSIBILITIES
Company law in the Republic of Ireland requires the Directors to prepare financial statements for each financial year which give a true and fair view of the state of the assets, liabilities and financial position of the Parent Company and of the Group and of the profit or loss of the Group for that period.
In preparing the financial statements of the Group, the Directors are required to:
The considerations set out above for the Group are also required to be addressed by the Directors in preparing the financial statements of the Parent Company (which are set out on pages A-106A-109 to A-110)A-116), in respect of which the applicable Irish law and accounting standards are those which are generally accepted in the Republic of Ireland.
The Directors have elected to prepare the Parent Company'sCompany’s financial statements in accordance with generally accepted accounting practice in Ireland (Irish GAAP) comprising the financial reporting standards issued by the Financial Reporting Council and promulgated by the Institute of Chartered Accountants in Ireland, together withincluding FRS 102 The Financial Reporting Standard applicable in the Companies Acts 2014.UK and Republic of Ireland (Generally Accepted Accounting Practice in Ireland).
The Directors are responsible for keeping accounting records which disclose with reasonable accuracy the assets, liabilities, financial position and profit and loss of the Parent Company and which enable them to ensure that the financial statements of the Group are prepared in accordance with applicable US generally accepted accounting principles and comply with the provisions of the
Companies Acts 2014. They are also responsible for safeguarding the assets of the Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
As required by Section 225 (2) of the Companies Act 2014, the directors acknowledge that they are responsible for securing the Company’s compliance with its “relevant obligations” (as defined in Section 225 of Companies Act 2014). The directors further confirm that a compliance policy statement has been drawn up in accordance with Section 225(3)(a) of the Companies Act 2014, and that appropriate arrangements and structures have been put in place that are, in the directors’ opinion, designed to secure material compliance with the relevant obligations. A review of those arrangements and structures has been conducted in the financial year to which this report relates.
AUDITORS
Ernst & Young, Chartered Accountants, have expressed their willingness to continue in office in accordance with the Section 383(2) of the Companies Act 2014.
Approved by the Board of Directors and signed on its behalf on 2125 August 2015.2017
/s/ STEPHEN J. LUCZO | /s/ CHONG SUP PARK | |
Stephen J. Luczo |
INDEPENDENT AUDITOR'SAUDITOR’S REPORT TO THE MEMBERS OF SEAGATE TECHNOLOGY PLC
Report on the audit of the financial statements
Opinion
We have audited the financial statements of Seagate Technology plc (the ‘parent company’) and its subsidiaries (the ‘group’) for the year ended 3 July 201530 June 2017 which comprise the Consolidated Profit and Loss Account, the Consolidated Statement of Comprehensive Income, the Consolidated Balance Sheet, the Consolidated Statement of Cash Flows, the Parent Company Balance Sheet,Statement of Comprehensive Income, the Parent Company Statement of Financial Position, the Parent Company Statement of Changes in Equity, the related notes 1 to 2120 in respect of the groupGroup financial statements and the related notes 1 to 119 in respect to the parent company financial statements.statements, including a summary of significant accounting policies set out in note 1. The financial reporting framework that has been applied in the preparation of the groupGroup financial statements is Irish law and U.S. Generally Accepted Accounting Principles (U.S. GAAP), as defined in section 279 of Part 6 of the Companies Act 2014, to the extent that the use of those principles in the preparation of the financial statements does not contravene any provision of that Part of the Companies Act 2014 and for2014. The financial reporting framework that has been applied in the preparation of the parent company financial statements in accordance withis applicable Irish law and accounting standards issued by the Financial Reporting Council and promulgated by the Institute of Chartered Accountants in Ireland (Generally Accepted Accounting Practice in Ireland).
This report is made solely to the company's members, as a body, in accordance with section 391 of the Companies Act 2014. Our audit work has been undertaken so that we might state to the company's members those matters we are required to state to them in an auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company's members as a body, for our audit work, for this report, or for the opinions we have formed.
, including FRS 102Respective responsibilities of directors and auditors
As explained more fullyThe Financial Reporting Standard applicable in the StatementUK and Republic of Directors' Responsibilities set out on page A-46, the directors are responsible for the preparation of the financial statements giving a true and fair view. Our responsibility is to audit and express an opinion on the financial statements in accordance with Irish law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board's Ethical Standards for Auditors.Ireland.
Scope of the audit of the financial statements
An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the group's and parent company's circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the directors; and the overall presentation of the financial statements. In addition, we read all the financial and non-financial information in the directors' report to identify material inconsistencies with the audited financial statements and to identify any information that is apparently materially incorrect or materially inconsistent with the knowledge acquired by us in the course of performing the audit. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report.
Opinion on financial statements
In our opinion:
• | the parent company statement of financial position gives a true and fair view of the assets, liabilities and financial position of the parent company as at 30 June 2017, and has been properly prepared in accordance with Irish GAAP, including FRS 102The Financial Reporting Standard applicable in the UK and Republic of Ireland; and |
INDEPENDENT AUDITOR'S REPORT TO THE MEMBERS OF SEAGATE TECHNOLOGY PLC (Continued)
of the assets, liabilities and financial position of the Group as at 3 July 2015 and of the profit for the Group for the year then ended;
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (Ireland) (ISAs (Ireland)) and applicable law. Our responsibilities under those standards are described in the Auditor’s Responsibilities for the Audit of the Financial Statements section of our report. We are independent of the Group and the parent company in accordance with ethical requirements that are relevant to our audit of financial statements in Ireland, including the Ethical Standard issued by the Irish Accounting and Auditing Supervisory Authority (IAASA), and we have fulfilled our other ethical responsibilities in accordance with these requirements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Key audit matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) we identified, including those which had the greatest effect on: the overall audit strategy, the allocation of resources in the audit; and directing the efforts of the engagement team. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.
Revenue recognition—Sales incentive program rebates and discounts
Reported revenue is a key financial statement metric of higher importance to users of the Company’s consolidated financial statements. As disclosed by the Company in note 1Basis of Presentation and Summary of Significant Accounting Policies, revenue is measured taking into account sales incentive program rebates and price protection discounts earned by customers on the Group’s sales to original equipment manufacturers and distributors. Revenue is recognised when the criteria in Accounting Standards Codification Topic 605 (ASC 605) have been met, including upon the transfer of the risk and rewards of the underlying products to the customer and when the related fee is fixed or determinable. There are varying levels of judgment in the calculation of sales program rebates and discounts, including estimating the number of products qualifying for the same and the level of customer attainment of available incentive rebates. Higher levels of judgment are required to estimate future price erosion for quantities of inventory to be sold by the Company’s distributor customers in future periods, which could have a material impact on the financial statements. There is a risk that revenue may be overstated because of fraud resulting from the existence of undisclosed special terms or side agreements or other customer compensatory elements resulting from management feeling the pressure to meet performance targets at the period end, which are not accounted for in the financial statements.
Our audit procedures included testing the Company’s revenue recognition accounting policies relating to sales program rebates and discounts under applicable accounting standards, and assessing the Company’s compliance with those policies. We tested the operating effectiveness of the Company’s controls over the completeness and accuracy of sales program rebates and discounts computations, and correct timing of revenue recognition.
In addition, our audit procedures addressing sales programs included the following:
Deferred income Taxes
As disclosed by the Company in note 7 Income Taxes, at 30 June 2017, the Company has gross deferred tax assets of $1,640 million, partially offset by a valuation allowance of $966 million. The Company operates
across a number of income tax jurisdictions and undertakes a high level of cross-border transactions. The Group also has significant recognised and unrecognised deferred tax assets in respect of tax losses in its U.S. income tax jurisdiction. Deferred income tax positions were significant to our audit because the assessment process, which includes forecasting future taxable profits in the U.S., involves inherent uncertainty, is complex, and the amounts involved are material to the financial statements as a whole.
We performed audit procedures on the completeness and accuracy of the amounts recognised as current and deferred income tax expense, including managements’ assessment of the tax impact of changes in the Company’s business due to ongoing restructuring activities, correspondence with tax authorities and the evaluation of tax exposures. In addition, in respect of deferred tax assets, we assessed and tested the Company’s analysis and assumptions supporting the probability that deferred tax assets recognised in the balance sheet will be recovered through taxable income in future years. As part of our procedures, we inspected and tested, among other things, management’s budgets, forecasts and assessments of the impact of tax laws on current and deferred income taxes. In addition, we assessed the historical accuracy of management’s assumptions by comparing prior period forecasts to actual current period results. We also evaluated the design and performed tests of the operating effectiveness of controls in this area. In conducting our procedures, we involved local and international tax specialists to analyse the Company’s tax positions and to test the assumptions used to determine tax positions. We further assessed the adequacy of the disclosure in Note 7 of the consolidated financial statements.
Provisions for product warranties
As disclosed by the Company in note 16Guarantees, at 30 June 2017 the provisions for product warranties amounted to $233 million. The Company issues various types of product warranties under which the performance of products delivered is generally guaranteed for a certain period or term. The reserve for product warranties includes estimates regarding product failure rates, the timing of returns during the warranty period, and the cost to repair or replace products under warranty. We focused on this area because changes in these estimates and assumptions can materially affect the levels of provisions recorded in the financial statements due to the higher estimation uncertainty around the Company’s product return rates.
We obtained an understanding of the Company’s process for estimating reserves related to product warranties, evaluated the design of, and performed tests of the operating effectiveness of controls in this area. Our focus included evaluating and testing the basis for the assumptions developed and used in the determination of the warranty provisions by performing retrospective reviews of the prior return rates used by the Company and any changes to current rates, by performing sensitivity analyses to evaluate the impact of changes to the warranty provision based on changes in product return rates, and testing the validity, completeness and accuracy of the data used in the calculations. This included testing, on a sample basis, the historical product return and current period shipments data used by the Company in the warranty provision calculation, and comparison to relevant available industry data. We further assessed the adequacy of the disclosure in Note 16 of the consolidated financial statements.
Restructuring activities and related accrued liabilities
As disclosed by the Company in note 5Restructuring and Exit Costs,restructuring charges of $178 million were recorded during the year ended 30 June 2017 in relation to the Company’s ongoing manufacturing facilities consolidation. Management judgment is required in relation to the recognition, measurement and disclosure of these restructuring expenses, including estimates of fair value of land and buildings no longer held for use and/or held for sale and related impairment charges.
We have tested management’s assumptions used to identify direct and incremental costs of restructuring activities, primarily relating to asset impairment charges, severance payments and other costs incurred to close manufacturing facilities arising as a result of the restructuring activities. Our audit work included:
For those exit and impairment charges classified as restructuring and other within operating expenses, we have tested the classification based on the nature and timing of such amounts. We further assessed the adequacy of the disclosure in Note 5 of the consolidated financial statements.
Our application of materiality
We apply the concept of materiality in planning and performing the audit, in evaluating the effect of identified misstatements on the audit and in forming our audit opinion.
Materiality
The magnitude of an omission or misstatement that, individually or in the aggregate, could reasonably be expected to influence the economic decisions of the users of the financial statements. Materiality provides a basis for determining the nature and extent of our audit procedures.
We determined materiality for the Group to be $40 million, which is approximately 5% of Group profit before tax. We believe that profit before tax is a key performance indicator for the Group. We therefore considered Profit before tax to be the most appropriate performance metric on which to base our materiality calculation as we consider it to be the most relevant performance measure to the stakeholders of the Group. During the course of our audit, we reassessed initial materiality and the only change in final materiality was to reflect the actual reported performance of the Group in the year.
Performance materiality
The application of materiality at the individual account or balance level. It is set at an amount to reduce to an appropriately low level the probability that the aggregate of uncorrected and undetected misstatements exceeds materiality.
On the basis of our risk assessments, together with our assessment of the Group’s overall control environment, our judgement was that performance materiality should be set at 75% of our planning materiality, namely $30 million. We have set performance materiality at this percentage due to our past history of misstatements, our ability to assess the likelihood of misstatements, both corrected and uncorrected, the effectiveness of the control environment and other factors affecting the entity and its financial reporting.
Audit work at component locations for the purpose of obtaining audit coverage over significant financial statement accounts is undertaken based on a percentage of total performance materiality. The performance materiality set for each component is based on the relative scale and risk of the component to the Group as a whole and our assessment of the risk of misstatement at that component. In the current year, the range of performance materiality allocated to components was $6 million to $24 million.
Reporting threshold
An amount below which identified misstatements are considered as being clearly trivial.
We agreed with the Audit Committee that we would report to them all uncorrected audit differences in excess of $2 million, which is set at approximately 5% of planning materiality, as well as differences below that threshold that, in our view, warranted reporting on qualitative grounds. We evaluate any uncorrected misstatements against both the quantitative measures of materiality discussed above and in light of other relevant qualitative considerations in forming our opinion.
Audit Scope
An overview of the scope of our audit
Tailoring the scope
Our assessment of audit risk, our evaluation of materiality and our allocation of performance materiality determine our audit scope for each entity within the Group. Taken together, this enables us to form an opinion on the Consolidated Financial Statements.
In assessing the risk of material misstatement to the Group financial statements, and to ensure we had adequate quantitative coverage of significant accounts in the financial statements, we selected 10 components covering entities across the Americas, Asia and Europe, which represent the principal business units within the Group.
Of the 10 components selected, one was characterised as all U.S. locations for which we reviewed all of the relevant financial information (‘full scope component’) which was selected based on its size or risk characteristics. For the remaining 9 components (‘specific scope components’), we performed audit procedures on specific accounts within that component that we considered had the potential for the greatest impact on the significant accounts in the financial statements either because of the size of these accounts or their risk profile.
The reporting components where we performed audit procedures accounted for 99% of the Group’s profit before tax, 100% of the Group’s Revenue and 99% of the Group’s Total Assets.
Revenue recognition, including our procedures to addressSales incentive program rebates and discounts, a key audit matter, was subject to full audit procedures in each of the full and specific scope locations with significant revenue streams. For the current year, the full scope component contributed 39% of the Group’s profit before tax, 35% of the Group’s Revenue and 91% of the Group’s Total Assets. The specific scope components contributed 60% of the Group’s Profit before tax, 65% of the Group’s Revenue and 8% of the Group’s Total Assets. The audit scope of these components may not have included testing of all significant accounts of the component but will have contributed to the coverage of significant risks tested for the Group.
The remaining components together represent 1% of the Group’s profit before tax and therefore none are individually greater than 5% of profit before tax used to establish materiality. For these components, we performed other procedures, including analytical review, testing of consolidation journals and intercompany eliminations and foreign currency translation recalculations to respond to any potential risks of material misstatement to the Consolidated Financial Statements.
Conclusions relating to going concern
We have nothing to report in respect of the following matters in relation to which ISA 570 (Ireland) ‘Going concern’ requires us to report to you where;
Other information
The directors are responsible for the other information. The other information comprises the information included in the annual report other than the financial statements and our auditor’s report thereon. Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon.
In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether there is a material misstatement in the financial statements or a material misstatement of the other information. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact.
We have nothing to report in this regard.
Matters on which we are required to report by the Companies ActsAct 2014
In our opinion, based solely on the work undertaken in the course of the audit:
Based on our knowledge and understanding of the company and its environment obtained in the course of the audit, we have not identified material misstatements in the directors’ report.
Matters on which we are required to report by exception
We have nothing to report in respect of Sections 305 to 312 of the Companies Act 2014 which require us to report to you if, in our opinion, the disclosures of directors'directors’ remuneration and transactions specified by law are not made.
Respective responsibilities
21Responsibilities of directors for the financial statements
As explained more fully in the directors’ responsibilities statement set on page A-47, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair
view, and for such internal control as they determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, the directors are responsible for assessing the Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the group or to cease operations, or has no realistic alternative but to do so.
Auditor’s responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (Ireland) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.
A further description of our responsibilities for the audit of the financial statements is located on the IAASA’s website at:http://www.iaasa.ie/getmedia/b2389013-1cf6-458b-9b8f-a98202dc9c3a/Description_of_auditors_ responsiblities_for_audit.pdf. This description forms part of our auditor’s report.
The purpose of our audit work and to whom we owe our responsibilities
This report is made solely to the company’s members, as a body, in accordance with section 391 of the Companies Act 2014. Our audit work has been undertaken so that we might state to the company’s members those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company’s members as a body, for our audit work, for this report, or for the opinions we have formed.
/s/ DERMOT DALY
Dermot Daly
For and on behalf of Ernst & Young
Chartered Accountants and Statutory Audit Firm
Dublin
25 August 20152017
CONSOLIDATED PROFIT AND LOSS ACCOUNT
| | Fiscal Years Ended | Fiscal Years Ended | |||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(US Dollars in millions) | Note | 3 July 2015 | 27 June 2014 | Note | 30 June 2017 | 1 July 2016 | ||||||||||||||||
Revenue | $ | 13,739 | $ | 13,724 | $ | 10,771 | $ | 11,160 | ||||||||||||||
Cost of revenue | 9,930 | 9,878 | 7,597 | 8,545 | ||||||||||||||||||
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Gross profit | 3,809 | 3,846 | 3,174 | 2,615 | ||||||||||||||||||
Product development | 1,353 | 1,226 | 1,232 | 1,237 | ||||||||||||||||||
Marketing and administrative | 857 | 722 | 606 | 635 | ||||||||||||||||||
Amortization of intangibles | 4 | 129 | 98 | 4 | 104 | 123 | ||||||||||||||||
Restructuring and other, net | 5 | 32 | 24 | 5 | 178 | 175 | ||||||||||||||||
Gain on arbitration award, net | 14 | (620 | ) | — | ||||||||||||||||||
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1,751 | 2,070 |
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2,120 | 2,170 | |||||||||||||||||||||
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Operating earnings | 2,058 | 1,776 | 1,054 | 445 | ||||||||||||||||||
Interest income | 6 | 8 | 12 | 3 | ||||||||||||||||||
Interest expense | (207 | ) | (195 | ) | (222) | (193) | ||||||||||||||||
Other income and charges, net | 113 | (33 | ) | (29) | 19 | |||||||||||||||||
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Income before taxes | 1,970 | 1,556 | 815 | 274 | ||||||||||||||||||
Income tax expense (benefit) | 7 | 228 | (14 | ) | ||||||||||||||||||
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Income tax expense | 7 | 43 | 26 | |||||||||||||||||||
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Net income | $ | 1,742 | $ | 1,570 | $ | 772 | $ | 248 | ||||||||||||||
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Net income per share: | ||||||||||||||||||||||
Basic | 12 | $ | 2.61 | $ | 0.83 | |||||||||||||||||
Diluted | 12 | 2.58 | 0.82 | |||||||||||||||||||
Number of shares used in per share calculations: | ||||||||||||||||||||||
Basic | 12 | 296 | 299 | |||||||||||||||||||
Diluted | 12 | 299 | 302 |
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
| Fiscal Years Ended | ||||||
---|---|---|---|---|---|---|---|
(US Dollars in millions) | 3 July 2015 | 27 June 2014 | |||||
Net Income | $ | 1,742 | $ | 1,570 | |||
Other comprehensive income (loss), net of tax: | |||||||
Cash flow hedges | |||||||
Change in net unrealized loss on cash flow hedges | (11 | ) | (1 | ) | |||
Less: reclassification for amounts included in net income | 13 | — | |||||
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Net change | 2 | (1 | ) | ||||
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Marketable securities | |||||||
Change in net unrealized gain on available-for-sale securities | — | 1 | |||||
Less: reclassification for amounts included in net income | — | 2 | |||||
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Net change | — | 3 | |||||
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Post-retirement plans | |||||||
Change in unrealized (loss) gain on post-retirement plans | (5 | ) | 1 | ||||
Less: reclassification for amounts included in net income | — | — | |||||
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Net change | (5 | ) | 1 | ||||
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Foreign currency translation adjustments | (25 | ) | 8 | ||||
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Total other comprehensive (loss) income, net of tax | (28 | ) | 11 | ||||
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Comprehensive income | 1,714 | 1,581 | |||||
Less: Comprehensive income attributable to noncontrolling interest | — | — | |||||
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Comprehensive income attributable to Seagate Technology plc | $ | 1,714 | $ | 1,581 | |||
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Fiscal Years Ended | ||||||||
(US Dollars in millions) | 30 June 2017 | 1 July 2016 | ||||||
Net income | $ | 772 | $ | 248 | ||||
Other comprehensive income (loss), net of tax: | ||||||||
Cash flow hedges | ||||||||
Change in net unrealized loss on cash flow hedges | (3) | (4) | ||||||
Less: reclassification for amounts included in net income | 4 | 2 | ||||||
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Net change | 1 | (2) | ||||||
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Post-retirement plans | ||||||||
Change in unrealized gain on post-retirement plans | — | 8 | ||||||
Less: reclassification for amounts included in net income | 2 | — | ||||||
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Net change | 2 | 8 | ||||||
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Foreign currency translation adjustments | 5 | (1) | ||||||
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Total other comprehensive income, net of tax | 8 | 5 | ||||||
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Comprehensive income | 780 | 253 | ||||||
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CONSOLIDATED BALANCE SHEET
(US Dollars in millions) | Note | 3 July 2015 | 27 June 2014 | |||||||
---|---|---|---|---|---|---|---|---|---|---|
ASSETS | ||||||||||
Fixed assets: | ||||||||||
Goodwill | 4 | $ | 874 | $ | 537 | |||||
Intangible assets | 4 | 370 | 359 | |||||||
Tangible assets | 2 | 2,278 | 2,136 | |||||||
Financial assets | 9 | 120 | 46 | |||||||
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3,642 | 3,078 | |||||||||
Current assets: | ||||||||||
Inventories | 2 | 993 | 985 | |||||||
Trade debtors | 2 | 1,735 | 1,729 | |||||||
Other debtors—amounts falling due within one year | 2 | 348 | 405 | |||||||
Investments | 2 | 6 | 20 | |||||||
Restricted cash and investments | 2 | 7 | 4 | |||||||
Cash and cash equivalents | 2 | 2,479 | 2,634 | |||||||
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5,568 | 5,777 | |||||||||
Other debtors—amounts falling due after one year | 2 | 635 | 637 | |||||||
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Total Assets | $ | 9,845 | $ | 9,492 | ||||||
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LIABILITIES | ||||||||||
Capital and reserves: | ||||||||||
Share capital | 10 | $ | — | $ | — | |||||
Share premium | 10 | 5,430 | 5,332 | |||||||
Other reserves | 10 | 274 | 177 | |||||||
Profit and loss account | 10 | (2,686 | ) | (2,677 | ) | |||||
Noncontrolling interest | — | — | ||||||||
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3,018 | 2,832 | |||||||||
Provisions for liabilities: | ||||||||||
Taxation | 7 | 49 | 117 | |||||||
Other provisions | 2 | 267 | 287 | |||||||
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316 | 404 | |||||||||
Creditors—amounts falling due within one year: | ||||||||||
Debt | 9 | — | — | |||||||
Trade creditors | 1,540 | 1,549 | ||||||||
Other creditors | 2 | 643 | 677 | |||||||
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2,183 | 2,226 | |||||||||
Creditors—amounts falling due after one year: | ||||||||||
Debt | 9 | 4,155 | 3,920 | |||||||
Other creditors | 173 | 110 | ||||||||
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Total Liabilities | $ | 9,845 | $ | 9,492 | ||||||
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(US Dollars in millions) | Note | 30 June 2017 | 1 July 2016 | |||||||||
ASSETS | ||||||||||||
Fixed assets: | ||||||||||||
Goodwill | 4 | $ | 1,238 | $ | 1,237 | |||||||
Intangible assets | 4 | 281 | 448 | |||||||||
Tangible assets | 2 | 1,950 | 2,160 | |||||||||
Financial assets | 9 | 125 | 113 | |||||||||
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3,594 | 3,958 | |||||||||||
Current assets: | ||||||||||||
Inventories | 2 | 982 | 868 | |||||||||
Trade debtors | 2 | 1,199 | 1,318 | |||||||||
Other debtors - amounts falling due within one year | 2 | 246 | 216 | |||||||||
Investments | 2 | — | 6 | |||||||||
Cash and cash equivalents | 2 | 2,539 | 1,125 | |||||||||
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4,966 | 3,533 | |||||||||||
Other debtors - amounts falling due after one year | 2 | 708 | 722 | |||||||||
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Total Assets | $ | 9,268 | $ | 8,213 | ||||||||
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LIABILITIES AND EQUITY | ||||||||||||
Capital and reserves: | ||||||||||||
Share capital | 10 | $ | — | $ | — | |||||||
Share premium | 10 | 5,595 | 5,509 | |||||||||
Other reserves | 10 | 540 | 395 | |||||||||
Profit and loss account | 10 | (4,771) | (4,311 | ) | ||||||||
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1,364 | 1,593 | |||||||||||
Provisions for liabilities: | ||||||||||||
Taxation | 7 | 30 | 31 | |||||||||
Other provisions | 2 | 276 | 269 | |||||||||
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| ||||||||
306 | 300 | |||||||||||
Creditors - amounts falling due within one year: | ||||||||||||
Trade creditors | 1,626 | 1,517 | ||||||||||
Other creditors | 2 | 840 | 560 | |||||||||
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2,466 | 2,077 | |||||||||||
Creditors - amounts falling due after one year: | ||||||||||||
Debt | 9 | 5,021 | 4,091 | |||||||||
Other creditors | 111 | 152 | ||||||||||
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Total Liabilities | $ | 9,268 | $ | 8,213 | ||||||||
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Approved by the Board of Directors and signed on its behalf on 2125 August 2015.2017
/s/ STEPHEN J. LUCZO | /s/ CHONG SUP PARK | |||
Stephen J. Luczo | Dr. Chong Sup Park |
CONSOLIDATED STATEMENT OF CASH FLOWS
| Fiscal Years Ended | Fiscal Years Ended | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(US Dollars in millions) | 3 July 2015 | 27 June 2014 | 30 June 2017 | 1 July 2016 | |||||||||||
OPERATING ACTIVITIES | |||||||||||||||
Net income | $ | 1,742 | $ | 1,570 | $ | 772 | $ | 248 | |||||||
Adjustments to reconcile net income to net cash from operating activities: | |||||||||||||||
Depreciation and amortization | 841 | 879 | 749 | 815 | |||||||||||
Share-based compensation | 137 | 118 | 137 | 120 | |||||||||||
Loss on redemption and repurchase of debt | 74 | 81 | |||||||||||||
Gain on sale of investments | — | (32 | ) | ||||||||||||
Loss (gain) on sale of tangible assets | 2 | (4 | ) | ||||||||||||
Loss (gain) on redemption and repurchase of debt | 7 | (3) | |||||||||||||
Impairment of other long-lived assets | 42 | 26 | |||||||||||||
Deferred income taxes | 2 | (67 | ) | 3 | (2) | ||||||||||
Other non-cash operating activities, net | (9 | ) | 14 | 20 | 12 | ||||||||||
Changes in operating assets and liabilities: | |||||||||||||||
Restricted cash and investments | (3 | ) | 104 | ||||||||||||
Trade debtors | (2 | ) | 4 | 122 | 464 | ||||||||||
Inventories | 29 | (20 | ) | (114) | 145 | ||||||||||
Trade creditors | (58 | ) | (190 | ) | 121 | (24) | |||||||||
Accrued employee compensation | (40 | ) | (55 | ) | 53 | (78) | |||||||||
Accrued expenses, income taxes and warranty | (112 | ) | (80 | ) | 47 | (42) | |||||||||
Vendor non-trade debtors | 47 | 217 | |||||||||||||
Other assets and liabilities | (3 | ) | 19 | (43) | (1) | ||||||||||
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| ||||||||||||||
Net cash provided by operating activities | 2,647 | 2,558 | 1,916 | 1,680 | |||||||||||
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INVESTING ACTIVITIES | |||||||||||||||
Acquisition of tangible assets | (747 | ) | (559 | ) | (434) | (587) | |||||||||
Proceeds from the sale of tangible assets | — | 3 | |||||||||||||
Proceeds from the sale of financial assets | — | 72 | |||||||||||||
Purchases of investments | (5 | ) | (88 | ) | (37) | — | |||||||||
Sales of investments | 4 | 508 | |||||||||||||
Maturities of investments | 19 | 61 | 6 | — | |||||||||||
Cash used in acquisition of businesses, net of cash acquired | (453 | ) | (285 | ) | — | (634) | |||||||||
Other investing activities, net | (105 | ) | (34 | ) | 6 | 10 | |||||||||
| | | | | | | |||||||||
|
| ||||||||||||||
Net cash used in investing activities | (1,287 | ) | (322 | ) | (459) | (1,211) | |||||||||
| | | | | | | |||||||||
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| ||||||||||||||
FINANCING ACTIVITIES | |||||||||||||||
Net proceeds from issuance of long-term debt | 1,196 | 1,781 | 1,232 | — | |||||||||||
Repayments of long-term debt | (1,026 | ) | (725 | ) | |||||||||||
Repayment of long-term debt | (316) | (22) | |||||||||||||
Taxes paid related to net share settlement of equity awards | (27) | (56) | |||||||||||||
Repurchases of ordinary shares | (1,087 | ) | (1,912 | ) | (460) | (1,090) | |||||||||
Dividends to shareholders | (664 | ) | (557 | ) | (561) | (727) | |||||||||
Proceeds from issuance of ordinary shares under employee stock plans | 98 | 107 | 86 | 79 | |||||||||||
Other financing activities, net | (12 | ) | (5 | ) | — | (4) | |||||||||
| | | | | | | |||||||||
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| ||||||||||||||
Net cash used in financing activities | (1,495 | ) | (1,311 | ) | (46) | (1,820) | |||||||||
| | | | | | | |||||||||
Effect of foreign currency exchange rate changes on cash and cash equivalents | (20 | ) | 1 | ||||||||||||
| | | | | | | |||||||||
(Decrease) increase in cash and cash equivalents | (155 | ) | 926 | ||||||||||||
Cash and cash equivalents at the beginning of the year | 2,634 | 1,708 | |||||||||||||
| | | | | | | |||||||||
Cash and cash equivalents at the end of the year | $ | 2,479 | $ | 2,634 | |||||||||||
| | | | | | | |||||||||
| | | | | |||||||||||
| | | | | | | |||||||||
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Effect of foreign currency exchange rate changes on cash, cash equivalents and restricted cash | — | (3) | |||||||||||||
|
| ||||||||||||||
Increase (decrease) in cash, cash equivalents and restricted cash | 1,411 | (1,354) | |||||||||||||
Cash, cash equivalents and restricted cash at the beginning of the year | 1,132 | 2,486 | |||||||||||||
|
| ||||||||||||||
Cash, cash equivalents and restricted cash at the end of the year | $ | 2,543 | $ | 1,132 | |||||||||||
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Supplemental Disclosure of Cash Flow Information | |||||||||||||||
Cash paid for interest | $ | 216 | $ | 198 | $ | 172 | $ | 200 | |||||||
Cash paid for income taxes, net of refunds | $ | 285 | $ | 50 | $ | 33 | $ | 40 |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation and Summary of Significant Accounting Policies
Organization
Seagate Technology plc became the parent company in the Seagate group following a reorganization that took place in 2010.
This transaction was accounted for in these consolidated financial statements as a merger between entities under common control; accordingly, the historical consolidated financial statements of Seagate Technology for periods prior to this transaction are considered to be the historical consolidated financial statements of Seagate Technology plc. No changes in consolidated assets or liabilities resulted from this transaction, other than Seagate Technology plc has provided a guarantee of amounts due under certain borrowing arrangements as described in Note 6. See Note 10 for a discussion of the capital structure of Seagate Technology plc.
Accounting convention and basis of preparation of financial statements
In the Notes to the Consolidated Financial Statements, unless the context indicates otherwise, as used herein, the terms “Seagate” and the “Company” refer to the Seagate Group.
The directors have elected to prepare the consolidated financial statements of Seagate Technology plc (the "Company"“Company”) in accordance with Section 279 of the Companies Act 2014, which provides that a true and fair view of the state of the assets, liabilities, financial position and profit or loss may be given by preparing the financial statements in accordance with US accounting principles generally accepted in the United States of America (U.S. GAAP),standards, as such term is defined in Section 279(1) of the Companies Act 2014 (“US GAAP”), to the extent that the use of those principles in the preparation of the financial statements does not contravene any provision of Part 6 of the Companies ActsAct 2014. In producing consolidated financial statements at this level, the Company has taken advantage of the audit exemption for certain of its UK subsidiaries by virtue of s479A of UK Companies Act 2006, see Note 20 for further detail.
These financial statements therefore were prepared in accordance with Irish Company Law, to present to the shareholders of the Company and file with the Companies Registration Office in Ireland. Accordingly, these consolidated financial statements include presentation and additional disclosures required by the Republic of Ireland's Companies Act 2014 in addition to those disclosures required under U.S.US GAAP.
In addition, in these financial statements, terminology typically utilized in a set of U.S.US GAAP financial statements has been retained for the benefit of those users of these financial statements who also access our 10-K U.S.the Company’s US GAAP financial statements as filed with the US Securities and Exchange Commission on Form10-K, rather than utilizing the terminology set out under Irish Company Law. Accordingly, references to revenue, cost of revenue, interest income, interest expense, income tax expense and net income having the same meaning as references to turnover, cost of sales, other interest receivable and similar income, interest payable and similar charges, tax on profit on ordinary activities and profit on ordinary activities after taxation under Irish Company Law. Additionally, references to Other comprehensive income (loss) (OCI) refer to a component of Other Reserves.
Basis of Presentation and Consolidation
The consolidated financial statements include the accounts of the Company and all its wholly-owned and majority-owned subsidiaries, after elimination of intercompany transactions and balances.
The preparation of financial statements in accordance with U.S.US generally accepted accounting principles also requires management to make estimates and assumptions that affect the amounts reported in the Company's
Company’s consolidated financial statements and accompanying notes. Actual results could differ materially from those estimates. The methods, estimates and judgments the Company uses in applying its most critical accounting policies have a significant impact on the results the Company reports in its consolidated financial statements.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) Certain prior years amounts reported in the consolidated financial statements and notes thereto have been reclassified to conform to the current year’s presentation.
The Company operates and reports financial results on a fiscal year of 52 or 53 weeks ending on the Friday closest to June 30.30 June. Accordingly, fiscal year 2015 was comprised 53 weeksyears 2017 and ended on 3 July 2015. Fiscal years 2014 was2016 were comprised of 52 weeks and ended on 2730 June 2014.2017 and 1 July 2016, respectively. All references to years in these Notes to the Consolidated Financial Statements represent fiscal years unless otherwise noted. Fiscal year 20162018 will be 52 weeks and will end on 1 July 2016.29 June 2018.
In these Notes to the Consolidated Financial Statements, unless the context indicates otherwise, as used herein, the terms "we," "us," "Seagate," the "Company" and "our" refer to the Seagate Group. In these Notes to the Consolidated Financial Statements, references to Other comprehensive income (loss) (OCI) refer to a component of Other Reserves.
Summary of Significant Accounting Policies
Cash, Cash Equivalents and Investments. The Company considers all highly liquid investments with a remaining maturity of 90 days or less at the time of purchase to be cash equivalents. Cash equivalents are carried at cost, which approximates fair value. The Company'sCompany’s investments are primarily comprised of money market funds, certificates oftime deposits and other interest-bearing bankcertificates of deposits. The Company has classified its marketable securities asavailable-for-sale and they are stated at fair value with unrealized gains and losses included in Accumulated other comprehensive income (loss),loss, which is a component of Other Reserves. The Company evaluates theavailable-for sale securities in an unrealized loss position for other-than-temporary impairment. Realized gains and losses are included in Other income and charges, net. The cost of securities sold is based on the specific identification method.
Restricted Cash and Investments.Restricted cash and investments representsrepresent cash and cash equivalents and investments that are restricted as to withdrawal or use for other than current operations.
Allowances for Doubtful Accounts. The Company maintains an allowance for uncollectible trade debtors based upon expected collectability. This reserve is established based upon historical trends, global macroeconomic conditions and an analysis of specific exposures. The provision for doubtful accounts is recorded as a charge to Marketing and administrative expense.
Inventory. Inventories are valued at the lower of cost (using thefirst-in,first-out method) or market. Market value is based upon an estimated average selling price reduced by estimated cost of completion and disposal.
Tangible Assets. Tangible assets are stated at cost. Equipment and buildings are depreciated using the straight-line method over the estimated useful lives of the assets. Leasehold improvements are amortized using the straight-line method over the shorter of the estimated life of the asset or the remaining term of the lease. The costs of additions and substantial improvements to tangible assets, which extend the economic life of the underlying assets, are capitalized. The cost of maintenance and repairs to tangible assets are expensed as incurred.
Assessment of Goodwill and Other Long-lived Assets for Impairment.Irish Company law requires that goodwill is written off over a period of time which does not exceed its useful economic life. However, the Company does not believe this gives a true and fair view because not all goodwill declines in value. In addition, since goodwill that does decline in value rarely does so on a straight-line basis, straight-line amortization of goodwill over an arbitrary period does not reflect the economic reality. Consistent with U.S.US GAAP, Seagate considers goodwill an indefinite-lived intangible asset that is not amortized over an arbitrary period. Rather, the Company accounts for goodwill in accordance with Accounting Standards Codification (ASC)(“ASC”) Topic 350 (ASC 350)(“ASC 350”),Intangibles—Intangibles - Goodwill and Other. Therefore in order to present a true and fair view of the economic
reality under US GAAP, goodwill is
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
considered indefinite-lived and is not amortized. The Company is not able to reliably estimate the impact on the financial statements of the true and fair override on the basis that the useful economic life of goodwill cannot be predicted with a satisfactory level of reliability nor can the pattern in which goodwill diminishes be known. During fiscal year 2012,2017, the Company adopted ASU Accounting Standard Update (“ASU”)No. 2011-08,2017-04,Intangibles—Intangibles - Goodwill and Other (ASC Topic 350)—Testing - Simplifying the Test for Goodwill for Impairment. The Company performs a qualitative assessment atin the fourth quarter of each year, or more frequently if indicators of potential impairment exist, to determine if any events or circumstances exist, such as an adverse change in business climate or a decline in the overall industry that would indicate that it would more likely than not reduce the fair value of a reporting unit below its carrying amount, including goodwill. If it is determined in the qualitative assessment that the fair value of a reporting unit is more likely than not below its carrying amount, including goodwill, then the Company performswill perform a quantitative two-step impairment test. The first step, identifying a potentialquantitative goodwill impairment comparestest is performed by comparing the fair value of a reporting unit with its carrying amount, including goodwill. Ifamount. Any excess in the carrying value of thea reporting unit exceeds its fair value, the second step would need to be conducted. The second step, measuring the impairment loss, compares the implied fair value of the reporting unitunit’s goodwill with the carrying amount of that goodwill. Any excess of the reporting unit goodwill carrying value over its implied fair value is recognized as an impairment loss.loss, limited to the total amount of goodwill allocated to that reporting unit.
The Company tests other tangible assets, including tangible assets and other intangible assets subject to amortization, for recoverability whenever events or changes in circumstances indicate that the carrying value of those assets may not be recoverable. The Company performs a recoverability test to assess the recoverability of an asset group. If the recoverability test indicates that the carrying value of the asset group is not recoverable, the Company will estimate the fair value of the asset group and the excess of the carrying value over the fair value is allocated pro rata to derive the adjusted carrying value of assets in the asset group. The adjusted carrying value of each asset in the asset group is not reduced below its fair value.
The Company tests other intangible assets not subject to amortization whenever events occur or circumstances change, such as declining financial performance, deterioration in the environment in which the entity operates or deteriorating macroeconomic conditions that have a negative effect on future expected earnings and cash flows that could affect significant inputs used to determine the fair value of the indefinite-lived intangible asset.
Derivative Financial Instruments. The Company applies the requirements of ASC Topic 815 (ASC 815)(“ASC 815”),Derivatives and Hedging. ASC 815 requires that all derivatives be recorded on the balance sheet at fair value and establishes criteria for designation and effectiveness of hedging relationships (see note 8).
�� Establishment of Warranty Accruals. The Company estimates probable product warranty costs at the time revenue is recognized. The Company generally warrants its products for a period of 1 to 5 years. The Company'sCompany’s warranty provision considers estimated product failure rates and trends (including the timing of product returns during the warranty periods), and estimated repair or replacement costs related to product quality issues, if any. The Company also exercises judgment in estimating its ability to sell certain repaired products. Should actual experience in any future period differ significantly from its estimates, the Company'sCompany’s future results of operations could be materially affected.
Revenue Recognition, Sales Returns and Allowances, and Sales Incentive Programs. The Company'sCompany’s revenue recognition policy complies with ASC Topic 605 (ASC 605)(“ASC 605”),Revenue Recognition. Revenue from sales of products, including sales to distribution customers, is generally recognized when title and risk of loss has passed to the buyer, which typically occurs upon shipment from the Company or third
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
party party’s warehouse facilities, persuasive evidence of an arrangement exists, including a fixed or determinable price to the buyer, and when collectability is reasonably assured. Revenue from sales of products to certain direct retail customers and to customers in certain indirect retail channels is recognized on a sell-through basis.
The Company records estimated product returns at the time of shipment. The Company also estimates reductions to revenue for sales incentive programs, such as price protection, and volume incentives, and
records such reductions when revenue is recorded. The Company establishes certain distributor and OEM sales programs aimed at increasing customer demand. For OEM sales, rebates are typically based on an OEM customer'scustomer’s volume of purchases from Seagate or other agreed upon rebate programs. For the distribution channel, these programs typically involve rebates related to a distributor'sdistributor’s level of sales, order size, advertising or point of sale activity and price protection adjustments. The Company provides for these obligations at the time that revenue is recorded based on estimated requirements. Marketing development programs are recorded as a reduction to revenue.
Product Development Costs.Product development costs, which includes both research and development costs, are recognized as expense.
Distribution Costs. The Company includes distribution costs, which includes shipping and handling, in Cost of revenue for all periods presented. These costs amount to $143$116 million and $166$132 million in fiscal years 20152017 and 2014,2016, respectively.
Restructuring Costs. The Company records restructuring activities including costs forone-time termination benefits in accordance with ASC Topic 420 (ASC 420)(“ASC 420”),Exit or Disposal Cost Obligations. The timing of recognition for severance costs accounted for under ASC 420 depends on whether employees are required to render service until they are terminated in order to receive the termination benefits. If employees are required to render service until they are terminated in order to receive the termination benefits, a liability is recognized ratably over the future service period. Otherwise, a liability is recognized when management has committed to a restructuring plan and has communicated those actions to employees. Employee termination benefits covered by existing benefit arrangements are recorded in accordance with ASC Topic 712,Non-retirementNon-retirement Postemployment Benefits. These costs are recognized when management has committed to a restructuring plan and the severance costs are probable and estimable.
Advertising Expense. The cost of advertising is expensed as incurred. Advertising costs were approximately $64$16 million and $52$31 million in fiscal years 20152017 and 2014,2016, respectively.
Stock-BasedShare-Based Compensation. The Company accounts for stock-basedshare-based compensation under the provisions of ASC Topic 718 (ASC 718),Compensation-Stock Compensation. The Company has elected to apply thewith-and-without method to assess the realization of related excess tax benefits.
Accounting for Income Taxes. The Company accounts for income taxes pursuant to ASC Topic 740 (ASC 740)(“ASC 740”),Income TaxesTaxes.. In applying ASC 740, the Company makes certain estimates and judgments in determining income tax expense for financial statement purposes. These estimates and judgments occur in the calculation of tax credits, recognition of income and deductions and calculation of specific tax assets and liabilities, which arise from differences in the timing of recognition of revenue and expense for income tax and financial statement purposes, as well as tax liabilities associated with uncertain tax positions. The calculation of tax liabilities involves uncertainties in the application of complex tax rules and the potential for future adjustment of the Company'sCompany’s uncertain tax positions by the Internal Revenue Service or other tax jurisdictions. If estimates of these tax liabilities are greater or less than actual results, an additional tax benefit or provision will result. The deferred tax assets the
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Company records each period depend primarily on the Company'sCompany’s ability to generate future taxable income in the United States and certain non-U.S.non-US jurisdictions. Each period, the Company evaluates the need for a valuation allowance for its deferred tax assets and, if necessary, adjusts the valuation allowance so that net deferred tax assets are recorded only to the extent the Company concludes it is more likely than not that these deferred tax assets will be realized. If the Company'sCompany’s outlook for future taxable income changes significantly, the Company'sCompany’s assessment of the need for, and the amount of, a valuation allowance may also change.
Comprehensive Income.
Foreign Currency Remeasurement and Translation. The U.S.US dollar is the functional currency for the majority of the Company'sCompany’s foreign operations. Monetary assets and liabilities denominated in foreign currencies are remeasured into the functional currency of the subsidiary at the balance sheet date. The gains and losses from the remeasurement of foreign currency denominated balances into the functional currency of the subsidiary are included in Other income and charges, net on the Company'sCompany’s Consolidated Profit and Loss Account. The Company had $4 million and $0 million in remeasurement losses in fiscal years 2017 and 2016, respectively.
The Company translates the assets and liabilities of its non-U.S.non-US dollar functional currency subsidiaries into U.S.US dollars using exchange rates in effect at the end of each period. Revenue and expenses for these subsidiaries are translated using rates that approximate those in effect during the period. Gains and losses from these translations are recognized in foreign currency translation included in Accumulated other comprehensive loss,Other reserves, which is a component of shareholders'shareholders’ equity. The Company'sCompany’s subsidiaries that use the U.S.US dollar as their functional currency remeasure monetary assets and liabilities at exchange rates in effect at the end of each period, and inventories, property, and nonmonetary assets and liabilities at historical rates. Gains and losses from these remeasurements were not significant and have been included in the Company'sCompany’s Consolidated Profit and Loss Account.
Concentrations
Concentration of Credit Risk.The Company'sCompany’s customer base for disk drive products is concentrated with a small number of OEMs and distributors. The Company does not generally require collateral or other security to support trade debtors. To reduce credit risk, the Company performs ongoing credit evaluations on its customers'customers’ financial condition. The Company establishes an allowance for doubtful accounts based upon factors surrounding the credit risk of customers, historical trends and other information. Hewlett-Packard Company and Dell Inc. each accounted for more than 10%than10% of the Company'sCompany’s trade debtors as of 3 July 2015.30 June 2017.
Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash equivalents, short-term investments and foreign currency forward exchange contracts. The Company further mitigates concentrations of credit risk in its investments through diversification, by limiting its investments in the debt securities of a single issuer, and investing in highly ratedhighly-rated securities.
In entering into foreign currency forward exchange contracts, the Company assumes the risk that might arise from the possible inability of counterparties to meet the terms of their contracts. The counterparties to these contracts are major multinational commercial banks, and the Company has not incurred and does not expect any losses as a result of counterparty defaults.
Supplier Concentration. Certain of the raw materials, components and equipment used by the Company in the manufacture of its products are available from a sole supplier or a limited number of
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
suppliers.single-sourced vendors. Shortages could occur in these essential materials and components due to an interruption of supply or increased demand in the industry. If the Company were unable to procure certain materials, components or equipment at acceptable prices, it would be required to reduce its manufacturing operations, which could have a material adverse effect on its results of operations. In addition, the Company has mademay make prepayments to certain suppliers.suppliers or enter into minimum volume commitment agreements. Should these suppliers be unable to deliver on their obligations or experience financial difficulty, the Company may not be able to recover these prepayments.
RecentRecently Issued Accounting Pronouncements
In May 2014, August 2015, April 2016, May 2016 and December 2016, the FASBFinancial Accounting Standards Board (“FASB”) issued ASU2014-09 (ASC Topic 606), Revenue from Contracts with Customers,ASU2015-14 (ASC
Topic 606)Revenue from Contracts with Customers.Customers, Deferral of the Effective Date,ASU2016-10 (ASC Topic 606)Revenue from Contracts with Customers, Identifying Performance Obligations and Licensing, ASU The2016-12 (ASC Topic 606)Revenue from Contracts with Customers, Narrow-Scope Improvements and Practical Expedients,and ASU2016-20 (ASC Topic 606)Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers,respectively.ASC Topic 606 outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. It also requires entities to disclose both quantitative and qualitative information that enable financial statements users to understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The Company is required to adopt the guidance in the first quarter of fiscal 2019. This standard may be applied retrospectively to all prior periods presented, or retrospectively with a cumulative adjustment to retained earnings, which is a component of the Profit and Loss Account on the Consolidated Balance Sheet, in the year of adoption (“modified retrospective transition approach”). Based on its assessment, the Company plans to adopt the new revenue standard in the first quarter of fiscal 2019, utilizing the modified retrospective method of transition.
While management has not yet completed its assessment of the impact of adopting this new standard on the Company’s consolidated financial statements, the Company expects the adoption of the new standard will result in the recognition of revenues generally upon shipment(sell-in basis) for sales of products to certain direct retail customers and customers in certain indirect retail channels which are currently being recognized on a sell-through basis. Accordingly, the Company will need to estimate variable consideration (e.g. rebates) related to customer incentives on these arrangements. These changes are not expected to have a material impact on the Company’s consolidated financial statements.
In July 2015, the FASB issued ASU2015-11 (ASC Topic 330),Inventory: Simplifying the Measurement of Inventory. The amendments in this ASU are effectiverequire inventory measurement at the lower of cost and net realizable value. The Company is required and intends to adopt the guidance in the first quarter of fiscal 2018. The Company does not expect the adoption of this ASU to have a material impact on its consolidated financial statements.
In January 2016, the FASB issued ASU2016-01 (ASC Subtopic825-10),Financial Instruments - Overall Recognition and Measurement of Financial Assets and Financial Liabilities.The amendments in this ASU require entities to measure all investments in equity securities at fair value with changes recognized through net income. This requirement does not apply to investments that qualify for the equity method of accounting, to those that result in consolidation of the investee, or for which the entity meets a practicability exception to fair value measurement. Additionally, the amendments eliminate certain disclosure requirements related to financial instruments measured at amortized cost and add disclosures related to the measurement categories of financial assets and financial liabilities. The Company is required to adopt the guidance in the first quarter of fiscal years, and interim periods within those years, beginning after December 15 2017.2019. Early adoption is permitted for annual periods beginning after December 15, 2016.only certain portions of the ASU. The Company is in the process of assessing the impact if any,of this ASU on its consolidated financial statements.
In February 2016, the FASB issued ASU2016-02 (ASC Topic 842),Leases. The ASU amends a number of aspects of lease accounting, including requiring lessees to recognize operating leases with a term greater than one year on their balance sheet as aright-of-use asset and corresponding lease liability, measured at the present value of the lease payments. The Company is required to adopt the guidance in the first quarter of fiscal 2020. Early adoption is permitted. The Company is in the process of assessing the impact of this ASU on its consolidated financial statements.
In March 2016, the FASB issued ASU2016-09 (ASC Topic 718), Stock Compensation - Improvements to Employee Share-Based Payment Accounting. The amendments in this ASU are intended to simplify several areas of accounting for share-based compensation arrangements, including the income tax consequences, classification on the consolidated statement of cash flows and treatment of forfeitures. The Company is
required and intends to adopt the guidance in the first quarter of fiscal 2018. Upon adoption, the Company anticipates that this ASU will result in an increase in deferred tax assets relating to net operating losses of approximately $0.5 billion, offset by an equivalent increase in the valuation allowance. This guidance, however, is not expected to have a material impact on the Company’s Consolidated Balance Sheet, Statements of Profit and Loss or Cash Flows.
In October 2016, the FASB issued ASU2016-16 (ASC Topic 740),Income Taxes: Intra-Entity Transfers of Assets Other Than Inventory. The amendments in this ASU require the recognition of the income tax consequences for intra-entity transfers of assets other than inventory when the transfer occurs. Under current GAAP, current and deferred income taxes for intra-entity asset transfers are not recognized until the asset has been sold to an outside party. The Company is required to adopt the guidance in the first quarter of fiscal 2019. Early adoption is permitted. The Company is in the process of assessing the impact of this ASU on its consolidated financial statements.
In January 2017, the FASB issued ASU2017-01 (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 is required to adopt the guidance in the first quarter of fiscal 2019. Early adoption is permitted. The Company is in the process of assessing the impact of this ASU on its consolidated financial statements.
In May 2017, the FASB issued ASU2017-09 (ASC Topic 718),Stock Compensation: Scope of Modification Accounting. The amendments in this ASU provide guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting. The Company is required to adopt the guidance in the first quarter of fiscal 2019. Early adoption is permitted. The Company is in the process of assessing the impact of this ASU on its consolidated financial statements.
Recently Adopted Accounting Pronouncements
In April 2015 and August 2015, the FASB issued ASU2015-03 (ASC Subtopic835-30),Interest-Imputation of Interest: Simplifying the Presentation of Debt Issuance Costs.Costs and ASU2015-15 (ASC Subtopic835-30),Presentation and Subsequent Measurement of Debt Issuance Costs Associated withLine-of-Credit Arrangements- Amendments to SEC Paragraphs Pursuant to Staff Announcement at June 18, 2015 EITF Meeting, respectively. The amendments in this ASUASUs require that debt issuance costs related to a recognized debt liability, with the exception of those related toline-of-credit arrangements, be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability. ASU2015-03 became effective and was adopted by the Company in the September 2016 quarter on a retrospective basis. The adoption of this guidance resulted in a reduction to Other debtors-due after one year, and Debt due to creditors after one year by $39 million, within the Consolidated Balance Sheet as of 1 July 2016. ASU2015-15 became effective and was adopted by the Company in the September 2016 quarter on a retrospective basis with no material impact on the Company’s consolidated financial statements and disclosures.
In September 2015, the FASB issued ASU2015-16 (ASC Topic 805),Business Combinations Simplifying the Accounting for Measurement-Period Adjustments. The amendments in this update require that an acquirer recognize measurement period adjustments in the period in which the adjustments are determined. The income effects of such measurement period adjustments are to be recorded in the same period’s financial statements but calculated as if the accounting had been completed as of the acquisition date. The impact of measurement period adjustments to earnings that relate to prior period financial statements are to be presented separately on the income statement or disclosed by line item. The amendments in this update are for fiscal years, including interim periods within those fiscal years, beginning after 15 December 2015. This ASU became effective and was adopted by the Company in the September 2016 quarter on a prospective basis with no material impact on the Company’s consolidated financial statements and disclosures.
In November 2016, the FASB issued ASU2016-18 (ASC Topic 230),Statement of Cash Flows: Restricted Cash. The amendments in this update provide guidance on the classification and presentation of changes in restricted cash on the statement of cash flows. The ASU requires amounts generally described as restricted cash and restricted cash equivalents to be included with cash and cash equivalents when reconciling the total beginning and ending balances for the periods presented on the statement of cash flows. The amendments in this update are for fiscal years, including interim periods within those fiscal years, beginning after 15 December 2017. The Company elected to adopt this ASU in the December 2016 quarter on a retrospective basis with no material impact on the Company’s consolidated financial statements and disclosures. The Company classifies restricted cash within Other debtors—amounts falling due within one year in the consolidated balance sheet.
In January 2017, the FASB issued ASU2017-04 (ASC Topic 350),Intangibles - Goodwill and Other: Simplifying the Test for Goodwill Impairment. The amendments in this ASU eliminate Step 2 from the goodwill impairment test, which requires entities to calculate the implied fair value of goodwill to measure a goodwill impairment charge. Instead, entities will record an impairment charge based on the excess of a reporting unit’s carrying amount over its fair value, determined in step 1. The Company elected to adopt this ASU in the March 2017 quarter on a prospective basis with no material impact on the Company’s consolidated financial statements and disclosures.
In August 2016, the FASB issued ASU2016-15 (ASC Topic 230), Statement of Cash Flows - Classification of Certain Cash Receipts and Cash Payments.The amendments in this ASU are effective for fiscal years,intended to clarify how certain cash receipts and interim periods within those years, beginning after December 15 2015. Early adoption is permitted for financial statements that have not been previously issued.cash payment are presented and classified in the statement of cash flows. The Company elected to adopt this ASU in the June 2017 quarter on a retrospective basis. The adoption of this new guidance will not have ahad no material impact on the Company'sCompany’s consolidated financial statements and disclosures.
In July 2015, the FASB issued ASU 2015-11 (ASC Topic 330),Inventory: Simplifying the Measurement of Inventory. The amendments in this ASU require inventory measurement at the lower of cost and net realizable value. The amendments in this ASU are effective for fiscal years beginning after December 15 2016, including interim periods within those fiscal years. Earlier application is permitted by all entities as of the beginning of an interim or annual reporting period. The Company is in the process of assessing the impact, if any, on its consolidated financial statements.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. Balance Sheet Information
Investments
The following table summarizes, by major type, the fair value and amortized cost of the Company'sCompany’s investments as of 3 July 2015:30 June 2017:
(US Dollars in millions) | Amortized Cost | Unrealized Gain/(Loss) | Fair Value(2) | |||||||
---|---|---|---|---|---|---|---|---|---|---|
Available-for-sale securities: | ||||||||||
Money market funds | $ | 1,203 | $ | — | $ | 1,203 | ||||
Corporate bonds | 6 | — | 6 | |||||||
Certificates of deposit | 867 | — | 867 | |||||||
| | | | | | | | | | |
Total | $ | 2,076 | $ | — | $ | 2,076 | ||||
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
Included in Cash and cash equivalents(1) | $ | 2,063 | ||||||||
Included in Investments | 6 | |||||||||
Included in Restricted cash and investments | 7 | |||||||||
Included in Financial assets | — | |||||||||
| | | | | | | | | | |
Total | $ | 2,076 | ||||||||
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(US Dollars in millions) | Amortized Cost | Unrealized Gain/(Loss) | Fair Value(2) | |||||||||
Available-for-sale securities: | ||||||||||||
Money market funds | $ | 594 | $ | — | $ | 594 | ||||||
Time deposits and certificates of deposit | 584 | — | 584 | |||||||||
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Total | $ | 1,178 | $ | — | $ | 1,178 | ||||||
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Included in Cash and cash equivalents(1) | $ | 1,174 | ||||||||||
Included in Other debtors - amounts falling due within one year | 4 | |||||||||||
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Total | $ | 1,178 | ||||||||||
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(1) | Amount does not include $1,365 million of cash held in banks. |
(2) | Represents the Company’s investments that are listed with the exception of Time deposits and certificates of deposit. |
As of 3 July 2015,30 June 2017, the Company's Restricted cash and investments consisted of $7Company’s Other debtors - amounts falling due within one year included $4 million in restricted cash and investments held as collateral at banks for various performance obligations.
As of 3 July 2015,30 June 2017, the Company had no materialavailable-for-sale securities that had been in a continuous unrealized loss position for a period greater than 12 months. The Company determined noavailable-for-sale securities were other-than-temporarily impaired as of 3 July 2015.30 June 2017.
The fair value and amortized cost of the Company'sCompany’s investments classified asavailable-for-sale at 3 July 201530 June 2017 by remaining contractual maturity was as follows:
(US Dollars in millions) | Amortized Cost | Fair Value | |||||
---|---|---|---|---|---|---|---|
Due in less than 1 year | $ | 2,070 | $ | 2,070 | |||
Due in 1 to 5 years | 6 | 6 | |||||
Due in 5 to 10 years | — | — | |||||
Thereafter | — | — | |||||
| | | | | | | |
Total | $ | 2,076 | $ | 2,076 | |||
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(US Dollars in millions) | Amortized Cost | Fair Value | ||||||
Due in less than 1 year | $ | 1,178 | $ | 1,178 | ||||
Due in 1 to 5 years | — | — | ||||||
Due in 6 to 10 years | — | — | ||||||
Thereafter | — | — | ||||||
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Total | $ | 1,178 | $ | 1,178 | ||||
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Equity securities which do not have a contractual maturity date are not included in the above table.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)The Company reclassified demand deposits from certificates of deposit and money market funds to cash as of 1 July 2016 in the table below to conform to the current year’s presentation. This reclassification did not result in any change to the cash and cash equivalents balance as reported in the Consolidated Balance Sheet and Statement of Cash Flows for all periods presented.
The following table summarizes, by major type, the fair value and amortized cost of the Company'sCompany’s investments as of 27 June 2014:1 July 2016:
(US Dollars in millions) | Amortized Cost | Unrealized Gain/(Loss) | Fair Value(2) | |||||||
---|---|---|---|---|---|---|---|---|---|---|
Available-for-sale securities: | ||||||||||
Commercial paper | $ | 1,261 | $ | — | $ | 1,261 | ||||
Money market funds | 793 | — | 793 | |||||||
U.S. treasuries and agency bonds | — | — | — | |||||||
Certificates of deposit | 273 | — | 273 | |||||||
Corporate bonds | 6 | — | 6 | |||||||
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Total | $ | 2,333 | $ | — | $ | 2,333 | ||||
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Included in Cash and cash equivalents(1) | $ | 2,309 | ||||||||
Included in Investments | 20 | |||||||||
Included in Restricted cash and investments | 4 | |||||||||
Included in Financial assets | — | |||||||||
| | | | | | | | | | |
Total | $ | 2,333 | ||||||||
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(US Dollars in millions) | Amortized Cost | Unrealized Gain/(Loss) | Fair Value (2) | |||||||||
Available-for-sale securities: | ||||||||||||
Money market funds | $ | 232 | $ | — | $ | 232 | ||||||
Corporate bonds | 6 | — | 6 | |||||||||
Certificates of deposit | 5 | — | 5 | |||||||||
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Total | $ | 243 | $ | — | $ | 243 | ||||||
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Included in Cash and cash equivalents(1) | $ | 230 | ||||||||||
Included in Investments | 6 | |||||||||||
Included in Other debtors - amounts falling due within one year | 7 | |||||||||||
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Total | $ | 243 | ||||||||||
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(1) | Amount does not include $895 million of cash held in banks. |
(2) | Represents the Company’s investments that are listed with the exception of Certificates of deposit. |
As of 27 June 2014,1 July 2016, the Company's Restricted cash and investments consistedCompany’s Other debtors - amounts falling due within one year included of $4$7 million in cash and investments held as collateral at banks for various performance obligations.
During the fourth quarter of 2014, the Company sold all of its auction rate securities and recognized an immaterial loss on the sale which is included in Other income and charges, net in the Company's Consolidated Statement of Profit and Loss Account.
As of 27 June 2014,1 July 2016, the Company had noavailable-for-sale securities that had been in a continuous unrealized loss position for a period greater than 12 months. The Company determined noavailable-for-sale securities were other-than-temporarily impaired as of 27 June 2014.1 July 2016.
Cash, Cash Equivalents, and Restricted Cash The following table provides a summary of cash, cash equivalents, and restricted cash reported within the Consolidated Balance Sheet that reconciles to the corresponding amount in the Consolidated Statement of Cash Flows: Cash and cash equivalents Restricted cash included in Other debtors - amounts falling due within one year Total cash, cash equivalents, and restricted cash shown in the Statements of Cash Flows Trade Debtors(Dollars in millions) June 30
2017 1 July
2016 3 July
2015 $ 2,539 $ 1,125 $ 2,479 4 7 7 2,543 $ 1,132 2,486
The following table provides details of the trade debtors balance sheet item:
(US Dollars in millions) | 3 July 2015 | 27 June 2014 | |||||
---|---|---|---|---|---|---|---|
Trade Debtors | $ | 1,744 | $ | 1,741 | |||
Allowance for doubtful accounts | (9 | ) | (12 | ) | |||
| | | | | | | |
$ | 1,735 | $ | 1,729 | ||||
| | | | | | | |
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(US Dollars in millions) | 30 June 2017 | 1 July 2016 | ||||||
Trade Debtors | $ | 1,204 | $ | 1,327 | ||||
Allowance for doubtful accounts | (5) | (9) | ||||||
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$ | 1,199 | $ | 1,318 | |||||
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Activity in the allowance for doubtful accounts is as follows:
(US Dollars in millions) | Balance at Beginning of Period | Charges to Profit and Loss | Deductions(1) | Assumed from LaCie S.A. | Balance at End of Period | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Fiscal year ended 27 June 2014 | $ | 8 | $ | 4 | $ | — | $ | — | $ | 12 | ||||||
Fiscal year ended 3 July 2015 | $ | 12 | $ | — | $ | (3 | ) | $ | — | $ | 9 |
(US Dollars in millions) | Balance at Beginning of Period | Charges to Profit and Loss | Deductions(1) | Balance at End of Period | ||||||||||||
Fiscal year ended 1 July 2016 | $ | 9 | $ | 1 | $ | (1) | $ | 9 | ||||||||
Fiscal year ended 30 June 2017 | $ | 9 | $ | (4) | $ | — | $ | 5 |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(1) | Uncollectible accounts written off, net of recoveries. |
Inventories
The following table provides details of the inventory balance sheet item:
(US Dollars in millions) | 3 July 2015 | 27 June 2014 | |||||
---|---|---|---|---|---|---|---|
Raw materials and components | $ | 352 | $ | 324 | |||
Work-in-process | 239 | 267 | |||||
Finished goods | 402 | 394 | |||||
| | | | | | | |
$ | 993 | $ | 985 | ||||
| | | | | | | |
| | | | | | | |
| | | | | | | |
(US Dollars in millions) | 30 June 2017 | 1 July 2016 | ||||||
Raw materials and components | $ | 350 | $ | 307 | ||||
Work-in-process | 257 | 297 | ||||||
Finished goods | 375 | 264 | ||||||
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$ | 982 | $ | 868 | |||||
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Other Debtors—Debtors - amounts falling due within one year
The following table provides details of the other debtors—amounts falling due within one year balance sheet item:
(US Dollars in millions) | 3 July 2015 | 27 June 2014 | |||||
---|---|---|---|---|---|---|---|
Vendor non-trade debtors | $ | 66 | $ | 112 | |||
Deferred income taxes | 122 | 126 | |||||
Other | 160 | 167 | |||||
| | | | | | | |
$ | 348 | $ | 405 | ||||
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Other debtors include non-trade debtors from certain manufacturing vendors resulting from the sale of components to these vendors who manufacture completed sub-assemblies or finished goods for the Company. The Company does not reflect the sale of these components in revenue and does not recognize any profits on these sales. The costs of the completed sub-assemblies are included in inventory upon purchase from the vendors.
(US Dollars in millions) | 30 June 2017 | 1 July 2016 | ||||||
Vendornon-trade debtors | $ | 96 | $ | 66 | ||||
Other | 150 | 150 | ||||||
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$ | 246 | $ | 216 | |||||
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Other Debtors—Debtors - amounts falling due after one year
The following table provides details of the other debtors—debtors - amounts falling due after one year balance sheet item:
(US Dollars in millions) | 3 July 2015 | 27 June 2014 | |||||
---|---|---|---|---|---|---|---|
Deferred income taxes | $ | 496 | $ | 499 | |||
Other | 139 | 138 | |||||
| | | | | | | |
$ | 635 | $ | 637 | ||||
| | | | | | | |
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(US Dollars in millions) | 30 June 2017 | 1 July 2016 | ||||||
Deferred income taxes | $ | 609 | $ | 616 | ||||
Other | 99 | 106 | ||||||
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$ | 708 | $ | 722 | |||||
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Tangible Assets
The following table provides details of the tangible assets balance sheet item:
(US Dollars in millions) | Land | Equipment | Buildings and Leasehold Improvements | Construction in Progress | Total | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Useful lives (years) | 3 - 5 | Up to 48 | ||||||||||||||
Cost: | ||||||||||||||||
At 28 June 2013 | $ | 44 | $ | 6,838 | $ | 1,401 | $ | 261 | $ | 8,544 | ||||||
Additions | 1 | 278 | 33 | 305 | 617 | |||||||||||
Disposals | — | (188 | ) | (2 | ) | — | (190 | ) | ||||||||
Reclassifications | — | 8 | 1 | 9 | ||||||||||||
CIP Reclassifications | — | 223 | 19 | (242 | ) | — | ||||||||||
Impairments | — | — | — | (1 | ) | (1 | ) | |||||||||
| | | | | | | | | | | | | | | | |
At 27 June 2014 | $ | 45 | $ | 7,159 | $ | 1,452 | $ | 323 | $ | 8,979 | ||||||
| | | | | | | | | | | | | | | | |
Additions | 1 | 235 | 20 | 576 | 832 | |||||||||||
Disposals | — | (157 | ) | (13 | ) | (9 | ) | (179 | ) | |||||||
Reclassifications | — | (6 | ) | 5 | (1 | ) | (2 | ) | ||||||||
CIP Reclassifications | 2 | 209 | 131 | (342 | ) | — | ||||||||||
Impairments | — | — | — | — | — | |||||||||||
| | | | | | | | | | | | | | | | |
At 3 July 2015 | $ | 48 | $ | 7,440 | $ | 1,595 | $ | 547 | $ | 9,630 | ||||||
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Accumulated Depreciation: | ||||||||||||||||
At 28 June 2013 | $ | (5 | ) | $ | (5,600 | ) | $ | (670 | ) | $ | — | $ | (6,275 | ) | ||
Additions | — | (643 | ) | (105 | ) | — | (748 | ) | ||||||||
Disposals | — | 187 | 2 | — | 189 | |||||||||||
Reclassifications | — | (8 | ) | (1 | ) | — | (9 | ) | ||||||||
Impairments | — | — | — | — | — | |||||||||||
| | | | | | | | | | | | | | | | |
At 27 June 2014 | $ | (5 | ) | $ | (6,064 | ) | $ | (774 | ) | $ | — | $ | (6,843 | ) | ||
| | | | | | | | | | | | | | | | |
Additions | — | (580 | ) | (104 | ) | (8 | ) | (692 | ) | |||||||
Disposals | — | 157 | 13 | 8 | 178 | |||||||||||
Reclassifications | (1 | ) | 4 | 2 | — | 5 | ||||||||||
Impairments | — | — | — | — | — | |||||||||||
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At 3 July 2015 | $ | (6 | ) | $ | (6,483 | ) | $ | (863 | ) | $ | — | $ | (7,352 | ) | ||
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Net Book Value: | ||||||||||||||||
At 27 June 2014 | $ | 40 | $ | 1,095 | $ | 678 | $ | 323 | $ | 2,136 | ||||||
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At 3 July 2015 | $ | 42 | $ | 957 | $ | 732 | $ | 547 | $ | 2,278 | ||||||
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(US Dollars in millions) | Land (a) | Equipment | Buildings and Leasehold Improvements(a) | Construction in Progress (CIP) | Total | |||||||||||||||
Useful lives (years) | 3 - 5 | Up to 30 | ||||||||||||||||||
Cost: | ||||||||||||||||||||
At 3 July 2015 | $ | 48 | $ | 7,440 | $ | 1,595 | $ | 547 | $ | 9,630 | ||||||||||
Additions | 2 | 117 | 34 | 414 | 567 | |||||||||||||||
Disposals | — | (261) | (26) | — | (287) | |||||||||||||||
Reclassifications | — | 4 | 1 | (31) | (26) | |||||||||||||||
CIP Reclassifications | 19 | 381 | 296 | (696) | — | |||||||||||||||
Impairments | — | — | — | — | — | |||||||||||||||
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At 1 July 2016 | $ | 69 | $ | 7,681 | $ | 1,900 | $ | 234 | $ | 9,884 | ||||||||||
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Additions | — | 49 | 13 | 360 | 422 | |||||||||||||||
Disposals | (10) | (484) | (49) | (1) | (544) | |||||||||||||||
Reclassifications | 10 | 6 | 16 | (12) | 20 | |||||||||||||||
CIP Reclassifications | — | 290 | 142 | (432) | — | |||||||||||||||
Impairments | (4) | (6) | (31) | — | (41) | |||||||||||||||
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At 30 June 2017 | $ | 65 | $ | 7,536 | $ | 1,991 | $ | 149 | $ | 9,741 | ||||||||||
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Accumulated Depreciation: | ||||||||||||||||||||
At 3 July 2015 | $ | (6) | $ | (6,483) | $ | (863) | $ | — | $ | (7,352) | ||||||||||
Additions | — | (531) | (110) | — | (641) | |||||||||||||||
Disposals | — | 245 | 24 | — | 269 | |||||||||||||||
Reclassifications | — | — | — | — | — | |||||||||||||||
Impairments | — | — | — | — | — | |||||||||||||||
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At 1 July 2016(a) | $ | (6) | $ | (6,769) | $ | (949) | $ | — | $ | (7,724) | ||||||||||
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Additions | — | (456) | (125) | — | (581) | |||||||||||||||
Disposals | — | 483 | 49 | — | 532 | |||||||||||||||
Reclassifications | — | (9) | (9) | — | (18) | |||||||||||||||
Impairments | — | — | — | — | — | |||||||||||||||
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At 30 June 2017 | $ | (6) | $ | (6,751) | $ | (1,034) | $ | — | $ | (7,791) | ||||||||||
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Net Book Value: | ||||||||||||||||||||
At 1 July 2016 | $ | 63 | $ | 912 | $ | 951 | $ | 234 | $ | 2,160 | ||||||||||
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At 30 June 2017 | $ | 59 | $ | 785 | $ | 957 | $ | 149 | $ | 1,950 | ||||||||||
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(a) The Company classified certain land and buildings with a net book value of $75 million as assets held for sale in fiscal year 2017.
Interest on borrowings related to eligible capital expenditures is capitalized as part of the cost of the qualified assets and amortized over the estimated useful lives of the assets. During fiscal years 20152017 and 2014,2016, the Company capitalized interest of $15$4 million and $7$13 million, respectively.
In fiscal years 2017 and 2016, the Company determined it would discontinue the use of certain manufacturing property and equipment in the short-term, and that certain other buildings, land and manufacturing property and equipment were permanently impaired. As a result, the company recognized charges of $72 million and $53 million in fiscal years 2017 and 2016, respectively, from theNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)write-off and accelerated depreciation of these fixed assets, including $35 million impairment on land and buildings in fiscal year 2017, classified as held for sale under tangible assets in the Consolidated Balance Sheet. Please refer to Note 9.FairValuefor more details. In fiscal year 2017, total charges of $35 million, $35 million and $2 million was recorded to Cost of revenue, Product development and Marketing and administrative, respectively, in the Consolidated Profit and Loss Account. In fiscal year 2016, the entire amount was recorded in cost of revenue in the Consolidated Profit and Loss Account.
Other Provisions
The following table provides details of the other provisions balance sheet item:
(US Dollars in millions) | Note | 3 July 2015 | 27 June 2014 | |||||||
---|---|---|---|---|---|---|---|---|---|---|
Accrued warranty | 16 | $ | 248 | $ | 273 | |||||
Accrued restructuring | 5 | 19 | 14 | |||||||
| | | | | | | | | | |
$ | 267 | $ | 287 | |||||||
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(US Dollars in millions) | Note | 30 June 2017 | 1 July 2016 | |||||||||
Accrued warranty | 16 | $ | 233 | $ | 206 | |||||||
Accrued restructuring | 5 | 43 | 63 | |||||||||
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$ | 276 | $ | 269 | |||||||||
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Other Creditors—Creditors - amounts due within one year
The following table provides details of the other creditors—creditors - amounts falling due within one year balance sheet item:
(US Dollars in millions) | 3 July 2015 | 27 June 2014 | |||||
---|---|---|---|---|---|---|---|
Accrued expenses and deferred income | $ | 387 | $ | 381 | |||
Accrued employee compensation | 256 | 296 | |||||
| | | | | | | |
$ | 643 | $ | 677 | ||||
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(US Dollars in millions) | 30 June 2017 | 1 July 2016 | ||||||
Accrued expenses | $ | 364 | $ | 358 | ||||
Dividend payable | 184 | — | ||||||
Deferred income | 55 | 18 | ||||||
Accrued employee compensation | 237 | 184 | ||||||
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$ | 840 | $ | 560 | |||||
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Accumulated Other Comprehensive Income (Loss) ("AOCI"(“AOCI”), a component of Other Reserves
The components of AOCI, net of tax, were as follows:
(US Dollars in millions) | Unrealized Gains (Losses) on Cash Flow Hedges | Unrealized Gains (Losses) on Marketable Securities(1) | Unrealized Gains (Losses) on post- retirement plans | Foreign Currency Translation Adjustments | Total | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Balance at 28 June 2013 | $ | — | $ | (3 | ) | $ | (11 | ) | $ | 1 | $ | (13 | ) | |||
Other comprehensive income (loss) before reclassifications | (1 | ) | 1 | 1 | 8 | 9 | ||||||||||
Amounts reclassified from AOCI | — | 2 | — | — | 2 | |||||||||||
| | | | | | | | | | | | | | | | |
Other comprehensive income (loss) | (1 | ) | 3 | 1 | 8 | 11 | ||||||||||
| | | | | | | | | | | | | | | | |
Balance at 27 June 2014 | (1 | ) | — | (10 | ) | 9 | (2 | ) | ||||||||
Other comprehensive income (loss) before reclassifications | (11 | ) | — | (5 | ) | (25 | ) | (41 | ) | |||||||
Amounts reclassified from AOCI | 13 | — | — | — | 13 | |||||||||||
| | | | | | | | | | | | | | | | |
Other comprehensive income (loss) | 2 | — | (5 | ) | (25 | ) | (28 | ) | ||||||||
| | | | | | | | | | | | | | | | |
Balance at 3 July 2015 | $ | 1 | $ | — | $ | (15 | ) | $ | (16 | ) | $ | (30 | ) | |||
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
(US Dollars in millions) | Unrealized Gains (Losses) on Cash Flow Hedges | Unrealized Gains (Losses) on Marketable Securities(1) | Unrealized Gains (Losses) on post- retirement plans | Foreign Currency Translation Adjustments | Total | |||||||||||||||
Balance at July 3, 2015 | $ | 1 | $ | — | $ | (15 | ) | $ | (16 | ) | $ | (30 | ) | |||||||
Other comprehensive income (loss) before reclassifications | (4) | — | 8 | (1) | 3 | |||||||||||||||
Amounts reclassified from AOCI | 2 | — | — | — | 2 | |||||||||||||||
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Other comprehensive income (loss) | (2) | — | 8 | (1) | 5 | |||||||||||||||
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Balance at July 1, 2016 | (1 | ) | — | (7 | ) | (17 | ) | (25 | ) | |||||||||||
Other comprehensive income (loss) before reclassifications | (3) | — | — | 5 | 2 | |||||||||||||||
Amounts reclassified from AOCI | 4 | — | 2 | — | 6 | |||||||||||||||
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Other comprehensive income (loss) | 1 | — | 2 | 5 | 8 | |||||||||||||||
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Balance at June 30, 2017 | $ | — | $ | — | $ | (5 | ) | $ | (12 | ) | $ | (17 | ) | |||||||
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(1) | The cost of a security sold or the amount reclassified out of AOCI into earnings was determined using the specific identification method. |
3. Acquisitions
LSI's Flash BusinessDot Hill Systems Corp.
On 2 September 2014,6 October 2015, the Company completedacquired all of the outstanding shares of Dot Hill Systems Corp. (“Dot Hill”), a supplier of software and hardware storage systems. The Company paid $9.75 per share, or $674 million, in cash for the acquisition. The acquisition of certain assetsDot Hill further expands the Company’sOEM-focused cloud storage systems business and liabilities of LSI Corporation's ("LSI") Accelerated Solutions Division and Flash Components Division (collectively,
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)advances the Company’s strategic efforts.
the "Flash Business") from Avago Technologies Limited for $450 million in cash. The transaction is expected to strengthen Seagate's strategy to deliver a full suite of storage solutions, providing Seagate with established enterprise PCIe flash and SSD controller capabilities to deliver solutions for the growing flash storage market.
The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the acquisition date:
(Dollars in millions) | Amount | |||
Cash and cash equivalents | $ | 40 | ||
Trade debtors | 48 | |||
Inventories | 21 | |||
Other current andnon-current assets | 7 | |||
Tangible Assets | 10 | |||
Intangible assets | 252 | |||
Goodwill | 364 | |||
Total assets | 742 | |||
Trade creditors | (42) | |||
Other creditors | (26) | |||
Total liabilities | (68) | |||
Total | $ | 674 | ||
(US Dollars in millions) | Amount | |||
---|---|---|---|---|
Inventories | $ | 37 | ||
Tangible assets | 22 | |||
Intangible assets | 141 | |||
Other debtors | 6 | |||
Goodwill | 337 | |||
| | | | |
Total assets | 543 | |||
| | | | |
Liabilities | (93 | ) | ||
| | | | |
Total liabilities | (93 | ) | ||
| | | | |
Total | $ | 450 | ||
| | | | |
| | | | |
| | | | |
The following table shows the fair value of the separately identifiable intangible assets at the time of acquisition and the weighted-average period over which intangible assets within each category will be amortized:
(US Dollars in millions) | Fair Value | Weighted- Average Amortization Period | |||
---|---|---|---|---|---|
Existing technology | $ | 84 | 3.5 years | ||
Customer relationships | 40 | 3.8 years | |||
Trade names | 17 | 4.5 years | |||
| | | | | |
Total acquired identifiable intangible assets | $ | 141 | |||
| | | | | |
| | | | | |
| | | | | |
The goodwill recognized is primarily attributable to the benefits the Company expects to derive from enhanced market opportunities, and is not deductible for income tax purposes.
The Company incurred approximately $1 million of expenses related to the acquisition of LSI's Flash Business during the twelve months ended 3 July 2015, which are included within Marketing and administrative expense on the Consolidated Profit and Loss Account.
The amounts of revenue and earnings of LSI's Flash Business included in the Company's Consolidated Profit and Loss Account from the acquisition date through the end of fiscal year ended 3 July 2015 were not significant.
Xyratex Ltd
On 31 March 2014, the Company acquired all of the outstanding shares of Xyratex Ltd ("Xyratex"), a leading provider of data storage technology. The Company paid $13.25 per share, or approximately $376 million in cash for the acquisition. The acquisition of Xyratex further strengthens the Company's vertically integrated supply and manufacturing chain for disk drives and provides access to important capital requirements, as well as expands the Company's storage solutions portfolio.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the acquisition date:
(US Dollars in millions) | Amount | |||
---|---|---|---|---|
Cash and cash equivalents | $ | 91 | ||
Debtors | 67 | |||
Inventories | 111 | |||
Other debtors | 28 | |||
Tangible assets | 55 | |||
Intangible assets | 80 | |||
Goodwill | 60 | |||
| | | | |
Total assets | 492 | |||
| | | | |
Creditors and accrued expenses | (116 | ) | ||
| | | | |
Total liabilities | (116 | ) | ||
| | | | |
Total | $ | 376 | ||
| | | | |
| | | | |
| | | | |
The following table shows the fair value of the separately identifiable intangible assets at the time of acquisition and the period over which each intangible asset will be amortized:
(US Dollars in millions) | Fair Value | Weighted- Average Amortization Period | |||
---|---|---|---|---|---|
Existing technology | $ | 23 | 5.5 years | ||
Customer relationships | 18 | 3.9 years | |||
| | | | | |
Total amortizable intangible assets acquired | 41 | 4.8 years | |||
In-process research and development | 39 | ||||
| | | | | |
Total acquired identifiable intangible assets | $ | 80 | |||
| | | | | |
| | | | | |
| | | | | |
(Dollars in millions) | Fair Value | Weighted- Average Amortization Period | ||||||
Existing technology | $ | 164 | 5.0 years | |||||
Customer relationships | 71 | 7.0 years | ||||||
Trade names | 3 | 5.0 years | ||||||
Total amortizable intangible assets acquired | 238 | 5.5 years | ||||||
In-process research and development | 14 | |||||||
Total acquired identifiable intangible assets | $ | 252 | ||||||
The recognized goodwill, recognizedwhich is not deductible for income tax purposes, is primarily attributable to thecost synergies expected to arise after the acquisition and is not deductible for income tax purposes.the benefits the Company expects to derive from enhanced market opportunities.
The Company incurred a total of $10 million of expenses related to the acquisition of Xyratex inDot Hill for the fiscal year 2014,ended 1 July 2016, which are included within Marketing and administrative expense onin the Consolidated Profit and Loss Account.Account, are not significant.
The amounts of revenue and earnings of XyratexDot Hill included in the Company'sCompany’s Consolidated Profit and Loss Account from the acquisition date through the end of fiscal year ended 27 June 2014 were not significant.
LaCie S.A.
On 3 August 2012 the Company acquired 23,382,904 (or approximately 64.5%) of the outstanding shares of LaCie S.A. ("LaCie") for a price of €4.05 per share with a price supplement of €0.12 per share, which would have been payable if the Company had successfully acquired at least 95% of the outstanding shares of LaCie within 6 months of the acquisition. Of the amount paid at the acquisition date, €9 million is treated as compensation cost to one of the selling shareholders, who was an employee of the Company, to be recognized over a period of 36 months from the acquisition date, and may be refunded to the Company if the selling shareholder is no longer employed at the end of that
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
period. The transaction and related agreements are expected to accelerate the Company's growth strategy in the expanding consumer storage market, particularly in Europe, Japan and in premium distribution channels.
The acquisition-date fair value of the consideration transferred for the business combination totaled $111 million, including cash paid of $107 million, and contingent consideration of $4 million.
The following table summarizes the estimated fair values of the assets acquired, liabilities assumed, and noncontrolling interest at the acquisition date:
(US Dollars in millions) | Amount | |||
---|---|---|---|---|
Cash and cash equivalents | $ | 71 | ||
Debtors | 29 | |||
Marketable securities | 27 | |||
Inventories | 46 | |||
Other debtors | 19 | |||
Tangible assets | 12 | |||
Intangible assets | 45 | |||
Goodwill | 13 | |||
| | | | |
Total assets | 262 | |||
| | | | |
Creditors and accrued expenses | (73 | ) | ||
Current and non-current portion of long-term debt | (6 | ) | ||
| | | | |
Total liabilities | (79 | ) | ||
| | | | |
Noncontrolling interest | (72 | ) | ||
| | | | |
Total | $ | 111 | ||
| | | | |
| | | | |
| | | | |
The following table shows the fair value of the separately identifiable intangible assets at the time of acquisition and the period over which each intangible asset will be amortized:
(US Dollars in millions) | Fair Value | Weighted- Average Amortization Period | |||
---|---|---|---|---|---|
Customer relationships | $ | 31 | 5.0 years | ||
Existing technology | 1 | 5.0 years | |||
Trade name | 13 | 5.0 years | |||
| | | | | |
Total acquired identifiable intangible assets | $ | 45 | |||
| | | | | |
| | | | | |
| | | | | |
In fiscal 2013, the Company recorded adjustments to the fair value of certain assets acquired and liabilities assumed with LaCie S.A. that resulted in a net increase of $1 million to Goodwill, and a corresponding decrease in Intangible assets.
The goodwill recognized is attributable primarily to the benefits the Company expects to derive from LaCie's brand recognition and the acquired workforce, and is not deductible for income tax purposes. The acquisition date fair value of the noncontrolling interest is based on the market price of their publicly traded shares as of the first trading date subsequent to the acquisition, as the shares did not trade on the acquisition date.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The €0.12 supplement was not paid as only 94.5% of the LaCie business was acquired within six months of the acquisition date, resulting in a reversal of the contingent consideration liability which was recorded in fiscal year 2013 as a reduction of Marketing and administrative expenses of $4 million.
The amounts of revenue and earnings of LaCie included in the Company's Consolidated Profit and Loss Account from the acquisition date through the end of fiscal year ended 28 June 2013 are not significant.
The Company deposited $72 million into an escrow account in fiscal year 2013 with the intention of acquiring the remaining publicly held shares of LaCie through public and private transactions. As of 27 December 2013, the Company had completed the acquisition of all outstanding shares. The use of this deposit in fiscal year 2013 is treated as a non-cash financing activity and excluded from the Consolidated Statement of Cash Flows.
4. Goodwill and Other Long-lived Assets
Goodwill
The changes in the carrying amount of goodwill are as follows:
(US dollars in millions) | Amount | |||
---|---|---|---|---|
Balance as of 28 June 2013 | $ | 476 | ||
Goodwill acquired | 60 | |||
Foreign currency translation effect | 1 | |||
| | | | |
Balance as of 27 June 2014 | 537 | |||
Goodwill acquired | 339 | |||
Foreign currency translation effect | (2 | ) | ||
| | | | |
Balance as of 3 July 2015 | $ | 874 | ||
| | | | |
| | | | |
| | | | |
(US dollars in millions) | Amount | |||
Balance as of 3 July 2015 | $ | 874 | ||
Goodwill acquired | 364 | |||
Goodwill disposed | (1) | |||
Balance as of 1 July 2016 | 1,237 | |||
Goodwill acquired | — | |||
Goodwill disposed | — | |||
Foreign currency translation effect | 1 | |||
Balance as of June 30 2017 | $ | 1,238 | ||
Other Intangible Assets
Other intangible assets consist primarily of existing technology, customer relationships in-process research and development and trade names acquired in business combinations. WithDuring fiscal year 2017, the exception of in-process research and development acquired intangibles(“IPR&D”) of $14 million was completed and reclassified to existing technology. Intangibles are amortized on a straight-line basis over the respective estimated useful lives of the assets. Amortization of the existing technology intangible asset is charged to Operating expenses in the Consolidated Profit and Loss Account. In-process research and development has been determined to have an indefinite useful life and is not amortized, but instead tested for impairment annually or more frequently if events or changes in circumstance indicate that the asset might be impaired. If the carrying amount of in-process research and development exceeds its fair value, an impairment loss is recognized in an amount equal to that excess. There were no impairment charges recognized for in-process research and development. All in-process research and development was completed during fiscal year 2015, the related assets are now accounted for as existing technology and are being amortized over their useful lives.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The carrying value of other intangible assets subject to amortization, excluding fully amortized intangible assets, as of 3 July 2015,30 June 2017, is set forth in the following table:
(US Dollars in millions) | Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | Weighted Average Remaining Useful Life | |||||||
---|---|---|---|---|---|---|---|---|---|---|---|
Existing technology | $ | 191 | $ | (69 | ) | $ | 122 | 4.1 years | |||
Customer relationships | 487 | (282 | ) | 205 | 2.4 years | ||||||
Trade name | 27 | (7 | ) | 20 | 3.2 years | ||||||
Other intangible assets | 27 | (4 | ) | 23 | 4.2 years | ||||||
| | | | | | | | | | | |
Total amortizable other intangible assets | $ | 732 | $ | (362 | ) | $ | 370 | 3.1 years | |||
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
(US Dollars in millions) | Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | Weighted Average Remaining Useful Life | ||||||||||||
Existing technology | $ | 280 | $ | (112) | $ | 168 | 3.6 years | |||||||||
Customer relationships | 487 | (395) | 92 | 3.4 years | ||||||||||||
Trade name | 27 | (19) | 8 | 2.1 years | ||||||||||||
Other intangible assets | 29 | (16) | 13 | 2.6 years | ||||||||||||
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Total amortizable other intangible assets | $ | 823 | $ | (542) | $ | 281 | 3.4 years | |||||||||
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|
The carrying value of other intangible assets subject to amortization, excluding fully amortized intangible assets, as of 27 June 20141 July 2016 is set forth in the following table:
(US Dollars in millions) | Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | Weighted Average Remaining Useful Life | |||||||
---|---|---|---|---|---|---|---|---|---|---|---|
Existing technology | $ | 68 | $ | (18 | ) | $ | 50 | 2.9 years | |||
Customer relationships | 450 | (192 | ) | 258 | 3.3 years | ||||||
Trade name | 10 | (1 | ) | 9 | 3.1 years | ||||||
Other intangible assets | 4 | (1 | ) | 3 | 4.4 years | ||||||
| | | | | | | | | | | |
Total amortizable other intangible assets | $ | 532 | $ | (212 | ) | $ | 320 | 3.2 years | |||
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
(US Dollars in millions) | Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | Weighted Average Remaining Useful Life | ||||||||||||
Existing technology | $ | 297 | $ | (79) | $ | 218 | 4.1 years | |||||||||
Customer relationships | 510 | (328) | 182 | 3.2 years | ||||||||||||
Trade name | 29 | (14) | 15 | 2.6 years | ||||||||||||
Other intangible assets | 29 | (10) | 19 | 3.2 years | ||||||||||||
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Total amortizable other intangible assets | $ | 865 | $ | (431) | $ | 434 | 3.6 years | |||||||||
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The carrying value of In-process research and developmentIPR&D not subject to amortization was $39$14 million on 27 June 2014.1 July 2016.
As of 3 July 2015,30 June 2017, expected amortization expense for other intangible assets for each of the next five years and thereafter is as follows:
(US Dollars in millions) | Amount | |||
---|---|---|---|---|
2016 | $ | 141 | ||
2017 | 122 | |||
2018 | 64 | |||
2019 | 24 | |||
2020 | 7 | |||
Thereafter | 12 | |||
| | | | |
$ | 370 | |||
| | | | |
| | | | |
| | | | |
(US Dollars in millions) 2018 2019 2020 2021 2022 Thereafter Amount $ 108 71 53 25 17 7 $ 281
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The carrying values of intangible assets were $370$281 million and $359$448 million as of 330 June 2017 and 1 July 2015 and 27 June 2014,2016, respectively. In fiscal year 20152017 amortization expense for other intangible assets was $152$168 million, of which $23$64 million was included in Cost of revenue and $129$104 million was included in Amortization of intangibles in the Consolidated Profit and Loss account. In fiscal year 2014,2016, amortization expense for other intangible assets was $131$174 million, of which $33$51 million was included in Cost of revenue and $98$123 million was included in Amortization of intangibles in the Consolidated Profit and Loss account.
(US dollars in millions) | Existing Technology | Customer Relationships | Trade Names | In-process Research and Development | Other Intangible Assets | Total | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Cost: | |||||||||||||||||||
At 28 June 2013 | $ | 319 | $ | 588 | $ | 51 | $ | 44 | $ | 8 | $ | 1,010 | |||||||
Additions | 23 | 18 | — | 39 | 4 | 84 | |||||||||||||
Disposals/Retirements | (155 | ) | (145 | ) | (39 | ) | — | (1 | ) | (340 | ) | ||||||||
Reclassifications | 44 | — | — | (44 | ) | — | — | ||||||||||||
Impairments | — | — | — | — | — | — | |||||||||||||
Foreign currency translation adjustment | — | 1 | 1 | — | — | 2 | |||||||||||||
| | | | | | | | | | | | | | | | | | | |
At 27 June 2014 | $ | 231 | $ | 462 | $ | 13 | $ | 39 | $ | 11 | $ | 756 | |||||||
| | | | | | | | | | | | | | | | | | | |
Additions | 84 | 40 | 17 | — | 24 | 165 | |||||||||||||
Disposals/Retirements | — | — | — | — | — | — | |||||||||||||
Reclassifications | 39 | — | — | (39 | ) | — | — | ||||||||||||
Impairments | — | — | — | — | — | — | |||||||||||||
Foreign currency translation adjustment | — | (3 | ) | — | — | — | (3 | ) | |||||||||||
| | | | | | | | | | | | | | | | | | | |
At 3 July 2015 | $ | 354 | $ | 499 | $ | 30 | $ | — | $ | 35 | $ | 918 | |||||||
| | | | | | | | | | | | | | | | | | | |
Accumulated Amortization: | |||||||||||||||||||
At 28 June 2013 | $ | (286 | ) | $ | (271 | ) | $ | (40 | ) | $ | — | $ | (8 | ) | $ | (605 | ) | ||
Additions | (33 | ) | (77 | ) | (3 | ) | (17 | ) | (1 | ) | (131 | ) | |||||||
Disposals/Retirements | 155 | 145 | 39 | — | 1 | 340 | |||||||||||||
Reclassifications | (17 | ) | — | — | 17 | — | — | ||||||||||||
Impairments | — | — | — | — | — | — | |||||||||||||
Foreign currency translation adjustment | — | (1 | ) | — | — | — | (1 | ) | |||||||||||
| | | | | | | | | | | | | | | | | | | |
At 27 June 2014 | $ | (181 | ) | $ | (204 | ) | $ | (4 | ) | $ | — | $ | (8 | ) | $ | (397 | ) | ||
| | | | | | | | | | | | | | | | | | | |
Additions | (51 | ) | (91 | ) | (6 | ) | — | (4 | ) | (152 | ) | ||||||||
Disposals/Retirements | — | — | — | — | — | — | |||||||||||||
Reclassifications | — | — | — | — | — | — | |||||||||||||
Impairments | — | — | — | — | — | — | |||||||||||||
Foreign currency translation adjustment | — | 1 | — | — | — | 1 | |||||||||||||
| | | | | | | | | | | | | | | | | | | |
At 3 July 2015 | $ | (232 | ) | $ | (294 | ) | $ | (10 | ) | $ | — | $ | (12 | ) | $ | (548 | ) | ||
Net Book Value: | |||||||||||||||||||
At 27 June 2014 | $ | 50 | $ | 258 | $ | 9 | $ | 39 | $ | 3 | $ | 359 | |||||||
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
At 3 July 2015 | $ | 122 | $ | 205 | $ | 20 | $ | — | $ | 23 | $ | 370 | |||||||
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
(US dollars in millions) | Existing Technology | Customer Relationships | Trade Names | In-process Research and Development | Other Intangible Assets | Total (a) | ||||||||||||||||||
Cost: | ||||||||||||||||||||||||
At 3 July 2015 | $ | 354 | $ | 499 | $ | 30 | $ | — | $ | 35 | $ | 918 | ||||||||||||
Additions | 164 | 71 | 3 | 14 | 1 | 253 | ||||||||||||||||||
Disposals/Retirements | (181) | (47) | — | — | — | (228) | ||||||||||||||||||
Reclassifications | — | — | — | — | — | — | ||||||||||||||||||
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At 1 July 2016 | $ | 337 | $ | 523 | $ | 33 | $ | 14 | $ | 36 | $ | 943 | ||||||||||||
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| |||||||||||||
Additions | — | — | — | — | 1 | 1 | ||||||||||||||||||
Disposals/Retirements | (2) | (2) | — | — | — | (4) | ||||||||||||||||||
Reclassifications | 14 | — | — | (14) | — | — | ||||||||||||||||||
Impairments | — | — | — | — | — | — | ||||||||||||||||||
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At 30 June 2017 | $ | 349 | $ | 521 | $ | 33 | $ | — | $ | 37 | $ | 940 | ||||||||||||
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| |||||||||||||
Accumulated Amortization: | ||||||||||||||||||||||||
At 3 July 2015 | $ | (232) | $ | (294) | $ | (10) | $ | — | $ | (12) | $ | (548) | ||||||||||||
Additions | (68) | (94) | (8) | — | (5) | (175) | ||||||||||||||||||
Disposals/Retirements | 181 | 47 | — | — | — | 228 | ||||||||||||||||||
Reclassifications | — | — | — | — | — | — | ||||||||||||||||||
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| |||||||||||||
At 1 July 2016 | $ | (119) | $ | (341) | $ | (18) | $ | — | $ | (17) | $ | (495) | ||||||||||||
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| |||||||||||||
Additions | (64) | (90) | (7) | — | (7) | (168) | ||||||||||||||||||
Disposals/Retirements | 2 | 2 | — | — | — | 4 | ||||||||||||||||||
Reclassifications | — | — | — | — | — | — | ||||||||||||||||||
Impairments | — | — | — | — | — | — | ||||||||||||||||||
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At 30 June 2017 | $ | (181) | $ | (429) | $ | (25) | $ | — | $ | (24) | $ | (659) | ||||||||||||
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At 1 July 2016 | $ | 218 | $ | 182 | $ | 15 | $ | 14 | $ | 19 | $ | 448 | ||||||||||||
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At 30 June 2017 | $ | 168 | $ | 92 | $ | 8 | $ | — | $ | 13 | $ | 281 | ||||||||||||
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(a) | The carrying value of intangible assets subject to amortization includes fully amortized intangible assets for the period presented. |
5. Restructuring and Exit Costs
During fiscal year 2015years 2017 and 2014,2016, the Company recorded restructuring charges of $32$178 million and $24$175 million, respectively, comprised primarily of charges related to employee terminationworkforce reduction costs and facility exit costs associated with reductions in forcerestructuring of its workforce during each fiscal year. The Company'sCompany’s significant restructuring plans are described below. All restructuring charges are reported in Restructuring and other,Other net on the Consolidated Profit and Loss Account.
2015 Plan.March 2017 Plan - During fiscal year 2015, On 9 March 2017, the Company recorded employee termination costscommitted to an additional restructuring plan (the “March 2017 Plan”) in connection with the continued consolidation of $25 million and made cash payments of $16 million associated with a reductionits global footprint. The Company closed its design center in Korea, resulting in the work force.
Ang Mo Kio (AMK) Plan. In August 2009, the Company announced that it will close its AMK manufacturing operations in Singapore. Operations at this facility had ceased asreduction of the third quarter of fiscal year 2011.Company’s headcount by approximately 300 employees. The hard drive manufacturing operations have been relocated to other existing Seagate facilities and the Company's Asia International Headquarters remains in Singapore. This closure and relocation is part of the Company's ongoing focus on cost efficiencies in all areas of its business and is intended to facilitate leveraging manufacturing investments across fewer sites. The Company currently estimates total restructuring charges of approximately $50 million, all in cash, including approximately $42 million for post-employment benefits, approximately $6 million for the relocation of manufacturing equipment, and approximately $2 million for other plant closure and relocation costs. From the inception of the plan the Company has recorded $48 million in restructuring charges. During fiscal year 2015, there were no cash payments or other settlements under the AMKMarch 2017 Plan and no restructuring charges related to the plan during fiscal year 2015. Payments under the AMK plan are expected to continue through fiscal year 2016.
Other Restructuring and Exit Costs. Through 3 July 2015, the Company has recorded other restructuring charges of approximately $126 million, net of adjustments, related to the previously announced closures of its Pittsburgh, Pennsylvania and Milpitas, California facilities, and also has recorded certain exit costs aggregating to $267 million related to its acquisition of Maxtor. These plans are currently expected to result in total charges of approximately $400 million. During fiscal year 2015, the Company incurred restructuring charges of $1 million in post-employment benefits and $2 million in other exit costs primarily related to the closures of its Pittsburgh, Pennsylvania and Milpitas, California facilities and to other smaller restructuring plans. In addition, the Company recorded cash payments and other settlements of $9 million related to these plans during fiscal year 2015. Restructuring activity relating to the Milpitas, California facility was largely completed during the fiscal year ended 28 June 2013. Payment of these exit costs relating to the Pittsburgh, Pennsylvania facility and other smaller restructuring plans are expected to continue throughby the end of fiscal year 2023.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)2017. In addition, the Company committed to sell its land and building in Korea as part of the plan. This land and building met the criteria to be classified as assets held for sale and were included in Tangible assets on the Consolidated Balance Sheet at 30 June 2017. The Company recorded an impairment charge of $26 million as part of the fair value measurement to reduce the carrying amount of its land and building to its estimated fair value less costs to sell, which is included in Operating expenses in the Consolidated Profit and Loss Account.
July 2016 Plan- On 11 July 2016, the Company committed to a restructuring plan (the “July 2016 Plan”) for continued consolidation of its global footprint across Asia, EMEA and the Americas. The July 2016 Plan included reducing worldwide headcount by approximately 6,500 employees. The July 2016 Plan, was largely completed by the end of fiscal year 2017.
June 2016 Plan- On 27 June 2016, the Company committed to a restructuring plan (the “June 2016 Plan”) as part of the Company’s efforts to reduce its cost structure to align with the then current macroeconomic conditions. The June 2016 Plan included reducing worldwide headcount by approximately 1,600 employees. The June 2016 Plan was largely completed by the fiscal quarter ended 30 December 2016 with no material future costs expected to be incurred.
The following table summarizes the Company'sCompany’s restructuring activities under all of the Company'sCompany’s active restructuring plans for fiscal years 20152017 and 2014:2016:
(US Dollars in millions) | Post- Employment Benefits | Operating Leases | Other Exit Costs | Total | |||||||||
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Accrual balances at 28 June 2013 | $ | 2 | $ | 15 | $ | — | $ | 17 | |||||
Restructuring charges | 18 | 3 | 2 | 23 | |||||||||
Cash payments | (20 | ) | (5 | ) | (2 | ) | (27 | ) | |||||
Adjustments | 2 | (1 | ) | — | 1 | ||||||||
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Accrual balances at 27 June 2014 | 2 | 12 | — | 14 | |||||||||
Restructuring charges | 23 | 3 | 4 | 30 | |||||||||
Cash payments | (17 | ) | (6 | ) | (4 | ) | (27 | ) | |||||
Adjustments | 3 | (1 | ) | — | 2 | ||||||||
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Accrual balances at 3 July 2015 | $ | 11 | $ | 8 | $ | — | $ | 19 | |||||
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March 2017 Plan | July 2016 Plan | June 2016 Plan | Other Plans | Total | ||||||||||||||||||||||||||||||||
(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 | ||||||||||||||||||||||||||||
All Restructuring Activities | ||||||||||||||||||||||||||||||||||||
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Accrual balances at 3 July 2015 | — | — | — | — | — | — | 11 | 8 | 19 | |||||||||||||||||||||||||||
Restructuring charges | — | — | — | — | 69 | — | 82 | 24 | $ | 175 | ||||||||||||||||||||||||||
Cash payments | — | — | — | — | (24) | — | (89) | (18) | $ | (131) | ||||||||||||||||||||||||||
Adjustments | — | — | — | — | — | — | 1 | (1) | $ | — | ||||||||||||||||||||||||||
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Accrual balances at 1 July 2016 | — | — | — | — | 45 | — | 5 | 13 | 63 | |||||||||||||||||||||||||||
Restructuring charges | 28 | 3 | 72 | 20 | — | 1 | 31 | 12 | $ | 167 | ||||||||||||||||||||||||||
Cash payments | (29) | (3) | (57) | (18) | (41) | (1) | (33) | (16) | $ | (198) | ||||||||||||||||||||||||||
Adjustments | 1 | 7 | — | (1) | — | — | 4 | $ | 11 | |||||||||||||||||||||||||||
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Accrual balances at 30 June 2017 | $ | — | $ | — | $ | 22 | $ | 2 | $ | 3 | $ | — | $ | 3 | $ | 13 | $ | 43 | ||||||||||||||||||
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Total costs incurred to date as of 30 June 2017 | $ | 29 | $ | 3 | $ | 79 | $ | 20 | $ | 68 | $ | 1 | $ | 158 | $ | 49 | $ | 407 | ||||||||||||||||||
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Total expected costs to be incurred as of 30 June 2017 | $ | 1 | $ | 3 | $ | 1 | $ | 13 | $ | — | $ | — | $ | — | $ | 3 | $ | 21 | ||||||||||||||||||
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The accrued restructuring balance is included in Other provisions in the Company'sCompany’s Consolidated Balance Sheet for fiscal years 20152017 and 2014.2016.
6. Debentures and Bank Loans
Short-Term Borrowings
The credit agreement entered into by the Company and its subsidiary Seagate HDD Cayman have entered into aon 18 January 2011 and subsequently amended (the “Revolving Credit Agreement providingFacility”) provides the Company with a $700 million
senior secured revolving credit facility (the "Revolving Credit Facility"). On 15 January 2015, pursuant to the Third Amendment to the Credit Agreement, the commitments available underfacility. The term of the Revolving Credit Facility were increased from $500 million to $700 million and the maturity date was extended untilis through 15 January 2020, provided that if the Company does not have Investment Grade Ratings (as defined in the Revolving Credit Agreement)Facility) on 15 August 2018, then the maturity date will be 16 August 2018 unless certain extension conditions have been satisfied. This Credit Agreement that was originally entered into by the Company and HDD Cayman on 18 January 2011 was subsequently amended with the Second Amendment to the Credit Agreement on 30 April 2013, which increased the commitments availableThe loans made under the Revolving Credit Facility from $350 million to $500 million. The loans made under the Credit Agreement will bear interest at a rate of LIBOR plus a variable margin that will be determined based on the corporate credit rating of the Company. The Company and certain of its material subsidiaries fully and unconditionally guarantee the Revolving Credit Facility. The Revolving Credit Facility is available for cash borrowings, subject to compliance with certain covenants and other customary conditions to borrowing, and for the issuance of letters of credit up to asub-limit of $75 million.
The Revolving Credit Facility, as amended, includes three financial covenants: (1) minimum cash, cash equivalents and marketable securities; (2) a fixed charge coverage ratio; and (3) a net leverage ratio. On 27 April 2016, the Revolving Credit Agreement was amended in order to increase the allowable net leverage ratio to allow for higher net leverage levels. The Company was in compliance with the modified covenants as of 30 June 2017 and expects to be in compliance for the next 12 months.
As of 3 July 2015,30 June 2017, no borrowings had been drawn or letters of credit utilized under the Revolving Credit Facility.
Long-Term Debt
$600 million Aggregate Principal Amount of 6.8% Senior Notes due October 2016 (the "2016 Notes"). On 20 September 2006, the Company's subsidiary, Seagate Technology HDD Holdings, completed the sale of $600 million aggregate principal amount of the 2016 Notes, in a private placement exempt from the registration requirements of the Securities Act of 1933, as amended. The interest on the 2016 Notes is payable semi-annually on 1 April and 1 October of each year. The issuer under the 2016 Notes is Seagate HDD Cayman, and the obligations under the 2016 Notes are unconditionally guaranteed by certain of the Company's significant subsidiaries. The 2016 Notes are redeemable at the option of the
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Company in whole or in part, on not less than 30, nor more than 60 days notice, at a "make-whole" premium redemption price. The "make-whole" redemption price will be equal to the greater of (1) 100% of the principal amount of the notes being redeemed, or (2) the sum of the present values of the remaining scheduled payments of principal and interest on the 2016 Notes being redeemed, discounted at the redemption date on a semi-annual basis at a rate equal to the sum of the applicable Treasury rate plus 50 basis points. During fiscal year 2013, the Company repurchased $265 million aggregate principal amount of its 2016 Notes for cash at a premium to their principal amount, plus accrued and unpaid interest, and recorded a loss on the repurchase of approximately $44 million, which is included in Other income and charges, net in the Company's Consolidated Profit and Loss Account. During the December 2014 quarter, the 2016 Notes were fully extinguished through repurchase and redemption for cash at a premium to their principal amount, plus accrued and unpaid interest. The Company recorded a loss on the repurchase and redemption of approximately $34 million, which is included in Other income and charges, net in the Company's Consolidated Profit and Loss Account.
$800$800 million Aggregate Principal Amount of 3.75% Senior Notes due November 2018 (the "2018 Notes"“2018 Notes”).On 5 November 2013, Seagate HDD Cayman, issued $800 million in aggregate principal amount of 3.75% Senior Notes, which mature on 15 November 2018, in a private placement. The interest on the Notes is payable semi-annually on 15 May and 15 November of each year. The Notes are redeemable at the option of Seagate HDD Cayman in whole or in part, on not less than 30, nor more than 60 days'days’ notice, at a "make-whole"“make-whole” premium redemption price. The "make-whole"“make-whole” premium redemption price will be equal to the greater of (1) 100% of the principal amount of the notes being redeemed, or (2) the sum of the present values of the remaining schedule payments of principal and interest on the Notes being redeemed, discounted at the redemption date on a semi-annual basis at a rate equal to the sum of the applicable Treasury rate plus 50 basis points. Accrued and unpaid interest, if any will be paid to, but excluding, the redemption date. The Notes are fully and unconditionally guaranteed by the Company on a senior unsecured basis.
$600 million Aggregate Principal Amount of 6.875% Senior Notes due May 2020 (the "2020 Notes"). On 13 May 2010, During fiscal year 2017, the Company's subsidiary, Seagate HDD Cayman, completed the sale of $600Company repurchased $90 million aggregate principal amount of the 2020 Notes, in a private placement exempt from the registration requirements of the Securities Act of 1933, as amended. The obligations under the 2020 Notes are fully and unconditionally guaranteed, on a senior unsecured basis, by the Company. The interest on the 2020 Notes is payable semi-annually on 1 May and 1 November of each year. The 2020 Notes were redeemable any time prior to 1 May 2015 at the option of the Company, in whole or in part, at a redemption price of 100% of the principal amount plus an "applicable premium" and accrued and unpaid interest, if any, to the redemption date. The "applicable premium" was equal to the greater of (1) 1% of the principal amount of the 2020 Notes, or (2) the excess, if any, of (a) the present value of the redemption price on 1 May 2015 plus interest payments due through 1 May 2015, discounted at the applicable Treasury rate as of the redemption date plus 50 basis points; over (b) the principal amount of such note. The 2020 Notes are redeemable at any time on or after 1 May 2015 at various prices expressed as a percentage of principal amount, as set forth in the indentures, plus accrued and unpaid interest, if any, to the redemption date. The issuer under the 2020 Notes is Seagate HDD Cayman, and the obligations under the 2020 Notes are fully and unconditionally guaranteed, on a senior unsecured basis, by the Company. During fiscal year 2014, the Company repurchased $66 million aggregate principal amount of its 20202018 Notes for cash at a premium to their principal amount, plus accrued and unpaid interest. The Company recorded a loss on the repurchase of approximately $7$3 million, which is included in Other income and charges, net in the Company's Consolidated Profit and Loss Account. During fiscal year 2015, the 2020 Notes were fully extinguished through repurchase and redemption for cash at a premium to their principal amount, plus accrued and unpaid interest. The Company recorded
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
a loss on the repurchase of approximately $26 million, which is included in Other income and charges, net in the Company's Consolidated Profit and Loss Account.
$600 $600 millionAggregate Principal Amount of7.00%Senior Notes due November 2021 (the "2021 Notes"“2021 Notes”). On 18 MayOn18May 2011, the Company'sCompany’s subsidiary, Seagate HDD Cayman, completed the sale of $600 million aggregate principal amount of the 2021 Notes, in a private placement exempt from the registration requirements of the Securities Act of 1933, as amended. The obligations under the 2021 Notes are fully and unconditionally guaranteed, on a senior unsecured basis, by the Company. The interest on the 2021 Notes is payable semi-annually on 1 January and 1 July of each year. The 2021 Notes are redeemable any time prior to 1 May 2016 at the option of the Company, in whole or in part, at a redemption price of 100% of the principal amount plus an "applicable premium"“applicable premium” and accrued and unpaid interest, if any, to the redemption date. The "applicable premium"“applicable premium” will be equal to the greater of (1) 1% of the principal amount of the 2021 Notes, or (2) the excess, if any, of (a) the present value of the redemption price on 1 May 2016 plus interest payments due through 1 May 2016, discounted at the applicable Treasury rate as of the redemption date plus 50 basis points; over (b) the principal amount of such note. The 2021 Notes are redeemable at any time on or after 1 May 2016 at various prices expressed as a percentage of principal amount, as set forth in the indentures, plus accrued and unpaid interest, if any, to the redemption date. In addition, any time before 1 May 2014, the Company may redeem up to 35% of the principal amount with the net cash proceeds from permitted sales of the Company'sCompany’s stock at a
redemption price of 107% of the principal amount plus accrued interest to the redemption date. The issuer under the 2021 Notes is Seagate HDD Cayman and the obligations under the 2021 Notes are fully and unconditionally guaranteed, on a senior unsecured basis, by the Company. During fiscal year 2014,years 2016 and 2015, the Company repurchased $349$1 million and $93 million, respectively, aggregate principal amount of its 2021 Notes for cash at a premium to their principal amount, plus accrued and unpaid interest. TheFor fiscal year 2016, the loss recorded on the repurchase was immaterial and for fiscal year 2015, the Company recorded a loss on the repurchase of approximately $54$13 million, which were included in Other income and charges, net in the Company’s Consolidated Profit and Loss Account. During fiscal year 2017, the 2021 Notes were fully extinguished through redemption for cash at a premium to their principal amount of $158 million, plus accrued and unpaid interest. For fiscal year 2017, the Company recorded a loss on the redemption of approximately $5 million, which is included in Other income and charges, net in the Company'sCompany’s Consolidated Profit and Loss Account. During fiscal year 2015, the Company repurchased $93
$750 million Aggregate Principal Amount of4.25% Senior Notes due March 2022 (the “2022 Notes”).On 3 February, 2017, Seagate HDD Cayman issued, in a private placement, $750 million in aggregate principal amount of its 20214.25% Senior Notes for cashwhich will mature on 1 March, 2022. The interest on the 2022 Notes is payable semi-annually on 1 March and 1 September of each year, commencing on 1 September, 2017. At any time before 1 February, 2022, Seagate HDD Cayman may redeem some or all of the 2022 Notes at a premium to their principal amount,‘make whole’ redemption price, plus accrued and unpaid interest.interest, if any. The Company recorded a loss‘‘make-whole’’ redemption price will be equal to (1) 100% of the principal amount of the 2022 Notes redeemed, plus (2) the excess, if any, of (a) the sum of the present values of the remaining scheduled payments of principal and interest on the repurchase2022 Notes being redeemed, discounted to the redemption date on a semi-annual basis at a rate equal to the sum of approximately $13 million , whichthe Treasury Rate plus 40 basis points, minus accrued and unpaid interest, if any, on the 2022 Notes being redeemed to, but excluding, the redemption date over (b) the principal amount of the 2022 Notes being redeemed, plus (3) accrued and unpaid interest, if any, on the 2022 Notes being redeemed to, but excluding, the redemption date. The issuer under the 2022 Notes is included in Other incomeSeagate HDD Cayman, and charges, net in the Company's Consolidated Profitobligations under the 2022 Notes are fully and Loss Account.unconditionally guaranteed, on a senior unsecured basis, by the Company.
$1 $1 billionAggregate Principal Amount of4.75% Senior Notes due June 2023 (the "2023 Notes"“2023 Notes”).On 22 May 2013, Seagate HDD Cayman, issued $1 billion in aggregate principal amount of 4.75% Senior Notes, which mature on 1 June 2023, in a private placement. The obligations under the 2023 Notes are fully and unconditionally guaranteed, on a senior unsecured basis, by the Company. The interest on the 2023 Notes is payable semi-annually on 1 June and 1 December of each year. The 2023 Notes are redeemable at the option of the Company in whole or in part, on not less than 30, nor more than 60 daysdays’ notice, at a "make-whole"“make-whole” premium redemption price. The "make-whole"“make-whole” redemption price will be equal to the greater of (1) 100% of the principal amount of the notes being redeemed, or (2) the sum of the present values of the remaining scheduled payments of principal and interest on the 2023 Notes being redeemed, discounted at the redemption date on a semi-annual basis at a rate equal to the sum of the applicable Treasury rate plus 50 basis points. Accrued and unpaid interest, if any, will be paid to, but excluding, the redemption date. During fiscal year 2016, the Company repurchased $10 million aggregate principal amount of its 2023 Notes for cash at a discount to their principal amount, plus accrued and unpaid interest. The loss recorded on the repurchase was immaterial, which is included in Other income and charges, net in the Company’s Consolidated Profit and Loss Account. During fiscal year 2017, the Company repurchased $39 million aggregate principal amount of its 2023 Notes for cash at a premium to their principal amount, plus accrued and unpaid interest. The loss recorded on the repurchase was immaterial, which is included in Other income and charges, net in the Company’s Consolidated Profit and Loss Account.
$500 $1million Aggregate Principal Amount of 4.875% Senior Notes due March 2024 (the “2024 Notes”). On 3 February 2017, Seagate HDD Cayman issued, in a private placement, $500 million in aggregate principal amount of 4.875% Senior Notes which will mature on 1 March 2024. The interest on the 2024 Notes is payable semi-annually on March 1 and September 1 of each year, commencing on 1 September 2017. At any time
before 1 January 2024, Seagate HDD Cayman may redeem some or all of the 2024 Notes at a ‘make whole’ redemption price, plus accrued and unpaid interest, if any. The ‘‘make-whole’’ redemption price will be equal to (1) 100% of the principal amount of the 2024 Notes redeemed, plus (2) the excess, if any, of (a) the sum of the present values of the remaining scheduled payments of principal and interest on the 2024 Notes being redeemed, discounted to the redemption date on a semi-annual basis at a rate equal to the sum of the Treasury Rate plus 45 basis points, minus accrued and unpaid interest, if any, on the 2024 Notes being redeemed to, but excluding, the redemption date over (b) the principal amount of the 2024 Notes being redeemed, plus (3) accrued and unpaid interest, if any, on the 2024 Notes being redeemed to, but excluding, the redemption date. The issuer under the 2024 Notes is Seagate HDD Cayman, and the obligations under the 2024 Notes are fully and unconditionally guaranteed, on a senior unsecured basis, by the Company.
$1 billion Aggregate principal amount of 4.75%Senior Notes due January 2025 (the "2025 Notes"“2025 Notes”). On 28 May 2014, Seagate HDD Cayman issued, in a private placement, $1 billion in aggregate principal amount of 4.75% Senior Notes due 2025, which mature on 1 January 2025. The interest on the Notes will be payable in cash semiannually on January 1 January and July 1 July of each year, commencing on 1 January 2015. At any time, upon not less than 30 nor more than 60 days'days’ notice, Seagate HDD may redeem some or all of the Notes at a "make-whole"‘‘make-whole’’ redemption price. The "make-whole"‘‘make-whole’’ redemption price will be equal to the
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
greater of (1) 100% of the principal amount of the Notes redeemed, and (2) the sum of the present values of the remaining scheduled payments of principal and interest on the Notes being redeemed, discounted to the redemption date on a semi-annual basis at a rate equal to the sum of the Treasury Rate plus 50 basis points. Accrued and unpaid interest, if any, will be paid to, but excluding, the redemption date. The Notes are fully and unconditionally guaranteed by the Company on a senior unsecured basis. During fiscal year 2016, the Company repurchased $5 million aggregate principal amount of its 2025 Notes for cash at a discount to their principal amount, plus accrued and unpaid interest. The gain recorded on the repurchase was immaterial, which is included in Other income and charges, net in the Company’s Consolidated Profit and Loss Account. During fiscal year 2017, the Company repurchased $20 million aggregate principal amount of the 2025 Notes for cash at a discount to their principal amount, plus accrued and unpaid interest. The Company recorded a gain on the repurchase of approximately $1 million, which is included in Other income and charges, net in the Company’s Consolidated Profit and Loss Account.
$700 $500million Aggregate Principal Amount of 4.875% Senior Notes due June, 2027 (the “2027 Notes”). On 14 May 2015, Seagate HDD Cayman issued, in a private placement, $700 million in aggregate principal amount of 4.875% Senior Notes, which mature on 1 June 2027. The interest on the Notes is payable semi-annually on 1 June and 1 December of each year, commencing on 1 December 2015. At any time before 1 March 2027, Seagate HDD Cayman may redeem some or all of the Notes at a “make-whole” redemption price. The ‘‘make-whole’’ redemption price will be equal to (1) 100% of the principal amount of the Notes redeemed, plus (2) the excess, if any of (x) the sum of the present values of the remaining scheduled payments of principal and interest on the Notes being redeemed, discounted to the redemption date on a semi-annual basis at a rate equal to the sum of the Treasury Rate plus 40 basis points, minus accrued and unpaid interest, if any, on the Notes being redeemed to, but excluding, the redemption date over (y) the principal amount of the Notes being redeemed, plus (3) accrued and unpaid interest, if any, on the Notes being redeemed to, but excluding, the redemption date. At any time on or after 1 March, 2027, the Company may redeem some or all of the Notes at a redemption price equal to 100% of the principal amount of the Notes redeemed, plus accrued and unpaid interest, if any, to, but excluding, the redemption date. The issuer under the 2027 Notes is Seagate HDD Cayman, and the obligations under the 2027 Notes are fully and unconditionally guaranteed, on a senior unsecured basis, by the Company. During fiscal year 2017, the Company repurchased $4 million aggregate principal amount of the 2027 Notes for cash at a discount to their principal amount, plus accrued and unpaid interest. The Company recorded an immaterial gain on the repurchase, which is included in Other income and charges, net in the Company’s Consolidated Profit and Loss Account.
$500 million Aggregate Principal Amount of 5.75% Senior Notes due December, 2034 (the "2034 Notes"“2034 Notes”). On 2 December 2014, Seagate HDD Cayman issued, in a private placement, $500 million in aggregate principal amount of 5.75% Senior Notes, which mature on 1 December, 2034. The interest on the Notes is payable semi-annually on 1 June and 1 December of each year, commencing on 1 June 2015. At any time before 1 June, 2034, Seagate HDD Cayman may redeem some or all of the Notes at a "make-whole"“make-whole” redemption price. The "make-whole"‘‘make-whole’’ redemption price will be equal to (1) 100% of the principal amount of the Notes redeemed, plus (2) the excess, if any of (x) the sum of the present values of the remaining scheduled payments of principal and interest on the Notes being redeemed, discounted to the redemption date on a semi-annual basis at a rate equal to the sum of the Treasury Rate plus 50 basis points, minus accrued and unpaid interest, if any, on the Notes being redeemed to, but excluding, the redemption date over (y) the principal amount of the Notes being redeemed, plus (3) accrued and unpaid interest, if any, on the Notes being redeemed to, but excluding, the redemption date. At any time on or after 1 June, 2034, the Company may redeem some or all of the Notes at a redemption price equal to 100% of the principal amount of the Notes redeemed, plus accrued and unpaid interest, if any, to, but excluding, the redemption date. 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. If, under certain circumstances, the 2034 Notes have not otherwise become freely transferable by 3 December 2015, thenDuring fiscal year 2016, the Company is required to to exchange the Notes for notes registered under the Securities Act of 1933.
$700repurchased $10 million Aggregate Principal Amount of 4.875% Senior Notes due June, 2027 (the "2027 Notes"). On 14 May 2015, Seagate HDD Cayman issued, in a private placement, $700 million in aggregate principal amount of 4.875% Seniorits 2034 Notes which mature on June 1, 2027. The interest on the Notes is payable semi-annually on 1 June and 1 December of each year, commencing on 1 December 2015. At any time before 1 March 2027, Seagate HDD Cayman may redeem some or all of the Notesfor cash at a "make-whole" redemption price. The "make-whole" redemption price will be equaldiscount to (1) 100% of thetheir principal amount, of the Notes redeemed, plus (2) the excess, if any of (x) the sum of the present values of the remaining scheduled payments of principal and interest on the Notes being redeemed, discounted to the redemption date on a semi-annual basis at a rate equal to the sum of the Treasury Rate plus 40 basis points, minus accrued and unpaid interest, if any, on the Notes being redeemed to, but excluding, the redemption date over (y) the principal amount of the Notes being redeemed, plus (3) accrued and unpaid interest, if any, on the Notes being redeemed to, but excluding, the redemption date. At any time on or after 1 March 2027, the Company may redeem some or all of the Notes at a redemption price equal to 100% of the principal amount of the Notes redeemed, plus accrued and unpaid interest, if any, to, but excluding,interest. The Company recorded a gain on the redemption date. The issuer underrepurchase of approximately $3 million, which is included in Other income and charges, net in the 2027 Notes is Seagate HDD Cayman,Company’s Consolidated Profit and the obligations under the 2027 Notes are fully and unconditionally guaranteed, on a senior unsecured basis, by the Company. If, under certain circumstances, the 2027 Notes have not otherwise become freely transferable by 14 May 2016, then the Company is required to to exchange the Notes for notes registered under the Securities Act of 1933.Loss Account.
Interest charges shown in the Consolidated Profit and Loss Account are related to the Company'sCompany’s debentures.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
At 3 July 2015,30 June 2017, future principal payments on long-term debt were as follows (in millions):
Fiscal Year | Amount | |||
---|---|---|---|---|
2016 | $ | — | ||
2017 | — | |||
2018 | — | |||
2019 | 800 | |||
2020 | — | |||
Thereafter | 3,358 | |||
| | | | |
$ | 4,158 | |||
| | | | |
| | | | |
| | | | |
Fiscal Year | Amount | |||
2018 | $ | — | ||
2019 | 710 | |||
2020 | — | |||
2021 | — | |||
2022 | 750 | |||
Thereafter | 3,613 | |||
|
| |||
$ | 5,073 | |||
|
|
7. Income Taxes
The provision for liabilities and charges related to taxation as reported in the Balance Sheet consisted of the following:
| Fiscal Years Ended | ||||||
---|---|---|---|---|---|---|---|
(US Dollars in millions) | 3 July 2015 | 27 June 2014 | |||||
Accrued income taxes falling due within one year | $ | 10 | $ | 17 | |||
Deferred income tax liabilities due within one year | — | — | |||||
Accrued income taxes falling due after one year | 33 | 90 | |||||
Deferred income tax liabilities due after one year | 6 | 10 | |||||
| | | | | | | |
Total | $ | 49 | $ | 117 | |||
| | | | | | | |
| | | | | | | |
| | | | | | | |
Fiscal Years Ended | ||||||||
(US Dollars in millions) | 30 June 2017 | 1 July 2016 | ||||||
Accrued income taxes falling due within one year | $ | 9 | $ | 7 | ||||
Deferred income tax liabilities due within one year | — | — | ||||||
Accrued income taxes falling due after one year | 15 | 14 | ||||||
Deferred income tax liabilities due after one year | 6 | 10 | ||||||
|
|
|
| |||||
Total | $ | 30 | $ | 31 | ||||
|
|
|
|
Income tax expense (benefit) consisted of the following:
| Fiscal Years Ended | ||||||
---|---|---|---|---|---|---|---|
(US Dollars in millions) | 3 July 2015 | 27 June 2014 | |||||
Current tax expense (benefit): | |||||||
U.S. Federal | $ | — | $ | (12 | ) | ||
U.S. State | 4 | 3 | |||||
Non-U.S. | 222 | 62 | |||||
| | | | | | | |
Total Current | 226 | 53 | |||||
| | | | | | | |
Deferred tax expense (benefit): | |||||||
U.S. Federal | (6 | ) | (43 | ) | |||
U.S. State | (2 | ) | 2 | ||||
Non-U.S. | 10 | (26 | ) | ||||
| | | | | | | |
Total Deferred | 2 | (67 | ) | ||||
| | | | | | | |
Income tax expense (benefit) | $ | 228 | $ | (14 | ) | ||
| | | | | | | |
| | | | | | | |
| | | | | | | |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Fiscal Years Ended | ||||||||
(US Dollars in millions) | 30 June 2017 | 1 July 2016 | ||||||
Current tax expense (benefit): | ||||||||
US Federal | $ | — | $ | 1 | ||||
US State | 1 | 2 | ||||||
Non-US | 39 | 25 | ||||||
|
|
|
| |||||
Total Current | 40 | 28 | ||||||
|
|
|
| |||||
Deferred tax expense (benefit): | ||||||||
US Federal | (5) | — | ||||||
US State | — | — | ||||||
Non-US | 8 | (2) | ||||||
|
|
|
| |||||
Total Deferred | 3 | (2) | ||||||
|
|
|
| |||||
Income tax expense (benefit) | $ | 43 | $ | 26 | ||||
|
|
|
|
Income before income taxes consisted of the following:
| Fiscal Years Ended | ||||||
---|---|---|---|---|---|---|---|
(US Dollars in millions) | 3 July 2015 | 27 June 2014 | |||||
U.S. | $ | 101 | $ | 149 | |||
Non-U.S | 1,869 | 1,407 | |||||
| | | | | | | |
$ | 1,970 | $ | 1,556 | ||||
| | | | | | | |
| | | | | | | |
| | | | | | | |
Fiscal Years Ended | ||||||||
(US Dollars in millions) | 30 June 2017 | 1 July 2016 | ||||||
US | $ | (22) | $ | — | ||||
Non-US | 837 | 274 | ||||||
|
|
|
| |||||
$ | 815 | $ | 274 | |||||
|
|
|
|
The Company recorded $2 million and $0.3no excess tax benefits associated with stock option deductions in fiscal year 2017. The Company recorded $0.6 million of excess tax benefits associated with stock option deductions in fiscal years 2015 and 2014, respectively.year 2016.
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The significant components of the Company'sCompany’s deferred tax assets and liabilities were as follows:
| Fiscal Years Ended | ||||||
---|---|---|---|---|---|---|---|
(US Dollars in millions) | 3 July 2015 | 27 June 2014 | |||||
Deferred tax assets | |||||||
Accrued warranty | $ | 88 | $ | 99 | |||
Inventory valuation accounts | 43 | 49 | |||||
Debtor reserve | 16 | 15 | |||||
Accrued compensation and benefits | 106 | 103 | |||||
Depreciation | 171 | 140 | |||||
Restructuring accruals | 4 | 4 | |||||
Other accruals and deferred items | 31 | 39 | |||||
Net operating losses and tax credit carry-forwards | 1,099 | 1,081 | |||||
Other assets | 5 | 8 | |||||
| | | | | | | |
Total deferred tax assets | 1,563 | 1,538 | |||||
Valuation allowance | (929 | ) | (888 | ) | |||
| | | | | | | |
Net deferred tax assets | 634 | 650 | |||||
| | | | | | | |
Deferred tax liabilities | |||||||
Unremitted earnings of certain non-U.S. entities | (6 | ) | (14 | ) | |||
Acquisition-related items | (15 | ) | (19 | ) | |||
Other liabilities | (1 | ) | (2 | ) | |||
| | | | | | | |
Total Deferred tax liabilities | (22 | ) | (35 | ) | |||
| | | | | | | |
Total Net Deferred tax assets | $ | 612 | $ | 615 | |||
| | | | | | | |
| | | | | | | |
| | | | | | | |
As Reported on the Balance Sheet | |||||||
Deferred income taxes—included in Other debtors falling due within one year | $ | 122 | $ | 126 | |||
Deferred income taxes—included in Other debtors falling due within after one year | 496 | 499 | |||||
Deferred income taxes liabilities—included in Provision for taxation | (6 | ) | (10 | ) | |||
| | | | | | | |
Total Net Deferred income taxes | $ | 612 | $ | 615 | |||
| | | | | | | |
| | | | | | | |
| | | | | | | |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Fiscal Years Ended | ||||||||
(US Dollars in millions) | 30 June 2017 | 1 July 2016 | ||||||
Deferred tax assets | ||||||||
Accrued warranty | $ | 85 | $ | 74 | ||||
Inventory valuation accounts | 43 | 32 | ||||||
Debtor reserve | 19 | 11 | ||||||
Accrued compensation and benefits | 99 | 85 | ||||||
Depreciation | 109 | 173 | ||||||
Restructuring accruals | (1) | 14 | ||||||
Other accruals and deferred items | 51 | 50 | ||||||
Net operating losses and tax credit carry-forwards | 1,224 | 1,252 | ||||||
Other assets | 11 | 2 | ||||||
|
|
|
| |||||
Total deferred tax assets | 1,640 | 1,693 | ||||||
Valuation allowance | (966) | (984) | ||||||
|
|
|
| |||||
Net deferred tax assets | 674 | 709 | ||||||
|
|
|
| |||||
Deferred tax liabilities | ||||||||
Unremitted earnings of certainnon-US entities | (7) | (11) | ||||||
Acquisition-related items | (65) | (92) | ||||||
|
|
|
| |||||
Total Deferred tax liabilities | (72 | ) | (103 | ) | ||||
|
|
|
| |||||
Deferred taxes on intra-entity transactions | $ | 2 | $ | — | ||||
|
|
|
| |||||
Total Net Deferred tax assets | $ | 604 | $ | 606 | ||||
|
|
|
| |||||
As Reported on the Consolidated Balance Sheet | ||||||||
Deferred income taxes - included in Other debtors falling due after one year | 609 | 616 | ||||||
Deferred income taxes liabilities - included in Provision for taxation | (5) | (10) | ||||||
|
|
|
| |||||
Total Net Deferred income taxes | $ | 604 | $ | 606 | ||||
|
|
|
|
The deferred tax asset valuation allowance increased by $41 million in 2015 and decreased by $101$18 million in fiscal year 2014.2017 and increased by $55 million in fiscal years 2017 and 2016, respectively.
At 3 July 2015,30 June 2017, the Company recorded $612$602 million of net deferred tax assets.assets, excluding $2 million of deferred taxes on intra-entity transactions. The realization of most of these deferred tax assets is primarily dependent on the Company'sCompany’s ability to generate sufficient U.S.US and certainnon-US taxable income in future periods. Although realization is not assured, the Company'sCompany’s management believes it is more likely than not that these deferred tax assets will be realized. The amount of deferred tax assets considered realizable, however, may increase or decrease in subsequent periods when the Company reevaluates the underlying basis for its estimates of future U.S.US. and certain non-U.S.non-US. taxable income.
At 3 July 2015,30 June 2017, the Company had U.S.US federal, state and non-U.S.non-US tax net operating loss carryforwards of approximately $3.1$3.4 billion, $1.8$2.0 billion and $133.3$173 million, respectively, which will expire at various dates beginning in fiscal year 2016,2018, if not utilized. U.S. state netNet operating loss carryforwards of approximately $25$68 million are scheduled to expire in fiscal year 2016.2018. At 3 July 2015,30 June 2017, the Company had U.S.US. federal and state tax credit
carryforwards of $387$444 million and $89$105 million, respectively, which will expire at various dates beginning in fiscal year 2016,2018, if not utilized.
As of 3 July 2015,30 June 2017, approximately $422$560 million and $90$101 million of the Company'sCompany’s total U.S.US net operating loss and tax credit carryforwards, respectively, are subject to an aggregate annual limitation of $46limitations ranging from $1 million to $45 million pursuant to U.S.US. tax law.
For purposes of the reconciliation between the income tax expense (benefit)expenses at the statutory rate and the effective tax rate applicable to the Irish statutoryCompany in Ireland, the rate applicable to the Company of 25% was applied as follows:
| Fiscal Years Ended | ||||||
---|---|---|---|---|---|---|---|
(US Dollars in millions) | 3 July 2015 | 27 June 2014 | |||||
Income tax expense at statutory rate applicable to the Company in Ireland | $ | 493 | $ | 389 | |||
Net U.S. federal and state income taxes | 7 | 3 | |||||
Permanent differences | 2 | 3 | |||||
Valuation allowance | 15 | (100 | ) | ||||
Non-U.S. losses with no tax benefits | 2 | 8 | |||||
Non-U.S. earnings taxed at less than statutory rate applicable to the Company in Ireland | (463 | ) | (313 | ) | |||
Audit assessment | 173 | — | |||||
Other individually immaterial items | (1 | ) | (4 | ) | |||
| | | | | | | |
Income tax expense (benefit) | $ | 228 | $ | (14 | ) | ||
| | | | | | | |
| | | | | | | |
| | | | | | | |
Fiscal Years Ended | ||||||||
(US Dollars in millions) | 30 June 2017 | 1 July 2016 | ||||||
Income tax expense at statutory rate applicable to the Company in Ireland | $ | 204 | $ | 69 | ||||
Net US. federal and state income taxes | 1 | 3 | ||||||
Permanent differences | 19 | 10 | ||||||
Valuation allowance | (11) | (1) | ||||||
Non-US. losses with no tax benefits | 17 | 1 | ||||||
Non-US. earnings taxed at less than statutory rate applicable to the Company in Ireland | (186) | (37) | ||||||
Reversal of previously recorded taxes | (4) | (19) | ||||||
Other individually immaterial items | 3 | — | ||||||
|
|
|
| |||||
Income tax expense | $ | 43 | $ | 26 | ||||
|
|
|
|
A substantial portion of the Company'sCompany’s operations in Malaysia, Singapore and Thailand operate under various tax holiday programs, which expire in whole or in part at various dates through 2022.2024. Certain of the tax holidays may be extended if specific conditions are met. The net impact of these tax holiday programs was to increase the Company'sCompany’s net income by approximately $349$163 million in fiscal year 20152017 ($1.050.54 per share, diluted) and to increase the Company'sCompany’s net income by approximately $289$67 million in fiscal year 20142016 ($0.830.22 per share, diluted).
The Company consists of an Irish tax resident parent holding company with various U.S.US and non-U.S.non-US subsidiaries that operate in multiplenon-Irish taxing jurisdictions. The amount of temporary differences (including undistributed earnings) related to outside basis differences in the stock ofnon-Irish resident subsidiaries considered indefinitely reinvested outside of Ireland for which Irish income taxes have not been provided as of 3 July 2015,30 June 2017, was approximately $3$1.5 billion. If such amount
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
were remitted to Ireland as a dividend, it is likely that tax at 25% or approximately $750$375 million would result.
As of 330 June 2017 and 1 July 2015 and 27 June 2014,2016, the Company had approximately $83$74 million and $115$76 million, respectively, of unrecognized tax benefits excluding interest and penalties. The amount of unrecognized tax benefits that, if recognized, that would impact the effective tax rate is $83$74 million and $115$76 million as of 330 June 2017 and 1 July 2015 and 27 June 2014,2016, respectively, subject to certain future valuation allowance offsets.
The following table summarizes the activity related to the Company'sCompany’s gross unrecognized tax benefits:
| Fiscal Years Ended | ||||||
---|---|---|---|---|---|---|---|
(US Dollars in millions) | 3 July 2015 | 27 June 2014 | |||||
Balance of unrecognized tax benefits at the beginning of the year | $ | 115 | $ | 157 | |||
Gross increase for tax positions of prior years | 12 | 10 | |||||
Gross decrease for tax positions of prior years | (4 | ) | (64 | ) | |||
Gross increase for tax positions of current year | 9 | 13 | |||||
Gross decrease for tax positions of current year | — | — | |||||
Settlements | (45 | ) | — | ||||
Lapse of statutes of limitation | (3 | ) | (3 | ) | |||
Non-U.S. exchange (gain) loss | (1 | ) | 2 | ||||
| | | | | | | |
Balance of unrecognized tax benefits at the end of the year | $ | 83 | $ | 115 | |||
| | | | | | | |
| | | | | | | |
| | | | | | | |
Fiscal Years Ended | ||||||||
(US Dollars in millions) | 30 June 2017 | 1 July 2016 | ||||||
Balance of unrecognized tax benefits at the beginning of the year | $ | 76 | $ | 89 | ||||
Gross increase for tax positions of prior years | 2 | 12 | ||||||
Gross decrease for tax positions of prior years | (7) | (8) | ||||||
Gross increase for tax positions of current year | 16 | 11 | ||||||
Gross decrease for tax positions of current year | — | — | ||||||
Settlements | — | — | ||||||
Lapse of statutes of limitation | (13) | (27) | ||||||
Non-US. exchange gain | — | (1) | ||||||
|
|
|
| |||||
Balance of unrecognized tax benefits at the end of the year | $ | 74 | $ | 76 | ||||
|
|
|
|
It is the Company'sCompany’s policy to include interest and penalties related to unrecognized tax benefits in the provision for income taxestax expense on the Consolidated Profit and lossLoss Account. During fiscal year 2015,2017, the Company recognized net income tax expensebenefit for interest and penalties of $26$1 million andas compared to net income tax expense of $8 million during fiscal year 2014.2016. As of 3 July 2015,30 June 2017, the Company had $20$4 million of accrued interest and penalties related to unrecognized tax benefits compared to $27$6 million in fiscal year 2014.2016.
During the 12 months beginning 41 July 2015,2017, the Company expects that its unrecognized tax benefits could be reduced by approximately $11$14 million as a result of the expiration of certain statutes of limitation.
The Company is subject to taxation in many jurisdictions globally and is required to file U.S.US federal, U.S.US state and non-U.S.non-US income tax returns. In June 2014, the Company received the Revenue Agent's Report and Notices of Proposed Adjustments for its U.S. federal income tax returns for fiscal years 2008, 2009 and 2010. The Company is currently contesting certain of these proposed adjustments through the IRS Appeals Office. The Company believes that the resolution of these disputed issues will not have a material impact on its financial statements. On 31 December 2014, the Company received the final audit assessment from the Jiangsu Province State Tax Bureau of the People's Republic of China. The Company recognized $193 million of income tax expense and made payments of $225 million related to tax and interest associated with changes to the Company's tax filings in China from calendar years 2007 through 2013.
The Company is no longer subject to tax examination of U.S.its US federal income tax returns for years prior to fiscal year 2008.2014. With respect to U.S.US state and non-U.S.non-US income tax returns, the Company is generally no longer subject to tax examination for years ending prior to fiscal year 2005.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)2006.
The following table shows the activity in the deferred tax liability balance for fiscal year 2015:2017:
(US Dollars in millions) | | |||
---|---|---|---|---|
Balance at 27 June 2014 | $ | 10 | ||
Unremitted earnings of certain non-U.S. entities | (4 | ) | ||
Acquisition-Related Items | — | |||
| | | | |
Balance at 3 July 2015 | $ | 6 | ||
| | | | |
| | | | |
| | | | |
(US Dollars in millions) | ||||
Balance at 1 July 2016 | $ | 10 | ||
Unremitted earnings of certainnon-US entities | (4) | |||
Balance at 30 June 2017 | $ | 6 | ||
8. Derivative Financial Instruments
The Company is exposed to foreign currency exchange rate, interest rate, and to a lesser extent, equity pricemarket risks relating to its ongoing business operations. The Company enters into foreign currency forward exchange contracts in order to manage the foreign currency exchange rate risk on forecasted expenses denominated in foreign currencies and to mitigate the remeasurement risk of certain foreign currency denominated liabilities.currencies. The Company'sCompany’s accounting policies for these instruments are based on whether the instruments are classified as designated ornon-designated hedging instruments. The Company records all derivatives in the Consolidated Balance SheetsSheet at fair value. The changes in the fair value of the effective portions of designated cash flow hedges are recorded in Accumulated other comprehensive loss, which is a component of Other Reserves, until the hedged item is recognized in earnings. Derivatives that are not designated as hedging instruments and the ineffective portions of cash flow hedges are adjusted to fair value through earnings. The amount of net unrealized gain onCompany has no outstanding cash flow hedges was $1 million as of 3 July 2015 and the30 June 2017. The amount of net unrealized loss on cash flow hedges was $1$2 million as of 27 June 2014.1 July 2016.
The Company dedesignatesde-designates its cash flow hedges when the forecasted hedged transactions are realized or it is probable the forecasted hedged transactions will not occur in the initially identified time period. At such time, the associated gains and losses deferred in Accumulated other comprehensive loss, which is a component of Other Reserves, are reclassified immediately into earnings and any subsequent changes in the fair value of such derivative instruments are immediately reflected in earnings. The Company did not recognize any material net gains or losses related to the loss of hedge designation on discontinued cash flow hedges during fiscal years 2015year 2017 and 2014. did not recognize any material amounts during fiscal year 2016.
As of 3 July 2015,30 June 2017, the Company's existingCompany does not have outstanding foreign currency forward exchange contracts mature within 12 months. The deferred amount currently recorded in Accumulated other comprehensive loss expected to be recognized into earnings over the next 12 months is immaterial.
contracts. The following tables show the total notional value of the Company'sCompany’s outstanding foreign currency forward exchange contracts as of 31 July 2015 and 27 June 2014:
| As of 3 July 2015 | ||||||
---|---|---|---|---|---|---|---|
(US Dollars in millions) | Contracts Designated as Hedges | Contracts Not Designated as Hedges | |||||
Thai Baht | $ | 18 | $ | 48 | |||
Singapore Dollars | 23 | 42 | |||||
Chinese Renminbi | 5 | 16 | |||||
Euro | — | 13 | |||||
British Pound Sterling | 35 | — | |||||
Malaysian Ringgit | 12 | 15 | |||||
| | | | | | | |
$ | 93 | $ | 134 | ||||
| | | | | | | |
| | | | | | | |
| | | | | | | |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)2016:
As of 1 July 2016 | ||||||||
(US Dollars in millions) | Contracts Designated as Hedges | Contracts Not Designated as Hedges | ||||||
British Pound Sterling | $ | 47 | $ | 10 |
| As of 27 June 2014 | ||||||
---|---|---|---|---|---|---|---|
(US Dollars in millions) | Contracts Designated as Hedges | Contracts Not Designated as Hedges | |||||
Thai baht | $ | — | $ | 143 | |||
British Pound Sterling | 25 | — | |||||
Malaysian Ringgit | 9 | — | |||||
| | | | | | | |
$ | 34 | $ | 143 | ||||
| | | | | | | |
| | | | | | | |
| | | | | | | |
The Company is subject to equity market risks due to changes in the fair value of the notional investments selected by its employees as part of itsNon-qualified Deferred Compensation Plan—the Seagate Deferred Compensation Plan (the "SDCP"“SDCP”). In the quarter ended 27 December 2013,fiscal year 2014, the Company entered into a Total Return Swap ("TRS"(“TRS”) in order to manage the equity market risks associated with the SDCP liabilities. The Company pays a floating rate, based on LIBOR plus an interest rate spread, on the notional amount of the TRS. The TRS is designed to substantially offset changes in the SDCP liability due to changes in the value of the investment options made by employees. As of 3 July 2015,30 June 2017, the notional investments underlying the TRS amounted to $98$105 million. The contract term of the TRS is through January 20162018 and is settled on a monthly basis, therefore limiting counterparty performance risk. The Company did not designate the TRS as a hedge. Rather, the Company records all changes in the fair value of the TRS to earnings to offset the market value changes of the SDCP liabilities.
As of 30 June 2017, the Company has no outstanding foreign currency forward exchange contracts and the gross fair value of the TRS reflected in the Consolidated Balance Sheet is immaterial.
The following tables show the Company'sCompany’s derivative instruments measured at gross fair value as reflected in the Consolidated Balance SheetsSheet as of 31 July 2015 and 27 June 2014:
| As of 3 July 2015 | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
| Asset Derivatives | Liability Derivatives | |||||||||
(US Dollars in millions) | Balance Sheet Location | Fair Value | Balance Sheet Location | Fair Value | |||||||
Derivatives designated as hedging instruments: | |||||||||||
Foreign currency forward exchange contracts | Other debtors | $ | 2 | Other creditors | $ | (1 | ) | ||||
Derivatives not designated as hedging instruments: | |||||||||||
Foreign currency forward exchange contracts | Other debtors | — | Other creditors | (3 | ) | ||||||
Total return swap | Other debtors | 1 | Other creditors | — | |||||||
| | | | | | | | | | | |
Total derivatives | $ | 3 | $ | (4 | ) | ||||||
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| As of 27 June 2014 | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
| Asset Derivatives | Liability Derivatives | |||||||||
(US Dollars in millions) | Balance Sheet Location | Fair Value | Balance Sheet Location | Fair Value | |||||||
Derivatives designated as hedging instruments: | |||||||||||
Foreign currency forward exchange contracts | Other debtors | $ | 3 | Other creditors | $ | — | |||||
Derivatives not designated as hedging instruments: | |||||||||||
Foreign currency forward exchange contracts | Other debtors | 2 | Other creditors | — | |||||||
Total return swap | Other debtors | — | Other creditors | — | |||||||
| | | | | | | | | | | |
Total derivatives | $ | 5 | $ | — | |||||||
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)2016:
As of 1 July 2016 | ||||||||||||||||
Derivatives Asset | Derivatives Liability | |||||||||||||||
(US Dollars in millions) | Balance Sheet Location | Fair Value | Balance Sheet Location | Fair Value | ||||||||||||
Derivatives designated as hedging instruments: | ||||||||||||||||
Foreign currency forward exchange contracts | Other debtors | $ | — | Other creditors | $ | (2) | ||||||||||
Derivatives not designated as hedging instruments: | ||||||||||||||||
Foreign currency forward exchange contracts | Other debtors | — | Other creditors | (1) | ||||||||||||
Total return swap | Other debtors | 3 | Other creditors | — | ||||||||||||
|
|
|
| |||||||||||||
Total derivatives | $ | 3 | $ | (3) | ||||||||||||
|
|
|
|
The following tables show the effect of the Company's derivative instruments on the Consolidated Statements of Comprehensive Income and the Consolidated Profit and Loss Account for the fiscal year ended 3 July 2015:
(US Dollars in millions) Derivatives Designated as Cash Flow Hedges | Amount of Gain or (Loss) Recognized in OCI on Derivatives (Effective Portion) | Location of Gain or (Loss) Reclassified from Accumulated OCI into Income (Effective Portion) | Amount of Gain or (Loss) Reclassified from Accumulated OCI into Income (Effective Portion) | Location of Gain or (Loss) Recognized in Income on Derivatives (Ineffective Portion and Amount Excluded from Effectiveness Testing) | Amount of Gain or (Loss) Recognized in Income (Ineffective Portion and Amount Excluded from Effectiveness Testing)(a) | |||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Foreign currency forward exchange contracts | $ | (11 | ) | Cost of revenue | $ | (13 | ) | Cost of revenue | $ | 1 |
Derivatives Not Designated as Hedging Instruments | Location of Gain or (Loss) Recognized in Income on Derivatives | Amount of Gain or (Loss) Recognized in Income on Derivatives | ||||
---|---|---|---|---|---|---|
Foreign currency forward exchange contracts | Other income and charges, net | $ | (4 | ) | ||
Total return swap | Operating expenses | $ | — |
The following tables show the effect of the Company'sCompany’s derivative instruments on the Consolidated Statement of Comprehensive Income and the Consolidated Profit and Loss Account for the fiscal year ended 2730 June 2014:2017:
(US Dollars in millions) Derivatives Designated as Cash Flow Hedges | Amount of Gain or (Loss) Recognized in OCI on Derivatives (Effective Portion) | Location of Gain or (Loss) Reclassified from Accumulated OCI into Income (Effective Portion) | Amount of Gain or (Loss) Reclassified from Accumulated OCI into Income (Effective Portion) | Location of Gain or (Loss) Recognized in Income on Derivatives (Ineffective Portion and Amount Excluded from Effectiveness Testing) | Amount of Gain or (Loss) Recognized in Income (Ineffective Portion and Amount Excluded from Effectiveness Testing)(a) | |||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Foreign currency forward exchange contracts | $ | (1 | ) | Cost of revenue | $ | — | Cost of revenue | $ | — |
(US Dollars in millions) Derivatives Designated as Cash Flow Hedges | Amount of Gain or (Loss) Recognized in OCI on Derivatives (Effective Portion) | Location of Gain or (Loss) Reclassified from Accumulated OCI into Income (Effective Portion) | Amount of Gain or (Loss) Reclassified from Accumulated OCI into Income (Effective Portion) | Location of Gain or (Loss) Recognized in Income on Derivatives (Ineffective Portion and Amount Excluded from Effectiveness Testing) | Amount of Gain or (Loss) Recognized in Income (Ineffective Portion and Amount Excluded from Effectiveness Testing)(a) | |||||||||
Foreign currency forward exchange contracts | $ (3) | Cost of revenue | $ (4) | Cost of revenue | $ | — |
Derivatives Not Designated as Hedging Instruments | Location of Gain or (Loss) Recognized in Income on Derivatives | Amount of Gain or (Loss) Recognized in Income on Derivatives | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
Foreign currency forward exchange contracts | Other income and charges, net | $ | 1 | |||||||||
Total return swap | Operating expenses | $ | 10 |
(a) | The amounts of gain or (loss) recognized in income related to the ineffective portion of the hedging relationships and to the amount excluded from the assessment of hedge effectiveness were less than $1 million for the fiscal year ended 30 June 2017. |
The following tables show the effect of the Company’s derivative instruments on the Consolidated Statement of Comprehensive Income and the Consolidated Profit and Loss Account for the fiscal year ended 1 July 2016:
(US Dollars in millions) Derivatives Designated as Cash Flow Hedges | Amount of Gain or (Loss) Recognized in OCI on Derivatives (Effective Portion) | Location of Gain or (Loss) Reclassified from Accumulated OCI into Income (Effective Portion) | Amount of Gain or (Loss) Reclassified from Accumulated OCI into Income (Effective Portion) | Location of Gain or (Loss) Recognized in Income on Derivatives (Ineffective Portion and Amount Excluded from Effectiveness Testing) | Amount of Gain or (Loss) Recognized in Income (Ineffective Portion and Amount Excluded from Effectiveness Testing) (a) | |||||||
Foreign currency forward exchange contracts | $ (4) | Cost of revenue | $ (2) | Cost of revenue | $ | — |
Derivatives Not Designated as Hedging Instruments | Location of Gain or (Loss) Recognized in Income on Derivatives | Amount of Gain or (Loss) Recognized in Income on Derivatives | |||||
Foreign currency forward exchange contracts | Other income and charges, net | ||||||
Total return swap | Operating expenses |
(a) | The amounts of gain or (loss) recognized in income related to the ineffective portion of the hedging relationships and to the amount excluded from the assessment of hedge effectiveness were less than $1 million for the fiscal year ended 1 July 2016. |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
9. Fair Value
Measurement of Fair Value
Fair value is defined as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required to be recorded at fair value, the Company considers the principal or most advantageous market in which it would transact and it considers assumptions that market participants would use when pricing the asset or liability.
Fair Value Hierarchy
A fair value hierarchy is based on whether the market participant assumptions used in determining fair value are obtained from independent sources (observable inputs) or reflects the Company'sCompany’s own assumptions of market participant valuation (unobservable inputs). A financial instrument'sinstrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The three levels of inputs that may be used to measure fair value:
Level 1—Quoted prices in active markets that are unadjusted and accessible at the measurement date for identical, unrestricted assets or liabilities;
Level 2—Quoted prices for identical assets and liabilities in markets that are inactive; quoted prices for similar assets and liabilities in active markets or financial instruments for which significant inputs are observable, either directly or indirectly; or
Level 3—Prices or valuations that require inputs that are both unobservable and significant to the fair value measurement.
The Company considers an active market to be one in which transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis, and views an inactive market as one in which there are few transactions for the asset or liability, the prices are not current, or price quotations vary substantially either over time or among market makers. Where appropriate the Company'sCompany’s or the counterparty's counterparty’snon-performance risk is considered in determining the fair values of liabilities and assets, respectively.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Items Measured at Fair Value on a Recurring Basis
The following table presents the Company'sCompany’s assets and liabilities that are measured at fair value on a recurring basis, excluding accrued interest components, as of 330 June 2017:
Fair Value Measurements at Reporting Date Using | ||||||||||||||||
(US 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 | $ | 592 | $ | — | $ | — | $ | 592 | ||||||||
Time deposits | — | 582 | — | 582 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total cash equivalents and investments | 592 | 582 | — | 1,174 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Restricted cash and investments: | ||||||||||||||||
Money market funds | 1 | — | — | 1 | ||||||||||||
Time deposits and certificates of deposit | — | 3 | — | 3 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total assets | $ | 593 | $ | 585 | $ | — | $ | 1,178 | ||||||||
|
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|
|
|
|
|
|
Fair Value Measurements at Reporting Date Using | ||||||||||||||||
(US 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 | $ | 592 | $ | 582 | $ | — | $ | 1,174 | ||||||||
Other debtors - amounts falling due within one year | 1 | 3 | — | 4 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total assets | $ | 593 | $ | 585 | $ | — | $ | 1,178 | ||||||||
|
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|
|
|
|
|
The Company reclassified demand deposits from certificates of deposit and money market funds to cash as of 1 July 2015:2016 in the table below to conform to the current year’s presentation. This reclassification did not result in any change to the cash and cash equivalents balance as reported in the Consolidated Balance Sheet and Statement of Cash Flows for all periods presented.
| Fair Value Measurements at Reporting Date Using | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(US 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 | $ | 1,201 | $ | — | $ | — | $ | 1,201 | |||||
Certificates of deposit | — | 862 | — | 862 | |||||||||
Corporate bonds | — | 6 | — | 6 | |||||||||
| | | | | | | | | | | | | |
Total cash equivalents and investments | 1,201 | 868 | — | 2,069 | |||||||||
| | | | | | | | | | | | | |
Restricted cash and investments: | |||||||||||||
Money market funds | 2 | — | — | 2 | |||||||||
Certificates of deposit | — | 5 | — | 5 | |||||||||
Derivative assets | — | 3 | — | 3 | |||||||||
| | | | | | | | | | | | | |
Total assets | $ | 1,203 | $ | 876 | $ | — | $ | 2,079 | |||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Liabilities: | |||||||||||||
Derivative liabilities | $ | — | $ | (4 | ) | $ | — | $ | (4 | ) | |||
| | | | | | | | | | | | | |
Total liabilities | $ | — | $ | (4 | ) | $ | — | $ | (4 | ) | |||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Fair Value Measurements at Reporting Date Using | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(US 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 | $ | 1,201 | $ | 862 | $ | — | $ | 2,063 | |||||
Investments | — | 6 | — | 6 | |||||||||
Restricted cash and investments | 2 | 5 | — | 7 | |||||||||
Other debtors, net | — | 3 | — | 3 | |||||||||
| | | | | | | | | | | | | |
Total assets | $ | 1,203 | $ | 876 | $ | — | $ | 2,079 | |||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Liabilities: | |||||||||||||
Other creditors | $ | — | $ | (4 | ) | $ | — | $ | (4 | ) | |||
| | | | | | | | | | | | | |
Total liabilities | $ | — | $ | (4 | ) | $ | — | $ | (4 | ) | |||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following table presentstables present the Company'sCompany’s assets and liabilities, by financial instrument type and balance sheet line item that are measured at fair value on a recurring basis, excluding accrued interest components, as of 27 June 2014:1 July 2016:
| Fair Value Measurements at Reporting Date Using | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(US 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 | $ | 793 | $ | — | $ | — | $ | 793 | |||||
Commercial paper | — | 1,261 | — | 1,261 | |||||||||
Certificates of deposit | — | 269 | — | 269 | |||||||||
Corporate bonds | — | 6 | — | 6 | |||||||||
| | | | | | | | | | | | | |
Total cash equivalents and investments | 793 | 1,536 | — | 2,329 | |||||||||
| | | | | | | | | | | | | |
Restricted Cash and Investments: | |||||||||||||
Other debt securities | — | 4 | — | 4 | |||||||||
Derivative assets | — | 5 | — | 5 | |||||||||
| | | | | | | | | | | | | |
Total assets | $ | 793 | $ | 1,545 | $ | — | $ | 2,338 | |||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Liabilities: | |||||||||||||
Derivative liabilities | $ | — | $ | — | $ | — | $ | — | |||||
| | | | | | | | | | | | | |
Total liabilities | $ | — | $ | — | $ | — | $ | — | |||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Fair Value Measurements at Reporting Date Using | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(US 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 | $ | 793 | $ | 1,516 | $ | — | $ | 2,309 | |||||
Investments | — | 20 | — | 20 | |||||||||
Restricted cash and investments | — | 4 | — | 4 | |||||||||
Other debtors, net | — | 5 | — | 5 | |||||||||
| | | | | | | | | | | | | |
Total assets | $ | 793 | $ | 1,545 | $ | — | $ | 2,338 | |||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Liabilities: | |||||||||||||
Other creditors | $ | — | $ | — | $ | — | $ | — | |||||
| | | | | | | | | | | | | |
Total liabilities | $ | — | $ | — | $ | — | $ | — | |||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Fair Value Measurements at Reporting Date Using | ||||||||||||||||
(US 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 | $ | 230 | $ | — | $ | — | $ | 230 | ||||||||
Corporate bonds | — | 6 | — | 6 | ||||||||||||
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| |||||||||
Total cash equivalents and investments | 230 | 6 | — | 236 | ||||||||||||
|
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| |||||||||
Restricted Cash and Investments: | ||||||||||||||||
Money market funds | 2 | — | — | 2 | ||||||||||||
Certificates of deposit | — | 5 | — | 5 | ||||||||||||
Derivative assets | — | 3 | — | 3 | ||||||||||||
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| |||||||||
Total assets | $ | 232 | $ | 14 | $ | — | $ | 246 | ||||||||
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| |||||||||
Liabilities: | ||||||||||||||||
Derivative liabilities | $ | — | $ | (3) | $ | — | $ | (3) | ||||||||
|
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| |||||||||
Total liabilities | $ | — | $ | (3) | $ | — | $ | (3) | ||||||||
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|
Fair Value Measurements at Reporting Date Using | ||||||||||||||||
(US 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 | $ | 230 | $ | — | $ | — | $ | 230 | ||||||||
Investments | — | 6 | — | 6 | ||||||||||||
Other debtors - amounts falling due within one year | 2 | 8 | — | 10 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total assets | $ | 232 | $ | 14 | $ | — | $ | 246 | ||||||||
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| |||||||||
Liabilities: | ||||||||||||||||
Other creditors - amounts falling due within one year | $ | — | $ | (3) | $ | — | $ | (3) | ||||||||
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| |||||||||
Total liabilities | $ | — | $ | (3) | $ | — | $ | (3) | ||||||||
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The Company classifies items in Level 1 if the financial assets consist of securities for which quoted prices are available in an active market.
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.US Treasuries, time deposits and certificates of deposits.deposit. These debt investments are priced using observable
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
inputs and valuation models which vary by asset class. The Company uses a pricing service to assist in determining the fair values of
all of its cash equivalents and investments. For the cash equivalents and investments in the Company'sCompany’s portfolio, multiple pricing sources are generally available. The pricing service uses inputs from multiple industry standard data providers or other third 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 3 July 2015,30 June 2017, has not found it necessary to make any adjustments to the prices obtained. The Company'sCompany’s derivative financial instruments are also classified within Level 2. The Company'sCompany’s derivative financial instruments consist of foreign currency forward exchange contracts and the TRS. The Company recognizes derivative financial instruments in its 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 330 June 2017 and 1 July 2015 and 27 June 2014, we2016, the Company had no Level 3 assets.assets or liabilities measured at fair value on a recurring basis.
Items Measured at Fair Value on aNon-Recurring Basis
TheFrom time to time, the Company enters into certain strategic investments for the promotion of business and strategic objectives. StrategicThese strategic investments in equity securitiesprimarily include cost basis investments representing those where the Company does not have the ability to exercise significant influence overas well as equity method investments representing those where the investees,Company does have the ability to exercise significant influence but does not have control. These investments are included in Financial assets, net in the Consolidated Balance Sheets, are recorded at costSheet, and are periodically analyzed to determine whether or not there are indicators of impairment. The carrying value of the Company'sCompany’s strategic investments at 330 June 2017 and 1 July 2015 and 27 June 20142016 totaled $120$125 million and $46$113 million, respectively, and consisted primarily of privately held equity securities without a readily determinable fair value.
During the fiscal years 20152017 and 2014,2016, the Company determined that certain of its equity investments accounted for under the cost method were other-than-temporarily impaired, and recognized charges of $7$25 million and $2$13 million, respectively, in order to write down the carrying amount of the investmentinvestments to its estimated fair value. These amounts were recorded in Other income and charges, net in the Consolidated Profit and Loss Account. Since there was no active market for the equity securities of the investee, the Company estimated fair value of the investee by analyzing the underlying cash flows and future prospects of the investee. These amounts were recorded in Other income and charges, net in the Company’s Consolidated Profit and Loss Account.
In connection with the Company’s manufacturing footprint reduction, the Company has $75 million and $2 million held for sale assets included in Tangible assets and Other debtors, respectively, on the Consolidated Balance Sheet as of 30 June 2017. These assets primarily consisted of $37 million of land and building in Korea and $26 million of land and building in China, with the remainder of the balance comprised of property at other locations (collectively, the “properties”). The respective properties to be sold met the criteria to be classified as held for sale during the June 2017 and March 2017 quarters. Depreciation related to the properties ceased as of the date these were determined to be held for sale. During fiscal year 2017, the Company recorded impairment charges of $35 million in order to write down the carrying amount of such properties to their estimated fair values less costs to sell. The impairment charges were recorded in the Operating expenses in the Consolidated Profit and Loss Account. The fair values were measured with the assistance of third-party valuation models which used inputs such as market comparable data for similar land sale transactions adjusted for difference to indicate value of the subject properties and the cost approach valuation techniques for buildings as part of the analysis. The fair value measurement was categorized as Level 3 as significant unobservable inputs were used in the valuation analysis.
The following table shows the activity in the Financial assets for fiscal year 2015years 2017 and 2014,2016, respectively:
| Fair Value Measurements Using | |||||||||
---|---|---|---|---|---|---|---|---|---|---|
(US Dollars in millions) | Auction Rate Securities | Strategic Investments | Total | |||||||
Balance at 28 July 2013 | $ | 15 | $ | 66 | $ | 81 | ||||
Additional investments | — | 22 | 22 | |||||||
Sales and settlements | (15 | ) | (40 | ) | (55 | ) | ||||
Impairments | — | (2 | ) | (2 | ) | |||||
| | | | | | | | | | |
Balance at 27 June 2014 | $ | — | $ | 46 | $ | 46 | ||||
| | | | | | | | | | |
Additional investments | — | 85 | 85 | |||||||
Sales and settlements | — | (4 | ) | (4 | ) | |||||
Impairments | — | (7 | ) | (7 | ) | |||||
| | | | | | | | | | |
Balance at 3 July 2015 | $ | — | $ | 120 | $ | 120 | ||||
| | | | | | | | | | |
(US Dollars in millions) | Strategic Investments | Total | ||||||
Balance at 3 July 2015 | $ | 120 | $ | 120 | ||||
|
|
|
| |||||
Additional investments | 6 | 6 | ||||||
Impairments | (13) | (13) | ||||||
|
|
|
| |||||
Balance at 1 July 2016 | $ | 113 | $ | 113 | ||||
|
|
|
| |||||
Additional investments | 37 | 37 | ||||||
Impairments | (25) | (25) | ||||||
|
|
|
| |||||
Balance at 30 June 2017 | $ | 125 | $ | 125 | ||||
|
|
|
|
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Other Fair Value Disclosures
The Company'sCompany’s debt is carried at amortized cost. The fair value of the Company'sCompany’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'sCompany’s debt in order of maturity:
| 3 July 2015 | 27 June 2014 | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(US Dollars in millions) | Carrying Amount | Estimated Fair Value | Carrying Amount | Estimated Fair Value | |||||||||
6.8% Senior Notes due October 2016 | $ | — | $ | — | $ | 335 | $ | 374 | |||||
3.75% Senior Notes due November 2018 | 800 | 828 | 800 | 820 | |||||||||
6.875% Senior Notes due May 2020 | — | — | 534 | 578 | |||||||||
7.00% Senior Notes due November 2021 | 158 | 170 | 251 | 284 | |||||||||
4.75% Senior Notes due June 2023 | 1,000 | 1,016 | 1,000 | 1,009 | |||||||||
4.75% Senior Notes due January 2025 | 1,000 | 995 | 1,000 | 995 | |||||||||
4.875% Senior Notes due June 2027 | 698 | 675 | — | — | |||||||||
5.75% Senior Notes due December 2034 | 499 | 491 | — | — | |||||||||
| | | | | | | | | | | | | |
4,155 | 4,175 | 3,920 | 4,060 | ||||||||||
Less short-term borrowings and current portion of long-term debt | — | — | — | — | |||||||||
| | | | | | | | | | | | | |
Long-term debt, less current portion | $ | 4,155 | $ | 4,175 | $ | 3,920 | $ | 4,060 | |||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
30 June 2017 | 1 July 2016 | |||||||||||||||
(Dollars in millions) | Carrying Amount | Estimated Fair Value | Carrying Amount | Estimated Fair Value | ||||||||||||
3.75% Senior Notes due November 2018 | $ | 710 | $ | 726 | $ | 800 | $ | 804 | ||||||||
7.00% Senior Notes due November 2021 | — | — | 158 | 164 | ||||||||||||
4.250% Senior Notes due March 2022 | 748 | 765 | — | — | ||||||||||||
4.75% Senior Notes due June 2023 | 951 | 987 | 990 | 857 | ||||||||||||
4.875% Senior Notes due March 2024 | 497 | 511 | — | — | ||||||||||||
4.75% Senior Notes due January 2025 | 975 | 984 | 995 | 795 | ||||||||||||
4.875% Senior Notes due June 2027 | 695 | 698 | 698 | 514 | ||||||||||||
5.75% Senior Notes due December 2034 | 489 | 488 | 489 | 357 | ||||||||||||
|
|
|
|
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|
|
| |||||||||
5,065 | 5,159 | 4,130 | 3,491 | |||||||||||||
Less: debt issuance costs | (44) | — | (39) | — | ||||||||||||
|
|
|
|
|
|
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| |||||||||
Long-term debt, net of debt issuance costs | $ | 5,021 | $ | 5,159 | $ | 4,091 | $ | 3,491 | ||||||||
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10. Capital and Reserves
Share Capital
The Company'sCompany’s authorized share capital is€ 40,000 and $13,500 and consists of 1,250,000,000 ordinary shares, par value $0.00001, of which 315,445,536291,799,561 shares were outstanding as of 3 July 2015,30 June 2017, and 100,000,000 preferred shares, par value $0.00001, of which none were issued or outstanding as of 3 July 201530 June 2017 and 40,000 deferred shares of par value €1€ 1 of which 40,000 shares were outstanding as of 3 July 2015.30 June 2017.
Ordinary shares—- Holders of ordinary shares are entitled to receive dividends when and as declared by the Company'sCompany’s board of directors (the "Board“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.
Preferred shares—- The Company may issue preferred shares in one 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.
The Board of Directors may authorize the issuance of preferred shares with voting or conversion rights that could harm the voting power or other rights of the holders of the ordinary shares. The issuance of preferred shares, while providing flexibility in connection with possible acquisitions and
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
other corporate purposes, could, among other things, have the effect of delaying, deferring or preventing a change in control of the Company and might harm the market price of its ordinary shares and the voting and other rights of the holders of ordinary shares.
Repurchases of Equity Securities
On 24 July 2013, the Board of Directors authorized the Company to repurchase an additional $2.5 billion of its outstanding ordinary shares.
On 22 April 2015, the Board of Directors authorized the Company to repurchase an additional $2.5 billion of its outstanding ordinary shares.
All repurchases are effected as redemptions in accordance with the Company'sCompany’s Articles of Association.
As of 3 July 2015, $2.930 June 2017, $1.3 billion remained available for repurchase under the existing repurchase authorization limit.
The following table sets forth information with respect to repurchases of the Company'sCompany’s ordinary shares during fiscal years 20152017 and 2014:2016:
(US Dollars in millions) | Number of Shares Repurchased | Dollar Value of Shares Repurchased | |||||
---|---|---|---|---|---|---|---|
Cumulative repurchased through 28 June 2013 | 244 | $ | 5,486 | ||||
Repurchased in fiscal year 2014 | 41 | 1,912 | |||||
| | | | | | | |
Cumulative repurchased through 27 June 2014 | 285 | 7,398 | |||||
Repurchased in fiscal year 2015 | 19 | 1,087 | |||||
| | | | | | | |
Cumulative repurchased through 3 July 2015 | 304 | $ | 8,485 | ||||
| | | | | | | |
| | | | | | | |
| | | | | | | |
(US Dollars in millions) | Number of Shares Repurchased | Dollar Value of Shares Repurchased | ||||||
Cumulative repurchased through 3 July 2015 | 304 | $ | 8,485 | |||||
Repurchased in fiscal year 2016(a) | 24 | 1,146 | ||||||
|
|
|
| |||||
Cumulative repurchased through 1 July 2016 | 328 | 9,631 | ||||||
Repurchased in fiscal year 2017(a) | 13 | 487 | ||||||
|
|
|
| |||||
Cumulative repurchased through 30 June 2017 | 341 | $ | 10,118 | |||||
|
|
|
|
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(a) | For fiscal years 2017 and 2016, including net share settlement of $27 million and $56 million, for 1 million and 1 million shares in connection with tax withholding related to vesting of restricted stock units, respectively. |
Reserves
| Seagate Technology plc Ordinary Shareholders | | | |||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Number of Ordinary Shares | Share Premium | Profit and Loss Account | Other Reserves | Total | Non- controlling Interest | Total Equity | |||||||||||||||
| (In millions) | (US Dollars in millions) | ||||||||||||||||||||
Balance at 28 June 2013 | $ | 359 | $ | 5,225 | $ | (1,778 | ) | $ | 48 | $ | 3,495 | $ | 11 | $ | 3,506 | |||||||
Income for the period | 1,570 | 1,570 | — | 1,570 | ||||||||||||||||||
Repurchase and cancellation of ordinary shares | (41 | ) | (1,912 | ) | (1,912 | ) | — | (1,912 | ) | |||||||||||||
Issuance of shares in respect of share-based payment plans | 9 | 107 | 107 | — | 107 | |||||||||||||||||
Dividends to shareholders | (557 | ) | (557 | ) | — | (557 | ) | |||||||||||||||
Share-based compensation | 118 | 118 | — | 118 | ||||||||||||||||||
Other comprehensive income | 10 | 10 | 1 | 11 | ||||||||||||||||||
Purchase of additional subsidiary shares from noncontrolling interest | 1 | 1 | (12 | ) | (11 | ) | ||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | |
Balance at 27 June 2014 | 327 | $ | 5,332 | $ | (2,677 | ) | $ | 177 | $ | 2,832 | $ | — | $ | 2,832 | ||||||||
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
Income for the period | 1,742 | 1,742 | — | 1,742 | ||||||||||||||||||
Repurchase and cancellation of ordinary shares | (19 | ) | (1,087 | ) | (1,087 | ) | — | (1,087 | ) | |||||||||||||
Issuance of shares in respect of share-based payment plans | 7 | 98 | 98 | — | 98 | |||||||||||||||||
Dividends to shareholders | (664 | ) | (664 | ) | — | (664 | ) | |||||||||||||||
Share-based compensation | 137 | 137 | — | 137 | ||||||||||||||||||
Other comprehensive income | (28 | ) | (28 | ) | — | (28 | ) | |||||||||||||||
Other | (12 | ) | (12 | ) | — | (12 | ) | |||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | |
Balance at 3 July 2015 | 315 | $ | 5,430 | $ | (2,686 | ) | $ | 274 | $ | 3,018 | $ | — | $ | 3,018 | ||||||||
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
Number of Ordinary Shares | Share Premium | Profit and Loss Account | Other Reserves | Total Equity | ||||||||||||||||
(In millions) | (US Dollars in millions) | |||||||||||||||||||
Balance at 3 July 2015 | 315 | $ | 5,430 | $ | (2,686) | $ | 274 | $ | 3,018 | |||||||||||
|
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|
|
|
|
|
|
| |||||||||||
Income for the period | 248 | 248 | ||||||||||||||||||
Repurchase and cancellation of ordinary shares | (23) | (1,090) | (1,090) | |||||||||||||||||
Tax withholding related to vesting of restricted stock units | (1) | (56) | (56) | |||||||||||||||||
Issuance of shares in respect of share-based payment plans | 8 | 79 | 79 | |||||||||||||||||
Dividends to shareholders | (727) | (727) | ||||||||||||||||||
Share-based compensation | 120 | 120 | ||||||||||||||||||
Other comprehensive income | 5 | 5 | ||||||||||||||||||
Other | (4) | (4) | ||||||||||||||||||
|
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|
|
| |||||||||||
Balance at 1 July 2016 | 299 | $ | 5,509 | $ | (4,311) | $ | 395 | $ | 1,593 | |||||||||||
|
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|
|
|
|
|
|
| |||||||||||
Income for the period | 772 | 772 | ||||||||||||||||||
Repurchase and cancellation of ordinary shares | (12) | (460) | (460) | |||||||||||||||||
Tax withholding related to vesting of restricted stock units | (1) | (27) | (27) | |||||||||||||||||
Issuance of shares in respect of share-based payment plans | 6 | 86 | 86 | |||||||||||||||||
Dividends to shareholders | (745) | (745) | ||||||||||||||||||
Share-based compensation | 137 | 137 | ||||||||||||||||||
Other comprehensive income | 8 | 8 | ||||||||||||||||||
|
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|
|
|
|
|
|
|
| |||||||||||
Balance at 30 June 2017 | 292 | $ | 5,595 | $ | (4,771) | $ | 540 | $ | 1,364 | |||||||||||
|
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|
|
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|
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|
|
Capital Redemption Reserve Fund
Other reserves includes an amount of $2,720$3,090 and $2,530$2,960 for fiscal years 20152017 and 2014,2016, respectively, representing a Capital Redemption Reserve Fund.
11. Share-based Compensation
Stock-BasedShare-Based Compensation Plans
The Company's stock-basedCompany’s share-based compensation plans have been established to promote the Company'sCompany’s long-term growth and financial success by providing incentives to its employees, directors, and consultants through grants of share-based awards. The provisions of the Company's stock-basedCompany’s share-based benefit plans, which allow for the grant of various types of equity-based awards, are also intended to provide greater flexibility to maintain the Company'sCompany’s competitive ability to attract, retain and motivate participants for the benefit of the Company and its shareholders.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Seagate Technology plc 2012 Equity Incentive Plan (the "EIP"“EIP”). On 26 October 2011, the shareholders approved the EIP and authorized the issuance of up to a total of 27.0 million ordinary shares, par value $0.0001 per share, plus any shares remaining available for grant under the Seagate Technology plc 2004 Share
Compensation Plan (the "SCP"“SCP”) as of the effective date of the EIP (which was equal to 11.0 million ordinary shares as of the effective date of the EIP and which will increase by such additional number of shares as will be returned to the share reserve in respect of awards previously granted under the SCP) (together, the "Share Reserve"“Share Reserve”). On 22 October 2014, the shareholders authorized the issuance from the EIP of an additional 25 million ordinary shares, par value $0.0001 per share. Any shares that are subject to options or share appreciation rights granted under the EIP will be counted against the Share Reserve as one share for every one share granted, and any shares that are subject to restricted share bonus awards, restricted share units, performance share bonus awards or performance share awards (collectively, "Full-Value“Full-Value Share Awards"Awards”) will generally be counted against the Share Reserve as two and one-tenthfive-tenths shares for every one share granted. On 19 October 2016, the shareholders authorized the issuance from the EIP of an additional 7.5 million ordinary shares, par value $0.0001 per share. As of 30 June 2017, there were approximately 30.8 million ordinary shares available for issuance under the EIP.
Dot Hill Systems 2009 Equity Incentive Plan (the “DHEIP”). Seagate Technology plc acquired the Dot Hill Systems 2009 Equity Incentive Plan effective 6 October 2015. The Company assumed the remaining authorized but unused share reserve of approximately 2 million shares, based on the conversion ratio, from the DHEIP on the acquisition date. Any shares that are subject to options or share appreciation rights granted under the DHEIP will be counted against the Share Reserve as one share for every one share granted, and any shares that are subject to restricted share bonus awards, restricted share units, performance share bonus awards or performance share awards (collectively, “Full-Value Share Awards”) will generally be counted against the Share Reserve as one and five-tenths shares for every one share granted. As of 3 July 2015,30 June 2017, there were approximately 40.01 million ordinary shares available for issuance under the EIP.DHEIP.
Seagate Technology plc Employee Stock Purchase Plan (the "ESPP"“ESPP”). There are 50.0 million ordinary shares authorized to be issued under the ESPP. In no event shall the total number of shares issued under the ESPP exceed 75.0 million ordinary shares. The ESPP consists of asix-month offering period with a maximum issuance of 1.5 million ordinary shares per offering period. The ESPP permits eligible employees to purchase ordinary shares through payroll deductions generally at 85% of the fair market value of the ordinary shares. As of 3 July 201530 June 2017 there were approximately 8.94.8 million ordinary shares available for issuance under the ESPP.
LyveMinds Inc. 2012 Equity Incentive Plan (the "LyveMinds Plan"). On 19 October 2012, LyveMinds Inc., a majority-owned subsidiary of the Company, adopted the LyveMinds Inc. 2012 Equity Incentive Plan (the "LyveMinds Plan"). A maximum of 31.9 million shares of LyveMinds' common stock are issuable under the LyveMinds Plan to employees, directors, and consultants of Lyve Minds. Options granted to LyveMinds employees generally vest as follows: 25% of the options on the first anniversary of the vesting commencement date and the remaining 75% proportionately each month over the next 36 months. Options expire ten years from the date of grant. LyveMinds, Inc. adopted the Amended and Restated 2012 Equity Incentive Plan on 26 March 2014 in connection with LyveMinds' reincorporation as a Delaware corporation. The compensation expense associated with options granted to date under the LyveMinds Plan was not material for fiscal years 2015 and 2014.
Equity Awards
Full-Value Share Awards (e.g. restricted share units)units, “RSU”) generally vest over a period of three to four years, with cliff vesting of a portion of each award occurring annually.annually, subject to continuous employment with the Company through the vesting date. Options generally vest as follows: 25% of the options will vest on the first anniversary of the vesting commencement date and the remaining 75% will vest ratably each month thereafter over the next 36 months. Options granted under the EIP and SCP have an exercise price equal to the fair market value of the Company’s ordinary shares on the grant date. Fair market value is defined as the closing price of the Company'sCompany’s ordinary shares on date of grant.NASDAQ on the grant date.
The Company granted performance awards of performance-based share units (“PSU”) to its senior executive officers under the SCP and the EIP where vesting is subject to both the continued employment of the participant by the Company and the achievement of certain performance goals established by the Compensation Committee of the Company'sCompany’s Board of Directors, including market basedmarket-based performance goals. A single awardPSU represents the right to receive a single ordinary share of the Company. During fiscal years 20152017 and 2014,2016, the Company granted 0.30.6 million and 0.4 million performance awards,PSUs, respectively, where performance is measured based on a three-year average return on invested capital (ROIC)(“ROIC”) goal and a relative total shareholder return (TSR)(“TSR”) goal, which is based on the Company'sCompany’s ordinary shares measured against a benchmark TSR of a peer group over the same three-year period (the "TSR/ROIC"“TSR/ ROIC” awards). These
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
awards vest after the end of the performance period of three years from the grant date. A percentage of these units may vest only if at least the minimum ROIC goal is met regardless of whether the TSR goal is met. The number of stockshare units to vest will range from 0% to 200% of the targeted units. In evaluating the fair value of these units, the Company used a Monte Carlo simulation on the
grant date, taking the market-based TSR goal into consideration. Compensation expense related to these units is only recorded in a period if it is probable that the ROIC goal will be met, and it is to be recorded at the expected level of achievement.
The Company also granted 0.40.2 million and 0.30.2 million performance awardsPSUs during fiscal years 20152017 and 2014,2016, respectively, to its senior executive officers which are subject to a performance goal related to the Company'sCompany’s adjusted earnings per share (the "AEPS"“AEPS” awards). These awards have a maximum seven-year vesting period, with 25% annual vesting starting on the first anniversary of the grant date. If the performance goal is not achieved, vesting is delayed to a following year in which the AEPS goal is achieved. Any unvested awards from prior years may vest cumulatively in a future year within the seven-year vesting period if the annual AEPS goal is achieved during a subsequent year. If the AEPS goal has not been met by the end of the seven year period, any unvested shares will be forfeited.
During fiscal year 2015 and 2014, the Company did not grant any performance-based options and performance based restricted share units to its CEO. The performance-based options and performance-based restricted share units to its CEO are based on the attainment of a minimum 40% TSR (the "40% TSR" awards). The 40% TSR awards cliff vest after three years, contingent upon continued service and the attainment of a minimum 40% TSR, inclusive of dividends and share price appreciation, over a three-year performance period, which TSR must be sustained for a minimum of 30 consecutive trading days.
Determining Fair Value of Seagate Technology Stock Plans
Valuation and amortization method—- The Company estimates the fair value of stock options, RSU and performance awards subject to an AEPS condition granted using the Black-Scholes-Merton valuation model and a single optionshare award approach. This fair value is then amortized on a straight-line basis over the requisite service periods of the awards, which is generally the vesting period or the remaining service (vesting) period.
Expected Term—- Expected term represents the period that the Company's stock-basedCompany’s share-based awards are expected to be outstanding and was determined based on historical experience of similar awards, giving consideration to the contractual terms of the stock-basedshare-based awards, vesting schedules and expectations of future employee behavior as influenced by changes to the terms of its stock-basedshare-based awards.
Expected Volatility—- The Company uses a combination of the implied volatility of its traded options and historical volatility of its share price.
Expected Dividend—- The Black-Scholes-Merton valuation model calls for a single expected dividend yield as an input. The dividend yield is determined by dividing the expected per share dividend during the coming year by the grant date share price. The expected dividend assumption is based on the Company'sCompany’s current expectations about its anticipated dividend policy. Also, because the expected dividend yield should reflect marketplace participants'participants’ expectations, the Company does not incorporate changes in dividends anticipated by management unless those changes have been communicated to or otherwise are anticipated by marketplace participants.
Risk-Free Interest Rate—- The Company bases the risk-free interest rate used in the Black-Scholes-Merton valuation model on the implied yield currently available on U.S.US Treasuryzero-coupon issues with an equivalent remaining term. Where the expected term of the Company's stock-basedCompany’s share-based awards do
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
not correspond with the terms for which interest rates are quoted, the Company performed a straight-line interpolation to determine the rate from the available term maturities.
The fair value of the Fair Value—Company's nonvested awards and performance awards subject to an AEPS condition for fiscal years 2015 and 2014, is the price of the Company's shares on the grant date. The weighted average grant date fair value of awards granted are as follows:
| Fiscal Years | ||||||
---|---|---|---|---|---|---|---|
| 2015 | 2014 | |||||
Nonvested awards: | |||||||
Weighted-average fair value | $ | 58.93 | $ | 41.18 | |||
Performance awards: | |||||||
Weighted-average fair value | $ | 59.51 | $ | 48.69 |
The fair value of the Company'sCompany’s shares related to options and RSU granted to employees, shares issued from the ESPP and performance awardsPSU subject to TSR/ROIC or AEPS conditions for fiscal years 20152017 and 2014,2016, were estimated using the following assumptions:
Fiscal Years | ||||||||
2017 | 2016 | |||||||
Options | ||||||||
Expected term (in years) | 4.2 | 2.1 - 4.2 | ||||||
Volatility | 38 - 42% | 33 - 48% | ||||||
Weighted-average volatility | 39% | 36% | ||||||
Expected dividend rate | 4.9 - 6.4% | 4.6 - 11.0% | ||||||
Weighted-average expected dividend rate | 6.3% | 5.6% | ||||||
Risk-free interest rate | 1.1 - 1.8% | 0.6 - 1.5% | ||||||
Weighted-average fair value | $ | 6.83 | $ | 12.28 | ||||
RSU | ||||||||
Expected term (in years) | 4.2 | 4.2 | ||||||
Expected dividend rate | 4.6 - 7.7% | 4.6 - 11.0% | ||||||
Weighted-average expected dividend rate | 6.4% | 5.16% | ||||||
Weighted-average fair value | $ | 30.85 | $ | 41.47 | ||||
ESPP | ||||||||
Expected term (in years) | 0.5 | 0.5 | ||||||
Volatility | 36 - 49% | 28 - 46% | ||||||
Weighted-average volatility | 43% | 39% | ||||||
Expected dividend rate | 5.6 - 7.8% | 4.6 - 8.3% | ||||||
Weighted-average expected dividend rate | 6.8% | 6.9% | ||||||
Risk-free interest rate | 0.4 - 0.6% | 0.2 - 0.5% | ||||||
Weighted-average fair value | $ | 9.78 | $ | 9.08 | ||||
PSUs subject to market condition | ||||||||
Expected term (in years) | 3.0 | 3.0 | ||||||
Volatility | 41 - 42% | 30% | ||||||
Weighted-average volatility | 41% | 30% | ||||||
Expected dividend rate | 6.3 - 7.0% | 4.3% | ||||||
Weighted-average expected dividend rate | 7.0% | 4.3% | ||||||
Risk-free interest rate | 0.9 - 1.3% | 1.1% | ||||||
Weighted-average fair value | $ | 32.41 | $ | 47.34 | ||||
PSUs subject to an AEPS condition | ||||||||
Expected term (in years) | 4.2 | 4.2 | ||||||
Expected dividend rate | 5.9 - 6.4% | 4.6 - 7.3% | ||||||
Weighted-average expected dividend rate | 6.2% | 5.9% | ||||||
Weighted-average fair value | $ | 31.61 | $ | 42.09 |
| Fiscal Years | |||
---|---|---|---|---|
| 2015 | 2014 | ||
Options | ||||
Expected term (in years) | 4.2 | 4.2 | ||
Volatility | 33 - 35% | 35 - 41% | ||
Weighted-average volatility | 34% | 40% | ||
Expected dividend rate | 2.9% - 4.0% | 3.1% - 3.8% | ||
Weighted-average expected dividend rate | 3.0% | 3.7% | ||
Risk-free interest rate | 1.1 - 1.5% | 1.2 - 1.4% | ||
Weighted-average fair value | $12.98 | $10.41 | ||
ESPP | ||||
Expected term (in years) | 0.5 | 0.5 | ||
Volatility | 28 - 29% | 34 - 36% | ||
Weighted-average volatility | 28% | 35% | ||
Expected dividend rate | 3.0 - 3.8% | 3.3 - 3.5% | ||
Weighted-average expected dividend rate | 3.4% | 3.4% | ||
Risk-free interest rate | 0.1% | 0.1% | ||
Weighted-average fair value | $12.21 | $10.46 | ||
Performance restricted share awards subject to market condition | ||||
Expected term (in years) | 3.0 | 3.0 | ||
Weighted-average volatility | 40% | 46% | ||
Expected dividend rate | 2.8% | 3.8% | ||
Risk-free interest rate | 1.1% | 0.9% | ||
Weighted-average fair value | $58.31 | $37.51 |
StockShare-based Compensation Expense
The Company recorded $137 million and $118$120 million of share-based compensation during fiscal years 20152017 and 2014.2016, respectively. Management has made an estimate of expected forfeitures and is recognizing compensation costs only for those equity awards expected to vest. When estimating forfeitures, the Company considers voluntary termination behavior as well as analysis of actual forfeited awards.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Stock Option Activity
The Company issues new ordinary shares upon exercise of stock options. The following is a summary of option activities:
Options | Number of Shares | Weighted- Average Exercise Price | Weighted- Average Remaining Contractual Term | Aggregate Intrinsic Value | |||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (In millions) | | (In years) | (Dollars In millions) | |||||||||
Outstanding at 27 June 2014 | 6.4 | $ | 19.80 | 3.8 | $ | 238 | |||||||
Granted | 1.2 | $ | 59.47 | ||||||||||
Exercised | (2.1 | ) | $ | 17.00 | |||||||||
Forfeitures | (0.6 | ) | $ | 41.36 | |||||||||
Expirations | — | — | |||||||||||
| | | | | | | | | | | | | |
Outstanding at 3 July 2015 | 4.9 | $ | 27.94 | 3.6 | $ | 110 | |||||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Vested and expected to vest at 3 July 2015 | 4.8 | $ | 27.43 | 3.6 | $ | 107 | |||||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Exercisable at 3 July 2015 | 2.8 | $ | 14.48 | 2.3 | $ | 93 | |||||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Options | Number of Shares | Weighted- Average Exercise Price | Weighted- Average Remaining Contractual Term | Aggregate Intrinsic Value | ||||||||||||
(In millions) | (In years) | (US Dollars in millions) | ||||||||||||||
Outstanding at 1 July 2016 | 5.4 | $ | 34.91 | 4.6 | $ | 14 | ||||||||||
Granted | 2.3 | $ | 36.78 | |||||||||||||
Exercised | (1.6) | $ | 19.87 | |||||||||||||
Forfeitures | (0.3) | $ | 41.07 | |||||||||||||
Expirations | (0.1) | $ | 47.66 | |||||||||||||
|
| |||||||||||||||
Outstanding at 30 June 2017 | 5.7 | $ | 39.24 | 5.0 | $ | 22 | ||||||||||
|
| |||||||||||||||
Vested and expected to vest at 30 June 2017 | 5.5 | $ | 39.28 | 5.0 | $ | 21 | ||||||||||
|
| |||||||||||||||
Exercisable at 30 June 2017 | 2.1 | $ | 39.82 | 3.6 | $ | 12 | ||||||||||
|
|
The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying awards and the quoted price of the Company'sCompany’s ordinary shares for the options that werein-the-money at 3 July 2015.30 June 2017. During fiscal years 20152017 and 2014,2016, the aggregate intrinsic value of options exercised under the Company'sCompany’s stock option plans was $92$29 million and $140$44 million, respectively, determined as of the date of option exercise. The aggregate fair value of options vested during fiscal year 2015 wasyears 2017 and 2016 were approximately $10 million.$15 million and $18 million, respectively.
At 3 July 2015,30 June 2017, the total compensation cost related to options granted to employees but not yet recognized was approximately $18$25 million, net of estimated forfeitures of approximately $1 million. This cost is being amortized on a straight-line basis over a weighted-average remaining term of approximately 2.62.5 years and will be adjusted for subsequent changes in estimated forfeitures.
Nonvested Awards Activity
The following is a summary of nonvested award activities which do not contain a performance condition:
Nonvested Awards | Number of Shares | Weighted- Average Grant-Date Fair Value | |||||
---|---|---|---|---|---|---|---|
| (In millions) | | |||||
Nonvested at 27 June 2014 | 7.0 | $ | 32.05 | ||||
Granted | 1.2 | $ | 58.93 | ||||
Forfeitures | (0.4 | ) | $ | 41.56 | |||
Vested | (2.6 | ) | $ | 28.76 | |||
| | | | | | | |
Nonvested at 3 July 2015 | 5.2 | $ | 39.73 | ||||
| | | | | | | |
| | | | | | | |
| | | | | | | |
Nonvested Awards | Number of Shares | Weighted- Average Grant- Date Fair Value | ||||||
(In millions) | ||||||||
Nonvested at 1 July 2016 | 4.8 | $ | 39.95 | |||||
Granted | 3.1 | $ | 30.85 | |||||
Forfeitures | (0.7) | $ | 39.72 | |||||
Vested | (2.0) | $ | 37.02 | |||||
|
| |||||||
Nonvested at 30 June 2017 | 5.2 | $ | 35.75 | |||||
|
|
At 3 July 2015,30 June 2017, the total compensation cost related to nonvested awards granted to employees but not yet recognized was approximately $151$135 million, net of estimated forfeitures of approximately $8 million. This
cost is being amortized on a straight-line basis over a weighted-average remaining term
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
of 2.42.6 years and will be adjusted for subsequent changes in estimated forfeitures. The aggregate fair value of nonvested awards vested during fiscal year 2015 wasyears 2017 and 2016 were approximately $156 million.$73 million and $102 million, respectively.
Performance Awards
The following is a summary of nonvested award activities which contain a performance condition:
Performance Awards | Number of Shares | Weighted- Average Grant-Date Fair Value | |||||
---|---|---|---|---|---|---|---|
| (In millions) | | |||||
Performance units at 27 June 2014 | 2.4 | $ | 26.73 | ||||
Granted | 0.7 | $ | 58.97 | ||||
Forfeitures | (0.3 | ) | $ | 43.54 | |||
Vested | (1.7 | ) | $ | 13.99 | |||
| | | | | | | |
Performance units at 3 July 2015 | 1.1 | $ | 61.12 | ||||
| | | | | | | |
| | | | | | | |
| | | | | | | |
Performance Awards | Number of Shares | Weighted- Average Grant- Date Fair Value | ||||||
(In millions) | ||||||||
Performance units at 1 July 2016 | 1.4 | $ | 47.41 | |||||
Granted | 0.8 | $ | 32.16 | |||||
Forfeitures | (0.3) | $ | 41.06 | |||||
Vested | (0.4) | $ | 41.91 | |||||
|
| |||||||
Performance units at 30 June 2017 | 1.5 | $ | 41.88 | |||||
|
|
At 3 July 2015,30 June 2017, the total compensation cost related to performance awards granted to employees but not yet recognized was approximately $39$36 million. This cost is being amortized on a straight-line basis over a weighted-average remaining term of 3.83.29 years.
ESPP
During fiscal years 20152017 and 2014,2016, the aggregate intrinsic value of shares purchased under the Company'sCompany’s ESPP was approximately $15$24 million and $26$12 million, respectively. At 3 July 2015,30 June 2017, the total compensation cost related to options to purchase the Company'sCompany’s ordinary shares under the ESPP but not yet recognized was approximately $1.5$1.7 million. This cost will be amortized on a straight-line basis over a weighted-average period of approximately one month. During fiscal year 2015,2017, the Company issued 1.32.0 million ordinary shares with a weighted-average purchase price of $45.78$26.68 per share.
Tax-Deferred Savings Plan
��The Company has atax-deferred savings plan, the Seagate 401(k) Plan (the "40l(k) plan"“40l(k) plan”), for the benefit of qualified employees. The 40l(k) plan is designed to provide employees with an accumulation of funds at retirement. Qualified employees may elect to make contributions to the 401(k) plan on abi-weekly basis. Pursuant to the 401(k) plan, the Company matches 50% of employee contributions, up to 6% of compensation, subject to maximum annual contributions of $4,500 per participating employee. During fiscal years 20152017 and 2014,2016, the Company made matching contributions of $18 million and $16$19 million, respectively.
Deferred Compensation Plan
On 1 January 2001, the Company adopted the SDCP for the benefit of eligible employees. This plan is designed to permit certain discretionary employer contributions, in excess of the tax limits applicable to the 401(k) plan and to permit employee deferrals in excess of certain tax limits. In the quarter ended 27 December 2013,During fiscal year 2014, the Company entered into a Total Return Swap ("TRS")TRS in order to manage the equity market risks associated with the SDCP liabilities. See "Note“Note 8. Derivative Financial Instruments"Instruments” contained in this report for additional information about the TRS.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Directors'Directors’ Emolument
During thefiscal year ended 3 July 2015,2017, the Company paid $15$4.8 million to its directors in respect of duties relating to Seagate Technology plc. Of the totalplc, including $2.4 million paid $11in restricted stock units. Gains on exercise of vested options were approximately $0.2 million was for managerial services, which included compensation for Mr. Luczo's service as President and Chief Executive Officer, and $4 million was for director services, which included compensation for all non-employee directors.in fiscal year 2017.
During thefiscal year ended 27 June 2014,2016, the Company paid $17$11.3 million to its directors in respect of duties relating to Seagate Technology plc. Of the totalplc, including $7.3 million paid $13in AEPS and ROIC awards to Mr. Luczo and $1.6 million was for managerial services, which included compensation for Mr. Luczo's service as President and Chief Executive Officer, and $4paid in restricted stock units to other directors. Gains on exercise of vested options were approximately $1.6 million was for director services, which included compensation for all non-employee directors.in fiscal year 2016.
12. Earnings Per Share
The following table sets forth the computation of basic and diluted net income per share:
| Fiscal Years Ended | ||||||
---|---|---|---|---|---|---|---|
(In millions, except per share data) | 3 July 2015 | 27 June 2014 | |||||
Numerator: | |||||||
Net income attributable to Seagate Technology plc | $ | 1,742 | $ | 1,570 | |||
| | | | | | | |
| | | | | | | |
| | | | | | | |
Number of shares used in per share calculations: | |||||||
Total shares for purposes of calculating basic net income per share attributable to Seagate Technology plc | 324 | 337 | |||||
Weighted-average effect of dilutive securities: | |||||||
Employee equity award plans | 7 | 10 | |||||
| | | | | | | |
Total shares for purpose of calculating diluted net income per share attributable to Seagate Technology plc | 331 | 347 | |||||
| | | | | | | |
| | | | | | | |
| | | | | | | |
Net income per share attributable to Seagate Technology plc shareholders: | |||||||
Basic | $ | 5.38 | $ | 4.66 | |||
Diluted | $ | 5.26 | $ | 4.52 |
Fiscal Years Ended | ||||||||
(In millions, except per share data) | 30 June 2017 | 1 July 2016 | ||||||
Numerator: | ||||||||
Net income | $ | 772 | $ | 248 | ||||
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| |||||
Number of shares used in per share calculations: | ||||||||
Total shares for purposes of calculating basic net income per share | 296 | 299 | ||||||
Weighted-average effect of dilutive securities: | ||||||||
Employee equity award plans | 3 | 3 | ||||||
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| |||||
Total shares for purpose of calculating diluted net income per share | 299 | 302 | ||||||
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| |||||
Net income per share | ||||||||
Basic | $ | 2.61 | $ | 0.83 | ||||
Diluted | $ | 2.58 | $ | 0.82 |
The following potential shares were excluded from the computation of diluted net income per share as their effect would have been anti-dilutive:
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13. Business Segment and Geographic Information
The Company has concluded that its manufacture and distribution of electronic storage solutions constitutes one reporting segment. The Company'sCompany’s manufacturing operations are based on technology platforms that are used to produce various electronic storage and systems solutions that serve multiple applications and markets. The Company'sCompany’s main technology platforms are primarily focused around areal density of media and read/write head technologies. In addition, the Company also invests in certain other technology platforms including motors, servo formatting read/write channels, solid state and other technologies. The Company has determined that its Chief Executive Officer is the Company'sCompany’s chief operating decision maker (CODM)(“CODM”) as he is responsible for reviewing and approving investments in the Company'sCompany’s technology platforms and manufacturing infrastructure.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
In fiscal years 20152017 and 2014,2016, Dell Inc. accounted for approximately 14%10% and 13%12% of consolidated revenue, respectively, whilerespectively. In fiscal year 2016, HP Inc., formerly known as Hewlett-Packard Company, completed its separation with Hewlett Packard Enterprise Company, and each company accounted for approximately 12% and 13%less than 10% of the Company’s consolidated revenue respectively.in both fiscal years 2017 and 2016. No other customer accounted for more than 10% of consolidated revenue in any year presented.
Other long-lived assets consist of tangible assets, other intangible assets, capital leases, equity investmentsfinancial assets and certain other debtors as recorded by the Company'sCompany’s operations in each area.
The following table summarizes the Company'sCompany’s operations by geographic area:
| Fiscal Years Ended | ||||||
---|---|---|---|---|---|---|---|
(US Dollars in millions) | 3 July 2015 | 27 June 2014 | |||||
Revenue from external customers(a): | |||||||
Singapore | $ | 6,844 | $ | 6,828 | |||
United States | 3,929 | 3,679 | |||||
The Netherlands | 2,291 | 2,652 | |||||
Other | 675 | 565 | |||||
| | | | | | | |
Consolidated | $ | 13,739 | $ | 13,724 | |||
| | | | | | | |
| | | | | | | |
| | | | | | | |
Long-lived assets: | |||||||
Singapore | $ | 900 | $ | 788 | |||
Thailand | 328 | 398 | |||||
United States | 725 | 500 | |||||
China | 138 | 167 | |||||
Malaysia | 248 | 146 | |||||
Other | 568 | 680 | |||||
| | | | | | | |
Consolidated | $ | 2,907 | $ | 2,679 | |||
| | | | | | | |
| | | | | | | |
| | | | | | | |
14. Legal, Environmental and Other Contingencies
Fiscal Years Ended | ||||||||
(US Dollars in millions) | 30 June 2017 | 1 July 2016 | ||||||
Revenue from external customers(a): | ||||||||
Singapore | $ | 5,070 | $ | 5,354 | ||||
United States | 3,535 | 3,376 | ||||||
The Netherlands | 1,501 | 1,813 | ||||||
Other | 665 | 617 | ||||||
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Consolidated | $ | 10,771 | $ | 11,160 | ||||
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Long-lived assets: | ||||||||
United States | $ | 920 | $ | 1,029 | ||||
Singapore | 683 | 726 | ||||||
Thailand | 414 | 349 | ||||||
Malaysia | 100 | 201 | ||||||
China | 61 | 115 | ||||||
Other | 202 | 444 | ||||||
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Consolidated | $ | 2,380 | $ | 2,864 | ||||
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(a) | Revenue is attributed to countries based on the shipping location. |
14. | Legal, Environmental and Other Contingencies |
The Company assesses the probability of an unfavorable outcome of all its material litigation, claims, or assessments to determine whether a liability had been incurred and whether it is probable that one or more future events will occur confirming the fact of the loss. In the event that an unfavorable outcome is determined to be probable and the amount of the loss can be reasonably estimated, the Company establishes an accrual for the litigation, claim or assessment. In addition, in the event an unfavorable outcome is determined to be less than probable, but reasonably possible, the Company will disclose an estimate of the possible loss or range of such loss; however, when a reasonable estimate cannot be made, the Company will provide disclosure to that effect. Litigation is inherently uncertain and may result in adverse rulings or decisions. Additionally, the Company may enter into settlements or be subject to judgments that may, individually or in the aggregate, have a material adverse effect on its results of operations. Accordingly, actual results could differ materially.
Intellectual Property Litigation
Convolve, Inc. ("Convolve"(“Convolve”) and Massachusetts Institute of Technology ("MIT"(“MIT”) v. Seagate Technology LLC, et al.—On 13 July 2000, Convolve and MIT filed suit against Compaq Computer Corporation and Seagate Technology LLC in the U.S.US District Court for the Southern District of New York, alleging infringement of U.S.US Patent Nos.No. 4,916,635 (the "'635 patent"“‘635 patent”) and U.S.US Patent
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
No. 5,638,267 (the "267 patent"“‘267 patent”), misappropriation of trade secrets, breach of contract, and other claims. In the complaint, the plaintiffs requested injunctive relief, $800 million in compensatory damages and unspecified punitive damages, including for willful infringement.claims On 16 January, 2002, Convolve filed an amended complaint, alleging defendants infringe US Patent No. 6,314,473 (the "'473 patent"“‘473 patent”). The district court ruled in 2010 that the '267‘267 patent was out of the case.
On 16 August 2011, the district court granted in part and denied in part the Company'sCompany’s motion for summary judgment. On 1 July 2013, the U.S.US Court of Appeals for the Federal Circuit: 1) affirmed the district court's
court’s summary judgment rulings that Seagate did not misappropriate any of the alleged trade secrets and that the asserted claims of the '635‘635 patent are invalid; 2) reversed and vacated the district court'scourt’s summary judgment ofnon-infringement with respect to the '473‘473 patent; and 3) remanded the case for further proceedings on the '473 patent.‘473 patent On 11 July 2014, the district court granted the Company'sCompany’s further summary judgment motion regarding Convolve's only remaining causethe ‘473 patent. On 10 February 2016, the US Court of action, which allegedAppeals for the Federal Circuit: 1) affirmed the district court’s summary judgment of no direct infringement by Seagate because Seagate’s ATA/SCSI disk drives do not meet the “user interface” limitation of the '473 patent. The court entered judgment in favorasserted claims of the Company‘473 patent; 2) affirmed the district court’s summary judgment ofnon-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 judgment ofnon-infringement by Compaq’s accused products as to claims7-15 of the ‘473 patent; 4) reversed the district court’s summary judgment ofnon-infringement based on 14 July 2014. Convolve filed a notice of appealintervening rights; and 5) remanded the case to the district court for further proceedings on 13 August 2014. The court of appeals has not yet set a date for oral argument.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.
Alexander Shukh v. Seagate Technology—On 12 February 2010, Alexander Shukh filed a complaint against the Company in the U.S.US District Court for the District of Minnesota, alleging, among other things, employment discrimination based on his Belarusian national origin and wrongful failure to name him as an inventor on several patents and patent applications. Mr. Shukh's employment was terminated as part of a company-wide reduction in force in fiscal year 2009. He seeks damages in excess of $75 million.certain Seagate patents. On 31 March 2014, the district court granted Seagate'sSeagate’s summary judgment motion and entered judgment in favor of Seagate.motion. Mr. Shukh filed a notice of appeal on 7 April 2014. On 2 October 2015 the US Court of Appeals for the Federal Circuit vacated and remanded the district court’s grant of summary judgment on Mr. Shukh’s claim for correction of inventorship and affirmed the district court’s grant of summary judgment as to all other claims. On 29 October 2015, Mr. Shukh filed a petition for rehearing en banc with the court of appeals; the petition was denied on 17 December 2015. On 16 March 2016, Shukh filed a petition for writ of certiorari to the US Supreme Court; the petition was denied on 27 June 2016. On 30 March 2017, the parties entered into a confidential settlement to resolve this matter. This settlement did not have a material impact on the Company’s consolidated financial statements.
Enova Technology Corporation v. Seagate Technology (US) Holdings, Inc., et al.—On 5 June 2013, Enova Technology Corporation (“Enova”) filed a complaint against Seagate Technology (US) Holdings, Inc. and Seagate Technology LLC in the US. District Court for the District of Delaware alleging infringement of US Patent No. 7,136,995 (the “‘995 patent”), “Cryptographic Device,” and US Patent No. 7,900,057 (the “‘057 patent”), “Cryptographic Serial ATA Apparatus and Method.” The Company believes the claims are without merit and intends to vigorously defend this case. On 27 April 2015, the district court ordered a stay of the case, in view of proceedings regarding the ‘995 and ‘057 patents before the Patent Trial and Appeal Board (“PTAB”) of the US Patent and Trademark Office. On 2 September 2015, PTAB issued its final written decision that claims1-15 of the ‘995 patent are held unpatentable. On 18 December 2015, PTAB issued its final written decisions that claims1-32 and40-53 of the ‘057 patent are held unpatentable. On 4 February 2016 PTAB issued its final written decision that claims33-39 of the ‘057 patent are held unpatentable. Enova has appealed PTAB’s decisions on the ‘995 patent and the ‘057 patent to the US Court of Appeals for the Federal Circuit. Oral argument for the appeal from PTAB’s decision on the ‘995 patent was held on 13 March 2017, at the court of appeals was held on 4 June 2015;appeals. On 20 March 2017, the court has not yetof appeals issued its decision.judgment affirming PTAB’s decision on the ‘995 patent. Oral argument before the court of appeals for the appeal from PTAB’s decision on the ‘057 patent is scheduled for 11 August 2017. In view of the uncertainty regarding the amount of damages, if any, that could be awarded in this matter, the Company does not believe that it is currently possible to determine a reasonable estimate of the possible range of loss related to this matter.
LEAP Co., Ltd.Lambeth Magnetic Structures LLC v. Seagate Singapore International Headquarters Pte. Ltd. and Nippon SeagateTechnology (US) Holdings, Inc. —On 4 July 2012, LEAP Co., Ltd.et al.—On 29 April 2016, Lambeth Magnetic Structures LLC filed a lawsuitcomplaint against Seagate Technology (US) Holdings, Inc. and Seagate Technology LLC in the TokyoUS District Court of Japan against Seagate Singapore International Headquarters Pte. Ltd., Nippon Seagate Inc. and Buffalo Inc. alleging wrongful termination of purchase agreements and other claims, and seeking approximately $38 million in damages. A date for the startWestern District of trial has not yet been scheduled.Pennsylvania, alleging infringement of US
Patent No. 7,128,988, “Magnetic Material Structures, Devices and Methods.” The Company believes the claims asserted in the complaint are without merit and intends to vigorously defend this case. In view of the uncertainty regarding the amount of damages, if any, that could be awarded in this matter, the Company does not believe that it is currently possible to determine a reasonable estimate of the possible range of loss related to this matter.
Enova Technology Corporation v. Seagate Technology (US) Holdings, Inc., et al.—On 5 June 2013, Enova Technology Corporation filed a complaint against Seagate Technology (US) Holdings, Inc. and Seagate Technology LLC in the U.S. District Court for the District of Delaware alleging infringement of U.S. Patent No. 7,136,995, "Cryptographic Device," and U.S. Patent No. 7,900,057, "Cryptographic Serial ATA Apparatus and Method." The complaint seeks unspecified compensatory damages, enhanced damages, injunctive relief, attorneys' fees, and other relief. The trial is scheduled to begin 11 July 2016. On 27 April 2015, the district court ordered a stay of the case until 15 October 2015, in view of proceedings regarding the '995 and '057 Patents before the Patent Trial and Appeal Board of the U.S. Patent and Trademark Office. The Company believes the claims are without merit and intends
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
to vigorously defend this case. In view of the uncertainty regarding the amount of damages, if any, that could be awarded in this matter, the Company does not believe that it is currently possible to determine a reasonable estimate of the possible range of loss related to this matter.
Seagate Technology LLC v. Western Digital Corp. On 8 October 2014, the Minnesota Supreme Court ruled that the arbitration award in favor of the Company in its case against Western Digital for the misappropriation of the Company's trade secrets should be confirmed. In the arbitration award, issued on 23 January 2012, the arbitrator determined that Western Digital and its former employee had misappropriated the Company's trade secrets. The arbitrator awarded the Company $525 million in compensatory damages and, after adding interest, issued a final award of $630 million. Interest on the final award has been accruing at 10%. On 14 October 2014, the Company received a partial payment from Western Digital in the amount of $773 million. The amount of the final award, less litigation and other related costs, has been recorded by the Company in Gain on arbitration award, net, and the remaining amount received has been recorded in Other income and charges, net.
Environmental Matters
The Company'sCompany’s operations are subject to U.S.US and foreign laws and regulations relating to the protection of the environment, including those governing discharges of pollutants into the air and water, the management and disposal of hazardous substances and wastes and the cleanup of contaminated sites. Some of the Company'sCompany’s operations require environmental permits and controls to prevent and reduce air and water pollution, and these permits are subject to modification, renewal and revocation by issuing authorities.
The Company has established environmental management systems and continually updates its environmental policies and standard operating procedures for its operations worldwide. The Company believes that its operations are in material compliance with applicable environmental laws, regulations and permits. The Company budgets for operating and capital costs on an ongoing basis to comply with environmental laws. If additional or more stringent requirements are imposed on the Company in the future, it could incur additional operating costs and capital expenditures.
Some environmental laws, such as the Comprehensive Environmental Response Compensation and Liability Act of 1980 (as amended, the "Superfund"“Superfund” law) and its state equivalents, can impose liability for the cost of cleanup of contaminated sites upon any of the current or former site owners or operators or upon parties who sent waste to these sites, regardless of whether the owner or operator owned the site at the time of the release of hazardous substances or the lawfulness of the original disposal activity. The Company has been identified as a potentially responsible party at several sites. At each of these sites, the Company has an assigned portion of the financial liability based on the type and amount of hazardous substances disposed of by each party at the site and the number of financially viable parties. The Company has fulfilled its responsibilities at some of these sites and remains involved in only a few at this time.
While the Company'sCompany’s ultimate costs in connection with these sites is difficult to predict with complete accuracy, based on its current estimates of cleanup costs and its expected allocation of these costs, the Company does not expect costs in connection with these sites to be material.
The Company may be subject to various state, federal and international laws and regulations governing the environment, including those restricting the presence of certain substances in electronic products. For example, the European Union ("EU"(“EU”) enacted the Restriction of the Use of Certain Hazardous Substances in Electrical and Electronic Equipment, which prohibits the use of certain substances, including lead, in certain products, including disk drives and server storage products, put on the market after 1 July 2006. Similar legislation has been or may be enacted in other jurisdictions,
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
including in the United States, Canada, Mexico, Taiwan, China, Japan and others. The European Union REACH Directive (Registration, Evaluation, Authorization, and Restriction of Chemicals, EC 1907/2006) also restricts substances of very high concern ("SVHCs"(“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'sCompany’s business.
Other Matters
The Company is involved in a number of other judicial and administrative proceedings incidental to its business, and the Company may be involved in various legal proceedings arising in the normal course of its
business in the future. Although occasional adverse decisions or settlements may occur, the Company believes that the final disposition of such matters will not have a material adverse effect on its financial position or results of operations.
15. Commitments
15. | Commitments |
Leases. The Company leases certain property, facilities and equipment undernon-cancelable lease agreements. Land and facility leases expire at various dates through 2082 and contain various provisions for rental adjustments including, in certain cases, a provision based on increases in the Consumer Price Index. Also, certain leases provide for renewal of the lease at the Company'sCompany’s option at expiration of the lease. The lease term begins on the date of initial possession of the leased property for purposes of recognizing lease expense on a straight-line basis over the term of the lease. The Company does not assume renewals in its determination of the lease term unless the renewals are deemed to be reasonably assured at lease inception. All of the leases require the Company to pay property taxes, insurance and normal maintenance costs.costs which are expensed as incurred.
Future minimum lease payments for operating leases substantially all of which relates to landsland and buildings, (including accrued lease payments relating to restructuring plans) with initial or remaining terms of one year or more were as follows at 3 July 201530 June 2017 (lease payments are shown net of sublease income):
Fiscal Years Ending | Operating Leases | |||
---|---|---|---|---|
| (US Dollars in millions) | |||
2016 | $ | 41 | ||
2017 | 29 | |||
2018 | 24 | |||
2019 | 19 | |||
2020 | 13 | |||
Thereafter | 92 | |||
| | | | |
$ | 218 | |||
| | | | |
| | | | |
| | | | |
Fiscal Years Ending | Operating Leases | |||
(US Dollars in millions) | ||||
2018 | $ | 19 | ||
2019 | 15 | |||
2020 | 11 | |||
2021 | 9 | |||
2022 | 6 | |||
Thereafter | 75 | |||
|
| |||
$ | 135 | |||
|
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Total rent expense for all land, facility and equipment operating leases, net of sublease income, was $50$29 million and $39$43 million for fiscal years 20152017 and 2014,2016, respectively. Total sublease rental income for fiscal years 20152017 and 20142016 was $3$2 million and $2$3 million, respectively. The Company subleases a portion of its facilities that it considers to be in excess of current requirements. As of 3 July 2015,30 June 2017, total future lease income to be recognized for the Company'sCompany’s existing subleases is approximately $15$9 million.
The Company recorded amounts for both adverse and favorable leasehold interests and for exit costs that apply directly to the lease commitments assumed through the 2006 acquisition of Maxtor. As of 3 July 2015, the Company had a $2 million adverse leasehold interest related to leases acquired from Maxtor. The adverse leasehold interest is being amortized to Cost of revenue and Operating expenses over the remaining duration of the leases. In addition, the Company had $2 million and $5 million
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
remaining in accrued exit costs related to the planned exit of Maxtor leased excess facilities at 3 July 2015 and 27 June 2014, respectively.
Capital Expenditures. The Company's Company’snon-cancelable commitments for construction of manufacturing and product development facilities and purchases of equipment approximated $147$107 million at 3 July 2015,30 June 2017, and included $30$15 million related to research and development projects.
16. GuaranteesUnconditional Purchase Obligations.During fiscal year 2017, the Company had unconditional long-term purchase obligations of approximately $1.1 billion in the aggregate, of which $900 million in the aggregate remains outstanding as of 30 June 2017, to purchase minimum quarterly amounts of inventory components at fixed and variable prices. The Company expects the commitment to total $375 million, $350 million, and $175 million for fiscal years 2018, 2019, and 2020, respectively with no remaining commitment thereafter.
16. | Guarantees |
Indemnifications to Officers and Directors
On 4 May 2009, Seagate Technology, an exempted company incorporated with limited liability under the laws of the Cayman Islands ("Seagate-Cayman"(“Seagate-Cayman”), then the parent company, entered into a new form of
indemnification agreement (the "Revised“Revised Indemnification Agreement"Agreement”) with its officers and directors of Seagate-Cayman and its subsidiaries (each, an "Indemnitee"“Indemnitee”). The Revised Indemnification Agreement provides indemnification in addition to any of Indemnitee'sIndemnitee’s indemnification rights under Seagate-Cayman'sSeagate-Cayman’s Articles of Association, applicable law or otherwise, and indemnifies an Indemnitee for certain expenses (including attorneys'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-Cayman or any of its subsidiaries, arising out of his or her service as a director, officer, employee or agent of Seagate-Cayman or any of its subsidiaries or of any other entity to which he or she provides services at Seagate-Cayman'sSeagate-Cayman’s request. However, an Indemnitee shall not be indemnified under the Revised Indemnification Agreement for (i) any fraud or dishonesty in the performance of Indemnitee'sIndemnitee’s duty to Seagate-Cayman or the applicable subsidiary of Seagate-Cayman or (ii) Indemnitee'sIndemnitee’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. In addition, the Revised Indemnification Agreement provides that Seagate-Cayman will advance expenses incurred by an Indemnitee in connection with enforcement of the Revised Indemnification 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 3 July 2010, pursuant to a corporate reorganization, the common shareholders of Seagate-Cayman became ordinary shareholders of Seagate Technology plc (the "Company"“Company”) and Seagate-Cayman became a wholly owned subsidiary of the Company, as described more fully in the Current Report on Form8-K filed by the Company on 6 July 2010 (the "Redomestication"“Redomestication”). On 27 July 2010, in connection with the Redomestication, the Company, as sole shareholder of Seagate-Cayman, approved a form of deed of indemnity (the "Deed“Deed of Indemnity"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"“Deed Indemnitee”), in addition to any of a Deed Indemnitee'sIndemnitee’s indemnification rights under the Company'sCompany’s Articles of Association, applicable law or otherwise, with a similar scope to the Revised Indemnification Agreement. Seagate-Cayman entered into the Deed of Indemnity with certain Deed Indemnitees effective as of 3 July 2010 and continues to enter into the Deed 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 no amount has been accrued in the accompanying consolidated financial statements with respect to these indemnification obligations.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Intellectual Property Indemnification Obligations
The Company has entered into agreements with customers and suppliers that include limited intellectual property indemnification obligations that are customary in the industry. These guarantees generally require the Company to compensate the other party for certain damages and costs incurred as a result of third party intellectual property claims arising from these transactions. The nature of the intellectual property 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. Historically, the Company has not made any significant indemnification payments under such agreements and no amount has been accrued in the accompanying consolidated financial statements with respect to these indemnification obligations.
Product Warranty
The Company estimates probable product warranty costs at the time revenue is recognized. The Company generally warrants its products for a period of 1 to 5 years. The Company uses estimated repair or replacement costs and uses statistical modeling to estimate product return rates in order to determine its warranty
obligation. Changes in the Company'sCompany’s product warranty liability during the fiscal years ended 330 June 2017 and 1 July 2015 and 27 June 20142016 were as follows:
| Fiscal Years Ended | ||||||
---|---|---|---|---|---|---|---|
(US Dollars in millions) | 3 July 2015 | 27 June 2014 | |||||
Balance, beginning of period | $ | 273 | $ | 320 | |||
Warranties issued | 147 | 177 | |||||
Repairs and replacements | (187 | ) | (228 | ) | |||
Changes in liability for pre-existing warranties, including expirations | 7 | 1 | |||||
Warranty liability assumed from acquisitions | 8 | 3 | |||||
| | | | | | | |
Balance, end of period | $ | 248 | $ | 273 | |||
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17. Related Party Transactions
Samsung Electronics Co. Ltd. ("Samsung") In connection with the Company's acquisition of the Samsung HDD business, Samsung became a shareholder of the Company and appointed one of its executives to the Company's Board of Directors. On 22 October 2013, Samsung filed an amendment to its Schedule 13D indicating that it holds less than 5% of the Company's outstanding shares. Dr. Seh-Woong Jeong was appointed to our Board of Directors by Samsung and joined our Board of Directors on 26 April 2012. He retired from our Board of Directors on 22 October 2014. The Company recorded revenue of $216 million from sales to Samsung for fiscal year 2014. The Company made payments to Samsung in fiscal years 2014 of $318 million related to purchases of components and services. The Company had accounts payable to Samsung of $34 million at 27 June 2014. The Company had accounts receivable from Samsung of $25 million at 27 June 2014.
Fiscal Years Ended | ||||||||
(US Dollars in millions) |
30 June 2017 |
1 July 2016 | ||||||
Balance, beginning of period | $ | 206 | $ | 248 | ||||
Warranties issued | 131 | 125 | ||||||
Repairs and replacements | (114) | (152) | ||||||
Changes in liability forpre-existing warranties, including expirations | 10 | (17) | ||||||
Warranty liability assumed from acquisitions | — | 2 | ||||||
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Balance, end of period | $ | 233 | $ | 206 | ||||
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|
|
|
Microsoft Corporation ("Microsoft") During the years presented (through March 2014), the Company's Chairman and Chief Executive Officer also served on the board of Microsoft. The Company recorded revenue of $208 million from sales to Microsoft for fiscal years 2014. The Company made payments to Microsoft in fiscal years 2014 of $1 million related to purchases of licensed software. The Company had accounts receivable from Microsoft of $35 million at 27 June 2014.
17. | Employees and Remuneration |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
18. Employees and Remuneration
The average number of persons employed by the Company during each year was as follows:
| Fiscal Years Ended | ||||||
---|---|---|---|---|---|---|---|
| 3 July 2015 | 27 June 2014 | |||||
| (in thousands) | ||||||
Manufacturing | 42 | 43 | |||||
Product development | 7 | 6 | |||||
Sales, marketing, general & administrative | 5 | 4 | |||||
| | | | | | | |
54 | 53 | ||||||
| | | | | | | |
| | | | | | | |
| | | | | | | |
Fiscal Years Ended | ||||||||
30 June 2017 |
1 July 2016 | |||||||
(in thousands) | ||||||||
Manufacturing | 34 | 38 | ||||||
Product development | 6 | 6 | ||||||
Sales, marketing, general & administrative | 3 | 4 | ||||||
|
|
|
| |||||
43 | 48 | |||||||
|
|
|
|
Employee costs during each year consist of the following:
| Fiscal Years Ended | ||||||
---|---|---|---|---|---|---|---|
| 3 July 2015 | 27 June 2014 | |||||
| (US Dollars in millions) | ||||||
Salaries and wages | $ | 1,716 | $ | 1,527 | |||
Social security costs(1) | 403 | 392 | |||||
Share-based compensation | 137 | 118 | |||||
| | | | | | | |
$ | 2,256 | $ | 2,037 | ||||
| | | | | | | |
| | | | | | | |
| | | | | | | |
19. Auditor's Remuneration
Fiscal Years Ended | ||||||||
30 June 2017 |
1 July 2016 | |||||||
(US Dollars in millions) | ||||||||
Salaries and wages | $ | 1,477 | $ | 1,458 | ||||
Social security costs(1) | 324 | 346 | ||||||
Share-based compensation | 137 | 120 | ||||||
|
|
|
| |||||
$ | 1,938 | $ | 1,924 | |||||
|
|
|
|
(1) | Social security costs includes social security costs, employer paid payroll taxes and other employee benefits paid by the Company. |
18. | Auditor’s Remuneration |
The fees paid to Ernst & Young Ireland in respect of the audit of the group accounts was $0.1 million for both the years ended 330 June 2017 and 1 July 2015 and 27 June 2014.2016. In addition, Ernst & Young Ireland received fees of $0.05$0.04 million and $0.07$0.09 million for other assurance services and nil for both tax and othernon-audit services for fiscal years ended 330 June 2017 and 1 July 2015 and 27 June 2014,2016, respectively.
The auditor'sTotal auditor’s remuneration was $6.6$5.9 million and $7.6$6.2 million for the years ended 330 June 2017 and 1 July 2015 and 27 June 2014,2016, respectively. These amounts reflect fees for all professional services rendered by Ernst & Young and its affiliated firms.
20. Post Balance Sheet Events
19. | Post Balance Sheet Events |
Dividends
On 2125 July 2015, our2017, the Company’s Board of Directors approveddeclared a quarterly cash dividend of $0.54$0.63 per share, which will be payable on 25 August 20154 October 2017 to shareholders of record as of the close of business on 11 August 2015.20 September 2017.
Dot Hill AcquisitionJuly 2017 Restructuring Plan
On 18 August 2015,25 July 2017, the Company committed to an additional 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, which the Company expects to be substantially completed by the end of the first quarter of fiscal year 2018, is expected to result in totalpre-tax charges of approximately $50 million, primarily in the first quarter of fiscal year 2018. These charges are expected to be comprised of cash expenditures on severance and employee-related costs.
Planned Leadership Transition
On 25 July 2017 the Company’s Board of Directors appointed William D. Mosley to serve as Chief Executive Officer, of the Company effective 1 October 2017. The Board of Directors also appointed Mr. Mosley to serve as a director of the Company, effective 25 July 2017. Mr. Mosley will serve as a director until the Company’s next annual general meeting of shareholders when he is expected to stand for election by a vote of the Company’s shareholders. On 25 July 2017, the Company also announced that Stephen J. Luczo will step down from his position as Chief Executive Officer, effective 1 October 2017. Mr. Luczo will remain with the Company in the role of Executive Chairman effective 1 October 2017 and will continue to serve as Chairman of the Board of Directors.
As previously announced on 2 June 2017, Philip G. Brace, President of Cloud Systems and Silicon group, will be leaving the Company. On 20 July 2017, the Company and Dot Hill Systems Corp. ("Dot Hill") announcedMr. Brace agreed that they have entered into a definitive agreement under which a wholly-owned indirect subsidiarythe effective date of the Companyhis departure will commence a tender offer for all of the outstanding shares of Dot Hill in an all-cash transaction valued at $9.75 per share, or a total of approximately $694 million on a fully-diluted equity value basis. The transaction is currently expected to close during the Company's second fiscal quarter of 2016, subject to the satisfaction of customary closing conditions and the receipt of certain regulatory approvals.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
21. Subsidiary Undertakingsbe 2 October 2017.
20. | Subsidiary Undertakings |
The subsidiary undertakings of Seagate Technology plc which have a substantial effect on the financial position of the Company are listed below. Unless noted herein, all subsidiary undertakings are ultimately wholly owned by Seagate Technology plc and their financial results are included in the Company'sCompany’s consolidated financial statements.
| Jurisdiction | Registered Address | Nature of Business | Percent Owned | ||||||
Seagate HDD Cayman | Cayman Islands | c/o Maples and Calder, P. O. Box 309, Ugland House, Grand Cayman,KY1-1104, Cayman Islands | Holding Company | |||||||
Seagate Technology (US) Holdings, Inc. | Delaware | The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, Delaware, 19801, USA | Holding Company | 100% |
Company |
| |||||||||
|
| Nature of Business | Percent Owned | |||||||
Seagate Technology International | Cayman Islands | c/o Maples and Calder, P. O. Box 309, Ugland House, Grand Cayman,KY1-1104, Cayman Islands | Designs, manufactures, markets and sells computer disk drives. | |||||||
Penang Seagate Industries (M) Sdn. Bhd. | Malaysia | 1st Floor (Rm. 102), 42 Jalan Sultan Ahmad Shah, Penang 10050, Malaysia | Manufacture, market and deal in all kinds of electronics data products. | |||||||
Seagate Technology (Ireland) | Northern Ireland | c/o Maples and Calder, P. O. Box 309, Ugland House, Grand Cayman,KY1-1104, Cayman Islands | Manufactures equipment for export | |||||||
Seagate Singapore International Headquarters Pte. | The Netherlands | Koolhovenlaan 1, 1119 NB, Schiphol-Rijk, Netherlands | Netherlands branch office of Seagate Singapore International Headquarters Pte. Ltd | |||||||
Seagate Singapore International Headquarters Pte. Ltd | Singapore | 50 Raffles Place#06-00, Singapore Land Tower, 48623, Singapore | Exports products manufactured in Asia |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
100% | ||||||||||
Seagate Technology International (Wuxi) Co. Ltd | China | Export Processing Zone, B, No. 2, Xing Chuang Er Lu, Wuxi, Jiangsu, Peoples Republic of China | Design, manufacture, service, market data storage products | |||||||
Seagate Technology LLC | Delaware | The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, Delaware, 19801, USA | Dual member limited liability | |||||||
Seagate Technology (Thailand) Limited | Thailand |
| Manufacturer of disk drives and related peripherals | |||||||
Seagate Systems (Mexico) SA de CV | Mexico | 1A-102 Av Circunvalacion Agustin Yanez No 2613 Col. Arcos Vallarta Sur in Guadalajara Jalisco, Mexico | Mexican operations | 100% |
Company |
| Registered Address | Nature of Business | Percent Owned | ||||||
Seagate Technology (Suzhou) Co. Ltd. | China | No. 1 Wu Xiang Road Zone A, Export Processing Zone 200 Suhong Zhong Road Suzhou Industrial Park 215021 | Factory | |||||||
Seagate International (Johor) Sdn. Bhd | Malaysia | B-11-8, Level 11 Megan Avenue II Jalan Yap Kwan Seng Kuala Lumpur 50450, Malaysia | Manufacturer of substrates | |||||||
Seagate Systems (US) Inc. |
|
| US trading activities of Seagate Systems |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
100% | ||||||||||
Seagate Systems (Malaysia) | Malaysia | 10th Floor Wisma Havela Thakardas No.1 Jalan Tiong Nam Off Jalan Raja Laut 50350, Malaysia | Malaysia | |||||||
Seagate Systems (UK) Limited | United Kingdom | Langstone Road Havant Hampshire PO9 1SA, United Kingdom | UK trading operations of Seagate Systems | 100% | ||||||
Seagate Cloud Systems, Inc. | The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, Delaware, 19801, USA | US trading activities of Seagate Cloud Systems | 100% | |||||||
Seagate technology international (Singapore branch) | Singapore | 90 Woodlands Avenue 7 Singapore 737911 | Manufacture of computers and data processing equipment except computer peripheral equipment. | 100% |
Exemption From Statutory Audit
As detailed in Note 1 “Basis of Presentation and Summary of Significant Accounting Policies”, in producing consolidated financial statements the UK subsidiaries of the Company are eligible to take advantage of the audit exemption available to them under s479A of the UK Companies Act 2006 relating to subsidiary companies. The subsidiaries which have taken an exemption from an audit for the year ended 30 June 2017 by virtue of s479A of the UK Companies Act 2006 are:
SEAGATE TECHNOLOGY PLC
PARENT COMPANY BALANCE SHEETSTATEMENT OF COMPREHENSIVE INCOME
for the period ended 30 June 2017
(US Dollars in millions) | Note | 3 July 2015 | 27 June 2014 | |||||||
---|---|---|---|---|---|---|---|---|---|---|
ASSETS | ||||||||||
Fixed assets: | ||||||||||
Financial assets—investment in subsidiary | 3 | $ | 6,677 | $ | 6,499 | |||||
Current assets: | ||||||||||
Amounts due from subsidiaries | — | — | ||||||||
Debtors | — | — | ||||||||
Cash | 1 | 22 | ||||||||
| | | | | | | | | | |
Total Assets | $ | 6,678 | $ | 6,521 | ||||||
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
LIABILITIES | ||||||||||
Capital and reserves: | ||||||||||
Share capital | 5 | $ | — | $ | — | |||||
Share premium | 6 | 1,580 | 1,482 | |||||||
Other reserves | 6 | 477 | 296 | |||||||
Profit and loss account | 6 | 2,358 | 3,117 | |||||||
| | | | | | | | | | |
4,415 | 4,895 | |||||||||
Creditors—Amounts falling due within one year: | ||||||||||
Amounts due to subsidiaries | 4 | 2,261 | 1,623 | |||||||
Creditors | 2 | 3 | ||||||||
| | | | | | | | | | |
2,263 | 1,626 | |||||||||
| | | | | | | | | | |
Total Liabilities | $ | 6,678 | $ | 6,521 | ||||||
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
(US Dollars in millions) | 2 July 2016 to 30 June 2017 | 4 July 2015 to 1 July 2016 | ||||||
Profit for the period | $ | 645 | $ | 1,693 | ||||
|
|
|
| |||||
Total comprehensive income for the period | $ | 645 | $ | 1,693 | ||||
|
|
|
|
PARENT COMPANY STATEMENT OF FINANCIAL POSITION
at 30 June 2017
(US Dollars in millions) | Note | 30 June 2017 | 1 July 2016 | |||||||||
ASSETS | ||||||||||||
Fixed assets: | ||||||||||||
Financial assets – investment in subsidiary | 3 | $ | 6,925 | $ | 6,792 | |||||||
Current assets: | ||||||||||||
Debtors | — | 1 | ||||||||||
Cash | 3 | 1 | ||||||||||
|
|
|
| |||||||||
Total Assets | $ | 6,928 | $ | 6,794 | ||||||||
|
|
|
| |||||||||
LIABILITIES | ||||||||||||
Capital and reserves: | ||||||||||||
Share capital | 5 | $ | — | $ | — | |||||||
Share premium | 1,745 | 1,659 | ||||||||||
Other reserves | 728 | 593 | ||||||||||
Profit and loss account | 1,591 | 2,178 | ||||||||||
|
|
|
| |||||||||
4,064 | 4,430 | |||||||||||
Creditors – Amounts falling due within one year: | ||||||||||||
Amounts due to subsidiaries | 4 | 2,680 | 2,364 | |||||||||
Creditors | 184 | — | ||||||||||
|
|
|
| |||||||||
2,864 | 2,364 | |||||||||||
|
|
|
| |||||||||
Total Liabilities | $ | 6,928 | $ | 6,794 | ||||||||
|
|
|
|
Approved by the Board of Directors and signed on its behalf on 2125 August 2015.2017
/s/ STEPHEN J. LUCZO | /s/ DR.CHONG SUP PARK | |||
Stephen J. Luczo | Dr. Chong Sup Park |
PARENT COMPANY STATEMENT OF CHANGES IN EQUITY
as at 30 June 2017
(US Dollars in millions) | Share Capital | Share Premium | Other Reserves | Profit and Loss Account | Total | |||||||||||||||
Balance at 3 July 2015 | $ | — | $ | 1,580 | $ | 477 | $ | 2,358 | $ | 4,415 | ||||||||||
Profit for the period | 1,693 | 1,693 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total comprehensive income | — | 1,580 | 477 | 4,051 | 6,108 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Transactions with owners recorded directly in equity: | ||||||||||||||||||||
Repurchase and cancellation of ordinary shares | — | — | — | (1,090) | (1,090) | |||||||||||||||
Tax withholding related to vesting of restricted stock units | — | — | — | (56) | (56) | |||||||||||||||
Issuance of shares in respect of share-based payment plans | — | 79 | — | — | 79 | |||||||||||||||
Dividends to shareholders | — | — | — | (727) | (727) | |||||||||||||||
Share-based compensation | — | — | 116 | — | 116 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total transactions with owners | — | 79 | 116 | (1,873) | (1,678) | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Balance at 1 July 2016 | $ | — | $ | 1,659 | $ | 593 | $ | 2,178 | $ | 4,430 | ||||||||||
Profit for the period | 645 | 645 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total comprehensive income | — | 1,659 | 593 | 2,823 | 5,075 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Transactions with owners recorded directly in equity: | ||||||||||||||||||||
Repurchase and cancellation of ordinary shares | — | — | — | (460) | (460) | |||||||||||||||
Tax withholding related to vesting of restricted stock units | — | — | — | (27) | (27) | |||||||||||||||
Issuance of shares in respect of share-based payment plans | — | 86 | — | — | 86 | |||||||||||||||
Dividends to shareholders | — | — | — | (745) | (745) | |||||||||||||||
Share-based compensation | — | — | 135 | — | 135 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total transactions with owners | — | 86 | 135 | (1,232) | (1,011) | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Balance at 30 June 2017 | $ | — | $ | 1,745 | $ | 728 | $ | 1,591 | $ | 4,064 | ||||||||||
|
|
|
|
|
|
|
|
|
|
NOTES TO THE PARENT COMPANY BALANCE SHEET
FINANCIAL STATEMENTS
1. Accounting Policies
Accounting Convention and Basis of Preparation of Financial Statements.Statements. The financial statements areof Seagate Technology plc present the statement of comprehensive income, statement of financial position and statement of changes in equity on a stand-alone basis, including related party transactions. The financial statements have been prepared under the historical cost convention except for share based payments which are stated at their fair value and in accordance with Irish law and Financial Reporting Standard 102 (“FRS 102”, The Financial Reporting Standard applicable in the Companies Act 2014UK and Irish generally accepted accounting practice. The accompanying balance sheetRepublic of Seagate Technology plc is presented as an individual undertaking.Ireland) issued by the Financial Reporting Council and promulgated by the Institute of Chartered Accountants in Ireland (Generally Accepted Accounting Practice in Ireland). The financial statements are presented in United States dollars, which is the Company'sCompany’s functional and presentation currency.presentational currency and are rounded to the nearest million.
ProfitReduced Disclosure Framework Exemptions Adopted. In accordance to FRS102, the Company has taken advantage of the following disclosure exemptions as equivalent disclosures are available in the publicly filed financial statements of the Group, Seagate Technology plc, which consolidates the results of the Company: 1) The requirements of Section 7 Statement of Cash Flows paragraph 3.17 (d); 2) requirements of Section 33 Related Party Disclosures paragraph 33.7 and Loss Account.3) Section 26 Share based payment paragraph 26.18 (b), 26.19 to 26.21 and 26.23.
In accordance with the SectionSections 304 (1) and 304 (2) of the Companies Act 2014, Seagate Technology plcthe Company is availing itself of the exemption from presenting the individual profit and loss account. Seagate Technology plc's profit for theFor fiscal years ended 3 July 20152017 and 27 June 20142016, the Company’s net profit was $992$645 million and $993$1,693 million, respectively.
Statement of Cash Flows. Seagate Technology plc is availing of the exemption afforded by Financial Reporting Standard (FRS) No. 1,Cash Flow Statements, not to provide a statement of cash flows.
Investment in Subsidiary. The Company'sCompany’s investment in Seagate Technology ("Seagate-Cayman"(“Seagate-Cayman”), a wholly owned subsidiary, was recorded at cost which equaled fair value on 3 July 2010, the date that the Company became the parent of Seagate-Cayman, based on the Company'sCompany’s market capitalization at that time. This initial valuation is the Company'sCompany’s cost basis for its investment in Seagate-Cayman. The investment is tested for impairment if circumstances or indicators suggest that impairment may exist.
Amounts due to subsidiaries. Intercompany notes payable which are basic financial instruments are initially recorded at the present value of future payments discounted at a market rate of interest for a similar loan. Subsequently, they are measured at amortized cost using the effective interest method.
Guarantees and Contingencies. The Company has guaranteed certain liabilities and credit arrangements of group entities. The Company reviews the status of these guarantees at each reporting date and considers whether it is required to make a provision for payment on those guarantees based on the probability of the commitment being called. For more information on these guarantees, see the Consolidated Financial Statements "Note 16 Guarantees."
The Company concluded that as the likelihood of the guarantees being called upon is remote, no provisions for any guarantees have been booked to these financial statements.
Dividend Income. Dividend income is recognized when the right to receive payment is established, the amount of which can be reliably measured and it is probable that collectability is reasonably assured.
Share-based Payments. The Seagate Technology group operates several share-based payment plans. The share-based payment expense associated with the share plans is recognized as an expense by the entity which
receives services in exchange for the share-based compensation. On an individual undertaking basis, the profit and loss account is charged with the expense related to the services received by Seagate Technology plc. The remaining portion of the share-based payments represents a contribution to group entities and is added to the carrying amount of those investments.
Taxation.Corporation tax is provided on taxable profits at the current rates.
Deferred taxation is accounted for in respect of all timing differences at expected tax rates. Timing differences arise from the inclusion of items of income and expenditure in tax computations in periods different from those in which they are included in the financial statements. A deferred tax asset is recognized only recognized whento the extent that it is more likely than not the assetprobable that they will be recoverablerecovered against the reversal of deferred tax liabilities or other future taxable profits.
Foreign Currency. Transactions denominated in foreign currencies are recorded in the foreseeable future outCompany’s functional currency by applying the spot rate as at the date of suitable taxable profits from which the underlying timingtransaction. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are retranslated at the rate of exchange ruling at the statement of financial position date. All differences can be recovered.
The corporate tax rate applicableare taken to the Company in Ireland is 25%. No deferred tax asset has been recorded in respectStatement of losses as it is not more likely than not that there will be future taxable profits against which to utilize the losses.
NOTES TO THE PARENT COMPANY BALANCE SHEET (Continued)Comprehensive Income.
2. History and Description of the Company
Seagate Technology plc became the parent company in the Seagate Technology group following a reorganization that took place in 2010.
The principal activity of Seagate Technology plc is an investment holding company. Seagate Technology plc is the parent company of subsidiaries that design, manufacture, market and sell data storage products.
The Company'sCompany, which is publicly listed, was incorporated in Ireland and its registered address is 38/39 Fitzwilliam Square, Dublin 2, Ireland.
3. Financial Assets—Assets – Investment in Subsidiary
(US Dollars in millions) | | |||
---|---|---|---|---|
At 28 June 2013 | $ | 6,383 | ||
Capital contribution in respect of share-based payment plans | 116 | |||
Additional investment in subsidiary | — | |||
Impairments | — | |||
| | | | |
At 27 June 2014 | $ | 6,499 | ||
Capital contribution in respect of share-based payment plans | 178 | |||
Additional investment in subsidiary | — | |||
Impairments | — | |||
| | | | |
At 3 July 2015 | $ | 6,677 | ||
| | | | |
| | | | |
| | | | |
As at
(US Dollars in millions) | ||||
At 3 July 2015 | $ | 6,677 | ||
Capital contribution in respect of share-based payment plans | 115 | |||
At 1 July 2016 | $ | 6,792 | ||
Capital contribution in respect of share-based payment plans | 133 | |||
At 30 June 2017 | $ | 6,925 | ||
At 30 June 2017, the Company had the following subsidiary:
Company name | Registered office | Nature of business | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
Seagate Technology | Cayman Islands | Investment holding |
The above subsidiary holding represents 100% of the common shares of the subsidiary, which is unlisted.
4. Amounts Due to Subsidiaries
The balance is primarily comprised of notes due to Seagate-Cayman. TheSeagate-Cayman with no stated interest rate and that are payable on demand. During fiscal year 2017, the Company borrowed $1,638$964 million during fiscal year 2015. The Companyand repaid $1,000$650 million by way of applying dividends declared by Seagate-Cayman. The remaining balance outstanding as of 3 July 201530 June
2017 of $2,261 million$2.7 billion is unsecured, interest free and is due within one year.on demand. During fiscal year 2016, the Company borrowed $1.8 billion and repaid $1.7 billion by way of applying dividends declared by Seagate-Cayman. The remaining balance outstanding as of 1 July 2016 of $2.4 billion was unsecured, interest free and due on demand.
5. Equity
Share Capital
1 July | ||||||||||||||||
(US Dollars in millions) | ||||||||||||||||
Authorized: | ||||||||||||||||
40,000 deferred shares of€1 par value per share | $ | — | $ | — | ||||||||||||
| ||||||||||||||||
1,250,000,000 ordinary shares of $.00001 par value per share | — | — | ||||||||||||||
100,000,000 undesignated preferred shares of $.00001 par value per share | — | — | ||||||||||||||
(US Dollars in millions) | ||||||||||||||||
Allotted, Called Up, and Fully Paid: | ||||||||||||||||
40,000 deferred shares of€1 par value per share | $ | — | $ | — | ||||||||||||
291,799,561 (2016: 298,572,217 ) ordinary shares of $.00001 par value per share | — | — | ||||||||||||||
$ | — | $ | — | |||||||||||||
NOTES TO THE PARENT COMPANY BALANCE SHEET (Continued)
Number of Ordinary | Shares | |||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(In millions) | (US Dollars in millions) | |||||||||||||||
| 315 | $ | — | |||||||||||||
Repurchase and | (23) | — | ||||||||||||||
Tax withholding related to vesting of restricted stock units | (1) | |||||||||||||||
Issuance of ordinary shares in respect of share-based payment plans | 8 | |||||||||||||||
| — | |||||||||||||||
| ||||||||||||||||
Balance at 1 July 2016 | 299 | $ | — | |||||||||||||
Repurchase and cancellation of ordinary shares | (12) | — | ||||||||||||||
Tax withholding related to vesting of restricted stock units | — | |||||||||||||||
Issuance of ordinary shares in respect of share-based payment plans | ||||||||||||||||
Balance at 30 June 2017 | ||||||||||||||||
DuringShare Premium
This reserve records the period from 27 June 2014 to 3 July 2015, approximately 7 million ordinaryamount above the nominal value received for shares were issued in respectsold, less transaction costs.
Other Reserves
Other reserves include an amount of share-based payment plans$3,090 and 19 million ordinary shares were repurchased$2,960 for fiscal years 2017 and cancelled.2016, respectively, representing a Capital Redemption Reserve Fund.
6. Reserves
| Number of Ordinary Shares | Share Premium | Profit and Loss Account | Other Reserves | Total | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (In millions) | (US Dollars in millions) | ||||||||||||||
Balance at 28 June 2013 | 359 | $ | 1,375 | $ | 4,593 | $ | 178 | $ | 6,146 | |||||||
Income for the period | 993 | 993 | ||||||||||||||
Repurchase and cancellation of ordinary shares | (41 | ) | (1,912 | ) | (1,912 | ) | ||||||||||
Issuance of shares in respect of share-based payment plans | 9 | 107 | 107 | |||||||||||||
Dividends to shareholders | (557 | ) | (557 | ) | ||||||||||||
Share-based compensation | 118 | 118 | ||||||||||||||
| | | | | | | | | | | | | | | | |
Balance at 27 June 2014 | 327 | $ | 1,482 | $ | 3,117 | $ | 296 | $ | 4,895 | |||||||
| | | | | | | | | | | | | | | | |
Income for the period | 992 | 992 | ||||||||||||||
Repurchase and cancellation of ordinary shares | (19 | ) | (1,087 | ) | (1,087 | ) | ||||||||||
Issuance of shares in respect of share-based payment plans | 7 | 98 | 98 | |||||||||||||
Dividends to shareholders | (664 | ) | (664 | ) | ||||||||||||
Share-based compensation | 181 | 181 | ||||||||||||||
| | | | | | | | | | | | | | | | |
Balance at 3 July 2015 | 315 | $ | 1,580 | $ | 2,358 | $ | 477 | $ | 4,415 | |||||||
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Dividends
During fiscal year 2015,2017, the Company paid cash dividends of $2.52 per share of its ordinary shares, aggregating $561 million. On 25 July 2017, the Company’s Board of Directors declared a quarterly cash dividend
of $0.63 per share, which will be payable on 4 October 2017 to shareholders of record as of the close of business on 20 September 2017. During fiscal year 2016, the Company declared and paid cash dividends of $2.05$2.43 per share of its ordinary shares, aggregating $664 million. During fiscal year 2014, the Company declared and paid cash dividends of $1.67 per share of its ordinary shares, aggregating $557$727 million.
Capital Redemption Reserve Fund
Other reserves include an amount of $2,720 and $2,530 for fiscal years 2015 and 2014, respectively, representing a Capital Redemption Reserve Fund.
7.6. Share-Based Payments
Total share basedshare-based payment expense in respect of share basedshare-based payment plans was $181$135 million and $118$116 million for the fiscal years ended 3 July 20152017 and 27 June 2014,2016, of which $178$133 million and $116$115 million, respectively, was included as a capital contribution in Investment in subsidiary (Note 3).
NOTES TO THE PARENT COMPANY BALANCE SHEET (Continued)
Details of shares issued in respect of share based payment plans are included in Note 11 to the Consolidated Financial Statements. The share basedshare-based payment charge in the parent company balance sheet is calculated and recognized on a graded basis as opposed to a straight line basis in the consolidated financial statements.
8. Related Party Transactions
Consolidated Profit and Loss Account. The Company has availed itselfapplied the requirements of the exemption provided inSection 26 of FRS 8,Related Party Disclosures, 3(c) which exempts disclosure102. Note 11 of transactions entered into between two or more members of a group, provided that any subsidiary undertaking which is a party to the transaction is wholly owned by a member of that group. See Note 17 to the Consolidated Financial Statements forcontains relevant disclosures on the companies with which the Company had related party transactions.Company’s share-based payment plans.
9. Auditor's7. Auditor’s Remuneration
The fees paid to Ernst & Young Ireland in respect of the audit of the Company individual accounts was $0.04 million and $0.04$0.03 million for periods ended 330 June 2017 and 1 July 2015 and 27 June 2014,2016, respectively. In addition, Ernst & Young Ireland received fees of $0.13$0.12 million and $0.17 million for other assurance services in those periods, respectively. Ernst & Young Ireland did not receive any fees for tax or other non auditnon-audit services in 20152017 or 2014.2016. Note 1918 to the Consolidated Financial Statements provides additional information regarding auditor'sauditor’s remuneration.
10. Post Balance Sheet8. Subsequent Events
Dividends
On 2125 July 2015, our2017, the Company’s Board of Directors approveddeclared a quarterly cash dividend of $0.54$0.63 per share, which will be payable on 25 August 20154 October 2017 to shareholders of record as of the close of business on 11 August 2015.20 September 2017.
July 2017 Restructuring Plan
On 25 July 2017, the Company committed to an additional 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, which the Company expects to be substantially completed by the end of the first quarter of fiscal year 2018, is expected to result in total11.pre-tax charges of approximately $50 million, primarily in the first quarter of fiscal year 2018. These charges are expected to be comprised of cash expenditures on severance and employee-related costs.
Planned Leadership Transition
On 25 July 2017, the Company’s Board of Directors appointed William D. Mosley to serve as Chief Executive Officer, of the Company effective 1 October 2017. The Board of Directors also appointed Mr. Mosley to serve as a director of the Company, effective 25 July 2017. Mr. Mosley will serve as a director until the Company’s next annual general meeting of shareholders when he is expected to stand for election by a vote of the Company’s shareholders. On 25 July 2017, the Company also announced that Stephen J. Luczo will step down from his position as Chief Executive Officer, effective 1 October 2017. Mr. Luczo will remain with the Company in the role of Executive Chairman effective 1 October 2017 and will continue to serve as Chairman of the Board of Directors.
As previously announced on 2 June 2017, Philip G. Brace, President of Cloud Systems and Silicon group, will be leaving the Company. On 20 July 2017, the Company and Mr. Brace agreed that the effective date of his departure will be 2 October 2017.
9. Approval of Financial Statements
The directors approved the financial statements and authorized them for issue on 2125 August 2015.2017.
Appendix B
SEAGATE TECHNOLOGY PUBLIC LIMITED COMPANY
AMENDED AND RESTATED EMPLOYEE STOCK PURCHASE PLAN
| PURPOSE |
The purpose of this Plan is to provide an opportunity for Employees of Seagate Technology plc, an Irish company and its Designated Subsidiaries to purchase Ordinary Shares and thereby to have an additional incentive to contribute to the prosperity of the Corporation. It is the intention of the Corporation that the Plan qualify as an “Employee Stock Purchase Plan” under Section 423 of the Code and the Plan shall be administered in accordance with this intent(the “423 Plan”). In addition, the Plan authorizes the grant of options pursuant to sub-plans or special rules adopted by the Committee designed to achieve desired tax or other objectives in particular locations outside of the United States, which sub-plans (together such sub-plans and special rules are referred to herein as “Non-423 Sub-Plans”), which Non-423 Sub-plans shall not be required to comply with the requirements of Section 423 of the Code or all of the specific provisions of the Plan, including but not limited to terms relating to eligibility, Offering Periods, Purchase Periods or Purchase Price.
2. | DEFINITIONS |
2.1 |
2.2 | “Beneficial Owner” means the definition given in Rule 13d-3 promulgated under the Exchange Act. |
2.3 | “Board” shall mean the Board of Directors of the Corporation. |
2.4 | “Change of Control” shall mean the consummation or effectiveness of any of the following events: |
(i) | The sale, exchange, lease or other disposition of all or substantially all of the assets of the Corporation to a person or group of related persons, as such terms are defined or described in Sections 3(a)(9) and 13(d)(3) of the Exchange Act; |
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(ii) | A merger, reorganization, recapitalization, consolidation or other similar transaction involving the Corporation in which the voting securities of the Corporation owned by the shareholders of the Corporation immediately prior to such transaction do not represent more than fifty percent (50%) of the total voting power of the surviving controlling entity outstanding immediately after such transaction; |
(iii) | Any person or group of related persons, as such terms are defined or described in Sections 3(a)(9) and 13(d)(3) of the Exchange Act, is or becomes the Beneficial Owner, directly or indirectly, of more than 50% of the total voting power of the voting securities of the Corporation (including by way of merger, takeover (including an acquisition by means of a scheme of arrangement), consolidation or otherwise); or |
(iv) | During any period of two (2) consecutive years, individuals who at the beginning of such period constituted the Board (together with any new directors whose election by such Board or whose nomination for election by the shareholders of the Corporation was approved by a vote of a majority of the directors of the Corporation then still in office, who were either directors at the beginning of such period or whose election or nomination for election was previously so approved) cease for any reason to constitute a majority of the Board then in office. |
Notwithstanding the foregoing, a restructuring of the Corporation for the purpose of changing the domicile of the Corporation (including, but not limited to, any change in the structure of the Corporation resulting from the process of moving its domicile between jurisdictions), reincorporation of the Corporation or other similar transaction involving the Corporation (a “Restructuring Transaction”) will not constitute a Change of Control if, immediately after the Restructuring Transaction, the shareholders of the Corporation immediately prior to such Restructuring Transaction represent, directly or indirectly, more than fifty percent (50%) of the total voting power of the surviving entity.
2.5 | “Code” shall mean the U.S. Internal Revenue Code of 1986, as amended. Any referenceherein to a section of the Code |
2.6 | “Committee” shall mean the committee appointed by the Board in accordance with Section 15 of the Plan. |
2.7 | “Companies Act” shall mean the Companies Act 2014 of Ireland. |
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2.8 | “Compensation” shall mean an Employee’s base cash compensation and commissions, but shall exclude such items as allowances, differentials, bonuses or premiums such as those for working shifts or overtime, payments for incentive compensation, incentive payments, bonuses, income from the exercise, vesting and/or the sale, exchange or other disposition of a compensatory share award granted to the Employee by the Corporation or a Designated Subsidiary, and other forms of extraordinary compensation. The Committee shall have the authority to determine and approve all forms of pay to be included in the definition of Compensation and may change the definition on a prospective basis. |
2.9 | “Corporation” shall mean Seagate Technology plc, a public company incorporated under the laws of the Republic of Ireland with limited liability under registered number 480010, or any successor thereto. |
2.10 | “Designated Subsidiary” shall mean a Subsidiary that has been designated by the Committee in its sole discretion as eligible to participate in the Plan with respect to its Employees. |
2.11 | “Effective Date” shall mean the date on which the registration statement on Form S-1 filed with the U.S. Securities and Exchange Commission pursuant to Rule 424 under the Securities Act for the initial public offering of Seagate Technology common stock (the “Registration Statement”) became effective. |
2.12 | “Employee” shall mean an individual classified as an employee (within the meaning of Code Section 3401(c) and the regulations thereunder) by the Corporation or a Designated Subsidiary on the Corporation’s or such Designated Subsidiary’s payroll records. Individuals classified as independent contractors, consultants, advisers, or members of the Board or the board of directors of a Designated Subsidiary are not considered “Employees” by virtue of such station. |
2.13 | “Exchange Act” shall mean the U.S. Securities Exchange Act of 1934, as amended. |
2.14 |
|
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such national securities exchange on such date, then on the principal national securities exchange on which such Shares are listed or admitted to trading; or (ii) if the Shares are not listed or admitted to trading on a national securities exchange, then the Fair Market Value of a Share shall be determined in good faith by the Board, and, to the extent appropriate, based on the application of a reasonable valuation method. |
2.15 | “Offering Date” shall mean the first Trading Day of an Offering Period under the Plan |
2.16 | “Offering Period” shall mean a period |
2.17 | “Offering Price” shall mean the Fair Market Value of a Share on the Offering Date of an Offering Period. |
2.18 | “Officer” shall mean a person who is an officer of the Corporation within the meaning of Section 16 of the Exchange Act and the rules and regulations promulgated thereunder. |
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2.19 | “Ordinary Share” or“Share” means an ordinary share of the Corporation, nominal value US$0.00001. |
2.20 | “Participant” shall mean a participant in the Plan as described in Section 5 of the Plan. |
2.21 | “Plan” shall mean this Employee Stock Purchase Plan, as amended and restated. |
2.22 | “Purchase Date” shall mean the last Trading Day of each Purchase Period. |
2.23 | “Purchase Period” shall mean |
2.24 | “Purchase Price” shall have the meaning set out in Section 8.2. |
2.25 | “Securities Act” shall mean the U.S. Securities Act of 1933, as amended. |
2.26 | “Shareowner” shall mean a record holder of Ordinary Shares entitled to vote such Shares under the Corporation’s by-laws. |
2.27 | “Subsidiary” shall mean any entity treated as a corporation (other than the Corporation) in an unbroken chain of corporations beginning with the Corporation, within the meaning of Code Section 424(f), whether or not such corporation now exists or is hereafter organized or acquired by the Corporation or a Subsidiary, which is also a subsidiary within the meaning of Section 155 of the Companies Act. |
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2.28 | “Trading Day” shall mean a day on which U.S. national stock exchanges and the national market system are open for trading and the Ordinary Shares are being publicly traded on one or more of such exchanges or markets. |
3. | ELIGIBILITY |
3.1 Any individual who is an Employee on an Offering Date shall be eligible to participate in the Plan with respect to the Offering Period commencing on such Offering Date. The Committee may establish administrative rules requiring that an individual be an Employee for some minimum period (not to exceed 30 days) prior to an Offering Date to be eligible to participate with respect to the Offering Period beginning on that Offering Date.
3.2 The Committee may determine that a designated group of highly compensated Employees is ineligible to participate in the Plan so long as the excluded category fits within the definition of “highly compensated employee” in Code Section 414(q).
3.3 No Employee may participate in the Plan if immediately after an option is granted the Employee owns or is considered to own (within the meaning of Code Section 424(d)) Ordinary Shares, including Shares which the Employee may purchase by conversion of convertible securities or under outstanding options granted by the Corporation, possessing five percent (5%) or more of the total combined voting power or value of all classes of securities of the Corporation or of any of its Subsidiaries.
3.4 Employees who are citizens or residents of a non-U.S. jurisdiction (without regard to whether they also are citizens or residents of the United States or resident aliens within the meaning of Section 7701(b)(1)(A) of the Code) may be excluded from participation in the Plan if the participation of such Employees is prohibited under the laws of the applicable jurisdiction or if complying with the laws of the applicable jurisdiction would cause the Plan to violate Code Section 423 (or to the extent permitted under Code Section 423). In the case of anysub-planNon-423 Sub-Plan adopted pursuant to Section 16 which is not designed to qualify under Code Section 423, Employees may be excluded from participation in the Plan if the Committee has determined that participation of such Employees is not advisable or practicable.
3.5 All Employees who participate in the Planor in any separate offering thereunder shall have the same rights and privileges under the Plan or offering, except for differences that may be mandated bylocal lawApplicable Law and that are consistent with Code Section 423(b)(5); provided that individuals participating in asub-planNon-423 Sub-Plan adopted pursuant to Section 16which is not designed to
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qualify under Code Section 423need not have the same rights and privileges as Employees participating in theCode Section 423 Plan.
3.6 Employees may not participate in more than one Offering Period at a time.
4. | OFFERING PERIODS AND PURCHASE PERIODS |
4.1 Offering Periods. With respect to Offering Periods commencing prior to February 1, 2006, the Plan shall generally be implemented by a series of twelve (12) month Offering Periods with new Offering Periods commencing on the first Trading Day on or after February 1 and August 1 and ending on the last Trading Day in the twelve month periods ending on January 31 and July 31 of the next calendar year, respectively, or on such other date as the Committee shall determine. The first Offering Period shall commence on the Effective Date and shall end on the last Trading Day on or before January 31, 2004. With respect to Offering Periods commencing on or after February 1, 2006, the Plan shall generally be implemented by a series of six (6) month Offering Periods with new Offering Periods commencing on the first Trading Day on or after February 1 and August 1 and ending on the last Trading Day in the six-month periods ending on the next July 31 and January 31, respectively, or on such other date as the Committee shall determine, and continuing thereafter until the Plan is terminated pursuant to Section 14 hereof. The Committee shall have the authority to change the frequency and/or duration of Offering Periods (including the commencement dates thereof)with respect to future offeringsif such change is announced at least five (5) days prior to the scheduled beginning of the first Offering Period to be affected thereafterin accordance with Section 4.3.
4.2 Purchase Periods. With respect to Offering Periods commencing prior to February 1, 2006, each Offering Period shall generally consist of two (2) consecutive Purchase Periods of six (6) months’ duration, with new Purchase Periods commencing on the first Trading Day on or after February 1 and August 1 of each year and ending on the last Trading Day in the six-month period endingon the next July 31 and January 31, respectively. With respect to Offering Periods commencing on or after February 1, 2006, each Offering Period shall generally consist of one(1) Purchase Period that runs concurrently with the Offering Period. The last Trading Day of each Purchase Period shall be the “Purchase Date” for such Purchase Period; provided that the first Purchase Period shall commence on the Effective Date and shall end at the completion of the seventh complete calendar month following the Effective Date unless otherwise determined by the Committee. The second Purchase Period of the first Offering Period shall begin on the first Trading Day following the end of the first Purchase Period and shall end on the last Trading Day on or before January 31, 2004. Subsequent Purchase Periods, if any, shall run consecutively after the termination of the preceding Purchase Period. The Committee shall have the power to change the
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duration and/or frequency of Purchase Periods with respect to future purchasesinaccordance with Section 4.3.
4.3Changes to Offering Periods and Purchase Periods. The Committee will have the authority to establish additional or alternative sequential or overlapping Offering Periods than specified under Section 4.1, a different number of Purchase Periods within an Offering Period than specified under Section 4.2, a different duration for one or more Offering Periods or Purchase Periods or different commencement or ending dates for such Offering Periodswith respect to future offeringswithout shareholder approval if such change is announced at least five (5) days prior to the scheduled beginning of the firstPurchaseOffering Period to be affected.thereafter, provided, however, that no Offering Period may have a duration exceeding twenty-seven (27) months. In addition, to the extent that the Committee establishes overlapping Offering Periods with more than one Purchase Period in each Offering Period, the Committee will have discretion to structure an Offering Period so that if the Fair Market Value of the Ordinary Shares on any Purchase Date within an Offering Period is less than or equal to the Fair Market Value of the Ordinary Shareson the first Trading Dayof that Offering Period, then (i) that Offering Period will terminate immediately as of that first Trading Day, and (ii) the Participants in such terminated Offering Period will be automatically enrolled in a new Offering Period beginningon the first Trading Dayof such new Purchase Period.
4.4Separate Offerings. Unless otherwise specified by the Committee, each offering of the Plan to Employees of the Corporation or a Designated Subsidiary shall be deemed a separate offering for purposes of Section 423 of the Code, even if the dates and other terms of the applicable Offering Periods of each such offering are identical, and the provisions of the Plan will separately apply to each such separate offering. With respect to the 423 Plan, the terms of separate offerings need not be identical provided that the terms of the Plan and each separate offering together satisfy Section 423 of the Code.
5. | PARTICIPATION |
5.1 AnEmployee who is eligible to participate inthe Plan in accordance withits terms at the beginning of an Offering Period shall automatically receive an option in accordance with Section 8.1 and may become a Participant by completing and submitting, on or before the date prescribed by the Committee with respect to a given Offering Period, a completed payroll deduction authorization and Plan enrollment form provided by the Corporation or by following an electronic or other enrollment process as prescribed by the Committee. Aneligible Employee may authorize payroll deductions at the rate of any whole percentage of the Employee’s Compensation, not to exceed ten percent (10%) (or such other percentage as the
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Committee may establish from time to time before an Offering Date) of such Employee’s Compensation on each payday during the Offering Period. All payroll deductions will be held in a general corporate account or a trust account, unless otherwise required bylocal lawApplicable Law. No interest shall be paid or credited to the Participant with respect to such payroll deductions, unless otherwise required bylocal lawApplicable Law. The Corporation shall maintain a separate bookkeeping account for each Participant under the Plan and the amount of each Participant’s payroll deductions shall be credited to such account. A Participant may not make any additional payments into such account, unless payroll deductions are prohibited underlocal lawApplicable Law, in which case the provisions of Section 5.25.3 of the Plan shall apply.
5.2Once an Employee becomes a Participant in an Offering Period, then such Participant will automatically participate in each subsequent Offering Period commencing immediately following the last day of such prior Offering Period at the same contribution level unless the Participant withdraws from the Offering Period asset forth in Section 5.4 below or otherwise changes his or her rate of contribution as set forth in Section 5.5 below. A Participant that is automatically enrolled in a subsequent Offering Period pursuant to this Section 5.2 is (i) not required to file any additional enrollment form in order to continue participation in the Plan and (ii) will be deemed to have accepted the terms and conditions of the Plan, any Non-423 Sub-Plan and enrollment form in effect at the time each subsequent Offering Period begins, subject to Participant’s right to withdraw fromthe Plan in accordance withthe withdrawal procedures in effect at the time.
5.25.3 Notwithstanding any other provisions of the Plan to the contrary, in locations wherelocal lawApplicable Law prohibits payroll deductions, an eligible Employee may elect to participate through contributions to his or her account under the Plan in a form acceptable to the Committee. In such event, any such Employees shall be deemed to be participating in asub-planNon-423 Sub-Plan, unless the Committee otherwise expressly provides that such Employees shall be treated as participating in the Plan or a separate offering thereunder.
5.35.4 Under procedures and at times established by the Committee, a Participant may withdraw from the Plan during a Purchase Period, by completing and filing a new payroll deduction authorization and Plan enrollment form with the Corporation or by following electronic or other procedures prescribed by the Committee. If a Participant withdraws from the Plan during a Purchase Period, his or her accumulated payroll deductions will be refunded to the Participant without interest (unless payment of interest is required bylocal lawApplicable Law), his or her right to participate in the current Offering Period will be automatically terminated and no further payroll deductions for the purchase of Ordinary Shares will be made during the Offering Period. The Committee may establish rules pertaining to the timing of withdrawals,
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limiting the frequency with which Participants may withdraw and re-enroll in the Plan and may impose a waiting period on Participants wishing to re-enroll following withdrawal.
5.45.5 A Participant may change his or her rate of contribution through payroll deductions only during an open enrollment period or such other times specified by the Committee by filing a new payroll deduction authorization and Plan enrollment form or by following electronic or other procedures prescribed by the Committee. If a Participant has not followed such procedures to change the rate of contribution, the rate of contribution shall continue at the originally elected rate throughout the Purchase Period and future Purchase Periods (including Purchase Periods of subsequent Offering Periods). Notwithstanding the foregoing, to the extent necessary to comply with Section 423(b)(8) of the Code, the Committee may reduce a Participant’s payroll deductions to zero percent (0%) at any time during a Purchase Period scheduled to end during the current calendar year. Payroll deductions shall re-commence at the rate provided in such Participant’s enrollment form at the beginning of the first Purchase Period which is scheduled to end in the following calendar year, unless terminated by the Participant as provided in Section 5.35.4.
6. | TERMINATION OF EMPLOYMENT; CHANGES IN EMPLOYMENT |
6.1 Termination. In the event any Participant terminates employment with the Corporation and its Designated Subsidiaries for any reason (including death) prior to the expiration of a Purchase Period, the Participant’s participation in the Plan shall terminate and all amounts credited to the Participant’s account shall be paid to the Participant or, in the case of death, to theParticipant’sParticipant’s heirs or estate, without interest. Whether a termination of employment has occurred shall be determined by the Committee.IfNotwithstanding the foregoing, if a Participant’s termination of employment occurs within a certain period of time as specified by the Committee (not to exceed 30 days) prior to the Purchase Date of the Purchase Period then in progress, his or her option for the purchase of Ordinary Shares will be exercised on such Purchase Date in accordance with Section 9 as if such Participant were still employed by the Corporation or a Designated Subsidiary. Following the purchase of Shares on such Purchase Date, the Participant’s participation in the Plan shall terminate and all remaining amounts credited to the Participant’s account shall be paid to the Participant or, in the case of death, to theParticipant’sParticipant’s heirs or estate, without interest (unless payment of interest is required bylocal lawApplicable Law).
6.2 Leaves of Absence. The Committee may also establish rules regarding when leaves of absence or changes of employment status will be considered to be a termination of employment, and the Committee may establish termination of employment procedures for this Plan that are independent of similar rules
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established under other benefit plans of the Corporation and its Subsidiaries, provided, however, that such procedures are not in conflict with the requirements of Section 423 of the Code.
6.3 Transfers. If a Participant transfers employment between the Corporation and a Designated Subsidiary participating in the 423 Plan (as set forth in Appendix A to the Plan) or between Designated Subsidiaries participating in the 423 Plan, his or her participation in the Plan shall continue unless and until otherwise terminated in accordance with the Plan. Similarly, if a Participant transfers employment between Designated Subsidiaries participating in a Non-423 Sub-Plan (as set forth in Appendix A to the Plan), his or her participation in the Plan shall continue unless and until otherwise terminated in accordance with the Plan.
If a Participant transfers employment from the Corporation or a Designated Subsidiary participating in the 423 Plan to a Designated Subsidiary participating in a Non-423 Sub-Plan, his or her participation in the Plan shall continue, provided, however, that such participation will be under the applicable Non-423 Sub-Plan as of the date of such transfer and all of the Participant’s accumulated payroll deductions (whether taken while the Participant was employed by the Corporation or a Designated Subsidiary participating in the 423 Plan or while the Participant is employed by a Designated Subsidiary participating in a Non-423 Sub-Plan) shall be used to purchase Shares under the applicable Non-423 Sub-Plan, subject to the Participant’s right to withdraw from the Plan in accordance with the withdrawal procedures in effect at such time.
If a Participant transfers employment from a Designated Subsidiary participating in a Non-423 Sub-Plan to the Corporation or a Designated Subsidiary participating in the 423 Plan, any accumulated payroll deductions taken while the Participant was employed by a Designated Subsidiary participating in a Non-423 Sub-Plan shall be used to purchase Shares under the applicable Non-423 Sub-Plan on the next Purchase Date following such transfer; however, no new payroll deductions shall be taken for the remainder of the Purchase Period in which the transfer occurs, and as of the next Offering Date following such transfer, the Participant shall participate in the 423 Plan and payroll deductions shall automatically resume and be used to purchase Shares under the 423 Plan, subject to the Participant’s right to withdraw from the Plan in accordance with the withdrawal procedures in effect at such time.
Notwithstanding the foregoing provisions of this Section 6.3, the Committee may establish additional and/or different rules to govern transfers of employment among the Corporation and any Designated Subsidiary, consistent with any applicable requirements of Code Section 423 and the terms of the Plan.
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7. | SHARES |
Subject to adjustment as set forth in Section 11, the maximum number of Ordinary Shares, which may be issued pursuant to the Plan shall be fifty million (50,000,000) Shares. Subject to adjustment as set forth in Section 11, the maximum number of Shares that may be granted collectively to all Participants within any given Purchase Period is one and one-half million (1,500,000) Shares, unless and until the Board determines otherwise with respect to a Purchase Period. If, on a given Purchase Date, the number of Shares with respect to which options are to be exercised exceeds either maximum, the Corporation shall make pro rata allocation of the Shares remaining available for purchase in as uniform a manner as shall be practicable and as it shall determine to be equitable. The Shares subject to the Plan may be unissued Shares or reacquired Shares, bought on the market or otherwise. For avoidance of doubt, up to the maximum number of Ordinary Shares reserved under this Section 7 may be used to satisfy purchases of Ordinary Shares under the 423 Plan and any remaining portion of such maximum number of Ordinary Shares may be used to satisfy purchases of Ordinary Shares under any Non-423 Sub-Plans.
8. | OFFERING |
8.1 On the Offering Date of each Offering Period, each eligible Employee, whether or not such Employee has elected to participate as provided in Section 5.1, participating in the Plan shall be granted an option to purchase that number of whole Shares, not to exceed one thousand (1,000) Shares (or such other number of Shares as determined by the Committee and subject to adjustmentas set forth in Section 11), which may be purchased with the payroll deductions accumulated on behalf of such Employee during each Purchase Period at the purchase price specified in Section 8.2 below, subject to the additional limitation that no Employee participating in the Section 423 Plan shall be granted an option to purchase Shares under the Plan if such option would permit his or her rights to purchase Shares under all employee stock purchase plans (described in Section 423 of the Code) of the Corporation and its Subsidiaries to accrue at a rate which exceeds U.S. twenty-five thousand dollars (U.S. $25,000) of the Fair Market Value of such Shares (determined at the time such option is granted) for each calendar year in which such option is outstanding at any time. For purposes of the Plan, an option is “granted” on a Participant’s Offering Date. An option will expire upon the earlier to occur of (i) the termination of a Participant’s participation in the Plan or such Offering Period, (ii) the grant of an option to such Participant on a subsequent Offering Date, or (iii) the termination of the Offering Period. This Section 8.1 shall be interpreted so as to comply with Code Section 423(b)(8).
8.2 The Purchase Price under each option shall be with respect to a Purchase Period the lower of (i) a percentage (not less than eighty-five percent (85%))
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established by the Committee (““Designated Percentage””) of the Offering Price, or (ii) the Designated Percentage of the Fair Market Value of a Share on the Purchase Date on which the Shares are purchased; provided that the Purchase Price may be adjusted by the Committee pursuant to Sections 11 or 12 in accordance with Section 424(a) of the Code. The Committee may change the Designated Percentage with respect to any future Offering Period, but not to below eighty-five percent (85%), and the Committee may determine with respect to any prospective Offering Period that the purchase price shall be the Designated Percentage of the Fair Market Value of a Share on the Purchase Date.
9. | PURCHASE OF SHARES |
Unless a Participant withdraws from the Plan as provided in Section 5.35.4 or except as provided in Sections 12 or 14 hereof, on the last Trading Day of each Purchase Period, a Participant’s option shall be exercised automatically for the purchase of that number of whole Shares which the accumulated payroll deductions credited to the Participant’s account at that time shall purchase at the applicable price specified in Section 8.2.
At the time the Shares are purchased or at the time some or all of the Shares issued under the Plan are disposed of (or at any other time that a taxable event related to the Plan occurs), the Participant must make adequate provision for any withholding obligation of the Corporation or a Designated Subsidiary with respect to federal, state, local and foreign income tax, social insurance, payroll tax, fringe benefits tax, payment on account or other tax-related items related to participation in the Plan and legally applicable to the Participant (including any amount deemed by the Committee, in its sole discretion, to be an appropriate charge to Participant even if legally applicable to the Corporation or the Participant’s employer). At any time, the Corporation or the Participant’s employer may withhold from the Participant’s wages or other cash compensation the amount necessary for the Corporation or the Participant’s employer to meet applicable withholding obligations, including any withholding required to make available to the Corporation or the Participant’s employer any tax deductions or benefits attributable to the sale or early disposition of the Shares by the Participant. In addition or in the alternative, the Corporation or the Participant’s employer may withhold from the proceeds of the sale of Shares or by any other method of withholding the Corporation or the Participant’s employer deems appropriate.
10. | PAYMENT AND DELIVERY |
As soon as practicable after the exercise of an option, the Corporation shall deliver to the Participant a record of the Ordinary Shares purchased and the balance of any amount of payroll deductions credited to the Participant’s account not used for the
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purchase, except as specified below. The Committee may permit or require that Shares be deposited directly with a broker designated by the Committee or to a designated agent of the Corporation, and the Committee may utilize electronic or automated methods of share transfer. The Committee may require that Shares be retained with such broker or agent for a designated period of time and/or may establish other procedures to permit tracking of the disposition of such Shares. The Corporation shall retain the amount of payroll deductions used to purchase Shares as full payment for the Shares and the Shares shall then be fully paid and non-assessable. No Participant shall have any voting, dividend or other Shareowner rights with respect to Shares subject to any option granted under the Plan until the Shares subject to the option have been purchased and delivered to the Participant as provided in this Section 10. The Committee may in its discretion direct the Corporation to retain in a Participant’s account for the subsequent Purchase Period or Offering Period any payroll deductions which are not sufficient to purchase a whole Share or return such amount to the Participant. Any other amounts that may be left over in a Participant’s account after a Purchase Date shall be returned to the Participant.
11. | RECAPITALIZATION |
Subject to any required action by the Shareowners of the Corporation, if there is any change in the outstanding Ordinary Shares because of a merger, consolidation, spin-off, reincorporation, reorganization, recapitalization, dividend in property other than cash, share split, reverse share split, share dividend, liquidating dividend, extraordinary dividend or distribution, combination, exchange or reclassification of the Ordinary Shares (including any such change in the number of Shares effected in connection with a change in domicile of the Corporation), change in corporate structure or any other increase or decrease in the number of Ordinary Shares, or other transaction effected without receipt of consideration by the Corporation, provided that conversion of any convertible securities of the Corporation shall not be deemed to have been “effected without consideration,” the number of securities covered by each option under the Plan which has not yet been exercised and the number of securities which have been authorized and remain available for issuance under the Plan, as well as the maximum number of securities which may be purchased by a single Participant and by all Participants in the aggregate in a given Purchase Period, and the price per share covered by each option under the Plan which has not yet been exercised, may be appropriately adjusted by the Board, and the Board shall take any further actions which, in the exercise of its discretion, may be necessary or appropriate under the circumstances. The Board’s determinations under this Section 11 shall be conclusive and binding on all parties.
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12. | LIQUIDATION AND CHANGE OF CONTROL |
12.1 In the event of the proposed liquidation or dissolution of the Corporation, the Offering Period will terminate immediately prior to the consummation of such proposed transaction, unless otherwise provided by the Board in its sole discretion, and all outstanding options shall automatically terminate and the amounts of all payroll deductions will be refunded without interest (unless payment of interest is required bylocal lawApplicable Law) to the Participants.
12.2 In the event of a Change of Control, then in the sole discretion of the Board, (1) each option shall be assumed or an equivalent option shall be substituted by the successor corporation or parent or subsidiary of such successor entity, (2) a date established by the Board on or before the date of consummation of such Change of Control shall be treated as a Purchase Date, and all outstanding options shall be exercised on such date, (3) all outstanding options shall terminate and the accumulated payroll deductions will be refunded without interest (unless payment of interest is required bylocal lawApplicable Law) to the Participants, or (4) outstanding options shall continue unchanged.
13. | TRANSFERABILITY |
Neither payroll deductions credited to a Participant’s bookkeeping account nor any rights to exercise an option or to receive Shares under the Plan may be voluntarily or involuntarily assigned, transferred, pledged, or otherwise disposed of in any way, and any attempted assignment, transfer, pledge, or other disposition shall be null and void and without effect. If a Participant in any manner attempts to transfer, assign or otherwise encumber his or her rights or interests under the Plan, other than as permitted by the Code, such act shall be treated as an election by the Participant to discontinue participation in the Plan pursuant to Section 5.35.4.
14. | AMENDMENT OR TERMINATION OF THE PLAN |
14.1 The Plan shall continue until terminated in accordance with Section 14.2.
14.2 The Board may, in its sole discretion, insofar as permitted by Applicable Law, terminate or suspend the Plan, or revise or amend it in any respect whatsoever, except that, without approval of the Shareowners, no such revision or amendment shall increase the number of Shares subject to the Plan, other than an adjustment under Section 11 of the Plan, or make other changes for which Shareowner approval is required under Applicable Law. Upon a termination or suspension of the Plan, the Board may in its discretion (i) return, without interest (unless payment of interest is required bylocal lawApplicable Law), the payroll deductions credited to Participants’ accounts to such Participants, or (ii) set an earlier Purchase Date with respect to an Offering Period and Purchase Period then in progress.
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(ESPP –JanuaryJuly 2017)
15. | ADMINISTRATION |
15.1 The Board or the Compensation Committee shall appoint a committee of one or more individuals to administer the Plan (the “Committee”), which, unless otherwise specified by the Board, shall consist of the members of the Corporation’s BenefitsandAdministrative Committee, as constituted from time to time in accordance with its charter, and generally made up of senior members of management from the Corporation’s Legal, Finance and Human Resources functions. The Committee will serve for such period of time as the Board or the Compensation Committee of the Board may specify and whom the Board or the Compensation Committee of the Board may remove at any time. The Committee will have the authority and responsibility for the day-to-day administration of the Plan, the authority and responsibility specifically provided in this Plan and any additional duty, responsibility and authority delegated to the Committee by the Board or the Compensation Committee of the Board. The Committee shall have full power and authority to adopt, amend and rescind any rules and regulations which it deems desirable and appropriate for the proper administration of the Plan, to construe and interpret the provisions and supervise the administration of the Plan, todesignate separate offerings under the Plan, to make factual determinations relevant to Plan entitlements and to take all action in connection with administration of the Plan as it deems necessary or advisable, consistent with the delegation from the Board or the Compensation Committee of the Board. The Committee may delegate to one or more individuals the day-to-day administration of the Plan, to the extent permitted by Applicable Law. The Board, the Compensation Committee of the Board and the Committee reserve the right to administer the Plan, to the extent such right otherwise exists, regardless of any delegation of authority such body may have previously made. Decisions of the Board, the Compensation Committee of the Board and the Committee, as applicable, shall be final and binding upon all participants. The Corporation shall pay all expenses incurred in the administration of the Plan.
15.2 In addition to such other rights of indemnification as they may have as members of the Board or officers or employees of the Corporation and subject to section 200 of the Companies Act, members of the Board and of the Committee shall be indemnified by the Corporation against all reasonable expenses, including attorneys’ fees, actually and necessarily incurred in connection with the defense of any action, suit or proceeding, or in connection with any appeal therein, to which they or any of them may be a party by reason of any action taken or failure to act under or in connection with the Plan, or any right granted under the Plan, and against all amounts paid by them in settlement thereof (provided such settlement is approved by independent legal counsel selected by the Corporation) or paid by them in satisfaction of a judgment in any such action, suit or proceeding, except in relation to matters as to which it shall be adjudged in such action, suit or proceeding that such person is liable for gross negligence, bad faith or intentional misconduct in duties;
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(ESPP –JanuaryJuly 2017)
provided, however, that within sixty (60) days after the institution of such action, suit or proceeding, such person shall offer to the Corporation, in writing, the opportunity at its own expense to handle and defend the same.
16. | COMMITTEE RULES FOR FOREIGN JURISDICTIONS |
The Committee may adopt rules or procedures relating to the operation and administration of the Plan to accommodate the specific requirements oflocal lawsApplicable Laws and procedures. Without limiting the generality of the foregoing, the Committee is specifically authorized to adopt rules and procedures regarding handling of payroll deductions or other contributions by Participants, establishment of bank or trust accounts to hold payroll deductions or other contributions, payment of interest, conversion of local currency, payroll tax, withholding procedures and handling of share certificates which vary with local requirements; however, if such varying provisions are not in accordance with the provisions of Section 423(b) of the Code, including but not limited to the requirement of Section 423(b)(5) of the Code that all options granted under the Plan shall have the same rights and privileges unless otherwise provided under the Code and the regulations promulgated thereunder, then the individuals affected by such varying provisions shall be deemed to be participating under asub-planNon-423 Sub-Plan and not the423 Plan. The Committee mayalsoadoptsub-plansNon-423 Sub-Plans applicable to particular Subsidiaries or locations,which sub-plans may be designed to be outside thescope of Code Section 423. Thethe rules ofsuch sub-planswhich may take precedence over other provisions of this Plan, with the exception of Section 7, but unless otherwise superseded by the terms of such sub-plan, the provisions of this Plan shall govern the operation of suchsub-planNon-423 Sub-Plan.
17. | SECURITIES LAWS REQUIREMENTS |
17.1 No option granted under the Plan may be exercised to any extent unless the Shares to be issued upon such exercise under the Plan are covered by an effective registration statement pursuant to the Securities Act and the Plan is in material compliance with all applicable provisions of law, domestic or foreign, including, without limitation, the Securities Act, the Exchange Act, the rules and regulations promulgated thereunder, applicable state and foreign securities laws and the requirements of any stock exchange upon which the Shares may then be listed, subject to the approval of counsel for the Corporation with respect to such compliance. If on a Purchase Date in any Offering Period hereunder, the Plan is not so registered or in such compliance, options granted under the Plan which are not in compliance shall not be exercised on such Purchase Date, and the Purchase Date shall be delayed until the Plan is subject to such an effective registration statement and such compliance, except that the Purchase Date shall not be delayed more than twelve (12) months and the Purchase Date shall in no event be more than twenty-
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(ESPP –JanuaryJuly 2017)
seven (27) months from the Offering Date. If, on the Purchase Date of any offering hereunder, as delayed to the maximum extent permissible, the Plan is not registered and in such compliance, options granted under the Plan which are not in compliance shall not be exercised and all payroll deductions accumulated during the Offering Period (reduced to the extent, if any, that such deductions have been used to acquire Shares) shall be returned to the Participants, without interest (unless payment of interest is required bylocal lawApplicable Law). The provisions of this Section 17 shall comply with the requirements of Section 423(b)(5) of the Code to the extent applicable.
17.2 As a condition to the exercise of an option, the Corporation may require the person exercising such option to represent and warrant at the time of any such exercise that the Shares are being purchased only for investment and without any present intention to sell or distribute such Shares if, in the opinion of counsel for the Corporation, such a representation is required by any of the aforementioned provisions of Applicable Law.
18. | GOVERNMENTAL REGULATIONS |
This Plan and theCorporation’sCorporation’s obligation to sell and deliver Ordinary Shares under the Plan shall be subject to the approval of any governmental authority required in connection with the Plan or the authorization, issuance, sale, or delivery of Shares hereunder.
19. | NO ENLARGEMENT OF EMPLOYEE RIGHTS |
Nothing contained in this Plan shall be deemed to give any Employee or other individual the right to be retained in the employ or service of the Corporation or any Designated Subsidiary or to interfere with the right of the Corporation or Designated Subsidiary to discharge any Employee or other individual at any time, for any reason or no reason, with or without notice.
20. | GOVERNING LAW |
This Plan shall be governed by applicable laws of the State of California, without regard to such state’s conflict of laws rules.
21. | EFFECTIVE DATE |
This Planshall bebecame effective on the Effective Date, subject to approval of the Shareowners of the Corporation within twelve (12) months before or after its date of adoption by the Board., which approval was obtained on December 3, 2002. The Plan, as most recently amended and restated, was adopted by the Board on July 25, 2017, subject to approval of the Shareowners of the Corporation within twelve (12) months after such date.
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(ESPP –JanuaryJuly 2017)
22. | REPORTS |
Individual accounts shall be maintained for each Participant in the Plan. Statements of account shall be given or made available to Participants at least annually.
23. | DESIGNATION OF BENEFICIARY FOR OWNED SHARES |
With respect to Ordinary Shares purchased by the Participant pursuant to the Plan and held in an account maintained by the Corporation or its assignee on theParticipant’sParticipant’s behalf, the Participant may be permitted to file a written designation of beneficiary, who is to receive any Shares and cash, if any, from the Participant’s account under the Plan in the event of such Participant’s death subsequent to the end of a Purchase Period but prior to delivery to him or her of such Shares and cash. In addition, a Participant may be permitted to file a written designation of a beneficiary who is to receive any cash from the Participant’s account under the Plan in the event of such Participant’s death prior to the Purchase Date of an Offering Period. If a Participant is married and the designated beneficiary is not the spouse, spousal consent shall be required for such designation to be effective, to the extent required bylocal lawApplicable Law. The Participant (and if required under the preceding sentence, his or her spouse) may change such designation of beneficiary at any time by written notice. Subject tolocal legal requirementsApplicable Law (as determined by the Committee in its sole discretion), in the event of a Participant’s death, the Corporation or its assignee shall deliver any Shares and/or cash to the designated beneficiary. Subject tolocal lawApplicable Law (as determined by the Committee in its sole discretion), in the event of the death of a Participant and in the absence of a beneficiary validly designated who is living at the time of such Participant’s death, the Corporation shall deliver such Shares and/or cash to the executor or administrator of the estate of the Participant, or if no such executor or administrator has been appointed (to the knowledge of the Corporation), the Corporation in its sole discretion, may deliver (or cause its assignee to deliver) such Shares and/or cash to the spouse, or to any one or more dependents or relatives of the Participant, or if no spouse, dependent or relative is known to the Corporation, then to such other person as the Corporation may determine. The provisions of this Section 23 shall in no event require the Corporation to violatelocal lawApplicable Law, and the Corporation shall be entitled to take whatever action it reasonably concludes is desirable or appropriate in order to transfer the assets allocated to a deceased Participant’s account in compliance withlocal lawApplicable Law.
24. | ADDITIONAL RESTRICTIONS OFRULE 16b-3 |
The terms and conditions of options granted hereunder to, and the purchase of Ordinary Shares by, persons subject to Section 16 of the Exchange Act shall comply with the applicable provisions of Rule16b-3. This Plan shall be deemed to contain,
B-19
(ESPP –JanuaryJuly 2017)
and such options shall contain, and the Shares issued upon exercise thereof shall be subject to, such additional conditions and restrictions, if any, as may be required by Rule16b-3 to qualify for the maximum exemption from Section 16 of the Exchange Act with respect to Plan transactions.
25. | NOTICES |
All notices or other communications by a Participant to the Corporation under or in connection with the Plan shall be deemed to have been duly given when received in the form specified by the Corporation at the location, or by the person, designated by the Corporation for the receipt thereof.
26. | CODE SECTION 409A AND 457A; TAX QUALIFICATION |
26.1Code Sections 409A and 457A. Options granted under the 423 Plan are exempt from the application of Section 409A and Section 457A of the Code. In furtherance of the foregoing and notwithstanding any provision in the Plan to the contrary, if the Committee determines that an option granted under the Plan may be subject to Section 409A or Section 457A of the Code or that any provision in the Plan would cause an option under the Plan to be subject to Section 409A or Section 457A of the Code, the Committee may amend the terms of the Plan and/or of an outstanding option granted under the Plan, or take such other action the Committee determines is necessary or appropriate, in each case, without the Participant’s consent, to exempt any outstanding option or future option that may be granted under the Plan from or to allow any such options to comply with Section 409A or Section 457A of the Code, but only to the extent any such amendments or action by the Committee would not violate Section 409A or Section 457A of the Code. Notwithstanding the foregoing, the Corporation shall not have any obligation to indemnify or otherwise protect the Participant from any obligation to pay any taxes, interest or penalties pursuant to Section 409A or 457A of the Code. The Corporation makes no representation that any option to purchase Ordinary Shares under the Plan is compliant with Section 409A or Section 457A of the Code.
26.2Tax Qualification. Although the Corporation may endeavor to (i) qualify an option for favorable tax treatment under the laws of the United States or jurisdictions outside of the United States or (ii) avoid adverse tax treatment (e.g., under Section 409A of the Code), the Corporation makes no representation to that effect and expressly disavows any covenant to maintain favorable or avoid unfavorable tax treatment, notwithstanding anything to the contrary in this Plan, including Section 27.1 hereof. The Corporation shall be unconstrained in its corporate activities without regard to the potential negative tax impact on Participants under the Plan.
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(ESPP –JanuaryJuly 2017)
APPENDIX A
SEAGATE TECHNOLOGY PUBLIC LIMITED COMPANY
EMPLOYEE STOCK PURCHASE PLAN
PARTICIPATING EMPLOYERS
423 Plan
Seagate Technology (US) Holdings, Inc.
Seagate US LLC
Seagate Cloud Systems, Inc.
Lyve Minds, Inc.
Seagate Federal, Inc.
Seagate Systems (US) Inc. (US employees)
Countries Covered by Non-423 Sub-Plan for Contractors (See Appendix B)
Turkey
Non-423 Sub-Plan (See Appendix C)
Seagate Technology Australia Pty. Limited
Seagate Technology Canada Inc.
Seagate Technology SAS
Seagate Technology GmbH
Seagate Technology HDD (India) Private Limited
Seagate Technology (Hong Kong) Limited
Seagate Technology Manufacturing (Hong Kong) Limited
Seagate Technology (Ireland)
Nippon Seagate Inc.
Seagate Technology (Netherlands) B.V.
Seagate Technology AB
Seagate Technology Taiwan Ltd.
Seagate Technology UK Ltd. (including Dublin branch)
Seagate Technology (Suzhou) Co., Ltd.
Seagate Technology International (Wuxi) Co. Ltd.
Penang Seagate Industries (M) Sdn. Bhd.
Seagate International (Johor) Sdn. Bhd.
Seagate Singapore International Headquarters Pte. Ltd.
Seagate Technology International, Singapore Branch
Seagate Technology (Thailand) Limited
Seagate Technology Services (Shanghai) Co., Ltd.
Seagate Global Business Services (Malaysia) Sdn. Bhd.
Dot Hill Singapore Pte. Ltd.
Dot Hill Systems Services (Foshan) Limited
Seagate Cloud Systems Japan Ltd.
Dot Hill Systems Germany GmbH
LaCie SPRL
LaCie Group S.A.S.
LaCie SAS
LaCie AB
LaCie GmbH
LaCie Electronique D2, S.A.
LaCie AG
LaCie Ltd. (UK employees)
Seagate Systems (Canada) Limited
Seagate Systems (Mexico) S.A. de C.V.
Seagate Systems (UK) Limited
Seagate Systems (Malaysia) Sdn Bhd.
Seagate Systems (Singapore) Pte Ltd.
APPENDIX B
SUBPLAN UNDER THE SEAGATE TECHNOLOGY PUBLIC LIMITED COMPANY EMPLOYEE STOCK PURCHASE PLAN
1. | Purpose. The purpose of this subplan under the Seagate Technology Public Limited Company Employee Stock Purchase Plan (the “Subplan”) is to permit eligible contract workers who perform work for the Corporation (any one such individual a “Contractor,” and collectively, “Contractors”) in the countries designated from time to time by the Committee in its sole discretion and listed on Appendix A to the Seagate Technology Public Limited Company Employee Stock Purchase Plan (the “Plan”) to participate in the Plan. |
2. | Terms of the Subplan. The terms and conditions of the Subplan shall in all respects be identical to those set forth in the Plan except as set forth in this Subplan; provided, however, that the Subplan shall not be subject to the requirements of Section 423(b)(5) of the Code. Capitalized terms not otherwise defined in this Subplan shall have the same meaning as set forth in the Plan. |
3. | Definition of Employee. For purposes of the Subplan, references to Employees in the Plan shall include Contractors. |
4. | Subplan Countries. The Committee shall have the authority in its sole discretion to amend the list of countries designated by the Committee and listed on Appendix A to the Plan as necessary and desirable and for |
5. | Terms of |
APPENDIX C
SUBPLAN UNDER THE SEAGATE TECHNOLOGY PUBLIC LIMITED COMPANY EMPLOYEE STOCK PURCHASE PLAN FOR CERTAIN EMPLOYEES OUTSIDE OF THE UNITED STATES
1. | Purpose. The purpose of this subplan under the Seagate Technology Public Limited Company Employee Stock Purchase Plan (the “Subplan”) is to set forth requirements with respect to the participation by eligible Employees employed outside of the United States at Seagate Technology Australia Pty. Limited, Seagate Technology Canada Inc., Seagate Technology SAS, Seagate Technology GmbH, Seagate Technology HDD (India) Private Limited, Seagate Technology |
2. | Terms of the Subplan. Except as set forth in this Subplan, the terms and conditions of the Subplan shall in all respects be identical to those set forth in the Plan; provided, however, that the Subplan shall not be subject to the requirements of Section 423(b)(5) of the Code. Capitalized terms not otherwise defined in this Subplan shall have |
3. | Eligibility. Employees of Seagate Technology UK Ltd. (“Seagate UK”) or |
SEAGATE TECHNOLOGY PLC
38/39 FITZWILLIAM SQUARE
DUBLIN 2, IRELAND
VOTE BY INTERNET -www.proxyvote.com
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E31920-P96669 | KEEP THIS PORTION FOR YOUR RECORDS |
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THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED.
SEAGATE TECHNOLOGY PLC (the “Company”) | Any shareholder entitled to attend and vote at the Annual General Meeting of Shareholders may appoint one or more proxies, who need not be a shareholder(s) of the Company. A proxy is required to vote in accordance with any instructions given to him. Completion of a form of proxy will not preclude a member from attending and voting at the meeting in person. | |||||||||||||||||||||||||||||
The Board of Directors recommends you vote FOR the following proposals: | ||||||||||||||||||||||||||||||
1. | Election of Directors: | |||||||||||||||||||||||||||||
Nominees: | For | Against | Abstain | |||||||||||||||||||||||||||
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| Stephen J. Luczo
Mark W. Adams
Michael R. Cannon
Mei-Wei Cheng
William T. Coleman
Jay L. Geldmacher
William D. Mosley
Dr. Chong Sup Park
Stephanie Tilenius
Edward J. Zander
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| The Board of Directors recommends you vote FOR 1 year on the following proposal: | 1 Year | 2 Years | 3 Years | Abstain | |||||||||||||||||||||
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Approve, in an advisory, non-binding vote, the frequency of future Say-on-Pay votes.
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The Board of Directors recommends you vote FOR the following proposals:
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4. | Approve an amendment and restatement of the Seagate Technology Public Limited Company Amended and Restated Employee Stock Purchase Plan to increase the number of shares available for issuance.
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5. | Ratify, in a non-binding vote, the appointment of Ernst & Young LLP as the independent auditors of the Company and to authorize, in a binding vote, the Audit Committee of the Company’s board of directors (the “Board”) to set the auditors’ remuneration.
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6. | Grant the Board the authority to allot and/or issue shares under Irish law.
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7. | Grant the Board the authority to opt-out of statutory pre-emption rights under Irish law.
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2. | Approve, in an advisory, non-binding vote, the compensation of the Company’s named executive officers (“Say-on-Pay”). | ☐ | ☐ | ☐ | 8. | Determine the price range at which the Company can re-allot shares that it acquires as treasury shares under Irish law. | ☐ | ☐ | ☐ | |||||||||||||||||||||
You can instruct your proxy not to vote on a resolution by inserting an “x” in the box under “Abstain”. Please note that an abstention is not a vote in law and will not be counted in the calculation of the proportion of the votes for and against a resolution. | ||||||||||||||||||||||||||||||
In their discretion, the proxies are authorized to vote on such other business as may properly come before the meeting and any adjournment or postponement of the meeting. | Yes | No | ||||||||||||||||||||||||||||
Please indicate if you plan to attend this meeting.
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Please sign exactly as your name(s) appear(s) hereon. When signing as attorney, executor, administrator, or other fiduciary, please give full title as such. Joint owners should each sign personally. All holders must sign. If a corporation or partnership, please sign in full corporate or partnership name by authorized officer. | ||||||||||||||||||||||||||||||
Signature [PLEASE SIGN WITHIN BOX] | Date |
Signature (Joint Owners) | Date |
V.1.1
Important Notice Regarding the Availability of Proxy Materials for the Annual General Meeting of Shareholders:
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E31921-P96669
SEAGATE Annual General Meeting of Shareholders |
This proxy is solicited by the Board of Directors | ||||||||||||||
The shareholder(s) hereby appoint(s) THIS PROXY, WHEN PLEASE MARK, SIGN, DATE AND The signer(s) hereby acknowledge(s) receipt of the Notice of the | ||||||||||||||
Continued and to be signed on reverse side |