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:
☐ | 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 CompanyHoldings 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):
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☐ | Fee paid previously with preliminary materials. | |||
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August 30, 2017September 1, 2022
Dear Fellow Shareholder:
You are cordially invited to attend the 20172022 Annual General Meeting of Shareholders of Seagate Technology Holdings plc, which will be held on Monday, October 24, 2022 at 9:30 a.m. local time on Wednesday, October 18, 2017,5:00 p.m. Irish Standard Time at the InterContinental Hotel, Simmonscourt Road, Dublin 4, D04 A9K8, Ireland.
Details of the business to be presented at the meeting may be found in the Notice of 2022 Annual General Meeting of Shareholders and the Proxy Statement accompanying this letter.
We hopeurge you are planning to attendread the meeting. Your vote is important. Whether or not you planProxy Statement carefully and use one of the methods of voting described in the Proxy Statement to attend the meeting, please submit your proxy as soon as possible soensure that your shares maywill be representedvoted at the 20172022 Annual General Meeting.
On behalf of the Board of Directors of Seagate Technology Holdings plc, Iwe thank you for your continued support.support.
Sincerely,
Stephen J. Luczo
Chairman and Chief Executive Officer
Michael R. Cannon | William D. Mosley | |
Board Chair | Chief Executive Officer and Director |
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SEAGATE TECHNOLOGY HOLDINGS PUBLIC LIMITED COMPANY
NOTICE OF 20172022 ANNUAL GENERAL MEETING OF SHAREHOLDERS
The 20172022 Annual General Meeting of Shareholders (the “2022 AGM”) of Seagate Technology Holdings plc (“Seagate” or the “Company”), a company incorporated under the laws of Ireland with its registered and principal executive offices at 38/39 Fitzwilliam Square, Dublin 2, D02 NX53, Ireland, will be held on Wednesday,Monday, October 18, 2017,24, 2022, at 9:30 a.m. local time,5:00 p.m. Irish Standard Time, at the InterContinental Hotel, Simmonscourt Road, Dublin 4, D04 A9K8, Ireland.
The purposes of the 2017 Annual General Meeting2022 AGM, which are more completely described in the accompanying Proxy Statement, are:
General Proposals:
1. | By separate resolutions, to elect as directors the following incumbent directors who shall retire in accordance with the |
(a) | (b) | (c) Judy Bruner | ||
(d) Michael R. Cannon | ||||
(e) | (f) Yolanda L. Conyers | |||
(g) Jay L. Geldmacher | ||||
(h) Dylan Haggart | (i) William D. Mosley | |||
(j) Stephanie Tilenius | ||||
(k) Edward J. Zander |
Mark W. Adams will retire as a director at the end of the 2022 AGM and will not stand for re-election.
Approve, in an advisory,non-binding vote, the compensation of the Company’s named executive officers(“Say-on-Pay”). |
3. |
Ratify, in anon-binding vote, the appointment of Ernst & Young LLP as the independent auditors of the Company for the fiscal year ending June 30, 2023 (“fiscal year 2023”), and |
Irish Law Proposals:
Determine the price range at which the |
Other:
5. | Conduct such other business properly brought before the meeting. |
SEAGATE TECHNOLOGY HOLDINGS PLC
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Other:
The Board recommends that you vote “FOR” each director nominee included in Proposal 1, and “FOR” each of Proposals 2 and 4 through 8. For Proposal 3, the Board recommends you vote “FOR one year.”4. The full text of these proposals is set forth in the accompanying Proxy Statement.
Proposals 1, 2, 4, 5 and 63 are ordinary resolutions, requiring the approval of a simple majority of the votes cast at the meeting. Proposal 3 requires an affirmative vote4 is a special resolution, requiring the approval of a pluralityat least 75% of allthe votes cast at the meeting. Proposals 7 and 8 are special 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 21, 201726, 2022 (“Record Date”) are entitled to receive notice of and to vote at the 2017 Annual General Meeting.2022 AGM. If you are a shareholder as of the close of business on the Record Date, you may attend, speak and vote at the 2022 AGM or you may appoint a proxy or proxies to attend, speak and vote on your behalf. A proxy need not be a shareholder. 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 or deliver to the Company Secretary a proxy card in the form set out in section 184 of the Irish Companies Act 2014 (the “Irish Companies Act”); please also note your nominated proxy must attend the 2022 AGM in Dublin in person in order for your votes to be cast.
Please providecast your vote by proxy even if you plan on attendingto attend the meeting. You may vote by proxy by using the Internet, calling by telephone, or completing, signing and returning your proxy card by mail by no later than 6:59 p.m. Eastern Daylight Time (11:59 p.m. Irish Standard Time) on October 23, 2022 (or, if you are a beneficial owner, such earlier time as your bank, broker-dealer, brokerage firm, or nominee may require). Instructions on how to votesubmit your proxy are set forth in the accompanying Proxy Statement.
If you have any questions about the meeting or require assistance, please call Georgeson LLC, our proxy solicitor, at +1 781 575 2137 or at + 1 800 891 3214 (toll-free within the United States).
During the meeting, following a review of Seagate’s business andthe Company’s affairs, management will also present Seagate’s Irish statutory financial statements for the fiscal year ended June 30, 2017July 1, 2022 (“fiscal year 2022”) 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, 2017September 1, 2022
SEAGATE TECHNOLOGY HOLDINGS PLC
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IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS
FOR THE ANNUAL GENERAL MEETING OF SHAREHOLDERS
TO BE HELD ON OCTOBER 18, 201724, 2022
We will be relyingrely on the U.S. Securities and Exchange Commission (the “SEC”) rule that allows companies to furnish Proxy Materialsproxy 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”) instead of a paper copy of our Proxy Statement, including our Irish statutory financial statements for the Company’s fiscal year ended June 30, 2017 (“fiscal year 2017”),2022 and any other appendices thereto, the proxy card and our Annual Report onForm 10-K for fiscal year 20172022 (collectively, the “Proxy Materials”). The Notice also contains instructions on how to request a paper or email 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 AT THE 2022 ANNUAL GENERAL MEETING OF SHAREHOLDERS, THEN YOU ARE ENTITLED TO APPOINT A PROXY OR PROXIES TO ATTEND, SPEAK AND VOTE ON YOUR BEHALF. A PROXY ISNEED NOT REQUIRED TO BE A SHAREHOLDER IN THE COMPANY.SHAREHOLDER. IF YOU WISH TO APPOINT AS PROXY ANY PERSON OTHER THAN THE INDIVIDUALS SPECIFIED ON THE PROXY CARD, PLEASE CONTACT THE COMPANY SECRETARYINVESTOR RELATIONS BY PHONE AT OUR REGISTERED OFFICE1.408.658.1222 OR BY EMAIL AT STX@SEAGATE.COM AND ALSO NOTE THAT YOUR NOMINATED PROXY MUST ATTEND THE 2022 ANNUAL GENERAL MEETING OF SHAREHOLDERS IN PERSON IN ORDER FOR YOUR VOTES TO BE CAST.
SEAGATE TECHNOLOGY HOLDINGS PLC
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SUMMARY INFORMATION
This summary highlights information contained elsewhere in this Proxy Statement. For more complete information about the topics summarized below, please review Seagate Technology plc’s Annual Report onForm 10-K and the entire Proxy Statement.
2017 Annual General Meeting of Shareholders
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Proposals, voting recommendations and vote required:
The Board recommends that you vote “FOR” each of the proposals that will be submitted for shareholder approval at the 2017 AGM.
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During the meeting, following a review of Seagate’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’s Corporate Governance Highlights
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Director Nominees.
We are asking our shareholders to elect, by separate resolutions, each of the Director 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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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 |
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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) |
For further information about our Director Nominees, see biographical information starting on page 15 of this Proxy Statement.
Advisory Approval of theSay-on-Pay Proposal.
We are asking for your advisory approval of the compensation of our named executive officers (our “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 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.
Advisory Approval of the 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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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’ 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-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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philosophy is designed to align our executive compensation programs with long term shareholder interests. In the Company’s fiscal year 2017, a majority of our long term equity incentive awards were granted in the form of performance-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 onpay-for-performance and the alignment of interests between our NEOs and our shareholders. In addition, at least 86% of our NEO total annual targeted compensation is at risk.
Please review our “Compensation Discussion and Analysis” for additional information and definitions of financial metrics.
2018 AGM
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For further information, see the section entitled “Shareholder Proposals and Nominations” on page 82 of this Proxy Statement.
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PROXY STATEMENT
In this Proxy Statement, “Seagate, Technology,” “Seagate,” the “Company,” “we,” “us” and “our” refer to Seagate Technology Holdings 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 on or about September 1, 2022 to shareholders as of record at the close of business on the Record DateDate.
SUMMARY INFORMATION
This summary highlights information contained elsewhere in this Proxy Statement. For more complete information about the topics summarized below, please review the entire Proxy Statement and Seagate’s Annual Report on Form 10-K for fiscal year 2022.
2022 AGM
Date and Time: | Monday, October 24, 2022 at 5:00 p.m. Irish Standard Time | |
Place: | InterContinental Hotel Simmonscourt Road Dublin 4, D04 A9K8, Ireland | |
Record Date: | August 26, 2022 | |
Voting: | Shareholders as of the close of business on the Record Date may vote on the proxy proposals. Each ordinary share that you own entitles you to one vote on each matter to be voted on at the 2022 AGM. Your vote is very important. We encourage you to vote your shares prior to the 2022 AGM. | |
Attendance: | All shareholders as of the close of business on the Record Date may attend the 2022 AGM. You may attend, speak and vote at the meeting even if you have completed and submitted a form of proxy. Your nominated proxy must attend the 2022 AGM in person in order for your votes to be cast. | |
Proxy Materials: | The Proxy Materials were first made available to shareholders on or about September 1, 2022. |
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SEAGATE TECHNOLOGY HOLDINGS PLC | 2022 Proxy Statement |
2022 NOTICE OF MEETING AND PROXY STATEMENT |
Proposals, Voting Recommendations and Vote Required
The Board recommends that you vote “FOR” each of the proposals that will be submitted for shareholder approval at the 2022 AGM.
Proposals: | Vote Required: | Board Recommendation: | ||||
1. | Election of Each of the 11 Director Nominees. | Majority of Votes Cast | FOR each nominee | |||
We are asking our shareholders to elect, by separate resolutions, each of the 11 Director Nominees identified in the Proxy Statement. | ||||||
2. | Approve, in an Advisory, Non-binding Vote, the Compensation of the Company’s Named Executive Officers (“Say-on-Pay”). | Majority of Votes Cast | FOR | |||
We are asking for your approval, on an advisory, non-binding basis, of the compensation of our named executive officers (“NEOs”). While our Board intends to carefully consider the shareholder vote resulting from the proposal, the final vote is advisory and will not be binding on us. | ||||||
3. | A Non-binding Ratification of the Appointment of Ernst & Young LLP as the Independent Auditors for the Fiscal Year Ending June 30, 2023 and Binding Authorization of the Audit and Finance Committee to Set Auditors’ Remuneration. | Majority of Votes Cast | FOR | |||
We are asking for your ratification, in a nonbinding vote, of the appointment of Ernst & Young LLP as our independent auditors for fiscal year 2023, and to authorize, in a binding vote, the Audit and Finance Committee of the Board to set the auditors’ remuneration. | ||||||
4. | Determine the Price Range for the Re-allotment of Treasury Shares. | At least 75% of Votes Cast | FOR | |||
We are asking you, as a routine matter for public companies incorporated in Ireland, to determine the price range at which we can re-allot shares held as treasury shares. From time to time, we may acquire ordinary shares and hold them as treasury shares. We may re-allot such treasury shares, and, under Irish law, our shareholders must determine the price range at which we may re-allot any shares held in treasury. |
During the meeting, following a review of Seagate’s affairs, management will also present Seagate’s Irish statutory financial statements for fiscal year 2022 and the reports of the directors and statutory auditors thereon.
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SEAGATE TECHNOLOGY HOLDINGS PLC | 2022 Proxy Statement |
2022 NOTICE OF MEETING AND PROXY STATEMENT |
Seagate’s Corporate Governance Highlights
• The Board consists of a substantial majority (91% as of end of fiscal year 2022) of independent directors. | • The Board Chair is an independent director. | |
• Directors must receive a majority of shareholder votes cast to be elected. | • All directors are elected annually by shareholders. | |
• All Board committees are composed exclusively of independent directors. | • The independent directors meet regularly in executive sessions. | |
• Directors and executive officers are subject to share ownership requirements. | • Executive officers are subject to a compensation “clawback” policy. | |
• The Board and each Board committee perform periodic self-evaluations. | • The Board oversees the Company’s enterprise risk management program including ESG-related risks. | |
• The Board oversees succession planning for all executive officers, including the Chief Executive Officer, and also undertakes succession planning for members of the Board. | • The Company maintains an anti-hedging policy for all directors and employees. | |
• The Company maintains a policy prohibiting the pledging of Company securities by directors, executive officers and certain other employees. |
2023 Annual General Meeting of Shareholders
Deadline for shareholder proposals for inclusion in the Proxy Statement: | May 4, 2023 | |
Period for shareholder nomination of directors: | April 4, 2023 to May 4, 2023 | |
Deadline for all other proposals: | July 18, 2023 |
For further information, see the section entitled “Shareholder Proposals and Nominations” on page 74 of this Proxy Statement.
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SEAGATE TECHNOLOGY HOLDINGS PLC | 2022 Proxy Statement |
2022 NOTICE OF MEETING AND PROXY STATEMENT |
Contents
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PROPOSALS 1(a) – 1(j) – ELECTION OF EACH OF THE 11 DIRECTOR NOMINEES | 6 | |||
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Executive Market Comparison Peer Group and Benchmark Philosophy | 34 | |||
How We Determine Individual Compensation Amounts for the NEOs | 35 | |||
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Potential Payments Upon Qualifying Termination or Change in Control | 56 | |||
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SEAGATE TECHNOLOGY HOLDINGS PLC | 2022 Proxy Statement |
2022 NOTICE OF MEETING AND PROXY STATEMENT |
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT | 68 | |||
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APPENDIX A – DIRECTOR’S REPORT AND FINANCIAL STATEMENTS FOR THE YEAR ENDED 1 JULY 2022 | A-1 |
Cautionary Statement Regarding Forward-Looking Statements
This Proxy Statement may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements provide current expectations of future events based on certain assumptions and include any statement that does not directly relate to any historical fact. Forward-looking statements generally can be identified by words such as “expects,” “intends,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “projects,” “should,” “may,” “will,” “will continue,” “can,” “could” or about August 30, 2017.the negative of these words, variations of these words and comparable terminology, in each case, intended to refer to future events or circumstances. However, the absence of these words or similar expressions does not mean that a statement is not forward-looking. Forward-looking statements are subject to various uncertainties and risks that could cause our actual results to differ materially from historical experience and our present expectations or projections. These risks and uncertainties include, but are not limited to, those described under the captions “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Company’s Annual Report on Form 10-K for fiscal year 2022 and in our Quarterly Reports on Form 10-Q filed with the SEC. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof and are based upon information available to us at this time. The Company undertakes no obligation to update forward-looking statements to reflect events or circumstances after the date they were made, unless required by applicable law.
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SEAGATE TECHNOLOGY HOLDINGS PLC | 2022 Proxy Statement |
2022 NOTICE OF MEETING AND PROXY STATEMENT |
FollowingThe following are questions and answers concerning voting and solicitation and other general information. You should read this entire Proxy Statement carefully.
Why did I receive this Proxy Statement? | We sent you this Proxy Statement or a Notice of Internet Availability of Proxy Materials | |
Why are there two sets of financial statements covering the same fiscal period? | U.S. securities laws require us to send you our Annual Report on Form 10-K for fiscal year | |
What do I need to do to attend the | All shareholders of record (“record holders”) and beneficial owners (i.e., those whose shares are held via a bank, broker-dealer, brokerage firm, trust or other similar organization or other nominee record holder (each referred to herein as a “broker”)) as of the close of business on the Record Date To attend the 2022 AGM in person, if you are a record holder, you must present valid photo identification, such as a For your health and safety and due to any COVID-19 recommendations in place at the time of the 2022 AGM, |
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governmental requirements or recommendations or facility requirements, such as the use of face coverings and maintaining appropriate social distancing. | ||
Who may vote? | You | |
How do I vote? | We encourage you to vote your shares in advance by submitting your proxy or following the instructions provided by your broker, even if you plan to attend the 2022 AGM in person in Dublin, Ireland. Record Holders If you are the record holder, meaning that you own your shares in your own name and not through a broker, you may vote in one of | |
• Via the Internet. To vote using the Internet go to www.proxyvote.com and | ||
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• In Person. Attend the 2022 AGM in person in Dublin, Ireland, or by appointing one or more proxies (who do not have to be shareholders) to attend the 2022 AGM in person and cast votes on your behalf in accordance with your instructions. If you wish to appoint as your proxy any person other than the individuals specified in the proxy card, please contact the Company Secretary at our registered office. For information on how to attend the 2022 AGM in person, please see “What do I need to do to attend the 2022 AGM?” above. The Notice is not a proxy card and it cannot be used to vote your shares. Shareholders of record may | ||
Beneficial owners Beneficial owners must vote their shares in the manner prescribed by their |
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SEAGATE TECHNOLOGY HOLDINGS PLC | 2022 Proxy Statement |
2022 NOTICE OF MEETING AND PROXY STATEMENT |
obtain a legal proxy from their broker and bring | ||
In order to be timely processed, your | ||
May I revoke my proxy? | If you are a • notifying the Company Secretary in writing: c/o Seagate Technology Holdings plc at 38/39 Fitzwilliam Square, Dublin 2, D02 NX53, Ireland, Attention: Company Secretary; • submitting another properly signed proxy card (in the form mailed to you or in the form set out in section 184 of the Irish Companies Act) with a later date or another Internet or telephone proxy at a later date but prior to the • by voting in person at the |
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Merely attending the | ||
For beneficial owners, you must contact See “What do I need to do to attend the | ||
How will my proxy get voted? | If your proxy is properly submitted, you are legally designating the person or persons named | |
If you are a beneficial owner, |
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SEAGATE TECHNOLOGY HOLDINGS PLC | 2022 Proxy Statement |
2022 NOTICE OF MEETING AND PROXY STATEMENT |
The following proposals areroutine matters: • Proposal • Proposal
However, your
The following proposals arenon-routine matters: • Proposal 1 (Election of • Proposal 2
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What constitutes a quorum? | A quorum is the minimum number of shares required to be present at the 2022 AGM to properly hold an annual meeting and conduct business. The presence at the meeting in Dublin, Ireland (in person or by proxy) of shareholders entitled, as of the Record Date, to exercise a majority of the voting power of the Company | ||
What vote is required to approve each of the proposals? | Majority of Votes Cast Required to Approve: • Proposal 1 (Election of • Proposal 2 • Proposal
75% of Votes Cast Required to Approve: • Proposal
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Although, as noted above, abstentions and brokernon-votes are counted as “shares present” at the | |||
Who pays the expenses of | We have |
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SEAGATE TECHNOLOGY HOLDINGS PLC | 2022 Proxy Statement |
2022 NOTICE OF MEETING AND PROXY STATEMENT |
reasonableout-of-pocket expenses for forwarding Proxy Materials to the | ||
How will | Although we do not know of any matters to be presented or acted upon at the | |
How does the Board | The Board recommends that you vote your shares “FOR” each of the nominees for election as director and “FOR” each of the proposals 2 through 4 in this Proxy Statement. |
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Voting procedures and tabulation. | The Board has appointed |
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PROPOSALS 1(a) – 1(j) –— ELECTION OF DIRECTORSEACH OF THE 11 DIRECTOR NOMINEES
(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” a director nominee must exceed the number of votes cast “against” that director nominee. The Board currently has 12 directors, but Mark Adams will not be standing for re-election when his current term expires at the end of the 2022 AGM. Subject to the director nominees being elected, the Board will vote to reduce its size from 12 to 11 members effective as of the end of the 2022 AGM on October 24, 2022 and, accordingly, the number of directors will be set at 11 in accordance with our Constitution. Each of the Director Nominees listed below is being nominated for electionto hold office for aone-year term beginning at the end of the 20172022 AGM to be held on October 18, 201724, 2022 and expiring at the end of the 20182023 Annual General Meeting of Shareholders (the “2018“2023 AGM”).
After many years of distinguished service, Mark Adams will be retiring from the Board, at the expiration of his current term at the 2022 AGM. We thank Mr. Adams for his years of service as a Director.
Under our Articles of Association,Constitution, if a director is notre-elected in a director election, then that director will not be appointedre-appointed and the position on the Board that would have been elected or filled by the director nominee will become vacant, except in limited circumstances, become vacant.circumstances. The Board has the ability to fill the vacancy in accordance with the Articles of Association,Constitution, provided that any director so appointed will be subject to approval by the Company’s shareholdersa resolution approving their appointment at the next annual general meeting of 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 hertheir election shall, in accordance with the Company’s Articles of Association,Constitution, hold office until his or her successor(s)their successor shall be elected.
THE BOARD RECOMMENDS THAT YOU VOTE “FOR” EACH OF THE FOLLOWING NOMINEES:All of the Director Nominees are current Board members. Ms. Conyers and Mr. Clemmer will be standing for election by shareholders for the first time at the 2022 AGM. In FY 2022, Ms. Conyers was identified through Board contacts and was recommended for appointment to the Board by the Nominating and Corporate Governance Committee. In FY 2023, with the assistance of a search firm, Mr. Clemmer was identified as a potential candidate and recommended for appointment to the Board by the Nominating and Corporate Governance Committee. The Nominating and Corporate Governance Committee reviewed the performance and qualifications of the directors listed below and recommended to the Board, and the Board approved, that each be recommended to shareholders for re-election at the 2022 AGM to serve for an additional one-year term. All of the Director Nominees have indicated that they will be willing and able to serve as directors.
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The following table sets forth the names, ages, and certain other information for each of the Director Nominees as of September 1, 2022. Full biographical information is below.
Name of Director Nominee | Age | Director Since | Independent | Audit and Finance Committee | Compensation Committee | Nominating and Corporate Governance Committee | ||||||
Shankar Arumugavelu | 51 | 2021 | ✓ | ✓ | ||||||||
Prat S. Bhatt | 55 | 2020 | ✓ | ✓ | ||||||||
Judy Bruner | 63 | 2018 | ✓ | ✓ | ||||||||
Michael R. Cannon | 69 | 2011 | ✓ | ✓ | ✓ | |||||||
Richard L. Clemmer | 71 | 2022 | ✓ | |||||||||
Yolanda L. Conyers | 55 | 2022 | ✓ | ✓ | ||||||||
Jay L. Geldmacher | 66 | 2012 | ✓ | ✓ | ||||||||
Dylan Haggart | 35 | 2018 | ✓ | ✓ | ||||||||
William D. Mosley | 56 | 2017 | ||||||||||
Stephanie Tilenius | 55 | 2014 | ✓ | ✓ | ||||||||
Edward J. Zander | 75 | 2009 | ✓ | ✓ |
Committee Chair |
Audit Committee Financial Expert |
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SEAGATE TECHNOLOGY HOLDINGS PLC | 2022 Proxy Statement |
2022 NOTICE OF MEETING AND PROXY STATEMENT |
THE BOARD RECOMMENDS THAT YOU VOTE “FOR” EACH OF THE FOLLOWING DIRECTOR NOMINEES:
(a) Shankar Arumugavelu—age 51, Director since 2021 | Mr. Arumugavelu serves as the Senior Vice President and Chief Digital and Information officer of Verizon Communications Inc., leading Verizon’s technology organization with global responsibility for information technology strategy, architecture, development and management of information systems portfolio, continued evolution of digital platforms, data and advanced analytics, and operation of all supporting infrastructure. During his multi-decade tenure with Verizon, he has established a proven track record for leading enterprise transformation in order to scale the business and drive revenue growth. Mr. Arumugavelu has held a number of leadership positions of increasing responsibility with Verizon and its predecessor companies. Prior to assuming his current role, Mr. Arumugavelu served as the Senior Vice President and Chief Information Officer of Verizon Wireless and Verizon Consumer Markets business units. Mr. Arumugavelu serves on the board of directors of the TM Forum, a leading global alliance for digital service providers and suppliers in the telecommunications industry. He holds a master’s degree in Computer Science from the University of South Florida and a bachelor’s degree in Electrical and Electronics Engineering from Anna University. Expertise: Mr. Arumugavelu brings substantial technology, strategy, global operations, cyber security, information systems, data, analytics, and infrastructure expertise to our Board though his experience as a senior level executive in a large multi-national telecommunications corporation. | |
(b) Prat S. Bhatt—age 55, Director since 2020 | Mr. Bhatt has served as the Senior Vice President, Chief Accounting Officer at Cisco Systems, Inc. (“Cisco”), a global technology company, since April 2013, and also held the title Corporate Controller from April 2013 to May 2022. From July 2009 to April 2013 he served as Vice President, Chief Accounting Officer and Corporate Controller at Cisco, from June 2007 to July 2009 he served as Vice President, Finance and Assistant Corporate Controller, and from November 2000 to June 2007 Mr. Bhatt served in various leadership roles of increasing importance at Cisco. From June 1999 to November 2000 Mr. Bhatt was Director of Financial Operations at Kaiser Permanente and from October 1990 to June 1999 was Senior Manager with Ernst & Young. He is a licensed Certified Public Accountant. Expertise: Mr. Bhatt brings substantial accounting, financial, global operations, strategy, enterprise risk management, and investor relations expertise to our Board through his experience as a senior level executive in a large multi-national technology corporation. |
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Director since |
Expertise: | |
Director since 2011 | Mr. Cannon served as our Board Chair since July 2020 and prior to that served as Lead Independent Director from October 2016 until he was appointed Chair. He served as President, Global Operations of Dell Inc., a multinational computer technology company, from February 2007 until Expertise: Mr. Cannon has extensive relevant industry expertise, including expertise in the disk drive business as well as with our major customers, that is valuable to our Board. Mr. Cannon brings international, technological, operations, leadership, and |
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Director since | Mr. Expertise: Mr. Clemmer brings experience and career success as a Chief Executive Officer and finance leader in the global high-tech industry. In addition, his knowledge of the electronics industry and many of the Company’s largest customers, his experience working with private equity investors, and his service on other public company boards brings valuable experience to our Board. | |
(f) Yolanda L. Conyers—age 55, Director since 2022 | Ms. Conyers has over 30 years of talent management, global operations and technology industry experience. Most recently she served as Vice President of Global Human Resources and Chief Global Diversity Officer at Lenovo from December 2014 until December 2020 and President of the Lenovo Foundation from January 2018 until December 2020. From January 2007 until December 2014, Ms. Conyers held a number of other leadership positions at Lenovo. Prior to joining Lenovo, Ms. Conyers held leadership positions of increasing scope and responsibility with Dell Technologies and Texas Instruments in the areas of engineering, worldwide procurement, global human resources, and diversity and inclusion. Ms. Conyers holds a bachelor’s degree in Computer Science from Lamar University and an MBA from Our Lady of the Lake University. Expertise: | |
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Director since 2012 | Mr. Geldmacher has served as president and CEO and a member of the board of directors of Resideo Technologies, Inc. since May 2020. Resideo is a global provider of smart home solutions providing safety, security and comfort, and is a global distributor of security and fire products. Mr. Geldmacher served as Global CEO and President of Electro Rent Corporation, a Platinum Equity company from September 2019 to May 2020. From November 2013 to August 2019, Mr. Geldmacher served as President and CEO of Artesyn Embedded Technologies, a | |
as an Executive Advisory Council Member for Vertiv. Expertise:As a CEO, Mr. Geldmacher brings international, technological, and operational expertise to our Board, along with additional board experience from his service on public company | ||
Director since | Mr. Haggart has served as a Partner at ValueAct Capital, a governance-oriented investment firm that invests in a concentrated portfolio of public companies, including Seagate, and has worked collaboratively with management and boards of directors on matters such as strategy, capital structure, mergers and acquisitions, and talent management since July 2013. Prior to joining ValueAct Capital in 2013, Mr. Haggart served as a private equity investor at TPG Capital, focusing on North American buyouts, and as an investment banker at Goldman Sachs. Mr. Haggart is a director on the board of Fiserv, Inc., where he is a member of the Nominating and Corporate Governance Committee, as well as the Talent and Compensation Committee. Dylan also serves as a Trustee for the Boys & Girls Clubs of San Francisco Endowment Trust. Expertise:Mr. Haggart brings experience as an investor involved in strategic planning for other public and private companies. He also brings substantial experience with complex financial markets issues, capital allocation, strategy, technology, matters of corporate governance, executive compensation, and talent management. In addition, as a Partner and stockholder with ValueAct Capital, he has a deep knowledge of Seagate’s business and the markets it serves. |
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2022 NOTICE OF MEETING AND PROXY STATEMENT |
(i) William D. Mosley—age 56, Director since 2017 | Dr. Mosley has
Expertise:As our |
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Director since 2014 | Ms. Tilenius is a founder and CEO of Vida Health, Inc., a mobile continuous care platform for preventing, managing and overcoming chronic and mental health conditions deployed at Fortune 500 companies, large | |
Expertise:Ms. Tilenius is an experienced senior executive in the consumer internet sector. She contributes her leadership, strategic insight, digital ande-commerce expertise, and her experience as a company founder, to our Board, along with |
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Director since 2009 | Mr. Zander served as | |
Expertise:Mr. Zander brings to our Board financial, technological, sales and marketing, and research and development expertise |
There are no familial relationships between any of the directors, Director Nominees or our executive officers, nor are any of our directors, Director Nominees or executive officers party to any legal proceedings adverse to us.
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DIRECTOR NOMINEES SNAPSHOT
Board Nominee Diversity Matrix
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Board Size: | ||||||||||||||||
Total Numbers of Directors | 11 | |||||||||||||||
Gender: | Female | Male | Non- Binary | Did not Disclose | ||||||||||||
Directors | 3 | 8 | 0 | 0 | ||||||||||||
Number of Directors who Identify in Any of the Categories Below: |
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Hispanic or Latina(o) | 0 | 0 | 0 | 0 | ||||||||||||
Alaskan Native or Native American | 0 | 0 | 0 | 0 | ||||||||||||
Black or African American | 1 | 0 | 0 | 0 | ||||||||||||
Native Hawaiian or Pacific Islander | 0 | 0 | 0 | 0 | ||||||||||||
Asian | 0 | 1 | 0 | 0 | ||||||||||||
South East Asian | 0 | 1 | 0 | 0 | ||||||||||||
Middle Eastern/North African | 0 | 0 | 0 | 0 | ||||||||||||
White | 2 | 6 | 0 | 0 | ||||||||||||
Two or More Races or Ethnicities | 0 | 0 | 0 | 0 | ||||||||||||
Other | 0 | 0 | 0 | 0 | ||||||||||||
I do not wish to disclose | 0 | 0 | 0 | 0 | ||||||||||||
LGBTQ+ | 0 | |||||||||||||||
Veteran | 0 |
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SEAGATE TECHNOLOGY HOLDINGS PLC | 2022 Proxy Statement |
2022 NOTICE OF MEETING AND PROXY STATEMENT |
Corporate Governance Guidelines and Committee Charters
Our Corporate Governance Guidelines, together with theour Board committee charters, provide the framework for the corporate governance of the Company. FollowingThis promotes the interests of our shareholders and strengthens our Board and management accountability. Below is a summary of our Corporate Governance Guidelines. OurGuidelines and Board Committee Charters. We provide our Corporate Governance Guidelines, as well as the charters of each of our Board committees are availableand our Code of Conduct and Code of Ethics, on our website at www.seagate.com,investors.seagate.com, under “Investors - Governance.”the “Governance” tab. Information contained on or accessible via our website is not incorporated by reference into this Proxy Statement or any other report we file with the SEC.
Role of the Board
The Board, elected annually by our shareholders, directs and oversees the management of the business and affairs of the Company. In this oversight role, the Board serves as the ultimatedecision-making body of the Company, except for those matters reserved tofor the shareholders. The Board has three standing committees: Audit and Finance, Compensation, and Nominating and Corporate Governance.
The Board and its committees have the primary responsibilities of:
reviewing, monitoring and approving the Company’s strategic direction, annual operating plan, and major corporate actions;
monitoring and evaluating the performance of the Company;
hiring and evaluating the performance of our CEO;
reviewing and approving compensation of the CEO and other executive officers;
reviewing and approving CEO and senior managementexecutive officer succession planning;
advising and counseling the Company’s management;
overseeing the Company’s ethics programsethical and legal compliance, including the Company’sCode of Conduct and Code of Ethics; and
overseeing the Company’s enterprise risk management processes and programs.
Board Leadership StructureEnvironmental, Social and Corporate Governance Matters
The Board generally believes that the offices of ChairmanOur values—Integrity, Innovation, and CEO should be held by separate personsInclusion—underpin our strategy and our approach to aid in the oversight of management, unless it is in the best interests of the Company that the same person holds both offices. While the combined role of Chairman and CEO has worked well for the Company, the Board believes that from a strategicenvironmental, social, and governance perspective, it(“ESG”) matters. Seagate is committed to developing and maintaining sustainable and responsible practices in its global operations. As such, Seagate is a signatory to the best interestsResponsible Business Alliance Code of Conduct and the Company, at this time,United Nations Global Compact (UNGC) and supports their principles and standards. Management regularly reports to separateour Board on the officesoutcomes of the CEOprograms and Chairman. The Board believes that its succession strategy, with the appointment of William D. Mosley as CEO effective October 1, 2017,processes we have established to adhere to these principles 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’s view that the Company’s corporate governance principles, the quality, stature and substantive business knowledge of the members of the Board,standards as well as on other ESG matters such as the Board’s culturediversity of open communication with the CEOour workforce, employee development, and senior management are currently conducive to Board effectiveness with the separation of the Chairmanemployee health and CEO positions.
In addition, the Board continues 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 forsafety.
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the independent directors. The Board appointsis responsible for ensuring that ESG opportunities and oversight of related risks are integrated into our long-term strategy. Rather than concentrating all ESG oversight solely at the Lead Independent Director each year afterBoard or into a single Board committee, given the annual general meeting for aone-year term. The Lead Independent Director coordinates the activitiesmulti-faceted nature of the othernon-employee directors, presidesCompany’s approach to ESG and its integration into our overall strategy, the Board believes each of its committees should maintain oversight over meetingsthe particular ESG matters that fall within its scope. For example, the Nominating and Governance Committee annually reviews ESG governance, the Audit and Finance Committee annually reviews ESG disclosure controls, and the Compensation Committee reviews ESG performance metrics.
More information on our ESG efforts can be found on the Diversity, Equity and Inclusion (“DEI”) and Global Citizenship sections of our website, www.seagate.com, and in our fiscal year 2021 DEI Annual Report and our fiscal year 2021 Global Citizenship Annual Report, the latter of which was prepared in accordance with the Global Reporting Initiative (GRI) Standards: Core Option and is responsive to the Sustainability Accounting Standards Board (SASB) technology and telecommunication sector hardware standards. Information contained on our website is not incorporated by reference into this Proxy Statement or any other report we file with the SEC.
Role of the Board 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, has authority to call meetings of the independent directors, and is available for consultation and direct communication if requested by major shareholders.
Mr. Cannon has served as our Lead Independent Director since October 19, 2016 having been appointed by the Board on that date.
Boardin Risk Oversight
The Board has responsibility for oversight responsibility of the processes established by management to report and monitor systems for material risks applicable to the Company.Company, including ESG risks. The Board and its committees focus on the Company’s general risk management strategy and the most significant risks facing the Company and ensure that appropriateregularly review the Company’s processes for monitoring and addressing risks. The Board’s review of our long-term strategic, financial and organizational goals and its review of management’s plans designed to achieve those goals is a part of the Board’s oversight of risk mitigation strategies are implemented by management. Themanagement and assists the Board in assessing management’s approach to and tolerance for risk. In addition, the committees of the Board report to the full Board is responsible for considering strategicat regularly scheduled Board meetings on any identified material risks and succession planning, and the committees oversee other categorieswithin that committee’s area of risk including:responsibilities.
The Audit and Finance Committee has responsibility for oversight of financial risks, including any ESG-related financial or disclosure risks, in the Company’s business, cash position, financing activity, tax position and tax strategy, and corporate development plans, as well as risks associated with the Company’s systems of disclosure controls and internal controls over financial reporting and risks associated withdisclosure process, and cybersecurity, foreign exchange, insurance, creditdata privacy, product security and debt;other computerized information system controls, and compliance and ethics matters;
The Compensation Committee has responsibility for oversight of the Company’s compliance with legal, administrative and regulatory requirements; and
Finally, as part of its
The Nominating and Governance Committee has responsibility for oversight of the Company’s executive compensation program,risks related to director and CEO succession, the Board and its committees, corporate governance, and corporate social responsibility.
Our Board believes that open communication between management and our Board is essential for effective risk oversight and management. As such, the Board is informed and engaged when new risks arise. For example, in response to risks, uncertainties and other factors, such as macro-economic challenges and the COVID-19 global pandemic, that could impact the Company, the Board and the Compensation Committee considerseach receive regular reports from members of management to monitor and assess risks to our business and to manage the impact of the Company’s executive compensation programon our employees, customers, suppliers and other business partners, and the incentives created by the compensation awards that it administers on the Company’s risk profile.communities in which we operate globally. In addition, the Company reviews all of its compensation policiesAudit and procedures,Finance Committee receives regular reports from management, including the incentives that they createChief Information Officer and factors that may reduce the likelihood of excessive risk taking, to determine whether they present a significant risk to the Company. BasedChief Information Security Officer, on this review, the Company has concluded that its compensation policiesenterprise security, data privacy and procedures are not reasonably likely to have a material adverse effect on the Company.
Director Compensationdata security risks, controls, and Share Ownership
It is the Board’s practice to maintain a fair and straightforward compensation program at the Board 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’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.incident preparedness.
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Committees of the Board
Audit and Finance Committee
Key Functions of the Audit and Finance Committee of the Board:
Oversee the Company’s financial reporting and disclosure processes.
Board Composition
The Board consistsReview annual audited and quarterly financial statements and Irish statutory financial statements, as well as the Company’s ESG disclosures and disclosures under “Management’s Discussion and Analysis of a substantial majorityFinancial Conditions and Results of independent,Operations” contained in our SEC non-employeeForms 10-K directors. In addition,and 10-Q and in our Corporate Governance Guidelines require that all members ofearnings releases, with management and the standing committees ofindependent auditors.
Obtain and review periodic reports, at least annually, from management and from the Board must be independent directors. The Board has the following four standing committees: Audit Committee, Compensation Committee, Nominating and Corporate Governance Committee, and Finance Committee. The Board has determined that each member of each of these committees is “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 and an independence analysis is conducted annually.
Board Diversity
The Board has not adopted a formal policy with regard to the consideration of diversity in identifying director nominees. 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 enhanceauditors assessing the effectiveness of the existingCompany’s internal controls and procedures for financial reporting.
Review and monitor the Company’s processes that are designed to ensure compliance with all applicable laws, regulations and corporate policy, including with respect to senior executives’ expenses and perquisites as well as ethics matters reported through the anonymous reporting line or from other sources.
Appoint the public accounting firm that will serve as our independent auditors and review the performance, independence, and qualifications of the independent auditors.
Review and make recommendations regarding the Company’s cash position; financial position; capital needs; financing plans; the Company’s ability to access capital markets including the Company’s debt and credit ratings; bank and lender relationships; capital structure; equity and debt issuances; dividends including and, if and as delegated by the Board, making declarations of Company dividends; share splits; financing proposals; debt issuances, repayment, repurchase or redemption of any outstanding notes; capital asset plans and ensure that its members are appropriately diversecapital expenditures; and consists of memberscorporate development plans.
Monitor and review, and make recommendations regarding, the Company’s policies and procedures around managing major risks in the Company’s business, cash position, financing activity, tax position and tax strategy, and corporate development plans, and risks pertaining to our financial reporting and disclosure processes, including disclosures with variousrespect to ESG matters, and relevant backgrounds, skills, knowledge, perspectivesto other enterprise risks including cybersecurity, data privacy, product security and experiences.other computerized information system controls.
Board Advisors
The BoardReview, evaluate and its committees may, under their respective charters, retain their own externalauthorize management to enter into any capital market transactions (including debt and independent advisors to carry out their responsibilities. For fiscal year 2017,equity financings), private equity and debt financing, or proposed merger, acquisition, divestiture or investment transactions, in accordance with the Compensation Committee retained FW Cook as its external and independent advisor.
Executive Sessions
The Company’s independent directors meet privately in regularly scheduled executive sessions ofcommittee’s delegated authority from the Board, and committees, without management present, to considerreview, evaluate and recommend to the Board with respect to any such matters astransactions that exceed the committee’s delegated authority.
Review the scope of the financial statements audit and the findings and approve the fees of the independent directors deem appropriate. These executive sessions are typically held at each Boardauditors.
Review and committee meeting.
Board Evaluation
The Nominatingdetermine in advance permitted audit and Corporate Governance Committee assistsnon-audit services to be performed by the Board in periodically evaluating its performance and the performance of the Board committees. Each committee conducts periodicself-evaluation and the Board conducts periodicpeer-to-peer evaluations. The effectiveness of individual directors is considered each year when the Board nominates directors to stand for election.independent auditors.
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 to identify the qualifications and areas of expertise needed to further enhance the composition of the Board,
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makes recommendations to the Board concerning the appropriate size and needs of the Board and, on its own, with the assistance of other Board 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 professional experience, understanding of business and financial issues, ability to exercise sound judgment, diversity, leadership, achievements, knowledge and experience in matters affecting business and industry. The Nominating and Corporate Governance Committee considers the entirety of each candidate’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 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 is composed of members whose particular expertise, qualifications, attributes and skills, when taken together, allow the Board to satisfy its oversight responsibilities effectively. Shareholders may recommend candidates for consideration for Board 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 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 has decided not to adopt arbitrary term limits for its directors.
Director Independence
The Board, based on its review and the recommendation of the Nominating and Corporate Governance Committee, has determined that all of our current directors and Director Nominees, except Stephen J. Luczo and William D. Mosley, who are 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 considers the various commercial, charitable and employment transactions and relationships known to the Board (including those identified through annual 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 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 deemed advisable, the Board determined that Messrs. Adams, Cannon, Cheng, Coleman, Geldmacher and Zander, Ms. Tilenius and Dr. Park are independent under both the Company’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. Adams was appointed as a member of our Board and of the 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 not stand forre-election to our Board at the conclusion of their terms at the 2017 AGM. This is not due to any disagreement with the Company’s management or Board.
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Communications with Directors
Shareholders and other interested parties wishing to communicate with the Board, 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 and/or a particular member of the Board, care of the Company 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 CEO, the CFO, and the principal accounting officer or controller or persons performing similar functions at Seagate Technology plc. The Code of Ethics is available atwww.seagate.com, under “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 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 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.
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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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Audit Committee
Members: Dr. Chong Sup Park, Chair
Mark W. Adams
Mei-Wei Cheng
Dr. Dambisa F. Moyo
Key Functions:
Appoint and oversee the performance of the head of the Company’s internal audit function and its independent auditors.approve the annual internal audit plan.
The Board has determined
Review legal and related matters that all current members of the Audit Committee meet the applicable NASDAQ and SEC standards for membershipcould have a significant impact on the Audit Committee,Company’s financial statements and that each of Dr. Park, Mr. Adams, Mr. Cheng and Dr. Moyo is an audit committee financial expert, as that term is defined by rules of the SEC.compliance with applicable laws.
A copy of the charter of the Audit and Finance Committee is available on our website,www.seagate.cominvestors.seagate.com, under the heading “Investors - Governance.”“Governance—Board Structure and Committees” tab.
Compensation Committee
Members: Edward J. Zander, Chair
Frank J. Biondi, Jr.
Michael R. Cannon
Jay L. Geldmacher
Key Functions:Functions of the Compensation Committee of the Board:
Establish the Company’s overall compensation strategy and the executive compensation policies.
Oversee the design, development and administration of the Company’s incentive, equity compensation and benefits plans, policies and programs.
Review and decide upon executive compensation and benefit programs and periodically review their effectiveness.
Discuss and consider the results of the shareholder advisory vote on Say-on-Pay.
Review and determine, whether as a committee or together with the other independent members of the Board, all compensation decisions pertaining to the CEO.
Review and approve or recommend to the goalsBoard, any employment contracts or other transactions with current or former named executive officers, and all other Section 16 officers, including severance or termination arrangements.
Review and, with advice from the CEO, make compensation decisions pertaining to the other executive officers.
Review and determine all corporate financial and operational performance metrics and objectives relevant to executive officers’ compensation.
Review compliance of the NEOs with the share ownership requirements.
Review and recommend significant changes in principal employee benefit programs.
Select, retain and oversee Compensation Committee consultants and advisors.
Recommend for decision by the independent members of the Board the compensation of the CEO, evaluate the CEO’s performance against those goals and objectives and set the CEO’s compensation level
to be paid to non-employee directors.
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Review other programs and practices affecting our employees including with respect to |
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 rolehealth and well-being of executive officersemployees, employee development, and compensation consultants in determining or recommendingprograms designed to promote and foster diversity, equity, and inclusion at the amount or form of compensation, see “Compensation Discussion and Analysis” and “Compensation of Directors,” respectively.Company.
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” within the meaning ofRule 16b-3 of the Exchange Act and an “outside director” within the meaning of Section 162(m) of the Internal Revenue Code of 1986 (the “Code”).
A copy of the charter of the Compensation Committee is available on our website,www.seagate.cominvestors.seagate.com, under the heading “Investors - Governance.”“Governance—Board Structure and Committees” tab.
Compensation Risk Assessment
As noted above, the Compensation Committee considers potential risks created by the Company’s executive compensation programs. In addition, the Compensation Committee reviews all of its compensation policies and procedures to determine whether they present a significant risk to the Company. Based on these reviews, the Compensation Committee has concluded that its compensation policies, programs, and procedures do not create risks that are reasonably likely to have a material adverse effect on the Company.
Nominating and Corporate Governance Committee
Members: Michael R. Cannon, Chair
William T. Coleman
Dr. Chong Sup Park
Stephanie Tilenius
Key Functions:Functions of the Nominating and Corporate Governance Committee of the Board:
Take a leadership role in shaping the corporate governance of the Company including with respect to Company culture, corporate social responsibility, sustainability, DEI and human rights.
Identify individuals qualified to become directors and recommend candidates for all directorships and Board committee memberships.memberships, and evaluate candidates nominated by shareholders on substantially the same basis as it considers other nominees.
Review the Company’s Corporate Governance Guidelines and Board committee charters and make recommendations for changes.changes to the Board.
Oversee the Board, Board committees, and director self-evaluation processes.
28Consider questions of independence, related party transactions, and potential conflicts of interest of directors and executive officers.
Periodically review succession planning of the Board Chair, CEO and other executive officers.
Periodically review and propose amendments to the Company’s constitution.
A copy of the charter of the Nominating and Corporate Governance Committee is available on our website, investors.seagate.com, under the “Governance—Board Structure and Committees” tab.
Board Leadership Structure
Our Corporate Governance Guidelines permit the roles of Board Chair and CEO to be filled by the same or different individuals, based on the Company’s needs, best practices, and the best interests of our shareholders. This allows the Board flexibility to determine whether the two roles should be combined or separated based upon the Company’s needs and the Board’s assessment of its leadership from time to time. The Board believes that our corporate governance principles, the quality, stature and substantive business knowledge of the members of the Board, as well as the Board’s culture of open communication with the CEO and senior management, are currently
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For fiscal year 2022, Michael R. Cannon served as Board Chair. In the event that we do not have an independent Board Chair, a Lead Independent Director would be appointed as part of the organizational structure for the independent directors in order to address the need for independent leadership and perspective.
Board Composition
The Board consists of a substantial majority (91% as of the end of fiscal year 2022) of independent, non-employee directors. In addition, we require that all members of the Audit and Finance, Compensation and Nominating and Governance committees of the Board be independent directors.
The Board has determined that each member of the Corporate Governance and Nominating Committeeeach of these three committees is “independent” as defined in The Nasdaq Stock Market (“NASDAQ”) listing rules and that each member of the Compensation Committee and Audit and Finance Committee meet applicable NASDAQ and SEC independence standards for such committees (see “Director Independence Determination” below). The Board has also determined that three of the four members of the Audit and Finance Committee are audit committee financial experts, as that term is defined by rules of the SEC, and that each member of the Compensation Committee qualifies as a “Non-Employee Director” within the meaning of Rule 16b-3 of the Securities Exchange Act of 1934 (“Exchange Act”).
Board committee memberships and chairs are rotated periodically, and an independence analysis is conducted annually.
Board Diversity
The Nominating and Corporate Governance Committee regularly reviews the diversity of skills, expertise, background and other characteristics of existing and potential director candidates in deciding on nominations for election to the Board by the Company’s shareholders or for appointment to the Board. The Nominating and Corporate Governance Committee seeks director nominees that would complement and enhance the effectiveness of the existing Board with respect to skills, knowledge, perspectives, experience, background, and other characteristics. Furthermore, the Company is committed to its value of inclusion and the Board believes it is important to consider diversity of race, ethnicity, gender, age, sexual orientation, education, cultural background, and professional and other experiences. Accordingly, when evaluating candidates for nomination as new directors, the Nominating and Corporate Governance Committee will consider the foregoing factors and will include both underrepresented races and ethnicities and different genders in the pool of qualified candidates. If the Nominating and Corporate Governance Committee chooses to engage a search firm, it will instruct such search firm to include both underrepresented races and ethnicities and different genders in the initial pool of qualified candidates.
Director Independence Determination
The Board, based on its review and the recommendation of the Nominating and Corporate Governance Committee, has determined that all of our Director Nominees, with the exception of William D. Mosley, who serves as CEO of the Company, are independent under the NASDAQ listing standardsrules and the Company’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 - Governance.”
Finance Committee
Members: Frank J. Biondi, Jr., Chair
Mei-Wei Cheng
William T. Coleman
Dr. Dambisa F. Moyo
Stephanie Tilenius
Key Functions:
The Board has determined that each member of the Finance Committee is “independent” as defined inGuidelines, which are consistent with the NASDAQ listing standardsrules. When assessing director independence, the Board considers the various commercial, charitable and employment transactions, affiliations and relationships known to the Company’s Corporate Governance Guidelines.
A copy ofBoard (including those identified through annual director questionnaires) to exist between the charter ofCompany and the Finance Committee is available on our website,www.seagate.com, under the heading “Investors - Governance.”
Board, Committee and Annual Meeting Attendance
The Board and its committees held the following number of meetings during the fiscal year ended June 30, 2017:
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Each incumbent director attended over 75% or more of the total number of meetings of the Board and the committees on which he or she served during the fiscal year 2017. The Company’snon-employee directors
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entities with which our directors or members of their immediate families are, or have been, affiliated. In considering such transactions, the Board determines whether any such transactions are in the ordinary course of business, fair to the Company and on terms no less favorable than terms generally available to an unaffiliated third party under similar circumstances.
Executive Sessions
The Company’s independent directors meet privately in regularly scheduled executive sessions of the Board and Board committees, without management present, to consider such matters as the independent directors deem appropriate. These executive sessions are typically held at each Board and Board committee meeting.
Board, Board Committee and Annual Meeting Attendance
The Board and the Board committees held the following number of meetings during fiscal year 2022:
Board | 8 | |||
Audit and Finance Committee | 15 | |||
Compensation Committee | 4 | |||
Nominating and Corporate Governance Committee | 6 |
Each incumbent director attended at least 89% of the total number of meetings of the Board and the Board committees on which they served during fiscal year 2022. The Company’s independent directors held four executive sessions without management present during the four regularly scheduled quarterly Board meetings held in fiscal year 2017. It is the Board’s general practice to hold an executive session of the independent directors in connection with2022 as well as during all regularly scheduled Boardcommittee meetings.
The Company expects all Board members to attend the 20172022 AGM but from time to timein person, although other commitments may prevent allsome directors from attending the meeting. AllNine of the Company’sour eleven directors who served in such capacity on October 19, 2016, attended20, 2021, joined the most recent AGM2021 Annual General Meeting of Shareholders of the Company (the “2016“2021 AGM”).
Board and Committee Evaluations
As mentioned above, the Nominating and Corporate Governance Committee assists the Board in periodically evaluating its performance and the performance of the Board committees. Each Board committee conducts periodic self-evaluations, and the Board conducts periodic peer-to-peer evaluations to determine whether the Board and the committees are functioning effectively and whether any changes are necessary to improve their performance. The effectiveness of individual directors is considered each year when the Board nominates directors to stand for election.
Director Nomination Process
The Nominating and Corporate Governance Committee
conducts an annual review of the performance of the Board, Board committees, and individual directors leading up to the nomination of directors for election by the shareholders;
periodically evaluates the makeup of the Board in order to determine whether the diversity of skills, experience, qualifications, perspectives and other characteristics of the existing board members adequately address the Company’s needs in light of its then current strategy;
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identifies the skills, experience, qualifications, perspectives and other characteristics needed to enhance further the composition of the Board;
makes recommendations to the Board concerning the appropriate size and needs of the Board;
on its own, with the assistance of other Board members or management, a search firm or others, identifies potential candidates for election or appointment to the Board; and
seeks to ensure that the Board is composed of members whose skills, experience, qualifications, perspectives and other characteristics, when taken together, allow the Board to satisfy its oversight responsibilities effectively.
Furthermore, the Company is committed to its value of inclusion and the Board believes it is important to consider diversity of race, ethnicity, gender, age, sexual orientation, education, cultural background, and professional and other experiences. Accordingly, the Nominating and Corporate Governance Committee will consider the foregoing factors and will include both underrepresented races and ethnicities and different genders in the pool of qualified candidates for nomination as a new director. From time to time, the Company engages an executive search firm to help identify qualified candidates for consideration by the Nominating and Corporate Governance Committee. If the Nominating and Corporate Governance Committee chooses to engage a search firm, it will instruct such search firm to include both underrepresented races and ethnicities and different genders in the initial pool of qualified candidates.
In nominating candidates, the Nominating and Corporate Governance Committee takes into account, among other things, the diversity factors noted above, professional experience, understanding of business and financial issues, ability to exercise sound judgment and make independent analytical inquiries, leadership, achievements, knowledge, and experience in matters affecting the Company’s business and industry. Each nominee should possess a commitment to representing the long-term interests of the shareholders, the highest character and integrity, sufficient time to devote to Board matters, an understanding of the Company’s business, and no conflict of interest that would interfere with performance as a director.
Shareholders may recommend candidates for consideration for Board membership by sending their recommendation to the Company Secretary at the registered office of the Company (details of which are included in this Proxy Statement) in accordance with our Constitution. The Company Secretary will forward the recommendations to the Nominating and Corporate Governance Committee. Candidates recommended by shareholders are evaluated in a substantially similar manner as director candidates identified by any other means.
Term Limits and Retirement
The Board 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 has decided not to adopt specific term limits for directors.
Director Orientation and Education
The Company has developed an orientation program for all new directors that they are required to attend, which includes receiving and reviewing materials relative to our business and operations. We also encourage ongoing education for our directors and reimburse directors for the costs of such continuing director education. In addition, the directors are given full access to management and other employees as a means of providing additional information.
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Communications with Directors
Shareholders and other interested parties wishing to communicate with the full Board, the independent directors, or any individual director (including any Board committee Chairperson) may do so in writing by sending a communication to the Board and/or a particular member of the Board, to Seagate Technology Holdings plc, 38/39 Fitzwilliam Square, Dublin 2, D02 NX53, Ireland, Attention: Company Secretary. Depending upon the nature of the communication and to whom it is directed, the Company Secretary will: (i) forward the communication to the appropriate director or directors; (ii) forward the communication to the relevant department within the Company; or (iii) attempt to handle the matter directly (for example, a communication dealing with a share ownership matter), as appropriate.
Code of Ethics
The Company has adopted a Code of Ethics which was heldis applicable to the CEO, Chief Financial Officer and principal accounting officer or controller, or persons performing similar functions. The Code of Ethics is available at investors.seagate.com, under the “Governance—Code of Ethics” tab. Amendments to, or waivers of the Code of Ethics will be disclosed promptly on October 19, 2016our website or on a Current Report on Form 8-K filed with the SEC. No such waivers were requested or granted in Dublin, Ireland.fiscal year 2022.
Anti-Hedging and Pledging Policy and Other Trading Restrictions
The Company prohibits its Board members and all employees from taking “short” positions in our securities or engaging in hedging or other monetization transactions with respect to our securities. The Company also prohibits its Board members and all employees from (i) purchasing any financial instruments designed to hedge or offset any decrease in the market value of the Company securities and (ii) engaging in any form of short-term speculative trading in Company securities. Directors, executive officers, and certain other employees are also prohibited from holding Company securities in a margin account or pledging Company securities as collateral for a loan.
Further, our directors, executive officers, and certain other employees are prohibited from trading in our securities absent pre-clearance from our designated compliance officer unless such trades are pursuant to a trading plan (a “10b5-1 plan”) meeting the requirements of Rule 10b5-1 promulgated under the Exchange Act. The 10b5-1 plan must be reviewed and acknowledged by our designated compliance officer and we require that the first trade under a newly approved 10b5-1 plan take place after a reasonable “cooling off” period has passed from the time of adoption of the plan; in addition, a director, executive officer, or other covered employee is only permitted to use one 10b5-1 plan at a time.
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Director Compensation and Share Ownership
It is the Board’s practice to maintain a fair and straightforward non-employee director compensation program that is also designed to be competitive with director compensation programs of the Company’s peers. The Compensation Committee periodically reviews the type and form of compensation paid to our non-employee directors and recommends, for approval by the Board, the amount and form of director compensation. The Compensation Committee believes that a substantial portion of the total director compensation should be in the form of equity in the Company. The purpose of this is to better align the interests of the Company’s directors with the long-term interests of its shareholders. As such, the directors are subject to a share ownership requirement of four times their annual cash retainer.
Cash and Equity Compensation
Our director compensation program is designed to compensate(i) provide our non-employee directors fairlywith reasonable and appropriate compensation for the work required for a company of our size and scope and (ii) align theirnon-employee directors’ interests with thelong-term interests of our shareholders. The program reflects our desire to attract, retain and useutilize the expertise of highly qualified peopleindividuals serving on the Company’s Board.Employee-directors Company employees do not receive any additional compensation for servingtheir service as a director.directors.
Our fiscal year 20172022 director compensation program fornon-employee directors consisted of the following elements:elements set forth in the table below.
| Retainer | |||||
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Board of Directors | Board Chair (non-employee) | 175,000 | ||||
Board Member | 100,000 | |||||
Audit and Finance Committee | Chairperson | |||||
Member | ||||||
Compensation Committee | Chairperson | |||||
Member | ||||||
Nominating and Corporate Governance Committee | Chairperson | |||||
Member | ||||||
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Annual Restricted Share Unit Award (value) | Board Chair (non-employee) | 350,000 | ||||
Board Member | 275,000 |
Each newly appointed or electednon-employee director elected in connection with the annual election of directors at the 2021 AGM (includingnon-employee directorsre-elected at the annual general meeting) receives an initialreceived a restricted share unit (“RSU”) award representing a number of shares equal to $275,000 divided by the average closing share price for the quarter prior to the award, rounded to the nearest whole share, with the exception of the Board Chair. To better align with market comparables, beginning in fiscal year 2022 and going forward, the Board determined to increase the non-employee Board Chair’s annual RSU award by an additional $75,000, meaning the Board Chair received a total RSU award representing a number of shares equal to $350,000 divided by the average closing share price for the quarter prior to the award. If the appointment of a non-employee director occurred other than in connection with the
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annual election of directors at the 2021 AGM, for example, as with Ms. Conyers, who was appointed in January 2022, and Mr. Clemmer who was appointed in August 2022, this dollar amount was pro-rated for the year of appointment. If, prior to commencement of Board service, the newly elected or appointed director was an officer or member of the board of directors of an entity acquired by Seagate, the Board may award a lesser number of RSUs. The grant date for each such award was the date of the director’s election or appointment. Generally, each RSU award will vest on the earlier of the one-year anniversary of the grant date or the next election of directors at an annual general meeting (provided such annual general meeting is held at least 50 weeks after the prior meeting). All RSU awards will become fully vested in the event of a “Change of Control” of Seagate (as such term is defined in the Seagate Technology Holdings plc 2022 Equity Incentive Plan (“2022 EIP”)).
In addition to the cash compensation and equity awards, all members of the Board are reimbursed for their reasonable out-of-pocket travel expenses incurred in attending Board meetings and other Board-related activities, such as continuing education.
For the RSU awards to be granted to the directors elected at the 2022 AGM and in the future in connection with the annual election of directors at annual general meetings, the Compensation Committee approved the following: (1) the non-employee Board chair shall receive an RSU award equal in number to $350,000 divided by the average closing share price for the quarter prior to the award, rounded to the nearest whole share, and (2) each other non-employee director shall receive an RSU award equal in number to $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 annual 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 (“RSUs”). The grant date for each such award is the date of the director’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 annual general meeting. All restricted share unit awards will become fully vested in the event of a “Change of Control” of Seagate (as such term is defined in the Seagate Technology plc 2012 Equity Incentive Plan (the “2012 Plan”)).
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In addition to the cash compensation and equity awards, all members of the Board are reimbursed for their reasonableout-of-pocket travel expenses incurred in attending Board related activities.
Director Share Ownership Requirement
To align the interests of directors with the Company’s shareholders, the Board has adopted a share ownership requirement of four times the annual board cash retainer (excluding committee retainers, if any) fornon-executivenon-employee directors. The calculation of ordinary shares owned for purposes of the ownership requirement includes: (i) ordinary shares directly or indirectly owned (for example, through a trust), (ii) unvested restricted share awards or RSUs (if any) and, (iii) for any director affiliated with an entity and contractually obligated to assign to such entity any equity awards received as compensation for service as a non-employee director, shares owned by such entity or its affiliates. Until anon-employee director satisfies the mandatory ownership level, he or shethey may not sell more than that number of (i) shares that vest pursuant to any outstanding restricted share award or restricted share unitRSU 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 attaininga non-employee director has attained the minimum level of Company share ownership, a directorthey must maintain this minimum level of Company share ownership until his or hertheir resignation or retirement from the Board. In setting the share ownership requirement, the Board considered the input of the independent compensation consultant, the Company’s currentthen-current share price and the period of time, generally, that it would take anon-employee director to reach the required ownership level. Executive directorsDirectors who are Company employees are subject to the share ownership requirements described in the Compensationsection entitled “Compensation Discussion and Analysis sectionAnalysis—Share Ownership Requirements” of this Proxy Statement. As of July 1, 2022, all of our non-employee Directors and Director Nominees meet the share ownership requirement with the exception of Shankar Arumugavelu and Yolanda L. Conyers, who joined the Board in March 2021 and January 2022, respectively. Mr. Clemmer met the requirement as of the date of his appointment to the Board.
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2017Fiscal Year 2022 Non-Employee Director Compensation
The compensation paid or awarded to ournon-employee directors as of July 1, 2022 for fiscal year 20172022 is summarizedset forth in the table below:below.
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 |
Name of Director | Fees Earned or Paid in Cash ($) | Share ($)(1) | All Other Compensation ($) | Total ($) | ||||
Mark W. Adams(2) | 139,134 | 246,383 | — | 385,517 | ||||
Shankar Arumugavelu | 148,490(4) | 246,383 | — | 394,873 | ||||
Prat S. Bhatt | 175,343(4) | 246,383 | — | 421,726 | ||||
Judy Bruner | 145,000 | 246,383 | — | 391,383 | ||||
Michael R. Cannon | 195,000 | 313,550 | — | 508,550 | ||||
Yolanda L. Conyers | 50,238 | 199,521 | — | 249,759 | ||||
Jay L. Geldmacher | 110,000 | 246,383 | — | 356,383 | ||||
Dylan Haggart(3) | 110,000 | 246,383 | — | 356,383 | ||||
Stephanie Tilenius | 115,000 | 246,383 | — | 361,383 | ||||
Edward J. Zander | 130,000 | 246,383 | — | 376,383 |
(1) | Represents the |
(2) | Mr. Adams |
(3) | Mr. Haggart is a Partner at ValueAct Capital and he relinquishes all cash and vested equity compensation received for service on our Board, with the |
(4) | Includes fees earned in the amount of |
(5) | Mr. Clemmer was appointed after the end of fiscal year 2022 and therefore, was not eligible to receive compensation in fiscal year 2022. |
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The aggregate number of unvested RSUs and outstanding optionsequity awards for each of ournon-employee directors as of the fiscal year ended June 30, 2017July 1, 2022 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 | — |
below.
| Aggregate Number of Outstanding Awards | ||||
Mark W. Adams | 3,162 | (1)(4) | |||
Shankar Arumugavelu | 3,162 | (1) | |||
Prat S. Bhatt | 3,162 | (1) | |||
Judy Bruner | 3,162 | (1) | |||
Michael R. Cannon | 4,024 | (1) | |||
Yolanda L. Conyers | 2,112 | (2) | |||
Jay L. Geldmacher | 3,162 | (1) | |||
Dylan Haggart | 3,162 | (1)(3) | |||
Stephanie Tilenius | 3,162 | (1) | |||
Edward J. Zander | 3,162 | (1) |
(1) | Represents outstanding RSUs awarded to our non-employee directors on October 20, 2021 with the exception of Yolanda L. Conyers. |
(2) | Yolanda L. Conyers joined our Board in January 2022 Amount represents outstanding RSUs awarded to them on January 24, 2022. |
(3) | Mr. Haggart is a Partner at ValueAct Capital and he relinquishes all vested equity compensation received to the limited partners of ValueAct Capital Master Fund, L.P. |
(4) | Mr. Adams is retiring from the Board as of the end of the 2022 AGM and will not stand for re-election. |
(5) | Mr. Clemmer was appointed after the end of fiscal year 2022 and therefore, was not eligible to receive compensation in fiscal year 2022. |
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SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCEPROPOSAL 2 – APPROVE, IN AN ADVISORY, NON-BINDING VOTE, THE
COMPENSATION OF THE COMPANY’S NAMED EXECUTIVE OFFICERS (“SAY-ON-PAY”).
(Ordinary Resolution)
We are presenting the following proposal, commonly known as a “Say-on-Pay” proposal, which gives you as a shareholder the opportunity to vote, on an advisory, non-binding basis, on the compensation of our NEOs for fiscal year 2022, as required by Section 16(a)14A of the Exchange Act and the related rules of the SEC. The Board has determined to hold a Say-on-Pay advisory vote each year. You may endorse or not endorse, respectively, the compensation paid to our NEOs by voting for or against the following resolution:
“RESOLVED, as amended, requires our directors and officers, and persons who beneficially own more than 10%an ordinary resolution, that, on an advisory, non-binding basis, the compensation of the Company’s ordinary shares, to file reports of ownershipnamed executive officers, as disclosed in the Compensation Discussion and reports of changesAnalysis, the accompanying compensation tables and the related disclosure contained in ownership with the SEC. To the Company’s knowledge, based solely on its review of such forms receivedProxy Statement, is hereby approved.”
While our Board intends to carefully consider the shareholder vote resulting from the proposal, the final vote is advisory and will not be binding.
In considering your vote, please be advised that our compensation program for our NEOs is guided by our compensation strategy, as further described under the Company“Compensation Discussion 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:Analysis” section below:
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• | Compensation unrelated to performance is limited. We do not have guaranteed incentive awards, “golden parachutes,” single trigger change of control severance provisions, executive pensions or excise or golden parachute tax gross-ups for our NEOs. |
• | Robust Share Ownership Requirements. Our share ownership requirements for our NEOs directly link the interests of management and 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 2022 AGM in Dublin, Ireland is required to approve Proposal 2.
THE BOARD RECOMMENDS THAT YOU VOTE “FOR” THIS PROPOSAL 2 TO APPROVE, ON AN ADVISORY, NON-BINDING VOTE, 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 THIS PROXY STATEMENT.
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COMPENSATION DISCUSSION AND ANALYSIS
Fiscal Year 2022 Company Highlights
Highlights of fiscal year 2022 financial performance include:
We grew revenue to $11.7 billion navigating both macro-economic challenges and the COVID-19 global pandemic. Approximately 68% of revenue was derived from the mass capacity storage markets to support our customers’ increasing demand for data, which led to record capacity shipments of 631 exabytes.
We expanded operating profits by 31% year-over-year to $2.0 billion and generated nearly $1.7 billion in cash flow from operations.
We increased diluted earnings per share by 37% year-over-year to $7.36.
We returned approximately $2.4 billion in capital to our shareholders through dividends and share repurchases demonstrating our long-standing commitment to shareholder returns. We paid $610 million in dividends and repurchased approximately 20 million shares or 9% of total shares outstanding.
The following table sets forth each shareholder which is known by uspresents certain key financial metrics for the past three fiscal years.
(in millions except earnings per share, exabytes and gross and operating | Fiscal Year 2022 | Fiscal Year 2021 | Fiscal Year 2020 | |||||||||
Exabytes shipped | 631 | 535 | 442 | |||||||||
Revenues (GAAP) | $11,661 | $10,681 | $10,509 | |||||||||
Gross margin percentage (GAAP) | 30 | 27 | 27 | |||||||||
Operating margin percentage (GAAP) | 17 | 14 | 12 | |||||||||
Income from operations (GAAP) | $ 1,955 | $ 1,492 | $ 1,300 | |||||||||
Net income (GAAP) | $ 1,649 | $ 1,314 | $ 1,004 | |||||||||
Diluted earnings per share (GAAP) | $ 7.36 | $ 5.36 | $ 3.79 |
Please see the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for fiscal year 2022 for a more detailed description of our fiscal year 2022 financial results.
This Compensation Discussion and Analysis provides an overview of our executive compensation program for fiscal year 2022 and our executive compensation strategies and objectives, as well as the compensation awarded 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:our fiscal year 2022 NEOs, who are listed below.
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Fiscal Year 2022 Executive Compensation Highlights
Key highlights of our executive compensation program for fiscal year 2022 are as follows:
Emphasize Pay-for-Performance Alignment: Our general philosophy and structure of the Company’s executive compensation programs seek to emphasize strong alignment between executive pay and corporate financial, strategic and other business performance. A majority of our executives’ target total compensation is “at risk”, with the exception of Mr. Romano’s due to his retention award, including cash and equity compensation that is tied to pre-established financial and operational-performance goals aligned with achievement of our short- and long-term objectives.
Deliver on our Pay-for-Performance Philosophy: Annual cash incentive payouts reflected the Company’s financial performance in fiscal year 2022. Based on performance against the Company’s executive officer performance cash bonus metrics (revenue, adjusted operating margin, year-over-year revenue growth, and a customer satisfaction metric), the fiscal year 2022 bonus pool funding was at 120.46% of target. With respect to the outstanding Threshold Performance Share Units (“TPSUs”), our threshold adjusted earnings per share (“AEPS”) performance for fiscal year 2022 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 2022, subject to continued employment. No discretion was utilized on either the level of funding for the annual cash bonus plan or the vesting of any long-term equity incentive awards.
Align Executive Compensation with Shareholder Interests: Long-term equity incentives for Dr. Mosley and Messrs. Naik, Nygaard and Teh were granted at target levels using a portfolio of 50% performance- based awards to emphasize long-term strategic incentives (based on achievement of return on invested capital (“ROIC”), total shareholder returns relative to peers (“rTSR”)), 30% time-based RSUs and 20% time-based share options. Because he received a special retention grant to incentivize him to remain with Seagate in a very competitive market for experienced Chief Financial Officers, Mr. Romano’s total equity awards in fiscal year 2022 were comprised of 67% time-based RSUs, 28% performance-based awards and 5% time-based share options.
Align Long-Term Incentives with Seagate’s Commitment to Environment, Social and Governance Goals: In fiscal year 2022 the Compensation Committee approved the addition of two modifiers that link the achievement of specified ESG goals to our performance-based equity. The two ESG modifiers that increase or decrease the PSU achievement level relative to the Company’s performance include a social (gender diversity) goal and an environmental (greenhouse gas reduction) goal that align to our broader company commitment to global citizenship.
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COMPENSATION DISCUSSION & ANALYSIS
2017 Executive Compensation Highlights
The key executive compensation decisions for fiscal year 2017 were as follows:
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 Company’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)
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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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2022 Executive Compensation Practices for Fiscal Year 2017
Our executive compensation program is heavily weighted towards compensating our executives based on company performance. We have implemented executive compensation policies and practices that reinforce ourpay-for-performance philosophy and align with commonly viewed best practices and sound governance principles. The following chart summarizes our policies and practices:
What We Do
WHAT WE DO | WHAT WE DON’T DO | |
✓ A target of 50% of equity incentives granted to our CEO and EVPs are performance-based and are made in connection with the annual performance review cycle. |
X No “single trigger” change in control benefits | ||
✓Caps on performance-based cash and equity incentive compensation for our |
X No golden parachute excise tax reimbursements or tax “gross-ups” in connection with a change in control | ||
✓ Payouts under our cash bonus plan and awards under our equity incentive compensation plan for executive officers are largely based on achievement of financial and | X No guaranteed salary increases or guaranteed bonus payments for our executive officers in fiscal year 2022 | |
✓ A majority of total executive target compensation is “at-risk” and dependent on corporate performance | X No defined benefit pension plan or supplemental executive pension plan | |
✓ Clawback provisions on incentive cash |
X No re-pricing of options without shareholder approval | ||
✓ Annual as well as periodic review of, |
X No dividend equivalents on unvested equity awards | ||
✓Prohibition on short sales, hedging of share ownership positions and transactions involving derivatives of our ordinary shares for all employees and directors and restrictions on pledging of our ordinary shares as collateral for loans for directors, executive officers and certain other employees |
✓Meaningful share ownership |
✓ | Independent compensation consultant engaged by |
✓Annual risk assessment of our compensation programs and practices |
What We Don’t Do
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Our Executive Compensation Strategy
Our executive compensation strategy is designedintended to drive high performance, strengthen our market position, and increase shareholder value. The goals of our executive compensation programs are to:
attract and retain talented leaders through competitive pay programs;
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SEAGATE TECHNOLOGY HOLDINGS PLC | 2022 Proxy Statement |
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motivate executive officers to achieve and exceed financial, strategic and other business objectives (including specified ESG goals—social (gender diversity) and environmental (greenhouse gas reduction)) as approvedset by the Board;Board or Compensation Committee;
align executive officer and shareholder interests to optimize long-term shareholder returnvalue with acceptable risk; and
manage total compensation costs in support of our financial performance.
Our Fiscal Year 2022 Executive Compensation Programs
Compensation Element | Designed to Reward | Relationship to Compensation Strategy | ||
Base Salary | Related job experience, knowledge of the Company and our industry, and continued dedicated employment with sustained performance | Attract and retain talented executive officers through competitive pay programs | ||
Annual Incentive Executive Officer Performance Bonus Plan | Achievement of the Company’s annual financial and operational goals | Motivate executive officers to achieve and exceed annual financial, strategic and other business objectives
Manage total compensation costs | ||
Long-Term Equity Incentives Equity Awards | Increased shareholder value through achievement of long-term strategic goals based on criteria such as | Align executive officers and shareholder interests to optimize shareholder
Motivate executive officers to achieve and exceed long-term financial, strategic and other business objectives | ||
Total Direct Compensation Base Salary Annual Incentive Long-Term Equity Incentives | Provides a holistic view of the executive officer’s total target compensation which includes base salary, target bonus opportunity and target annual long-term incentives | All relationships mentioned above |
Role of Our Compensation Committee
As noted previously, the Compensation Committee is responsible for overseeing the design, development and administration of our compensation and benefits policies and programs. In executing its duties, the Compensation Committee:
determines all corporate financial and operating-performance metrics and objectives, including any ESG metrics, relevant to each executive officer’s incentive compensation;
evaluates the CEO’s performance results in light of such metrics and objectives;
evaluates the competitiveness and mix of each executive officer’s cash bonus and long-term equity incentive targets in relation to compensation paid to executives performing similar functions at our peer companies; and
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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 approval of all compensation recommendations for our executive officers, including:
• | �� | reviews and, with advice from the CEO in the case of the other executive officers, decides upon or recommends (as applicable) any changes to our CEO’s and other executive officers’ total compensation packages, including base salary, annual cash bonus and long-term equity incentive award opportunities, share ownership requirements and retention programs. |
The Compensation Committee recommends to the independent directors of the Board the compensation compensation plans and equity grantsawards 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 and her staff, and an independent executive compensation consultant, as described below. The Compensation Committee reviews and determines, with advice from the CEO, the compensation of all other executive officers.
Role of the Compensation Consultant
The Compensation Committee retained FW Cookengaged Semler Brossy as its own independent consultant for advice and counsel throughoutduring fiscal year 20172022 to provide an external review of compensation proposals and to help alignensure alignment of our compensation decisions to our executive compensation strategy. FW Cook’sSemler Brossy’s consulting during fiscal year 20172022 also included oversight on the risk assessment of compensation programs directed by the Compensation Committee, as well as consultation in support of the Compensation Committee’s decisions regarding NEO 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.requirements. As part of the transition to Semler Brossy, FW Cook, our previous independent consultant, also developed recommendationsprovided to the Compensation Committee for the compensation of our CEO.
FW Cook also provided advicerecommendations related to the Compensation CommitteeCEO’s compensation and advice regardingnon-employee director compensation. FW Cook
Semler Brossy is not permitted to provide services to the Company’s management except as directed by the Compensation Committee and did not provide any such services to management in fiscal year 2017.2022. The Compensation Committee retains sole authority to hire theany 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 FW Cook,Semler Brossy, the Compensation Committee considered various factors in determining FW Cook’sSemler Brossy’s independence including, but not limited to (i) the amount of fees received by FW CookSemler Brossy from Seagate as a percentage of FW Cook’sSemler Brossy’s total revenue, FW Cook’s(ii) Semler Brossy’s policies and procedures designed to prevent conflicts of interest, and (iii) the existence of any business or personal relationship that could impact FW Cook’sSemler Brossy’s independence. After reviewing these and other factors, the Compensation Committee determined that FW CookSemler Brossy was independent, and that its engagement did not present any conflicts of interest pursuant tounder SEC rules or the rules of the Securities and Exchange Commission and theNASDAQ listing rules of NASDAQ.rules.
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Role of our CEO and Management in the Decision-MakingCompensation Process
Within the framework of the compensation programs approved by the Compensation Committee and basedBased on management’s review of market competitive practices, and within the framework of the Company’s approved compensation programs, 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 equity incentive award value for our executive officers, including the NEOs. These recommendations are based upon histhe CEO’s assessment of each executive officer’s performance and individual retention considerations, as well as the Company’s performance as a whole, and individual retention considerations.performance. The Compensation Committee reviews Mr. Luczo’sand evaluates the CEO’s recommendations and approvesdecides, in its sole discretion, upon our executive officers’ compensation, including any changes to such compensation, as it determines in its sole discretion. Mr. Luczocompensation. Our CEO does not play any role with respect to any matter affectingrecommend his own compensation, and the Compensation Committee and the independent directors meet without our CEO present when evaluating and setting the CEO’s compensation.
Our Senior Vice President of Human Resources along withand members of her staff assistsassist the Compensation Committee in its review of our executive compensation plans and programs, including providing market data on
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SEAGATE TECHNOLOGY HOLDINGS PLC | 2022 Proxy Statement |
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competitive pay practices, program design and changes in the corporate governance landscape concerning executive compensation matters.
Fiscal Year 2021 Shareholder Advisory Vote Results
At the 2021 AGM, the Company’s shareholders approved the advisory proposal regarding the compensation of the NEOs for fiscal year 2021 with approximately 94% of the votes cast in favor of our executive compensation programs (excluding abstentions/broker non-votes). The Board appreciates the shareholders’ continued support of the Company’s compensation strategy and objectives. This support reaffirms to the Board the appropriateness, effectiveness and market competitiveness of the Company’s executive compensation programs, including continued emphasis on programs that reward our executive officers for generating sustainable profitability and delivering long-term value for our shareholders. No significant changes were made to the Company’s overall executive compensation strategy in fiscal year 2022. The Board and the Compensation Committee will continue to consider the results of the Company’s annual shareholder advisory votes when making future compensation decisions for our executive officers, including the NEOs.
Executive Market Comparison Peer Group and Benchmark Philosophy
The Compensation Committee reviews executive officers’ roles and responsibilities and establishes ranges for each incentive element of executive compensation after reviewing similar information for a defined group of companies (the “Executive Peer Group”) that compete for comparable executive talent. The Compensation Committee reviews analyses of disclosures and of published surveys of compensation among the Executive Peer Group companies when considering salary, bonus and long-term equity incentive compensation of executive officers in similar roles.
As part of our annual review cycle, the Compensation Committee reviewed the Executive Peer Group. For fiscal year 2022, Keysight Technologies, Inc. and NXP Semiconductors N.V. were added to the Executive Peer Group. Executive Peer Group companies were selected based on the following criteria:
similar industry classification (as defined by Global Industry Classification Standard (GICS), 4520 Technology Hardware and Equipment or 4530 Semiconductors and Semiconductor Equipment) but excluding wholesale distributors and companies that are not subject to U.S. securities law reporting requirements,
market value of at least 0.5 times that of Seagate,
trailing twelve-month (TTM) sales of between $4B and 3 times that of Seagate’s; and
a comparable business model to Seagate.
We do not benchmark the total annual compensation of our executive officers to a specific market percentile, although the total annual target compensation (including base salary, target annual cash bonus incentive and target long-term equity incentives) for the executive officers, including the NEOs, generally has fallen near the median for similar positions within the Executive Peer Group.
The Compensation Committee considers the pay practices and relative performance of our Executive Peer Group companies in determining target incentive compensation for our executive officers. The target amounts and compensation mix vary for each executive officer and are dependent upon various factors, none of which is specifically weighted, including the importance of the position to our organization, overall retention value, internal pay equity, and projected future value of the total compensation package. Generally, the amounts actually realized by our executive officers are dependent on the Company’s financial and operational performance.
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SEAGATE TECHNOLOGY HOLDINGS PLC | 2022 Proxy Statement |
2022 NOTICE OF MEETING AND PROXY STATEMENT |
The Executive Peer Group for fiscal year 2022 included the following companies(1):
FY2022 Executive Peer Group | ||||||
Advanced Micro Devices, Inc. | Hewlett-Packard Enterprise Co. | Microchip Technology Inc. | Western Digital Corporation | |||
Analog Devices, Inc. | Juniper Networks, Inc. | Micron Technology, Inc. | Xerox Holding Corporation | |||
Applied Materials, Inc. | Keysight Technologies, Inc. | Motorola Solutions, Inc. | Zebra Technologies Corporation | |||
Corning Incorporated | KLA Corporation | NetApp, Inc. | ||||
Flex Ltd. | Lam Research Corporation | NXP Semiconductors N.V. |
TTM Sales ($M)(1) | FYE Sales ($M)(1) | Market Value ($M)(1) | |||||||||||||
Peer Group Median | $ 8,025 | $ 8,382 | $26,138 | ||||||||||||
Peer Group Average | $10,753 | $10,886 | $29,823 | ||||||||||||
Seagate Technology Holdings plc | $10,245 | $10,509 | $12,527 |
(1) | Based on information available as of October 27, 2020, which was the most recent available data at the time the fiscal year 2022 peer group was approved in January 2021. |
How We Determine Individual Compensation Amounts for the NEOs
As discussed above under the heading “Role of our CEO and Management in the Compensation Process,” the CEO recommends to the Compensation Committee all compensation elements for our NEOs (other than the CEO) and the Compensation Committee determines the value of each compensation element as described below. The CEO recommendations are based upon the CEO’s assessment of each executive officer’s performance and individual retention considerations, as well as the Company’s performance. The CEO does not recommend his own compensation, and the Compensation Committee and the independent directors meet without the CEO present when evaluating and setting the CEO’s compensation.
Our Senior Vice President of Human Resources and members of her staff assist 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’s Shareholder Advisory Vote
At the 2016 AGM, the Company’s shareholders overwhelmingly approved the advisory proposal regarding the compensation of the Company’s NEOs with more than 95% of the votes cast in favor of our executive compensation programs (excluding abstentions). The Board appreciates the shareholders’ continued support of the Company’s compensation philosophy and objectives, which reaffirms to the Board the appropriateness and effectiveness of the Company’s executive compensation programs, including continued emphasis on programs that reward our executive officers for generating sustainable profitability and delivering long-term value for our shareholders. No significant changes were made to the Company’s executive compensation strategy in fiscal year 2017. The Board and the Compensation Committee will continue to consider the results of the Company’s shareholder advisory votes when making future compensation decisions for the NEOs. The shareholder advisory vote occurs on an annual basis.
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 Peer 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 did not make changes to the selection criteria for fiscal year 2017. NEO Peer Group companies were selected based on a similar industry classification (as defined by Global Industry Classification Standard (“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-$35 billion in trailing twelve-month sales.
The Compensation Committee monitors a “watch list” of companies to support year-over-year consistency among companies in the NEO Peer Group. Companies identified as part of the “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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For fiscal year 2017, the NEO Peer Group included the following companies:
Peer Group for Fiscal Year 2017(1)
Sales | ||||||||||||
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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 |
ARRIS Group and Lam Research Corporation were added to the NEO Peer Group from the watch list upon meeting the NEO Peer Group selection criteria for two years. Broadcom Limited was placed on the watch
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list as a potential company to be added to the NEO Peer Group for fiscal year 2018 if the 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 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 valueproportion 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 NEOsour executive officers, the largest portion of payemphasis is performance based andon compensation that is variable and contingent on our financial and operational performance. Variations in the compensation mix among NEOs reflect differences in scope of responsibility as well as NEOExecutive Peer Group market data. The mix of total annual target compensation for Mr. Luczo was 10% annual base salary, 14% target annual incentive and 76% target long-term incentives, and the average mix of total annual target compensation for Messrs. Brace, Morton, Mosley and Murphy was 14% annual base salary, 16% target annual incentives and 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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Annual Total Target Compensation Mix
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’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, overall retention value, internal pay equity, and projected future value of the total compensation package.
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SEAGATE TECHNOLOGY HOLDINGS PLC | 2022 Proxy Statement |
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Fiscal Year 2022 Actual Total Compensation Mix
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SEAGATE TECHNOLOGY HOLDINGS PLC | 2022 Proxy Statement |
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Base salaries are the fixed annual cash amounts paid to our NEOs on a biweekly basis.executive officers, including the NEOs. In reviewing and determining base salaries, the Compensation Committee considers:
related experience;
expected future contributions;
the ease or difficulty of replacing the incumbent.incumbent; and
The strategic positioning for our NEOs’ base salaries is based on a broad range
in the case of factors, which includeexecutive officers other than the competitive marketplace, the roleCEO, recommendations of the NEO, skills and performance. CEO.
Salaries are reviewed annually and may be revisedmodified to reflect significant changes in the scope of an NEO’sexecutive officer’s responsibilities and/or market conditions. Our goal is to be competitive with respect to base salary while distinguishing ourselves from the NEOExecutive 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.
Considering the Company’s ongoing efforts to reduce costs and its emphasis on generating free cash flow, the base salaries of Dr. Mosley and Messrs. Nygaard, Naik and Teh remained flat for fiscal year 2022. On January 24, 2022, the Compensation Committee approved a retention package for Mr. Romano which included an annual base salary increase from $600,018 to $715,000 effective January 31, 2022. Factors such as the extremely competitive labor market for experienced Chief Financial Officers, Mr. Romano’s strong performance, his compensation relative to CFOs at peer companies and the business criticality of his role, were key considerations in the Compensations Committee’s decision to approve his retention package.
The following NEO annualized base salary changes occurred during fiscal year 2022:
Named Executive Officer | FY2021 Base Salary $ | FY2022 Base $ | Percent Change % | |||||||||
William D. Mosley | 1,100,008 | 1,100,008 | 0 | % | ||||||||
Gianluca Romano(1) | 600,018 | 715,000 | 19 | % | ||||||||
Jeffrey D. Nygaard | 480,002 | 480,002 | 0 | % | ||||||||
Ravi Naik | 470,018 | 470,018 | 0 | % | ||||||||
Ban Seng Teh(2) | 412,719 | 412,719 | 0 | % |
(1) | The base salary increase for Mr. Romano was part of a retention package. |
(2) | Based on the Singapore dollar (SGD) period-end foreign exchange rate for fiscal year 2022 of 0.717772036 as of July 1, 2022. |
Annual Incentive Plan—Executive Officer Performance Bonus
In fiscal year 2022, all executive officers participated in our shareholder-approved Executive Officer Performance Bonus Plan (“EOPB”), which is intended to promote achievement of the annual financial and operating-performance metrics set by the Compensation Committee. Following the end of the fiscal year, the Compensation Committee determined and certified the achievement level(s) of the metrics, which determined the level of funding for the EOPB bonus pool. The funded amount, once approved by the Compensation Committee, was allocated among eligible participants.
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During fiscal year 2017, Mr. Mosley’s base salary increased from $600,018 to $800,010 to recognize his appointment as President and COO on July 25, 2016. The base salaries of the other NEOs did not change during fiscal year 2017.
Executive Officer Performance Bonus
All NEOs participate in our shareholder-approved Executive Officer Performance Bonus Plan (“EOPB”), which is designed to promote achievement of our annual financial and operational goals as approved by the Compensation Committee. The general target cash bonus percentage for each NEO isexecutive officer was based on the competitive marketplace and the NEO’sexecutive officer’s role, as well as taking internal pay equity into consideration. Actual cash payments under the EOPB may be above or below this level, based on the executive officer’s performance results.versus pre-established goals. Individual awards paid to each NEO followingexecutive officer, except the end of the performance periodCEO, are determined by the Compensation Committee after certifying our financial and operational performance. TheCommittee. Based on the recommendation of the Compensation Committee, together with the other independent directors of the Board determinedetermined the material terms of Mr. Luczo’sCEO’s target cash bonus opportunity under the EOPB, including the amount of Mr. Luczo’s target bonus opportunity,percentage and the payout levelactual cash award based on the CEO’s performance results.versus pre-established goals.
On July 25 2016,24, 2022, the Compensation Committee approvedcertified the performanceachievement level of the Company’s relevant annual financial and operating-performance metrics, and funding targets to bewhich are used for calculating annualthe level of EOPB bonus awards for each executive officerpool funding for fiscal year 2017 under the EOPB. Funding2022. The bonus pool funding was set at 120.46% of the EOPBtarget. The funding level for fiscal year 20172022 was determined based on the Company’s actual performance with respect to attainment of specified levels of the following financial and operating-performance metrics:
revenue; and
adjusted operating margin (defined as adjusted earnings before interest, taxes and bonus,operating income, divided by revenue); (“AOM”)
The achievement level is then modified by:
Year-over-year revenue growth; and
• | our Total Customer Experience (“TCE”) metric, |
While we track many operationalfinancial, operating and strategic performance goalsmetrics throughout the year, operating marginthe combination of AOM and revenue together are considered a key measure of our success in achieving profitable growth and were selected for fiscal year 20172022 to continue to align payouts under the EOPB with the Company’s profitability year-over-year. AdjustmentsAdjusted operating income, used to earningsdetermine AOM for purposes of determining the EOPB, is defined as operating margin excludedincome adjusted to exclude the impact ofnon-operating activities and (a) material, unusual or nonrecurringnon-recurring gains and losses, accounting charges or other extraordinary events whichthat were not budgeted and/or foreseen at the time the performance targets were established, as publicly reported in the Company’s U.S. Non-GAAP financial measures each quarter and included estimated interest expenses, taxes and(b) variable cash compensation. The adjustmentscompensation expense. Any adjustment factors for AOM at the end of the fiscal year are reviewed and approveddecided upon by the Compensation Committee. RQC BiCThe revenue and AOM achievement level is then modified by year-over-year revenue growth and TCE. The year-over-year revenue growth modifier was retained asintroduced in fiscal year 2021 to maintain accountability for year-over-year growth expectations. TCE is comprised of two customer satisfaction measurements, which are evaluated quarterly:
Quarterly Business Review (“QBR”): Customers provide a modifier toranking of Seagate against its competitors through customer scorecards; and
Net Promoter Score (“NPS”): A Best-in-Class standard consumer measure that indicates if end users are satisfied with their experience of the overall bonus funding calculationSeagate brand.
The target AOM for fiscal year 2017, because quality is considered2022 was established with a critical partthreshold performance level of our overall business performance.13.6%, a target performance level of 19.2%, and a maximum performance level of 24%. Once the Company meets or exceeds the threshold AOM, the combination of revenue and AOM determines preliminary funding for the bonus pool. The QBR metric (weighted 15%) may increase or decrease bonus pool funding up to 3.75% each quarter and the NPS metric (weighted 10%) may increase or decrease bonus pool funding up to 2.50% each quarter, resulting in up to 25% of bonus pool funding being at risk. Year-over-year revenue growth may increase or decrease bonus pool funding up to 10%. For fiscal year 2022, the AOM performance level was 19.90%, revenue was $11.7 billion, the total annualized TCE modifier (QBR + NPS) was 5%, and the year-over-year revenue growth target level was achieved resulting in a 10% increase to the pool based on this modifier, which, in the aggregate, as noted above, resulted in total EOPB bonus pool funding of 120.46% of target.
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The combination of the three performance metrics noted above was used to determine the applicable percentage of our annual revenue 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 2017, assuming annual revenues of $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 2017:
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 2017. Once the Company achieves or exceeds the threshold operating margin, the combination of actual operating margin and revenue determines preliminary funding. This amount is then reduced by 1.25% for each of our five key markets each quarter that do 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 isare based upon each executive officer’sNEO’s target cash bonus expressed as a percentage of base salary. For fiscal year 2017, Mr. Luczo2022, there were no changes to the target cash bonus percentages from the prior fiscal year:
Dr. Mosley had a target bonus equal to 150% of his annual base salary (reflecting that a larger portion ofin his total annual target cash compensation is subject to performance conditions than is the case for the other NEOs)role as CEO;
Messrs. Romano, Nygaard, Naik and based on their role in the Company, the other NEOsTeh had a target bonus ranging fromequal to 100% to 125% of their individual annual base salaries. salary in their roles as Executive Vice President;
The Compensation Committee, with respect to all NEOs except our CEO, the independent directors of the Board and with respect to our CEO, retainretains the discretion to reduce or increase the amount of the actual cash bonus payoutpayments made to an NEO based on theirits overall assessment of the Company’sNEO’s performance generally,against pre-established goals and objectives, and including factors such as revenue, profitability, product quality, cost containment and expense management, market share, strategic objectives and legal and regulatory compliance.
Based on Adjustments to actual cash bonus payouts may be made by the Compensation Committee with respect to all NEOs except our actual performanceCEO, and by the independent directors of the Board for our CEO. No discretion was applied by the Board or Compensation Committee for fiscal year 2017, funding was set at 107.4% of target, on the basis of our adjusted operating margin of 15.8%, revenues of approximately $10.8 billion and an RQC BiC modifier of 96.3%. Based on2022.
Given the funded EOPB bonus pool amount, the Compensation CommitteeCompany determined to award the following cash bonuses for fiscal year 2017:2022:
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 |
Named Executive Officer | FY2022 Eligible Earnings ($) | Target Bonus Percentage (%) | FY2022 EOPB Funding(1) (%) | FY2022 EOPB Payment ($) | ||||||||
William D. Mosley | 1,100,008 | 150 | 120.46 | 1,987,604 | ||||||||
Gianluca Romano | 644,242 | 100 | 120.46 | 776,053 | ||||||||
Jeffrey D. Nygaard | 480,002 | 100 | 120.46 | 578,210 | ||||||||
Ravi Naik | 470,018 | 100 | 120.46 | 566,183 | ||||||||
Ban Seng Teh(2) | 412,719 | 100 | 120.46 | 497,161 |
(1) | Percentages are rounded to the nearest whole number. |
(2) | Based on the Singapore dollar (SGD) period-end foreign exchange rate for fiscal year 2022 of 0.717772036 as of July 1, 2022. |
In fiscal year 2022, the Compensation Committee granted equity awards to the NEOs under the terms of the 2012 Equity Incentive Plan (the “2012 EIP”) (awards prior to October 20, 2021) and the 2022 EIP (awards on or after October 20, 2021). The 2022 EIP is intended to:
focus executive officers and employees on achieving longer-term financial, strategic and other business performance goals;
provide significant reward potential for outstanding cumulative performance by the Company;
enhance the Company’s ability to attract and retain highly-talented executive officers and employees; and
provide the Company’s management and employees with an opportunity for greater equity ownership and related incentives to increase shareholder value.
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Management-Based Objectives Component of EOPB for Presidents
As part ofWhen determining our strategic performance-based cashNEOs’ equity incentive program, in fiscal year 2017,awards, the Compensation Committee approved a cash bonus opportunity for each of our Presidents, Messrs. Mosley and Brace, to earn up to 25% of each executive’s annual base salary based on achievement of key operational goals (the “MBO Bonus”). The payout was based on the level of funding of the EOPB for the Company’s fiscal year 2017, up to target, as well as the CEO’s assessment of achievement of individual goals tied to strategic objectives for each President’s organization during the fiscal year 2017 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 awarded the following MBO Bonuses for fiscal year 2017: Mr. Mosley, $110,661; and Mr. Brace, $67,502.
In fiscal year 2017, the Compensation Committee awardedconsiders comparable equity awards to the NEOs under the terms of the 2012 Plan. The 2012 Plan is designed to:
Our NEOs’ awards are based on the economic value of comparableincentive awards to executive officers in the Company’s Executive Peer 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 NEOExecutive 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.shares under the 2022 EIP. In determining the award for each NEO, the Compensation Committee also considers the Company’s goals for retaining the NEO for the long termterm.
NEOs are generally awarded equity on an annual basis, typically in early-September, as part of our annual award cycle, and these equity incentive awards generally consist of a mix of time-vested restricted share units, share options and performance-based awards (each as governed by the 2012 EIP and/or the 2022 EIP as applicable, and as described more fully below), reflecting a strong emphasis on pay-for-performance and the following factors relatedalignment of interests between our NEOs and our shareholders.
The equity awards made to each NEO including:of our NEOs for fiscal year 2022 are comprised of 20% time-based options, 30% time-based RSUs and 50% performance-based awards (the “FY2022 PSU Award”). Mr. Romano received additional awards, consisting of 80% time-based RSUs and 20% PSUs (the “Romano Retention PSU Award”) due to a retention agreement that the Company entered into with Mr. Romano (the “Retention Agreement”). Details of the Retention Agreement are stated below. This reflects the Compensation Committee’s review and assessment of market practices at Executive Peer Group companies, as well as its determination that these mixes provide an appropriate blend of equity incentives to sustain and improve the Company’s financial performance and shareholder value.
CFO Retention Equity Awards—Gianluca Romano
As noted above in January 2022, the Compensation Committee approved the Retention Agreement with Mr. Romano. The Retention Agreement was entered into to provide Mr. Romano with a significant long-term incentive to continue his employment with Seagate, particularly in light of the highly competitive labor market for experienced Chief Financial Officers and the business criticality of his role, as well as his performance and contributions to the Company. On February 22, 2022, Mr. Romano was granted 18,725 time-based restricted share units (the “1-year RSUs”) with a grant date fair value of $1,959,759 and 56,170 time-based restricted share units (the “4-year RSUs”) with a grant date fair value of $5,685,527. The 1-year RSUs will vest on the first anniversary of the grant date, and 25% of the 4-year RSUs granted will vest on each of the first four anniversaries of the grant date, in each case subject to his continued employment through the relevant period and on the vesting date.
Mr. Romano was also granted 18,725 PSUs, with a grant date fair value of approximately $2,616,819. The PSUs provide the opportunity for Mr. Romano to receive Company shares based on the extent to which the closing price of the Company’s overall success;
PSUs vesting exceed 200% of the number of PSUs granted.
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NEOs are generally awarded equity on an annual basis, typically inmid-September, as part of our annual award cycle and these equity awards generally 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 onpay-for-performance and the alignment of interests between our NEOs and our shareholders.
Except 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 for fiscal year 2017 are comprised of 20% options, 30% Threshold Performance Share Units, and 50% Performance Share Units, reflecting the Compensation Committee’s review and assessment of market practices at NEO 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’s financial performance and shareholder value. As part of Mr. Murphy’s new hire package, he received a mix of 50% Threshold Performance Share Units 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’s ordinary shares on the grant date. Fair market value is defined as the closing price of the Company’s ordinary shares on the NASDAQ on the grant date. The grant date and vesting schedule for options granted to our eligible NEOs are generally the same as for other employees receiving optionsdetermined 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
RSUs generally vest in equal annual installments over four years, contingent on continued service. Each RSU represents the right to receive one of the Company’s ordinary shares. If under the terms of the RSU award agreement dividend equivalents accrue, such dividend equivalents are subject to the same vesting conditions as the RSUs, and, therefore, no dividend equivalent payment, if any, will be paid to the employee on any ordinary shares underlying the RSUs until the RSUs vest. Due to the strong emphasis onpay-for-performance,stronger market prevalence in fiscal year 2022, we reviewed our CEO, presidentsequity mix strategy for our NEOs and executive vice presidents are not eligible to receivereplaced granting TPSUs with time-based RSUs. We believe that long-term equity awards made to our executives at these levels should consist only of options and performance-vesting shares or units to align with our emphasis onpay-for-performance.
Threshold Performance Share Units
Threshold Performance Share Units (“TPSUs”)TPSUs are equity awards with a maximum seven-year vesting period, contingent on continued service and the achievement of the specified performance goals.AEPS goal. Each TPSU represents the right to receive one of our ordinary shares. As mentioned in the above commentary, after reviewing the market trends, the decision was made to discontinue awarding TPSUs going forward to our CEO and EVP population to strengthen our alignment with market practices. However, any outstanding TPSU awards will continue to be disclosed in applicable future Compensation Discussion and Analysis disclosures.
For each tranche of a 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. TPSU awards may become fully vested as early as four years from the grant date and remain eligible to vest for up to seven years following the grant date. If the AEPS threshold level has not been met by the end of the seven-year period, any unvested TPSUs will be forfeited. Unvested awards from prior years may vest cumulatively on the scheduled vesting date forin 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 the AEPS 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). 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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following the grant date. If the AEPS threshold level has not been met by the end of the seven-year period, any unvested 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 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 TPSU awards, AEPS is based on diluted earnings per share, calculated in accordance with U.S. GAAP, excluding the impact ofnon-operating activities (a) share-based compensation expenses and (b) material, unusual or nonrecurringnon-recurring gains and losses, accounting charges or other extraordinary events whichthat were not foreseen at the time the performance target was established, in each case of (a) and includes estimated interest expenses, taxes and variable compensation. Under(b), as publicly reported in the Company’s U.S. Non-GAAP financial measures. If under the terms of the TPSU award agreement dividend equivalents accrue during the vesting period, such dividend equivalents are subject to the same vesting conditions as the TPSUs. Consequently, no dividend equivalent payment, if any, will be madepaid to the employee on any of the ordinary shares underlying the TPSUs.TPSUs until the TPSUs vest.
Our AEPS performance for fiscal year 20172022 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 the fiscal year, 2017.subject to continued employment.
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SEAGATE TECHNOLOGY HOLDINGS PLC | 2022 Proxy Statement |
2022 NOTICE OF MEETING AND PROXY STATEMENT |
FY2022 Performance Share Units
Performance share units (“PSUs”)The FY2022 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) a factor based on the Company’s relative total shareholder return (“TSR”)rTSR percentile compared with the Executive Peer Group, (b) a selected peer group, defined below.factor based on the percentage of women in leadership roles and (c) a factor based on the Company’s percentage reduction of greenhouse gas emissions. 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’s long-term success. In addition, the relative TSRrTSR metric rewards financial performance asand is measured by the change in our share price and the dividends we declared during the performance period relative to the performance of the select groupExecutive Peer Group. Starting in fiscal year 2022, we added two additional modifiers (items (b) and (c) above) for our NEOs to support our long term ESG goals in increasing gender diversity in leadership roles and reducing greenhouse gas emissions. For the avoidance of peers (as described below).doubt, the PSUs awarded to Mr. Romano under the Romano Retention PSU Award vest under different performance metrics pursuant to the terms of the Retention Agreement.
The Compensation Committee determines the number of PSUs that will vest at the end of the three-year performance period according to a pre-established vesting matrix. Payout of the targeted number of PSUs will occur if target ROIC, percentage of women in leadership roles, and reduction of greenhouse gas emissions is attained over the three-year measurement period and relative TSRrTSR is at least at the median of the selected peer group.Executive Peer Group. 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(1 minus the average tax rate,rate), divided by (ii) (x) adjusted net plant, property and equipment plus total current assets minus cash and cash equivalents, minus (y) total current liabilities. Adjustments toliabilities with the exclusion of the current portion of long-term debt. All values represent U.S. GAAP results except adjusted operating income and adjusted net plant, property and equipment. Adjusted operating income, used to determine Annual ROIC, is operating income adjusted to exclude the impact ofnon-operating activities (a) share-based compensation expense and (b) material, unusual or nonrecurringnon-recurring gains and losses, accounting charges or other extraordinary events whichthat were not foreseen at the time the performance target was established. established, in each case of (a) and (b), as publicly reported in the Company’s U.S. Non-GAAP financial measures each quarter. Adjusted net plant, property and equipment includes net plant, property and equipment and the net value of right of use assets acquired through leasing.
For fiscal year 2017,2022, the relative TSRrTSR modifier iswas interpolated and set 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 endpercentiles of the three-year performance period according to apre-established vesting matrix.Executive Peer Group’s TSR. For awards granted in fiscal year 2017,2022, assuming the minimum ROIC performance threshold is achieved, the actual number of ordinary sharesPSUs that may vest ranges from 38%34% of the target number of PSUs (for an(assuming ROIC, percentage of approximately 56%women in leadership, and reduction of targetgreenhouse gas emissions are at the threshold level, and relative TSR is equal or below the selected peer group median) to25th percentile of the Executive Peer Group) and in no event will exceed 200% of the target number of PSUs (for an(assuming ROIC, percentage of women in excessleadership, and reduction of approximately 139% of targetgreenhouse gas emissions are at the maximum level, and relative TSR is equal to or above the 75th percentile of the selected peer group)Executive Peer Group). The specific ROIC, percentage of women in leadership, and reduction of greenhouse gas emissions 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. UnderEach PSU represents the right to receive one of our ordinary shares. If under the terms of the PSU award agreement dividend equivalents accrue during the vesting period, such dividend equivalents are subject to the same vesting conditions as the PSUs. Consequently, no dividend equivalent payments, if any, will be madepaid to the employee on any of the ordinary shares underlying the PSUs.
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The selected peer group for PSUs awarded in September 2016 included a broader range of companies thanuntil 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 25 companies listed in the table below, meeting the following criteria:PSUs vest.
PSU Peer Group
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In fiscal year 2014,2019, we granted PSUs (“FY2019 PSUs”) to Dr. Mosley and Messrs. MortonNygaard, Romano, Naik and MosleyTeh that were eligible to vest after the end of a three-year performance period ending on July 2, 2021 for ROIC and September 1, 2016,2021 for rTSR (i.e., vest during fiscal year 2022), 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 26, 2016, therTSR percentile. The Compensation Committee certified the level of achievement of the financial performance metrics for the three-year period, such that the PSUs vested at 98% of target based on a three-year average annual ROIC of 54%, and relative TSR at the 18th percentile over the three-year period. As a result, the following numbers of ordinary shares were issued to the executive officers:measurement
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 2015, which have a three-year performance period ending on 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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period, such that the FY2019 PSUs did not vest as the three-year average annual ROIC was 77%, and the threshold for the three-year ROIC average metric was to achieve at least 80%. Our average share price at the beginning of the FY2019 PSUs’ performance period was $53.08 and our ending average share price was $102.82 (assuming dividends were reinvested). Therefore, our rTSR over the performance period was 93.71% and our shares performed at the 69th percentile relative to the companies in the Executive Peer Group, which resulted in a modifier of 119%.
FY2019 PSUs
Average ROIC | Threshold | Target | Maximum | Actual | ||||||||||||
3-Year Average Annual Return on Invested Capital (ROIC) | < 80% | 115% | ≥ 200% | 77% | ||||||||||||
Vesting Level (% of Target) | 0% | 100% | 160% | 0% | ||||||||||||
rTSR Modifier | Threshold | Target | Maximum | Actual | ||||||||||||
Relative Total Shareholder Return Percentile | ≤ 25th%ile | 50th%ile | ≥ 75th%ile | 69%ile | ||||||||||||
rTSR %ile Modifier1 | 75% | 100% | 125% | 119% | ||||||||||||
Overall Results | 0% |
(1) | With interpolation between points. |
The certification of the relevant financial performance metrics with respect to the PSUs granted in fiscal year 2020 to Dr. Mosley and Messrs. Naik, Nygaard, Romano and Teh, which have a three-year performance period that ended on July 1, 2022 for ROIC and September 2, 2022 for rTSR, which was not completed in advance of the filing date of this Proxy Statement.
Share Ownership GuidelinesRequirements
We established share ownership guidelinesrequirements 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,(if any), are included in the calculation of ordinary shares owned for purposes of the ownership guidelines,requirements, but time-based and performance-based options and unvested performance-based awardsperformance share bonuses, TPSUs and PSUs are not counted until they are exercised or vested, as applicable. NEOs are expected to meet the ownership requirements within five years of becomingthe date upon which the NEO first becomes subject to the guidelines.requirements. 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 beare required to own shares in an amount equal to an applicable target value based on a multiple of annual base salary. Our NEOs were required to meet the guidelines by July 1, 2016, with the exception of Messrs. Morton, Brace, and Murphy who are required to meet the guidelinesrequirements by October 21, 2020, April 30, 2020 and November 14, 2021, respectively. The sharethe following ownership guidelines are as follows:requirement dates.
Named Executive Officer | Role | Ownership Requirement Date | Ownership
Salary Multiple | Guideline Met(1) | ||||||
| Chief Executive Officer | October 1, 2022 | 6x | Yes | ||||||
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Executive Vice | January 7, 2024 | 3x | Yes | |||||||
Jeffrey D. Nygaard | Executive Vice President | October 17, 2022 | 3x | Yes | ||||||
Ravi Naik | Executive Vice President | February 1, 2026 | 3x | Yes | ||||||
Ban Seng Teh | Executive Vice President | February 1, 2026 | 3x | Yes |
(1) | As of July 1, 2022 |
All of the NEOs have met or are on track to meet ownership guidelines by the applicable deadline.44
SEAGATE TECHNOLOGY HOLDINGS PLC
| 2022 Proxy Statement |
2022 NOTICE OF MEETING AND PROXY STATEMENT |
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 and Change in Control Benefits,”Benefits” below).
We generally do not generally provide perquisites to our NEOs except that we provide theother than business use of our corporate aircraft toand, in certain limited business-related circumstances, reimbursement for the travel costs of the NEO’s spouse or significant other. If an NEO’s travel on our NEOs which may be used for travel withcorporate aircraft includes a personal element, provided theythe NEO is required to 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 NEOExecutive Peer Group companies, in assessing the competitiveness of our total compensation package for our NEOs. Until 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.
NonqualifiedNon-Qualified Deferred Compensation Plan
The 2015 Seagate Deferred Compensation Plan (the “SDCP”), effective January 1, 2015, allows our U.S. based NEOs (and other eligible employees) whose annual base pay salary is $165,000$190,000 or more, or whose target commissions and annual base salary in the aggregate is $165,000$190,000 or more, to defer on apre-tax basis (i) up to 70% of their base salary, (ii) up to 70% of commissions, andand/or (iii) up to 100% of their annual performance-based cash bonus. Deferrals and notional earnings related to those deferrals are reflected on the Company’s books as an unfunded obligation of the Company.Company and remain part of our general assets. We do not make any contributionscontribute to the SDCP, and notional earnings on deferrals
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are based on the performance of actual 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 Year 2017 Nonqualified“Non-qualified Deferred Compensation.”Compensation Plans” under the “Compensation of Named Executive Officers” section below. The SDCP is a successor plan to the prior Seagate Deferred Compensation Plan,Plans, as amended from time to time, under which became frozen withno additional deferrals may be made after December 31, 2014. A grantor (or rabbi) trust was established to hold any assets contributed to the trust to help satisfy our obligations due under the prior plans in effect through December 31, 2014.
Participants may elect to receive distributions upon retirement or termination of employment or at a specified time while still employed. With respect to all deferrals made thereunder onof amounts relating to services provided to Seagate after December 31, 2019, participants may elect to receive distributions following retirement or termination in either a lump sum or annual installments up to a maximum of seven years. Participants may elect to receive in-service distributions in a lump sum or annual installments payable over 2, 3, 4 or 5 years. Upon disability, a participant’s account will be distributed in accordance with their retirement/termination distribution elections. Additionally, upon death, a participant’s accounts will be paid to their beneficiary or beneficiaries in a cash lump-sum payment payable before the later of the end of (i) the calendar year in which the participant dies or (ii) two and one-half months after the participant dies. Unless otherwise determined by the Seagate Benefits Administrative Committee prior to December 31, 2015.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’s account shall generally be distributed to the participant in a lump sum not later than the thirtieth day following the change in control.
Long Term International (Expatriate) Assignment Policy
The Company’s global business needs require it on occasion to relocate certain employees with special or unique skills to countries where those skills may not be readily available. To meet this need, the Company utilizes long term international assignments, which are provided under its Long-Term International Assignment Policy (“LTIA Policy”). The Company provides certain benefits and allowances to these long-term international assignees according to the LTIA Policy. Mr. Nygaard receives the standard benefits and allowances under the LTIA Policy as described
45
SEAGATE TECHNOLOGY HOLDINGS PLC | 2022 Proxy Statement |
2022 NOTICE OF MEETING AND PROXY STATEMENT |
below for his assignment in Thailand. In fiscal year 2022 the Company provided Mr. Nygaard with housing and related support, goods and services in Thailand, education support for his children, and payment for his tax returns preparation in accordance with the LTIA Policy terms. In addition, the Company makes certain tax equalization payments or reimbursements for expatriates to ensure that the assignment is tax neutral to the employee. The Company withholds a hypothetical tax amount for the expatriate in amounts roughly equivalent to the taxes of a peer employee in the relevant country not on assignment under the LTIA Policy. After the expatriate’s actual income tax returns have been prepared, the Company’s accountants prepare a tax equalization calculation to show what the employee should have paid if they had remained at home and not taken the assignment. The employee receives credit for any taxes they have paid during the year, and the Company pays all costs related to the actual taxes due in both the home and host locations. The Company’s tax equalization cost is limited to any difference between the actual taxes paid and the “stay at home” tax the employee would have paid, after calculations are prepared by the Company’s accountants.
The total estimated payments made in fiscal year 2022 for Mr. Nygaard’s benefits under the LTIA Policy is $1,032,541 as described in note 12 to the Summary Compensation Table for Fiscal Year 2022 in this Proxy Statement. Final actual cost is not known at the time of this filing due to pending tax calculations, which can only be completed at a later date.
Severance and Change in Control Benefits
We provide severance benefits to assist in aligning NEOexecutive officer and shareholder interests during the evaluation of an ownership change, to remain competitive in attracting and retaining NEOsexecutive officers and to support organizational changes necessary to achieve our business strategy. The purpose of the FifthEighth Amended and Restated Seagate Technology Executive Severance and Change in Control Plan (the “Severance Plan”) is to:
provide for the payment of severance benefits to our executive officers, including our NEOs, in the event their employment with the Company or any applicable subsidiary is terminated without cause or they resign for good reason;
encourage our executive officers, including the NEOs, to continue employment in the event of a potential “change in control” (as such term is defined under “Compensation of Named Executive Officers—Potential Payments upon Qualifying Termination or Change in Control” below); and
provide our executive officers, including the NEOs, with generally the same types of severance benefits in connection with a qualifying termination of employment.
All of our NEOsexecutive officers receive a level of severance benefits under the terms of the Severance Plan that reflects their level of responsibility within our organization, the strategic importance of their position and a market-competitive level of severance for comparable positions within the NEOExecutive Peer Group.
The Severance Plan provisions were developed, in consultation with Semler Brossy, based on a comparison by the independent directors of the Board of severance benefits typically available at the NEOExecutive Peer Group companies, in consultation with FW Cook, following review by the independent directors of the Board.companies. Consistent with our compensation philosophy,strategy, the Severance Plan provides for severance only in the event of an involuntarya qualifying termination under the Severance Plan (i.e., a termination by us without “cause” or by the Executiveexecutive for “good reason”). The Severance Plan includes the following features:
no guaranteed bonus amount;amounts;
no post-termination healthcare benefit subsidy if the involuntaryqualifying termination occurs outside of a “change in control period” (as defined in the section titled “Compensation of Named Executive Officers—Potential Payments upon Termination or Change in Control—Involuntary Termination Without Cause or for Good Reason During a Change in Control Period,” below);
46
SEAGATE TECHNOLOGY HOLDINGS PLC | 2022 Proxy Statement |
2022 NOTICE OF MEETING AND PROXY STATEMENT |
Termination or Change in Control—Termination Without Cause or for Good Reason During a Change in Control Period,” below); |
enhanced severance benefits provided in connection with a change in control require a “double trigger” (which is defined as an involuntarya qualifying termination during a “change in control period”) before an NEO becomes entitled to receive such benefits; and
severance payments cannot equal or exceed three times the sum of the executive’s base salary and target cash bonus.
In the event that the benefits payable following a change in control exceed the safe harbor limits established in Section 280G of the U.S. Internal Revenue Code of 1986, as amended (the “Code”), we capwill reduce the benefits atso that no excise tax will apply under Section 4999 of the safe harbor limitCode (relating to Section 280G of the Code), if thesuch reduction will result in a higher after-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).NEO. We do not provide agross-up for any taxes payable on severance benefits and the NEO is responsible for the payment of all personalsuch taxes, including any excise taxes imposed on change in control payments and benefits.
51
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For further details on the Severance Plan, see the section below titled “Compensation of Named Executive Officers—Potential Payments uponUpon 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 compensationAlthough an exception exists for deductibilitycertain qualified performance-based arrangements in place as of November 2, 2017, under applicable tax laws to the greatest extent possible. Section 162(m) of the Code, (as interpreted by IRS Notice2007-49) places a limit ofonly the first $1 million onin annual compensation paid to our NEOs generally is deductible for U.S. federal income tax purposes and such deduction limit will continue to apply to such individuals for all future years in which they receive compensation (including severance) from the amountCompany. This deduction limitation also applies to certain individuals who were NEOs in prior years. While the Compensation Committee considers tax deductibility as one of several relevant factors in determining executive compensation, it retains the flexibility to approve compensation 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’s CFO), unless such compensation is considered “performance-based” under Section 162(m).
Both the EOPB and the Amended and Restated 2012 Plan have been approved by our shareholders and are administerednot deductible by the Compensation Committee. Each plan has been structured such that compensation paid or awarded thereunder may qualify as “performance-based” and therefore not be subject to the Section 162(m) limit. However,Company in order to maintain flexibility in compensatinga compensation program that is consistent with our NEOs in a manner designed to promote varying corporate goals, the Compensation Committee retains the discretion to paypay-for-performance compensation that may not be tax deductible.strategy.
Securities TradingTrading; Prohibitions Against Hedging and Pledging
Seagate’s SecuritiesPlease see the “Corporate Governance – Anti-Hedging and Pledging Policy and Other Trading Policy prohibits all employees (including our NEOs) and Board members from taking “short” positions in our securities or engaging in hedging or other monetization transactions with respect to our securities. 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 collateralRestrictions” section above 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 amendedinformation on 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” 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.Policy.
Pay Recovery Policy (Clawback)
Our Pay Recovery Policy is intended to eliminate any reward for fraudulent accounting.intentional misrepresentation of financial results. It provides standards for recovering compensation from an NEOour executive officers and other officers who hold the position of Senior Vice President and above (collectively, “Designated Officers”) where such compensation was based on incorrectly reported financial results due to the fraud or willful misconduct of such NEO.Designated Officer. The NEO’sDesignated Officer’s repayment obligation applies to any cash bonus paid, share award issued (whether or not vested) and/or vested during the covered period (as defined below) 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 Act.sought (the “covered period”).
5247
SEAGATE TECHNOLOGY HOLDINGS PLC
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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’s Proxy Statement for fiscal year 2017.2022.
Respectfully submitted, THE COMPENSATION COMMITTEE | ||
Michael R. Cannon Yolanda L. Conyers Jay L. Geldmacher Dylan Haggart Edward J. Zander |
Compensation Committee Interlocks and Insider Participation
None of the members of ourthe Compensation Committee during fiscal year 20172022 was an employee of the Company or any of its subsidiaries at any time during fiscal year 2017,2022, 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.S-K promulgated by the SEC. 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 2017.2022.
5348
SEAGATE TECHNOLOGY HOLDINGS PLC
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COMPENSATION OF NAMED EXECUTIVE OFFICERS
Our Summary Compensation Table for fiscal year 2022 below shows the total compensation paid to or earned byof each of our NEOs with respect to the fiscal years 2017, 20162022, 2021, and 2015.2020. The amounts reported reflect rounding, which may result in slight variations between amounts shown in the Total column and the sum of its components as reflected in the table.
Summary Compensation Table for Fiscal Year 2022
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 |
Name and Principal Position | Year | Salary ($) | Bonus ($) | Share Awards ($)(1) | Option Awards ($)(1) | Non-Equity Incentive Plan Compensation ($)(2) | All Other Compensation ($)(3)(4) | Total ($) | ||||||||||||||||||||
William D. Mosley | ||||||||||||||||||||||||||||
Chief Executive Officer | 2022 | 1,100,008 | — | 8,095,464 | 2,019,842 | 1,987,604 | 7,400 | 13,210,318 | ||||||||||||||||||||
2021 | 1,100,008 | — | 7,054,961 | 1,474,825 | 2,005,095 | 6,300 | 11,641,189 | |||||||||||||||||||||
2020 |
|
1,100,008 |
|
— |
|
7,313,257 |
|
|
1,900,012 |
|
|
1,378,090 |
|
|
7,400 |
|
|
11,698,767 |
| |||||||||
Gianluca Romano | ||||||||||||||||||||||||||||
Executive Vice President and Chief Financial Officer | 2022 |
| 644,242 |
| — |
| 12,973,374 | (13) |
| 676,504 |
|
| 776,053 |
|
| 7,400 |
|
| 15,077,573 |
| ||||||||
2021 |
| 600,018 |
| — |
| 1,633,956 |
|
| 341,566 |
|
| 729,141 |
|
| 7,400 |
|
| 3,312,081 |
| |||||||||
2020 |
|
600,018 |
|
— |
|
2,032,312 |
|
|
528,001 |
|
|
501,135 |
|
|
117,210 |
|
|
3,778,676 |
| |||||||||
Jeffrey D. Nygaard | ||||||||||||||||||||||||||||
Executive Vice President, Operations and Technology | 2022 |
| 480,002 |
| — |
| 2,350,180 |
|
| 586,528 |
|
| 578,210 |
|
| 1,057,619 |
|
| 5,052,539 |
| ||||||||
2021 |
| 480,002 |
| — |
| 1,633,956 |
|
| 341,566 |
|
| 583,298 |
|
| 283,261 |
|
| 3,322,083 |
| |||||||||
2020 |
|
480,002 |
|
— |
|
2,032,312 |
|
|
528,001 |
|
|
400,897 |
|
|
496,256 |
|
|
3,937,468 |
| |||||||||
Ravi Naik(5) | ||||||||||||||||||||||||||||
Executive Vice President, Storage Services | 2022 |
| 470,018 |
| — |
| 1,807,505 |
|
| 451,143 |
|
| 566,183 |
|
| 7,164 |
|
| 3,302,013 |
| ||||||||
2021 |
|
442,318 |
|
— |
|
1,698,875 |
|
|
777,542 |
|
|
571,165 |
|
|
7,790 |
|
|
3,497,690 |
| |||||||||
Ban Seng Teh(6) | ||||||||||||||||||||||||||||
Executive Vice President, Global | 2022 |
| 412,719 |
| — |
| 1,265,261 |
|
| 315,758 |
|
| 497,161 |
|
| 7,623 |
|
| 2,498,522 |
| ||||||||
2021 |
| 500,170 |
| — |
| 1,312,067 |
|
| 485,877 |
|
| 519,471 |
|
| 18,040 |
|
| 2,835,625 |
| |||||||||
2020 |
|
496,343 |
|
— |
|
788,081 |
|
|
— |
|
|
112,272 |
|
|
37,117 |
|
|
1,433,813 |
|
(1) | Amounts do not reflect the actual value realized by the NEO. In accordance with SEC rules, |
54
| 2022. |
|
(2) | Represents amounts |
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) | Amounts reported in the “All Other Compensation” column are itemized in the supplemental “All Other Compensation for Fiscal Year 2022” table below. |
(4) | 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. |
Mr. |
(6) | Based on the Singapore dollar (“SGD”) |
49
SEAGATE TECHNOLOGY HOLDINGS PLC | 2022 Proxy Statement |
2022 NOTICE OF MEETING AND PROXY STATEMENT |
All Other Compensation for Fiscal Year 2022
Name | Severance ($) | Relocation ($) | Relocation Tax Assistance ($) | Personal Guest Travel ($)(7) | 401(k) Match ($)(8) | Company Contribution to HSA ($)(9) | Company Contribution to CPF ($)(10) | Other Comp ($) | International Assignment Benefits ($)(12) | Consultant Payments ($) | Total ($) | |||||||||||||
William D. Mosley | — | — | — | — | 6,000 | 1,400 | — | — | — | — | 7,400 | |||||||||||||
Gianluca Romano | — | — | — | — | 6,000 | 1,400 | — | — | — | — | 7,400 | |||||||||||||
Jeffrey D. Nygaard | — | — | — | 19,078 | 6,000 | — | — | — | 1,032,541 | — | 1,057,619 | |||||||||||||
Ravi Naik | — | — | — | — | 5,764 | 1,400 | — | — | — | — | 7,164 | |||||||||||||
Ban Seng Teh | — | — | — | — | — | — | 6,977 | 646(11) | — | — | 7,623 |
(7) | For |
(8) | Reflects 401(k) Plan matching contribution made by the Company |
(9) | Reflects Company-paid Health Savings Account (“HSA”) contributions to eligible participants. In 2022, HSA contributions are $700.00 for employee only coverage and $1,400.00 for family coverage. |
(10) | Reflects Company contribution to the Singapore Central Provident Fund (“CPF”). CPF employer contribution was at SGD780 per month for calendar year 2021 and increased to SGD840 per month for calendar year 2022. |
(11) | Mr. Teh was awarded a cash-based service award in the amount of $646 in recognition of reaching a length of service milestone with the Company. |
(12) | Mr. Nygaard’s LTIA benefits include payments made in fiscal year 2022 for expatriate tax and tax equalization for year to date 2022, remaining expatriate tax and tax equalization owed for 2021 in the amount of $721,284, a cost of living allowance in the amount of $47,355, educational payments in the amount of $52,424, home leave in the amount of $79,988; host location housing in the amount of $78,120, transportation expenses in the amount of $50,927, telephone expense in the amount of $485, settling in services of $858 and immigration and tax services in the amount of $1,100. As described more fully in the section entitled “Compensation Discussion and Analysis—Long Term International (Expatriate) Assignment Policy,” the tax equalization payments are intended to ensure that the long-term international assignment is tax neutral to Mr. Nygaard as compared to being based in the U.S. |
(13) | This amount includes share awards granted per Mr. Romano’s retention agreement, which is discussed in further detail above. |
5550
SEAGATE
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Grants of Plan-Based Awards Table for Fiscal Year 20172022
Estimated Future Payouts Under Non-Equity Incentive Plan Awards(1) | Estimated Future Payouts Under Equity Incentive Plan Awards(2) | |||||||||||||||||||||||||||||||||||||||||||||||||||
Name
| Type of
| Grant Date
| Compensation Committee Action Date
| Threshold ($)
| 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) |
Estimated Future Payouts Under Non-Equity Incentive Plan Awards(1) | Estimated Future Payouts Under Equity Incentive Plan Awards | |||||||||||||||||||||||||||||||||||||||||||||||
Name | Type of Award | Grant Date | Threshold ($) | Target ($) | Maximum ($) | Threshold (#) | Target (#) | Maximum (#) | All Other Share Awards: Number of Shares or Units (#) | All Other Option Awards: Number of Securities Underlying Options (#) | Exercise or Base Price of Option Awards ($/ Share) | Grant Date Fair Value of Share and Option Awards ($) | ||||||||||||||||||||||||||||||||||||
William D. Mosley | ||||||||||||||||||||||||||||||||||||||||||||||||
| Cash Bonus |
|
| — |
|
| 825,006 |
|
| 1,650,012 |
|
| 3,300,024 |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
| |||||||||||||
| Time Option |
|
| 9/9/2021(2) |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 96,080 |
|
| 87.34 |
|
| 2,019,842 |
| |||||||||||||
| PSU |
|
| 9/9/2021(3) |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 60,045 |
|
| 120,090 |
|
| — |
|
| — |
|
| — |
|
| 5,164,470(4) |
| |||||||||||||
| RSU |
|
| 9/9/2021(5) |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 36,025 |
|
| — |
|
| — |
|
| 2,930,994 |
| |||||||||||||
Gianluca Romano | ||||||||||||||||||||||||||||||||||||||||||||||||
| Cash Bonus |
|
| — |
|
| 357,500 |
|
| 715,000 |
|
| 1,430,000 |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
| |||||||||||||
| Time Option |
|
| 9/9/2021(2) |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 32,180 |
|
| 87.34 |
|
| 676,504 |
| |||||||||||||
| PSU |
|
| 9/9/2021(3) |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 20,110 |
|
| 40,220 |
|
| — |
|
| — |
|
| — |
|
| 1,729,661(4) |
| |||||||||||||
| RSU |
|
| 9/9/2021(5) |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 12,065 |
|
| — |
|
| — |
|
| 981,608 |
| |||||||||||||
| PSU Retention |
|
| 2/22/2022(6) |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 18,725 |
|
| 37,450 |
|
| — |
|
| — |
|
| — |
|
| 2,616,819(4) |
| |||||||||||||
| RSU Retention 1 Yr |
|
| 2/22/2022(7) |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 18,725 |
|
| — |
|
| — |
|
| 1,959,759 |
| |||||||||||||
| RSU Retention 4 Yr |
|
| 2/22/2022(7) |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 56,170 |
|
| — |
|
| — |
|
| 5,685,527 |
| |||||||||||||
Jeffrey D. Nygaard | ||||||||||||||||||||||||||||||||||||||||||||||||
| Cash Bonus |
|
| — |
|
| 240,001 |
|
| 480,002 |
|
| 960,003 |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
| |||||||||||||
| Time Option |
|
| 9/9/2021(2) |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 27,900 |
|
| 87.34 |
|
| 586,528 |
| |||||||||||||
| PSU |
|
| 9/9/2021(3) |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 17,430 |
|
| 34,860 |
|
| — |
|
| — |
|
| — |
|
| 1,499,154(4) |
| |||||||||||||
| RSU |
|
| 9/9/2021(5) |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 10,460 |
|
| — |
|
| — |
|
| 851,026 |
| |||||||||||||
Ravi Naik | ||||||||||||||||||||||||||||||||||||||||||||||||
| Cash Bonus |
|
| — |
|
| 235,009 |
|
| 470,018 |
|
| 940,035 |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
| |||||||||||||
| Time Option |
|
| 9/9/2021(2) |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 21,460 |
|
| 87.34 |
|
| 451,143 |
| |||||||||||||
| PSU |
|
| 9/9/2021(3) |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 13,405 |
|
| 26,810 |
|
| — |
|
| — |
|
| — |
|
| 1,152,964(4) |
| |||||||||||||
| RSU |
|
| 9/9/2021(5) |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 8,045 |
|
| — |
|
| — |
|
| 654,541 |
| |||||||||||||
Ban Seng Teh | ||||||||||||||||||||||||||||||||||||||||||||||||
| Cash Bonus |
|
| — |
|
| 206,359 |
|
| 412,719 |
|
| 825,438 |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
| |||||||||||||
| Time Option |
|
| 9/9/2021(2) |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 15,020 |
|
| 87.34 |
|
| 315,758 |
| |||||||||||||
| PSU |
|
| 9/9/2021(3) |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 9,385 |
|
| 18,770 |
|
| — |
|
| — |
|
| — |
|
| 807,204(4) |
| |||||||||||||
| RSU |
|
| 9/9/2021(5) |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 5,630 |
|
| — |
|
| — |
|
| 458,057 |
|
(1) | Represents the potential range of payments for fiscal year |
(2) |
Unless otherwise indicated, options awarded during fiscal year |
Unless otherwise indicated, PSUs awarded during fiscal year |
(4) | In accordance with SEC rules, this represents the aggregate grant date fair value calculated in accordance with ASC 718, excluding the effect of estimated forfeitures. For all PSUs, we have assumed the probable outcome of related performance conditions as defined by ASC 718 at target levels. The total aggregate grant-date fair value for these PSUs, assuming the achievement of the highest level of performance, is $10,328,941 for Dr. Mosley, $8,692,960 for Mr. Romano, $2,998,309 for Mr. Nygaard, $2,305,928 for Mr. Naik and $1,614,408 for Mr. Teh. 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 Form 10-K for fiscal year 2022. |
51
SEAGATE TECHNOLOGY HOLDINGS PLC | 2022 Proxy Statement |
2022 NOTICE OF MEETING AND PROXY STATEMENT |
(5) | Unless otherwise indicated, RSUs awarded during fiscal year |
(6) | On February 22, 2022, Mr. Romano was granted 18,725 performance share units (“PSUs”) as part of a retention package, with a grant date fair value of $2,616,819. The PSUs provide the opportunity for Mr. Romano to receive Company shares based on the extent to which the closing price of a Company ordinary share meets or exceeds one of the 30-day share price targets (“Performance Goal”) set forth in the PSU award agreement at any time during the 3-year performance period beginning on the grant date and extending through February 22, 2025 (“Performance Period”). The PSUs will vest on the later of the third anniversary of the grant date or the date the Compensation Committee of the Board of Directors certifies the level of achievement of the Performance Goal, subject to Mr. Romano’s continued employment. For details of the full equity retention package, refer to the section entitled “Compensation Discussion and Analysis—Long-Term Equity Incentives— CFO Retention Equity Awards – Gianluca Romano.” |
(7) | On February 22, 2022, Mr. Romano was granted 18,725 time-based restricted share units (the “1-year RSUs”) with a grant date fair value of $1,959,759 and 56,170 time-based restricted share units (the “4-year RSUs”) with a grant date fair value of $5,685,527 as a part of a retention package to secure Mr. Romano long-term. The 1-year RSUs will vest on the first anniversary of the grant date, and the 4-year RSUs will vest in equal installments on each of the first four anniversaries of the grant date, in each case subject to his continued employment through the relevant period and on the vesting date. For details of the full equity retention package, refer to the section entitled “Compensation Discussion and Analysis—Long-Term Equity Incentives— CFO Retention Equity Awards – Gianluca Romano.” |
52
SEAGATE TECHNOLOGY HOLDINGS PLC | 2022 Proxy Statement |
2022 NOTICE OF MEETING AND PROXY STATEMENT |
Outstanding Equity Awards at 2022 Fiscal Year-End
Option Awards
| Share Awards
| |||||||||||||||||||||||||||||||
Name
| Grant Date
| Number of Securities Underlying Unexercised Options (#) Exercisable(1) (#)
| Number of Securities Underlying Unexercised Options (#) Unexercisable(1) (#)
| Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options(1) (#)
| Option Exercise Price ($)
| Option Expiration Date
| Number of Shares 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 ($)(2)
| ||||||||||||||||||||||
William D. Mosley | ||||||||||||||||||||||||||||||||
|
| 9/9/2016 |
| 198,860 | — | — | 36.09 |
| 9/9/2023 |
|
| — |
|
| — |
|
| — |
|
| — |
| ||||||||||
|
| 9/11/2017 |
| 253,188 |
| — | 30.95 |
| 9/11/2024 |
|
| — |
|
| — |
|
| — |
|
| — |
| ||||||||||
|
| 9/10/2018 |
| 132,923 | 8,862 | — | 50.29 |
| 9/10/2025 |
|
| — |
|
| — |
|
| — |
|
| — |
| ||||||||||
|
| 9/10/2018 |
| — | — | — | — |
| — |
|
| — |
|
| — |
|
| 12,676 | (3) |
| 875,785 |
| ||||||||||
|
| 9/9/2019 |
| 106,113 | 48,234 | — | 54.78 |
| 9/9/2026 |
|
| — |
|
| — |
|
| — |
|
| — |
| ||||||||||
|
| 9/9/2019 |
| — | — | — | — |
| — |
|
| — |
|
| — |
|
| 90,664 | (4) |
| 6,263,976 |
| ||||||||||
|
| 9/9/2019 |
| — | — | — | — |
| — |
|
| — |
|
| — |
|
| 26,013 | (3) |
| 1,797,238 |
| ||||||||||
|
| 9/9/2020 |
| 73,106 | 93,994 | — | 46.23 |
| 9/9/2027 |
|
| — |
|
| — |
|
| — |
|
| — |
| ||||||||||
|
| 9/9/2020 |
| — | — | — | — |
| — |
|
| — |
|
| — |
|
| 104,435 | (4) |
| 7,215,414 |
| ||||||||||
|
| 9/9/2020 |
| — | — | — | — |
| — |
|
| — |
|
| — |
|
| 46,995 | (3) |
| 3,246,885 |
| ||||||||||
|
| 9/9/2021 |
| — | 96,080 | — | 87.34 |
| 9/9/2028 |
|
| — |
|
| — |
|
| — |
|
| — |
| ||||||||||
|
| 9/9/2021 |
| — | — | — | — |
| — |
|
| — |
|
| — |
|
| 60,045 | (4) |
| 4,148,509 |
| ||||||||||
|
| 9/9/2021 |
| — | — | — | — |
| — |
|
| 36,025(5) |
|
| 2,488,967 |
|
| — |
|
| — |
| ||||||||||
Gianluca Romano | ||||||||||||||||||||||||||||||||
|
| 2/20/2019 |
| 9,597 | 19,194 | — | 45.89 |
| 2/20/2026 |
|
| — |
|
| — |
|
| — |
|
| — |
| ||||||||||
|
| 2/20/2019 |
| — | — | — | — |
| — |
|
| — |
|
| — |
|
| 6,537 | (3) |
| 451,641 |
| ||||||||||
|
| 9/9/2019 |
| 3,575 | 13,404 | — | 54.78 |
| 9/9/2026 |
|
| — |
|
| — |
|
| — |
|
| — |
| ||||||||||
|
| 9/9/2019 |
| — | — | — | — |
| — |
|
| — |
|
| — |
|
| 25,195 | (4) |
| 1,740,723 |
| ||||||||||
|
| 9/9/2019 |
| — | — | — | — |
| — |
|
| — |
|
| — |
|
| 7,228 | (3) |
| 499,383 |
| ||||||||||
|
| 9/9/2020 |
| 3,225 | 21,769 | — | 46.23 |
| 9/9/2027 |
|
| — |
|
| — |
|
| — |
|
| — | �� | ||||||||||
|
| 9/9/2020 |
| — | — | — | — |
| — |
|
| — |
|
| — |
|
| 24,185 | (4) |
| 1,670,942 |
| ||||||||||
|
| 9/9/2020 |
| — | — | — | — |
| — |
|
| — |
|
| — |
|
| 10,886 | (3) |
| 752,114 |
| ||||||||||
|
| 9/9/2021 |
| — | 32,180 | — | 87.34 |
| 9/9/2028 |
|
| — |
|
| — |
|
| — |
|
| — |
| ||||||||||
|
| 9/9/2021 |
| — | — | — | — |
| — |
|
| — |
|
| — |
|
| 20,110 | (4) |
| 1,389,400 |
| ||||||||||
|
| 9/9/2021 |
| — | — | — | — |
| — |
|
| 12,065 | (5) |
| 833,571 |
|
| — |
|
| — |
| ||||||||||
|
| 2/22/2022 |
| — | — | — | — |
| — |
|
| — |
|
| — |
|
| 18,725 | (7) |
| 1,293,710 |
| ||||||||||
|
| 2/22/2022 |
| — | — | — | — |
| — |
|
| 18,725 | (6) |
| 1,293,710 |
|
| — |
|
| — |
| ||||||||||
|
| 2/22/2022 |
| — | — | — | — |
| — |
|
| 56,170 | (5) |
| 3,880,785 |
|
| — |
|
| — |
|
53
SEAGATE TECHNOLOGY HOLDINGS PLC | 2022 Proxy Statement |
2022 NOTICE OF MEETING AND PROXY STATEMENT |
Option Awards
| Share Awards
| |||||||||||||||||||||||||||||
Name
| Grant Date
| Number of Securities Underlying Unexercised Options (#) Exercisable(1) (#)
| Number of Securities Underlying Unexercised Options (#) Unexercisable(1) (#)
| Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options(1) (#)
| Option Exercise Price ($)
| Option Expiration Date
| Number of Shares 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 ($)(2)
| ||||||||||||||||||||
Jeffrey D. Nygaard | ||||||||||||||||||||||||||||||
| 9/11/2017 | 8,809 | — | — | 30.95 |
| 9/11/2024 |
|
| — |
|
| — |
|
| — |
|
| — |
| ||||||||||
| 11/20/2017 | 40,301 | — | — | 39.85 |
| 11/20/2024 |
|
| — |
|
| — |
|
| — |
|
| — |
| ||||||||||
| 9/10/2018 | 62,552 | 4,171 | — | 50.29 |
| 9/10/2025 |
|
| — |
|
| — |
|
| — |
|
| — |
| ||||||||||
| 9/10/2018 | — | — | — | — |
| — |
|
| — |
|
| — |
|
| 5,965 | (3) |
| 412,122 |
| ||||||||||
| 9/9/2019 | 29,488 | 13,404 | — | 54.78 |
| 9/9/2026 |
|
| — |
|
| — |
|
| — |
|
| — |
| ||||||||||
| 9/9/2019 | — | — | — | — |
| — |
|
| — |
|
| — |
|
| 25,195 | (4) |
| 1,740,723 |
| ||||||||||
| 9/9/2019 | — | — | — | — |
| — |
|
| — |
|
| — |
|
| 7,228 | (3) |
| 499,383 |
| ||||||||||
| 9/9/2020 | 16,931 | 21,769 | — | 46.23 |
| 9/9/2027 |
|
| — |
|
| — |
|
| — |
|
| — |
| ||||||||||
| 9/9/2020 | — | — | — | — |
| — |
|
| — |
|
| — |
|
| 24,185 | (4) |
| 1,670,942 |
| ||||||||||
| 9/9/2020 | — | — | — | — |
| — |
|
| — |
|
| — |
|
| 10,886 | (3) |
| 752,114 |
| ||||||||||
| 9/9/2021 | — | 27,900 | — | 87.34 |
| 9/9/2028 |
|
| — |
|
| — |
|
| — |
|
| — |
| ||||||||||
| 9/9/2021 | — | — | — | — |
| — |
|
| — |
|
| — |
|
| 17,430 | (4) |
| 1,204,239 |
| ||||||||||
| 9/9/2021 | — | — | — | — |
| — |
|
| 10,460 | (5) |
| 722,681 |
|
| — |
|
| — |
| ||||||||||
Ravi Naik | ||||||||||||||||||||||||||||||
| 8/21/2017 | 63,120 | — | — | 31.46 |
| 8/21/2024 |
|
| — |
|
| — |
|
| — |
|
| — |
| ||||||||||
| 9/10/2018 | — | — | — | — |
| — |
|
| 3,333 | (5) |
| 230,277 |
|
| — |
|
| — |
| ||||||||||
| 9/9/2019 | — | — | — | — |
| — |
|
| — |
|
| — |
|
| 5,720 | (4) |
| 395,195 |
| ||||||||||
| 9/9/2019 | — | — | — | — |
| — |
|
| 4,290 | (5) |
| 296,396 |
|
| — |
|
| — |
| ||||||||||
| 9/9/2020 | — | — | — | — |
| — |
|
| — |
|
| — |
|
| 6,600 | (4) |
| 455,994 |
| ||||||||||
| 9/9/2020 | — | — | — | — |
| — |
|
| 11,543 | (5) |
| 797,506 |
|
| — |
|
| — |
| ||||||||||
| 3/22/2021 | 14,062 | 30,938 | — | 75.94 |
| 3/22/2028 |
|
| — |
|
| — |
|
| — |
|
| — |
| ||||||||||
| 3/22/2021 | — | — | — | — |
| — |
|
| — |
|
| — |
|
| 8,437 | (3) |
| 582,912 |
| ||||||||||
| 9/9/2021 | — | 21,460 | — | 87.34 |
| 9/9/2028 |
|
| — |
|
| — |
|
| — |
|
| — |
| ||||||||||
| 9/9/2021 | — | — | — | — |
| — |
|
| — |
|
| — |
|
| 13,405 | (4) |
| 926,151 |
| ||||||||||
| 9/9/2021 | — | — | — | — |
| — |
|
| 8,045 | (5) |
| 555,829 |
|
| — |
|
| — |
| ||||||||||
Ban Seng Teh | ||||||||||||||||||||||||||||||
| 9/10/2018 | — | — | — | — |
| — |
|
| 1,785 | (5) |
| 123,326 |
|
| — |
|
| — |
| ||||||||||
| 9/9/2019 | — | — | — | — |
| — |
|
| — |
|
| — |
|
| 6,240 | (4) |
| 431,122 |
| ||||||||||
| 9/9/2019 | — | — | — | — |
| — |
|
| 4,680 | (5) |
| 323,341 |
|
| — |
|
| — |
| ||||||||||
| 9/9/2020 | — | — | — | — |
| — |
|
| — |
|
| — |
|
| 5,940 | (4) |
| 410,395 |
| ||||||||||
| 9/9/2020 | — | — | — | — |
| — |
|
| 10,392 | (5) |
| 717,983 |
|
| — |
|
| — |
| ||||||||||
| 3/22/2021 | 8,787 | 19,333 | — | 75.94 |
| 3/22/2028 |
|
| — |
|
| — |
|
| — |
|
| — |
| ||||||||||
| 3/22/2021 | — | — | — | — |
| — |
|
| — |
|
| — |
|
| 5,272 | (3) |
| 364,242 |
| ||||||||||
| 9/9/2021 | — | 15,020 | — | 87.34 |
| 9/9/2028 |
|
| — |
|
| — |
|
| — |
|
| — |
| ||||||||||
| 9/9/2021 | — | — | — | — |
| — |
|
| — |
|
| — |
|
| 9,385 | (4) |
| 648,410 |
| ||||||||||
| 9/9/2021 | — | — | — | — |
| — |
|
| 5,630 | (5) |
| 388,977 |
|
| — |
|
| — |
|
54
SEAGATE TECHNOLOGY HOLDINGS PLC | 2022 Proxy Statement |
2022 NOTICE OF MEETING AND PROXY STATEMENT |
(1) | Options are subject to a four-year vesting schedule. 25% of the shares subject to the options vest one-year after the grant date, and then 1/48th of the shares subject to the options vest monthly thereafter, contingent on continuous service through the applicable vesting dates. For more information, see the section entitled “Compensation Discussion and Analysis—Long-Term Equity Incentives—Options.” |
(2) | Value based on the closing price of our ordinary shares on July 1, 2022 of $69.09. |
(3) | These TPSU awards, issued under the 2012 EIP, are subject to both continuous service and the satisfaction of the applicable performance vesting |
56
|
|
Outstanding Equity Awards at Fiscal Year 2017
Option Awards
| Stock Awards
| |||||||||||||||||
Name
| Number of Securities Underlying Unexercised Options (#) Exercisable
| Number of Securities Underlying Unexercised Options (#) Unexercisable
| Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options
| Option Exercise Price ($)
| 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 ($)(1)
| |||||||||
Stephen J. Luczo | ||||||||||||||||||
34,375(2)
| —
| —
| 11.07
| 9/13/2017
| —
| —
| —
| —
| ||||||||||
107,922(2)
| —
| —
| 30.23
| 8/1/2019
| —
| —
| —
| —
| ||||||||||
206,300(4)
| —
| —
| 30.23
| 8/1/2019
| —
| —
| —
| —
| ||||||||||
—
| —
| —
| —
| —
| —
| —
| 79,700(5)(7)
| 3,088,375
| ||||||||||
—
| —
| —
| —
| —
| —
| —
| 23,900(3)(8)
| 926,125
| ||||||||||
87,724(2)
| 39,876
| —
| 60.83
| 9/9/2021
| —
| —
| —
| —
| ||||||||||
—
| —
| —
| —
| —
| —
| —
| 42,665(3)(9)
| 1,653,269
| ||||||||||
—
| —
| —
| —
| —
| —
| —
| 101,369(5)(10)
| 3,928,049
| ||||||||||
85,043(2)
| 109,341
| —
| 50.10
| 9/9/2022
| —
| —
| —
| —
| ||||||||||
David H. Morton, Jr. | ||||||||||||||||||
2,407(2)
| —
| —
| 29.87
| 09/10/2019
| —
| —
| —
| —
| ||||||||||
4,387(2)
| 507
| —
| 40.16
| 09/09/2020
| —
| —
| —
| —
| ||||||||||
—
| —
| —
| —
| —
| —
| —
| 1,350(6)(11)
| 52,313(32)
| ||||||||||
5,671(2)
| 2,579
| —
| 60.83
| 09/09/2021
| —
| —
| —
| —
| ||||||||||
—
| —
| —
| —
| —
| —
| —
| 2,200(6)(12)
| 85,250
| ||||||||||
—
| —
| —
| —
| —
| —
| —
| 3,850(5)(7)
| 149,188
| ||||||||||
11,189(2)
| 14,388
| —
| 50.10
| 09/09/2022
| —
| —
| —
| —
| ||||||||||
—
| —
| —
| —
| —
| —
| —
| 20,000(3)(13)
| 775,000
| ||||||||||
—
| —
| —
| —
| —
| —
| —
| 5,989(6)(14)
| 232,074
| ||||||||||
—
| —
| —
| —
| —
| —
| —
| 7,470(5)(10)
| 289,463
| ||||||||||
—
| —
| —
| —
| —
| —
| —
| 76,034(5)(15)
| 2,946,318
| ||||||||||
—
| —
| —
| —
| —
| —
| —
| 39,772(3)(16)
| 1,541,165
| ||||||||||
—
| 148,665
| —
| 36.09
| 09/09/2023
| —
| —
| —
| —
|
57
|
|
Option Awards
| Stock Awards
| |||||||||||||||||
Name
| Number of Securities Underlying Unexercised Options (#) Exercisable
| Number of Securities Underlying Unexercised Options (#) Unexercisable
| Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options
| Option Exercise Price ($)
| 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
|
58
|
|
(4) |
These PSUs were issued under the |
RSUs |
(6) | Retention RSUs issued under the 2022 EIP for Mr. Romano are subject to a one-year cliff vesting schedule. These units vest on the one-year anniversary of the grant date, contingent on continuous service. For a description of the RSUs, refer to the section entitled “Compensation Discussion and Analysis—Long-Term Equity Incentives—CFO Retention Equity Awards—Gianluca Romano.” |
(7) | These Retention PSUs |
Option Exercises and Shares Vested for Fiscal Year 2022
Option Awards | Unit Awards | |||||||
Name |
Number of Shares (#) | Value Realized On Exercise ($)(1) |
Number of Shares Acquired on Vesting (#) | Value Realized ($)(2) | ||||
William D. Mosley | 31,500 | 822,915 | 58,190 | 4,981,363 | ||||
Gianluca Romano | 46,634 | 2,182,276 | 13,781 | 1,342,871 | ||||
Jeffrey D. Nygaard | 3,158 | 250,922 | 21,344 | 1,911,171 | ||||
Ravi Naik | 20,000 | 1,297,924 | 19,833 | 1,754,781 | ||||
Ban Seng Teh | 8,287 | 275,848 | 9,969 | 873,585 |
(1) | The value realized on |
The value realized on |
5955
SEAGATE TECHNOLOGY HOLDINGS PLC
|
|
|
Option Exercises and Stock Vested for Fiscal Year 2017
Name
| Option Awards
| Stock Awards
| ||||||
Number of Shares Acquired on Exercise (#)
| Value Realized on Exercise ($)
| Number of Shares Acquired on Vesting (#)
| Value Realized on Vesting ($)
| |||||
Stephen J. Luczo | — | — | 47,757 | 1,644,549 | ||||
David H. Morton, Jr. | — | — | 19,313 | 809,856 | ||||
Philip G. Brace | — | — | 21,939 | 756,516 | ||||
William D. Mosley | 38,581 | 1,397,431 | 72,126 | 2,657,417 | ||||
James J. Murphy | — | — | — | — |
NonqualifiedNon-qualified Deferred Compensation Plans
Name
| Executive Contributions in FY 2017 ($)
| 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 |
Name | Executive Contributions in Fiscal Year 2022 ($)(1) | Registrant Contributions in Fiscal Year 2022 ($) | Aggregate Earnings in Fiscal Year 2022 ($) | Aggregate Withdrawals/ Distributions ($) | Aggregate Balance at Fiscal Year 2022 End ($)(2) | |||||
William D. Mosley | — | — | (31,469) | — | 397,234 | |||||
Gianluca Romano | — | — | — | — | — | |||||
Jeffrey D. Nygaard | — | — | (128,828) | — | 1,119,217 | |||||
Ravi Naik | 686,997 | — | (210,505) | — | 1,420,527 | |||||
Ban Seng Teh | — | — | — | — | — |
(1) | Amount is included in fiscal year 2022 compensation in the “Salary” column of the Summary Compensation Table for fiscal year 2022. |
(2) | Includes executive contributions |
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’s account will be distributed in accordance with his or her retirement/termination distribution elections. Additionally, upon death, a participant’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’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
|
|
Potential Payments Upon Qualifying Termination or Change in Control
As discussed above underin the heading titledsection entitled “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 compensation amounts in the event of a termination of employment or a change in control, as described above under the immediately preceding heading titled “Nonqualified“Compensation Discussion and Analysis—Non-qualified Deferred Compensation Plans.”
Involuntary
Qualifying Termination | CEO—Months of Base Salary | Executive Vice Presidents—Months of Base Salary | ||
Termination Without Cause or Resign For Good Reason—Outside of Change in Control Period | 24 months | 20 months (U.S.); up to 24 months (Singapore) | ||
Termination Without Cause or Resign For Good Reason—During a Change in Control Period | 36 months | 24 months (U.S.); up to 24 months (Singapore) |
Termination Without Cause or Resignation For Good Reason Outside of a Change in Control Period
Under the Severance Plan in effect during fiscal year 2017,2022, if an NEO’s employment were to havehad been terminated by the Company without “cause” (as defined below) or by the NEO for “good reason” (as defined below), the NEO would have been entitled to receive a severance payment equal to apre-determined number of months of base salary, based on the NEO’s job level. In the event of such an involuntarya qualifying termination outside of a “change in control period” (as defined below), the CEO would be entitled to receive 24 months of base salary, and the Presidents and Executive Vice PresidentsEVPs would be entitled to receive 20 months of base salary if resident in the U.S. and the Senior Vice Presidents would be entitledup to receive 1624 months of base salary, as well asif resident in Singapore, and, if applicable, the prior year bonus (if earned but unpaid at the time of termination); further, the CEO and EVPs resident in the U.S. are entitled to 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).level. The severance benefits are generally payable within 20 business days following the “payment confirmation 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$610,000
56
SEAGATE TECHNOLOGY HOLDINGS PLC | 2022 Proxy Statement |
2022 NOTICE OF MEETING AND PROXY STATEMENT |
(for calendar year 2017)2022), with the remaining amount payable twelve months following the date of termination for the CEO Presidents and Executive Vice Presidents and 6 months and one day following the date of termination for Senior Vice Presidents.EVPs. The Company would also provide paid outplacement services for a period of 24 months following a qualifying termination for the CEO Presidents and Executive Vice Presidents, and a period of 18 months following termination for the Senior Vice Presidents.EVPs. The receipt of these severance benefits would generally be subject to the NEO’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” means (i) an NEO’s continued failure to substantially perform the material duties of histheir office (other than as a result of total or her office,partial incapacity due to physical or mental illness), (ii) fraud, embezzlement or theft by an NEO of the property of the Company property,or any of its subsidiaries, (iii) the conviction of an NEO of, or plea of nolo contendere by the NEO to, a felony under the laws of the United States or any state or comparable crime under the laws of a non-U.S. jurisdiction, (iv) an NEO’s willful malfeasance or willful misconduct in connection with such NEO’s duties to the Company or any of its subsidiaries or any other act or omission whichthat is materially injurious to the financial condition or business reputation of Seagate,the Company or any of its subsidiaries, 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 of the Company or any of its subsidiaries or other agreement to which such NEO is subject; and “good reason” means an NEO’s resignation of his or hertheir employment with the Company or any applicable subsidiary 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)(i) any material diminution in the level of the NEO’s level or title, authority or duties; (x)(ii) 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 CompanyGroup (as defined in the Severance Plan) at a similar level; (y)level within the Group (as defined in the Severance Plan); (iii) the relocation of the NEO to a principal place of employment that increases
61
|
|
his or her their one-way commute by more than 50 miles; or (z)(iv) 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 qualifying 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’s continuous service for any qualifying reason (other than death or disability): (i) the award agreements (including those evidencing the TPSUs) provide that vesting will cease and, where applicable, Seagatethe Company 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 well as all other option holders, would have three months to exercise options that are vested as of the date of termination.termination except that an option may not be exercised after the expiration of its term.
Involuntary Termination Without Cause or Resignation For Good Reason During a Change in Control Period
The Severance Plan in effect during fiscal year 2022 provides for enhanced severance benefits if ana NEO ishad been terminated by the Company without cause or resigns for good reason during a “change in control period”. This period is defined as the period commencing six months prior to the effective date of a “change in control” (as(or “CIC”, each as defined below) and ending 24 months following such date. In the event of an involuntarya qualifying termination within a change in control period (often called a “double trigger”), the NEO would be entitled to receive the following: (i) 36 months of both base salary and target bonus in the case of the CEO, 24 months of both base salary and target bonus in the case of the PresidentsEVPs, if resident in the U.S., and Executive Vice Presidents or 18up to 24 months of base salary and 24 months of target bonus, if resident in the case of the Senior Vice Presidents,Singapore, (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 hertheir eligible dependents, if any (applicable for U.S. executives only), (iii) paid
57
SEAGATE TECHNOLOGY HOLDINGS PLC | 2022 Proxy Statement |
2022 NOTICE OF MEETING AND PROXY STATEMENT |
outplacement services for a period of 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). The PSU award agreements further provide that the number of shares that will vest on the later of the closing of a CIC and an NEO’s qualifying termination within the change in control period will be based on the Company’s performance through the closing date of the CIC, with rTSR performance measured by using the average closing price of the Company’s ordinary shares over the 30-day trading period preceding the CIC, with the exception of any PSUs granted to Mr. Romano pursuant to the terms of his retention agreement. As discussed above, such PSUs will vest according to rTSR performance and/or Share Price performance (depending on the PSU schedule). All other rights and obligations imposed under the Severance Plan upon such a qualifying 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 qualifying termination during a change in control period, except that the severance benefits would generally be payable within 20 business days following the “payment confirmation date” in an amount equal to the lesser of (a) 100% of the severance benefit and (b) $530,000$610,000 (for calendar year 2017)2022), with the remainder, if any, payable six months and one day following the termination date.
Under the Severance Plan, “change in control” or “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 Seagatethe Company 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 Seagatethe Company owned by the shareholders of Seagatethe Company 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;the Company; (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 Seagatethe Company was approved by a vote of a majority of the directors of Seagatethe Company 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.
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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 on the later 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’s involuntary termination within the change in control period will be based on the Company’s performance through the closing date of the CIC, with relative TSR performance measured by using the average closing price 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.Company.
In the event that the benefits payable following a CICchange in control exceed the safe harbor limits established in Section 280G of the Code, we capwill reduce the benefits atso that no excise tax will apply under Section 4999 of the safe harbor limitCode (relating to Section 280G of the Code), if thesuch reduction will result in a higher after-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).NEO. We do not provide anya gross-up for exciseany taxes payable on severance benefits and the NEO is responsible for the payment of all personalsuch taxes, including any excise taxes.taxes imposed on change in control payments and benefits.
Termination due to Death or Disability
In the event a termination of employment occurs due to an NEO’s death or disability, the NEO would not be entitled to any benefits under the Severance Plan. Under the Severance Plan, “disability” means that the NEO is physically or mentally incapacitated and therefore unable to substantially perform histheir 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’s death or disability, the Compensation Committee has the discretion under the terms of the EOPB to pay to the NEO or the NEO’s estate apro-rated target bonus for the fiscal year in which the termination occurs.
The terms of the RSUsRSU and TPSUsTPSU 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 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 purposesthe purpose of determining the portion of an option award that will
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SEAGATE TECHNOLOGY HOLDINGS PLC | 2022 Proxy Statement |
2022 NOTICE OF MEETING AND PROXY STATEMENT |
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.
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Potential Payments Upon Termination Without Cause or Resignation For Good Reason Outside a Change in Control Period; Upon Termination Due to Death;Death or Disability; Upon Termination Without Cause or Resignation For Good Reason within a Change in Control Period
The following table sets forth (i) 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 (a “Qualifying Termination”) on June 30, 2017;July 1, 2022; (ii) the estimated value calculated as of July 1, 2022 of the potential payments to each NEO, assuming a Qualifying Termination on such date during a change in control period, as defined in the Severance Plan and described above; and (iii) the estimated value as of June 30, 2017July 1, 2022 of the potential payments and severance benefits to each NEO, assuming termination of the NEO due to death on such date; and the estimated value calculated as of June 30, 2017 of the potential payments to each NEO, assuming termination of the NEO by the Company without causedate, 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.case of PSUs only, disability.
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 |
Name | Type of Benefit | Qualifying Termination Outside ($) | Qualifying Termination Within | Separation Due to Death (or, if ($) | ||||||||||
William D. Mosley | ||||||||||||||
Severance |
| 2,200,016 |
|
| 3,300,024 |
|
| — |
| |||||
Outplacement Benefit(1) |
| 10,615 |
|
| 10,615 |
|
| — |
| |||||
Bonus |
| — |
|
| 4,950,036(2) |
|
| 1,650,012(3) |
| |||||
Accelerated Vesting of Stock Options(4) |
| — |
|
| 3,005,538 |
|
| 1,673,763 |
| |||||
Accelerated Vesting of Restricted Share Units(5) |
| — |
| 2,488,967 | 622,225 | |||||||||
Accelerated Vesting of Performance-Based Restricted Share Units(6) |
| — |
|
| 23,547,807 |
|
| 14,192,469 |
| |||||
Health Care Benefit |
| — |
| 38,944 |
| — |
| |||||||
Total |
| 2,210,631 |
|
| 37,341,931(7) |
|
| 18,138,469 |
| |||||
Gianluca Romano | ||||||||||||||
Severance |
| 1,191,667 |
|
| 1,430,000 |
|
| — |
| |||||
Outplacement Benefit(1) |
| 10,615 |
|
| 10,615 |
|
| — |
| |||||
Bonus |
| — |
|
| 1,430,000(2) |
|
| 715,000(3) |
| |||||
Accelerated Vesting of Stock Options(4) |
| — |
|
| 1,134,751 |
|
| 819,918 |
| |||||
Accelerated Vesting of Restricted Share Units(5) |
| — |
|
| 6,008,066 |
|
| 2,472,247 |
| |||||
Accelerated Vesting of Performance-Based Restricted Share Units(6) |
| — |
|
| 7,797,913 |
|
| 2,399,771 |
| |||||
Health Care Benefit |
| — |
|
| 39,753 |
|
| — |
| |||||
Total |
| 1,202,282 |
|
| 17,851,098(7) |
|
| 6,406,936 |
|
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Name | Type of Benefit | Qualifying Termination Outside ($) | Qualifying Termination Within | Separation Due to Death (or, if ($) | ||||||||||
Jeffrey D. Nygaard | ||||||||||||||
Severance |
| 800,003 |
|
| 960,003 |
|
| — |
| |||||
Outplacement Benefit(1) |
| 10,615 |
|
| 10,615 |
|
| — |
| |||||
Bonus |
| — |
|
| 960,003(2) |
|
| 480,002(3) |
| |||||
Accelerated Vesting of Stock Options(4) |
| — |
|
| 767,865 |
|
| 453,032 |
| |||||
Accelerated Vesting of Restricted Share Units(5) |
| — |
|
| 722,681 |
|
| 180,670 |
| |||||
Accelerated Vesting of Performance-Based Restricted Share Units(6) |
| — |
|
| 6,279,523 |
|
| 4,370,220 |
| |||||
Health Care Benefit |
| — |
|
| 57,289 |
|
| — |
| |||||
Total |
| 810,618 |
|
| 9,757,979(7) |
|
| 5,483,924 |
| |||||
Ravi Naik | ||||||||||||||
Severance |
| 783,363 |
|
| 940,035 |
|
| — |
| |||||
Outplacement Benefit(1) |
| 10,615 |
|
| 10,615 |
|
| — |
| |||||
Bonus |
| — |
|
| 940,035(2) |
|
| 470,018(3) |
| |||||
Accelerated Vesting of Stock Options(4) |
| — |
|
| — |
|
| — |
| |||||
Accelerated Vesting of Restricted Share Units(5) |
| — |
|
| 1,880,008 |
|
| 783,135 |
| |||||
Accelerated Vesting of Performance-Based Restricted Share Units(6) |
| — |
|
| 2,360,252 |
|
| 1,088,858 |
| |||||
Health Care Benefit |
| — |
|
| 39,753 |
|
| — |
| |||||
Total |
| 793,978 |
|
| 6,170,698(7) |
|
| 2,342,011 |
| |||||
Ban Seng Teh | ||||||||||||||
Severance |
| 825,438 |
|
| 825,438 |
|
| — |
| |||||
Outplacement Benefit(1) |
| 12,995 |
|
| 12,995 |
|
| — |
| |||||
Bonus |
| — |
|
| 825,438(2) |
|
| 412,719(3) |
| |||||
Accelerated Vesting of Stock Options(4) |
| — |
|
| — |
|
| — |
| |||||
Accelerated Vesting of Restricted Share Units(5) |
| — |
|
| 1,553,627 |
|
| 621,466 |
| |||||
Accelerated Vesting of Performance-Based Restricted Share Units(6) |
| — |
|
| 1,854,169 |
|
| 947,293 |
| |||||
Health Care Benefit |
| — |
|
| — |
|
| — |
| |||||
Total |
| 838,433 |
|
| 5,071,667(7) |
|
| 1,981,478 |
|
Name
| Type of Benefit
| Involuntary Termination ($)
| Qualifying Termination Following a ($)
| Separation Due to Death ($)
| ||||
Philip G. Brace | ||||||||
Severance | 1,000,029 | 1,200,035 | — | |||||
Outplacement Benefit(1) | 15,000 | 15,000 | — | |||||
Bonus | —(2) | 1,500,044 | 750,022(3) | |||||
Accelerated Vesting of Stock Options | — | 429,787(4) | 188,030(5) | |||||
Accelerated Vesting of Restricted Share Units | — | —(6) | —(7) | |||||
Accelerated Vesting of Performance-Based Restricted Share Units | — | 8,369,109 | 3,075,636 | |||||
Health Care Benefit | — | 43,470 | — | |||||
Total | 1,015,029 | 11,557,445(10) | 4,013,688 | |||||
William D. Mosley | ||||||||
Severance | 1,333,349 | 1,600,019 | — | |||||
Outplacement Benefit(1) | 15,000 | 15,000 | — | |||||
Bonus | —(2) | 2,000,024 | 1,000,012(3) | |||||
Accelerated Vesting of Stock Options | — | 528,968(4) | 231,423(5) | |||||
Accelerated Vesting of Restricted Share Units | — | —(6) | —(7) | |||||
Accelerated Vesting of Performance-Based Restricted Share Units | — | 9,848,158 | 4,136,311 | |||||
Health Care Benefit | — | 43,470 | — | |||||
Total | 1,348,349 | 14,035,639(10) | 5,367,746 |
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SEAGATE TECHNOLOGY HOLDINGS PLC
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|
Name
| Type of Benefit
| Involuntary Termination ($)
| 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 |
(2) | Represents full-year target bonus earned but unpaid at the time of a qualifying 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) | Represents the value of options that receive accelerated vesting as a result of |
(5) | Represents the value of |
(6) | Represent the value of |
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(7) | Calculations do not include the impact of any potential |
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SEAGATE TECHNOLOGY HOLDINGS PLC
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CHIEF EXECUTIVE OFFICER PAY RATIO
We are a large multinational provider of data storage technology and solutions. We conduct our business internationally and as of July 1, 2022, had 40,142 employees, of whom approximately 88% are located outside the United States. Approximately 83% of our workforce is located in Asia.
For fiscal year 2022, the median annual total compensation of all employees of the Company, excluding our CEO, was $10,763, and the annual total compensation of our CEO was $13,210,318, as reported in the “Summary Compensation Table for Fiscal Year 2022” on page 49 of this Proxy Statement. Accordingly, the ratio of our CEO’s annual total compensation to the median annual compensation of all employees (excluding the CEO) was 1,227:1.
As permitted under the SEC rules, we are using the same median employee identified in our fiscal year 2020 CEO pay ratio, as we believe the changes to our employee population and compensation have not significantly impacted our median compensation. In fiscal year 2020, we used total compensation to determine the median employee, which included (i) annual base salary plus actual annual incentives paid to salaried employees and (ii) hourly salary rate times annual hours plus additional adjustments for annual incentives, shift differentials, actual overtime rates, and other cash allowances paid to hourly employees and any equity granted to eligible employees.
Our estimates for the median employee in fiscal year 2020 were based on an analysis of the pay components and payrolls in each of the 25 countries in which we operate. Total cash compensation rates for employees paid in foreign currencies were converted into U.S. dollars using foreign exchange conversion rates in effect on April 30, 2020 for the determination of the median employee for fiscal year 2020 and July 3, 2020 for the year-end actual total compensation for fiscal year 2020. For fiscal year 2022, actual total compensation for the CEO was determined in accordance with Item 402(c)(2)(x) of Regulation S-K promulgated by the SEC and the foreign exchange conversion rates used to convert the median employee’s total compensation were those in effect on July 1, 2022. In determining our median employee, we did not use any of the exemptions permitted under SEC rules. The ratio and annual total compensation amount of the median employee are reasonable estimates that have been calculated using methodologies and assumptions permitted by SEC rules. The Company notes that its ratio and annual total compensation amount may not be directly comparable to those of other companies because the methodologies and assumptions used to identify the median employee may vary significantly among companies.
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SEAGATE TECHNOLOGY HOLDINGS PLC | 2022 Proxy Statement |
2022 NOTICE OF MEETING AND PROXY STATEMENT |
PROPOSAL 23 – AN ADVISORY,A NON-BINDING VOTE ONRATIFICATION OF THE COMPANY’S EXECUTIVE COMPENSATION –SAY-ON-PAY VOTEAPPOINTMENT OF ERNST & YOUNG LLP AS THE INDEPENDENT AUDITORS FOR THE FISCAL YEAR ENDING JUNE 30, 2023 AND BINDING AUTHORIZATION OF THE AUDIT AND FINANCE COMMITTEE TO SET AUDITORS’ REMUNERATION
(Ordinary Resolution)
The BoardOur Audit and Finance Committee has appointed Ernst & Young LLP as our independent auditors for the fiscal year ending June 30, 2023 (fiscal year 2023). We are asking you to ratify on a nonbinding basis, the appointment of Ernst & Young LLP, and to authorize, in a binding vote, the Audit and Finance Committee to set the independent auditors’ remuneration. Ernst & Young LLP has been acting as our independent auditors since 1980 and, by virtue of its long familiarity with the Company’s affairs, is presentingconsidered best qualified to perform this important function.
Representatives of Ernst & Young LLP will be present at the following proposal, commonly known as a“Say-on-Pay” proposal, which gives you as a shareholder the2022 AGM and will be available to respond to appropriate questions. They will have an 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. make a statement if they so desire.
You may endorse or not endorse, respectively, the compensation paid to our NEOsthis proposal by voting for or against the following resolution:
“RESOLVED, as an ordinary resolution, that, on an advisory,a non-binding basis, the compensationshareholders ratify the appointment of the Company’s named executive officers,Ernst & Young LLP 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:
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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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 appropriateindependent auditors for the Companyfiscal year ending June 30, 2023, and its shareholders basedauthorize on a number of considerations, includingbinding basis the views of its shareholders. At our 2011 Annual General Meeting, our shareholders indicated that they would preferSay-on-Pay votesAudit and Finance Committee to occur annually and we have heldSay-on-Pay votes every year since that time.
The text ofset 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 Sectionauditors’ remuneration.” 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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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 established by the Compensation Committee. Currently, an employee must be actively employed on or before the first Friday of the open enrollment period before an Offering Date in order to be eligible to participate in the Offering Period that commences on that Offering Date. In addition, employees are not eligible to participate in the ESP Plan if they would be deemed to own five percent (5%) or more of the total combined voting power or value of all classes of Seagate shares or the shares of any of its subsidiaries (including shares purchased under the ESP Plan or under any other outstanding options) immediately after such employee is granted a right to purchase shares under the ESP Plan.
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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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Upon a disqualifying disposition, a participant will recognize ordinary income equal to the excess of (a) the fair market value of the 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 qualifying disposition, a participant will recognize ordinary income equal to the lesser of: the amount by which the fair market value of the ordinary shares on the date of the qualifying disposition exceeds the purchase price paid for the ordinary shares, or the amount by which the fair market value of the ordinary shares on the Offering Date exceeds the discounted Offering Price (that amount is typically 15% of the fair market value of the ordinary shares on the Offering Date). Seagate is not entitled to an income tax deduction with respect to such disposition. Any additional gain recognized upon the qualifying disposition will be capital gain. Under current law, the capital gain will be long-term because the ordinary shares were held for more than one year after the Purchase Date. In general, the maximum U.S. federal income tax rate on long-term capital gains is 15%.
Generally, if the fair market value of the ordinary shares on the date of a 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 (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 20172022 AGM is required to approve Proposal 4.3.
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 YOUA VOTE “FOR” THE APPROVAL OF AMENDMENTTHIS PROPOSAL 3 A NON-BINDING RATIFICATION OF THE AMENDEDAPPOINTMENT OF ERNST & YOUNG LLP AS THE INDEPENDENT AUDITORS FOR THE FISCAL YEAR ENDING JUNE 30, 2023 AND RESTATED EMPLOYEE STOCK PURCHASE PLAN.BINDING AUTHORIZATION OF THE AUDIT AND FINANCE COMMITTEE TO SET AUDITORS’ REMUNERATION.
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SEAGATE TECHNOLOGY HOLDINGS PLC
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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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Audit and Finance Committee Report
Our management is responsible for preparing and presenting our financial statements, and ourstatements. 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)(“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 and Finance 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, 2017,2022, the Audit and Finance Committee performed the following tasks:
(1) | reviewed and discussed the audited financial statements for fiscal year |
(2) | reviewed and discussed with management its assessment and report on the effectiveness of our internal control over financial reporting as of |
(3) | reviewed and discussed with Ernst & Young LLP its attestation report on the effectiveness of our internal control over financial reporting as of |
(4) | discussed with Ernst & Young LLP the matters required to be discussed by the applicable requirements of the PCAOB |
(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 and Finance Committee concerning independence, and discussed with Ernst & Young LLP their independence. |
Based upon these reviews and discussions, the Audit and Finance 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, 2017,2022, for filing with the SEC.
Respectfully submitted, THE AUDIT AND FINANCE COMMITTEE | ||
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Fees Paid to Independent Auditors
The following table presents the aggregate fees paid or accrued by us for professional services provided by Ernst & Young LLP in fiscal years ended June 30, 20172022 and July 1, 2016 are set forth below.2021. The aggregate fees include fees billed or reasonably expected to be billed for the applicable fiscal year.
Fiscal Year | ||||||||||||||||
2022 | 2021 | |||||||||||||||
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Audit Fees | $5,542 | $5,586 | $ 6,413 | $ 6,198 | ||||||||||||
Audit-Related Fees | 231 | 502 | 127 | 925 | ||||||||||||
Tax Fees | 103 | 90 | 11 | — | ||||||||||||
All Other Fees | 5 | 3 | 7 | 2 | ||||||||||||
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Total | $5,881 | $6,181 | $ 6,558 | $ 7,125 | ||||||||||||
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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 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-RelatedAudit-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 20172022 and 2016,2021, this category includes:included pension plan and grant or similar audits, agreed upon procedures, engagements, and advisementadvising on accounting matters that arose during those years in connection with the preparation of our annual and quarterly consolidated financial statements;statements, and in 2016,the review of the interim Irish statutory financial statements. For fiscal year 2022 this category of fees also included services related to due diligence procedures.(i) audit and other required procedures on Seagate’s parent company corporate reorganization in fiscal year 2022 and (ii) the issuance of a comfort letter related to new debt issued by Seagate HDD Cayman, an indirect subsidiary of the Company.
Tax Fees. This category consists primarily of professional services provided by Ernst & Young LLP primarily for tax compliance for fiscal years 2017 and 2016.year 2021.
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.years 2022 and 2021.
Pre-Approval of Services by Independent Auditors
In fiscal years 20172022 and 2016,2021, all audit, audit related,audit-related, tax and all other fees werepre-approved by the Audit and Finance 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.auditors. We are in compliance with these SEC rules. The Audit and Finance Committee has delegated the authority to grant pre-approvals to the Audit and Finance Committee Chairperson when the full Audit and Finance Committee is unable to do so. These pre-approvals are reviewed by the full Audit and Finance Committee at its next regular meeting. Our independent auditors and senior management periodically report to the Audit and Finance Committee regarding the services provided by the independent auditors.
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SEAGATE TECHNOLOGY HOLDINGS PLC | 2022 Proxy Statement |
2022 NOTICE OF MEETING AND PROXY STATEMENT |
In making its recommendation to ratify the appointment of Ernst & Young LLP as our independent auditors for fiscal year 2018,2023, the Audit and Finance 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 and Finance 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 HOLDINGS PLC
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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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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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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:
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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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PROPOSAL 84 – 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,Constitution, may result in ordinary shares being acquired and held by the Company as treasury shares. We mayre-allot treasury treasury shares that we may acquire through our various share buyback activities including in connection withactivities. However, we typically cancel and retire all shares acquired through our executive and director compensation programs.various share buyback activities.
Under Irish law, our shareholders must authorizedetermine the price range at which we mayre-allot any any shares held in treasury. In this Proposal 8,4, 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 Under Irish law, this authorizationdetermination must expire no later than 18 months after its passing unless renewed.
“RESOLVED, as a special resolution, that for purposes of Sectionsection 1078 of the Companies Act 2014 of Ireland (“Companies Act”), there-allotment price price at which any treasury shares (as defined by Sectionsection 106(1) of the Companies Act of 2014)Act) held by the Company may bere-allottedoff-market re-allotted off-market shall shall be as follows:
(a) The maximum price at which a treasury share may bere-allottedoff-market 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 isre-allotted by Seagate.
(b) The minimum price at which a treasury share may bere-allotted shall 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 Sectionsection 64(1) of the Companies Act 2014)Act) 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 isre-allotted by by Seagate.
(c) There-allotment price price range as determined by paragraphs (a) and (b) shall expire 18 months from the date of the passing of this resolution, unless previously varied, revoked or renewed in accordance with the provisions of Sectionsection 109 and/or Sectionsection 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 84 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 20172022 AGM.
THE BOARD RECOMMENDS THAT SHAREHOLDERS VOTE “FOR” THE PROPOSAL TO DETERMINE THE PRICE RANGE AT WHICH THE COMPANY CANRE-ALLOT SHARES HELD AS TREASURY SHARES.
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SEAGATE TECHNOLOGY HOLDINGS PLC
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth as of August 10, 2022, the beneficial ownership of our ordinary shares by each of our directors, each executive officer named in the Summary Compensation Table for Fiscal Year 2022, and all directors and executive officers of the Company as a group.
Name of Beneficial Owner | Number of Shares | Percentage of Class Owned(1) | ||||||
Directors and Named Executive Officers: | ||||||||
William D. Mosley (2) | 1,439,595 | * | ||||||
Gianluca Romano(3) | 82,538 | * | ||||||
Jeffrey D. Nygaard(4) | 277,432 | * | ||||||
Ravi Naik(5) | 126,276 | * | ||||||
B.S. Teh(6) | 34,356 | * | ||||||
Mark W. Adams(7) | 12,285 | * | ||||||
Shankar Arumugavelu(8) | 1,853 | * | ||||||
Prat S. Bhatt(9) | 3,096 | * | ||||||
Judy Bruner(10) | 13,987 | * | ||||||
Michael R. Cannon(11) | 30,802 | * | ||||||
Richard L. Clemmer(12) | 11,483 | * | ||||||
Jay L. Geldmacher(13) | 2,725 | * | ||||||
Dylan Haggart(14) | 3,742 | * | ||||||
Yolanda L. Conyers | 0 | * | ||||||
Stephanie Tilenius(14) | 6,210 | * | ||||||
Edward J. Zander(16) | 41,357 | * | ||||||
All Directors and Executive Officers as a group (15 persons)(17) | 2,087,737 | 1.0% |
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SEAGATE TECHNOLOGY HOLDINGS PLC | 2022 Proxy Statement |
2022 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. This information is as of August 10, 2022, except as otherwise indicated in the notes to the table.
Name and Address of Beneficial Owner | Number of Ordinary Shares Beneficially Owned | Percentage of Class | ||||||
JP Morgan Chase & Co.(18) | 11,801,627 | 5.7% | ||||||
783 Madison Ave. | ||||||||
New York, NY 10179 | ||||||||
BlackRock, Inc.(19) | 14,597,253 | 7.0% | ||||||
55 East 52nd Street | ||||||||
New York, NY 10055 | ||||||||
The Vanguard Group, Inc.(20) | 24,540,478 | 11.8% | ||||||
100 Vanguard Blvd. | ||||||||
Malvern, PA 19355 | ||||||||
ValueAct Capital(21) | 13,437,070 | 6.5% | ||||||
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 208,030,113 ordinary shares outstanding as of August 10, 2022. Each ordinary share is entitled to one vote. Ordinary shares issuable upon the exercise of options currently exercisable or exercisable within 60 days of August 10, 2022 and ordinary shares issuable pursuant to RSUs, TPSUs and PSUs vesting within 60 days of August 10, 2022 are deemed outstanding for the purpose of computing the percentage ownership of the person holding such options, RSUs, TPSUs and/or PSUs, but are not deemed outstanding for computing the percentage of any other person or group. |
(2) | Includes 563,381 ordinary shares held directly by Dr. Mosley, 825,860 ordinary shares subject to options that are currently exercisable or will become exercisable within 60 days of August 10, 2022, and 41,348 ordinary shares issuable pursuant to TPSUs that will vest within 60 days of August 10, 2022 and 9,006 ordinary shares issuable pursuant to RSUs that will vest within 60 days of August 10, 2022. Does not include 90,664 ordinary shares issuable pursuant to PSUs that are subject to vesting within 60 days of August 10, 2022. The 90,664 PSUs represent an annual target number of PSUs that may be earned by Dr. Mosley depending upon the Company’s performance. A lesser amount of such PSUs or a greater amount of up to two times the annual target may actually be received by Dr. Mosley. |
(3) | Includes 33,171 ordinary shares held directly by Mr. Romano, 39,108 ordinary shares subject to options that are currently exercisable or will become exercisable within 60 days of August 10, 2022 and 7,243 ordinary shares issuable pursuant to TPSUs that will vest within 60 days of August 10, 2022 and 3,016 ordinary shares issuable pursuant to RSUs that will vest within 60 days of August 10, 2022. Does not include 25,195 ordinary shares issuable pursuant to PSUs that are subject to vesting within 60 days of August 10, 2022. The 25,195 PSUs represent an annual target number of PSUs that may be earned by Mr. Romano depending upon the Company’s performance. A lesser amount of such PSUs or a greater amount of up to two times the annual target may actually be received by Mr. Romano. |
(4) | Includes 71,794 ordinary shares held by the Jeffrey D. Nygaard Revocable Trust U/A dated August 17, 2009, and 13,208 ordinary shares held directly by Mr. Nygaard, 176,607 ordinary shares subject to options that are currently exercisable or will become exercisable within 60 days of August 10, 2022, 2,615 ordinary shares issuable pursuant to RSUs that will vest within 60 days of August 10, 2022 and 13,208 ordinary shares issuable pursuant to TPSUs that will vest within 60 days of August 10, 2022. Does not include 25,195 ordinary shares issuable pursuant to PSUs that are subject to vesting within 60 days of August 10, 2022. The 25,195 PSUs represent an annual target number of PSUs that may be earned by Mr. Nygaard depending upon the Company’s performance. A lesser amount of such PSUs or a greater amount of up to two times the annual target may actually be received by Mr. Nygaard. |
(5) | Includes 29,133 ordinary shares held directly by Mr. Naik, 85,807 ordinary shares subject to options that are currently exercisable or will become exercisable within 60 days of August 10, 2022 and 11,336 ordinary shares issuable pursuant to RSUs that will vest within 60 days of August 10, 2022. Does not include 5,720 ordinary shares issuable pursuant to PSUs that are subject to vesting within 60 days of August 10, 2022. The 5,720 PSUs represent an annual target number of PSUs that may be earned by Mr. Naik depending upon the Company’s performance. A lesser amount of such PSUs or a greater amount of up to two times the annual target may actually be received by Mr. Naik. |
(6) | Includes 10,748 ordinary shares held directly by Mr. Teh, 14,612 ordinary shares subject to options that are currently exercisable or will become exercisable within 60 days of August 10, 2022 and 8,996 ordinary shares issuable pursuant to RSUs that will vest within 60 days of August 10, 2022. Does not include 6,240 ordinary shares issuable pursuant to PSUs that are subject to vesting within 60 days of August 10, 2022. The 6,240 |
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SEAGATE TECHNOLOGY HOLDINGS PLC | 2022 Proxy Statement |
2022 NOTICE OF MEETING AND PROXY STATEMENT |
PSUs represent an annual target number of PSUs that may be earned by Mr. Teh depending upon the Company’s performance. A lesser amount of such PSUs or a greater amount of up to two times the annual target may actually be received by Mr. Teh. |
(7) | Includes 12,285 ordinary shares held indirectly by the Mark Woolsey Adams and Maureen Madden Adams, Trustees Adams Family Trust DTD 10/27/2000. Mr. Adams is retiring from the Board as of the end of the 2022 AGM and will not stand for re-election. |
(8) | Includes 1,853 ordinary shares held directly by Mr. Arumugavelu. |
(9) | Includes 3,096 ordinary shares held directly by Mr. Bhatt. |
(10) | Includes 13,987 ordinary shares held indirectly by the Bruner Living Trust. |
(11) | Includes 23,917 ordinary shares held directly by Mr. Cannon and 6,885 ordinary shares held by the Michael R. Cannon Trust. |
(12) | Includes 11, 483 ordinary shares held by Mr. Clemmer as of August 23, 2022, the date of his appointment to the Board. |
(13) | Includes 2,725 ordinary shares held directly by Mr. Geldmacher. |
(14) | As a partner of ValueAct Capital, Mr. Haggart relinquishes all vested equity compensation received for service on our Board, with the exception of 3,742 ordinary shares held directly by Mr. Haggart, to the limited partners of ValueAct Capital Master Fund, L.P. Under an agreement with ValueAct Capital Management, L.P., Mr. Haggart is deemed to hold shares for the benefit of the limited partners of ValueAct Capital Master Fund, L.P. Mr. Haggart may be deemed to be the beneficial owner of the shares held by the ValueAct entities as described in note 21 below. Mr. Haggart disclaims beneficial ownership of these shares except to the extent of his pecuniary interest in ValueAct. |
(15) | Includes 6,210 ordinary shares held directly by Ms. Tilenius. |
(16) | Includes 41,357 ordinary shares held by the Edward and Mona Zander Trust dated 4/19/1993. |
(17) | All Directors and current executive officers as a group (i) directly and indirectly hold 837,492 ordinary shares, (ii) hold 1,141,994 ordinary shares subject to options that are currently exercisable or will become exercisable within 60 days of August 10, 2022, (iii) hold 34,969 ordinary shares issuable pursuant to RSUs that will vest within 60 days of August 10, 2022, and (iv) hold 61,799 ordinary shares issuable pursuant to TPSUs that will vest within 60 days of August 10, 2022. The 153,014 PSUs that are subject to vesting within 60 days of August 10, 2022 represent an annual target number of PSUs that may be earned collectively by the executive officers depending upon the Company’s performance and are not included. A lesser amount of such PSUs or a greater amount of up to two times the executive officers’ respective annual targets may actually be received by the executive officers. |
(18) | Based solely on information reported by JP Morgan Chase &Co., on the Schedule 13G filed with the SEC on January 28, 2022, and reporting ownership as of December 31, 2021. JP Morgan Chase & Co. has sole voting power over 11,037,082 ordinary shares, shared voting power over 66,684 ordinary shares, sole dispositive power over 11,723,776 ordinary shares and shared dispositive power over 73,794 ordinary shares. |
(19) | Based solely on information reported by BlackRock, Inc. (“BlackRock”) on the Schedule 13G filed with the SEC on February 4, 2022, and reporting ownership as of December 31, 2021. BlackRock has sole voting power over 12,950,265 ordinary shares and sole dispositive power over 14,597,253 ordinary shares. |
(20) | Based solely on information reported by The Vanguard Group, Inc. (“Vanguard”) on the tenth amendment to Schedule 13G filed with the SEC on February 10, 2022, and reporting ownership as of December 31, 2021. Vanguard has sole voting power over 0 ordinary shares, shared voting power over 293,266 ordinary shares, sole dispositive power over 23,734,780 ordinary shares and shared dispositive power over 805,698 ordinary shares. |
(21) | Based solely on information reported by ValueAct Capital Master Fund, L.P., ValueAct Capital Master Fund B, L.P. and their affiliates on the eighth amendment to Schedule 13D filed with the SEC on February 22, 2022 and reporting ownership as of February 17, 2022. The 13,437,070 ordinary shares held by ValueAct Capital Master Fund, L.P. may be deemed to be indirectly beneficially owned by (i) VA Partners I, LLC as General Partner of ValueAct Capital Master Fund, L.P., (ii) ValueAct Capital Management, L.P. as the manager of ValueAct Capital Master Fund, L.P., (iii) ValueAct Capital Management, LLC as General Partner of ValueAct Capital Management, L.P., (iv) ValueAct Holdings, L.P. as the majority owner of the membership interests of VA Partners I, LLC, (v) ValueAct Holdings II, L.P. as the sole owner of the membership interests of ValueAct Capital Management, LLC and as the majority owner of the limited partnership interests of ValueAct Capital Management, L.P., and (vi) ValueAct Holdings GP, LLC as General Partner of ValueAct Holdings, L.P. and ValueAct Holdings II, L.P. |
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SEAGATE TECHNOLOGY HOLDINGS PLC | 2022 Proxy Statement |
2022 NOTICE OF MEETING AND PROXY STATEMENT |
EQUITY COMPENSATION PLAN INFORMATION
The following table sets forth information concerning the Company’s equity compensation plans as of June 30, 2017.July 1, 2022.
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 | |||||||||||||||||||||
Plan Category | Number of Securities 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) | 1,603,378 (1) | $ | 49.26 (2) | 14,095,742 (3) | |||||||||||||||||
Equity compensation plans not approved by shareholders | — | — | — | |||||||||||||||||||||
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Total | 5,665,250 | $39.24 | 31,589,031 | 1,603,378 | $ | 49.26 | 14,095,742 |
(1) | Represents 1,602,258 ordinary shares that were subject to issuance upon the exercise of share options granted under the |
(2) | This value is calculated based on the exercise price of options outstanding under the |
(3) | Represents 14,095,742 ordinary shares available for future issuance under the |
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DELINQUENT SECTION 16(A) BENEFICIAL OWNERSHIP REPORTS
Section 16(a) of the Exchange Act, as amended, requires our directors and certain 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 our knowledge, based solely on our review of the copies of Section 16(a) reports and amendments thereto furnished to us during and with respect to fiscal year 2022 and on written representations from certain reporting persons, all reportable transactions during fiscal year 2022 were reported on a timely basis, except for seven Forms 4 filed on September 14, 2021, with respect to ordinary shares withheld to cover tax liabilities pertaining to the vesting of securities previously reported for Dr. Mosley and Messrs. Naik, Nygaard, Romano, Fochtman, Teh, and Ms. Schuelke, which were late due to an administrative oversight; four Forms 4 filed on September 15, 2021, with respect to ordinary shares withheld to cover tax liabilities pertaining to the vesting of securities previously reported for Dr. Mosley and Messrs. Nygaard, Fochtman, and Teh, which were late due to an administrative oversight; one Form 4 filed on November 9, 2021, which was late due to an administrative error resulting in the delayed notification of ordinary shares sold by Mr. Naik; one Form 5 and a 5/A filed, amending the prior form, on October 22, 2021, and November 19, 2021,respectively, with respect to the gifting of ordinary shares, which was late due to an administrative oversight for former director, Mr. Luczo; one Form 4/A filed on January 10, 2022, correcting a mistake relating to a transfer of ordinary shares by Mr. Nygaard, which was due to an administrative oversight; and one Form 4 filed on February 23, 2022, with respect to ordinary shares withheld to cover tax liabilities pertaining to the vesting of securities previously reported for Mr. Romano, which was late due to an administrative oversight.
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SEAGATE TECHNOLOGY HOLDINGS PLC | 2022 Proxy Statement |
2022 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 ordinary 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, the Related Person must promptly report it to the Chief Legal Officer of the Company or their 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 considers, among other factors, the extent of the Related Person’s interest; whether the transaction would interfere with the Related Person’s judgment in fulfilling their 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 the NASDAQ listing rules or qualifications to serve on Board committees under the Company’s Corporate Governance Guidelines and applicable NASDAQ and SEC rules. The Board has delegated authority to the Chairperson 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 Chairperson is provided to the full Nominating and Corporate Governance Committee for its review at the next scheduled committee meeting after such approval. 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 February 22, 2022. Pursuant to the Observer Rights Agreement, ValueAct is entitled to one seat as a board observer provided that it continues 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 to the ValueAct board observer at the Board’s discretion and ValueAct is required to comply with the terms of a 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. On April 12, 2018, the Company and ValueAct amended and restated the confidentiality agreement.
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SEAGATE TECHNOLOGY HOLDINGS PLC | 2022 Proxy Statement |
2022 NOTICE OF MEETING AND PROXY STATEMENT |
SHAREHOLDER PROPOSALS AND NOMINATIONS
Any proposal by a shareholder intended to be included in our Proxy Statement for the 20182023 AGM must be received by the Company at its registered office at 38/39 Fitzwilliam Square, Dublin 2, D02 NX53, Ireland, Attn:Attention: Company Secretary, no later than May 2, 2018.4, 2023. 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 20182023 Proxy Statement.
The Company’s Articles of Association setConstitution sets forth procedures to be followed by shareholders who wish to nominate candidates for election to the Board in connection with the annual general meetings of shareholders or who wish to bring other business before a shareholders’ general meeting. All such nominations must be accompanied by certain background and other information specified in the Articles of Association.Constitution. A shareholder wishing to nominate a director for the 20182023 AGM must provide written notice to the Company Secretary of their intention to make such nomination no earlier than April 2, 20184, 2023 and no later than May 2, 2018,4, 2023, that is by a date not less than 120 nor more than 150 days before the anniversary of the mailing of the Proxy Statement for our prior year’s annual general meeting and if such date occurs on a public holiday or a weekend, the next business day following such date.meeting. If the date of the 20182023 AGM occurs more than 30 days before or after the anniversary of the 20172023 AGM, then the written notice must be provided to the Company Secretary no earlier than the 150th day prior to the date of the 20182023 AGM and not later than the later of the 120th day prior to the date of the 20182023 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 20182023 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 16, 2018,18, 2023, the Company-designated proxy holders will have discretionary authority to vote on any such proposal at the 20182023 AGM with respect to all proxies submitted to us, even when we do not include in our Proxy Statement advice on the nature of the matter and how the Company-designated proxy holders intend to exercise their discretion to vote on the matter. If the date of the 20182023 AGM occurs more than 30 days before or after the anniversary of the 20172023 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 20182023 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 business item and the reasons the proposing shareholder believes its position concerning the business item. These requirements are separate from and in addition to the requirements a shareholder must meet to have a proposal included in our 20182023 Proxy Statement.
In addition, to comply with newly-enacted Rule 14a-19 of the Exchange Act, shareholders must provide notice of the intent to solicit proxies in support of director nominees (other than our nominees) for the 2023 AGM by notifying our Secretary no later than August 25, 2023. Please note that the notice requirement under Rule 14a-19 is in addition to the applicable notice requirements under the Company’s Constitution as described above. 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 Nominating and Corporate Governance Committee considers potential candidates recommended by current directors, Seagate officers and employees, and others. As stated in the Company’s Corporate Governance Guidelines and the Nominating and Corporate Governance Charter, all candidates for Board membership are selected based upon, theiramong other things, professional experience, recognized achievementunderstanding of business and financial issues, ability to exercise sound judgment, leadership, achievements, knowledge, and experience in his or her respective field, willingness to makematters affecting the commitment of timeCompany’s business and effort required, good judgment, strength of character, reputationindustry. Please also see “Board Diversity” above for integrity and personal and professional ethics, and an independent mind.additional relevant considerations the Board takes into account. Candidates recommended by shareholders are evaluated inon substantially the same mannerbasis as director candidates identified by any other means.
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SEAGATE TECHNOLOGY HOLDINGS PLC | 2022 Proxy Statement |
2022 NOTICE OF MEETING AND PROXY STATEMENT |
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 also provides any shareholder or shareholders holding not less than 10% of thepaid-up share capital of the
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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’s registered office, which is signed by the shareholders requisitioning the meeting and states the objects of the meeting. meeting, at Seagate’s registered office set forth above.
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 Statement under the rules of the SEC.
If a shareholder wishes to communicate with the Board for any other reason, all such communications should be sent in writing, care of the Company Secretary, at the address set forth above.
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 hertheir interest that brings his or hertheir 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’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’s interests that gave rise to the notification requirement. If a person fails to comply with these notification requirements, the person’s interest with respect to 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 of the Compensation Committee” and “Report of the Audit and Finance 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 websitewebsites 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,statutory financial statements, both for the fiscal year ended June 30, 2017,2022, 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 Holdings plc, 10200 S. De Anza Boulevard, Cupertino, California 95014,47488 Kato Road, Fremont, CA 94538, or upon calling +1(408) 658-1222.+1.510.661.1600.
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SEAGATE TECHNOLOGY HOLDINGS PLC | 2022 Proxy Statement |
2022 NOTICE OF MEETING AND PROXY STATEMENT |
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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continues to receive a separate proxy card. This procedure is referred to as “householding.” While the Company does not householdfollow the householding procedure in mailings to its shareholders of record holders, a number of brokerage firmsbrokers with account holders who are Company shareholders have instituted householding. In these cases, a single Proxy Statement and Annual Report on Form 10-K 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 hertheir broker that the broker will be householding communications to the shareholder’s address, householding will continue until the shareholder is notified otherwise or until the shareholder revokes his or hertheir consent. If at any time a shareholder no longer wishes to participate in householding and would prefer to receive a separate proxy statementProxy Statement and annual report, he or sheAnnual Report on Form 10-K, they should notify his or hertheir broker. Any shareholder can receive a copy of the Company’s Proxy Statement and Annual Report on Form 10-Kby contacting the Company at Investor Relations, Seagate Technology Holdings plc, 10200 S. De Anza Boulevard, Cupertino, California 95014.47488 Kato Road, Fremont, CA 94538. Shareholders who hold their shares through a broker or other nominee who currently receive multiple copies of the Proxy Statement and Annual Report on Form 10-K at their address and would like to request householding of their communications should contact their broker.
By Order of the Board,
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Katherine E. Schuelke Senior Vice President, Chief Legal Officer andCompanySecretary |
August 30, 2017September 1, 2022
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SEAGATE TECHNOLOGY PLC EMPLOYEE STOCK PURCHASE PLAN
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Appendix A
SEAGATE TECHNOLOGYHOLDINGS PLC
DIRECTORS’ REPORT AND FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 June 20171 JULY 2022
Table of Contents
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A-4 | ||||
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SEAGATE TECHNOLOGY HOLDINGS PLC
COMPANY INFORMATION
FOR THE YEAR ENDED 30 June 20171 JULY 2022
DIRECTORS | ||||
Mark W. Adams (United States) | ||||
Shankar Arumugavelu (United States) | ||||
Prat S. Bhatt (United States) | ||||
Judy Bruner (United States) | ||||
Michael R. Cannon (United States) | ||||
Yolanda L. Conyers (United States) | ||||
Jay L. Geldmacher (United States) | ||||
Dylan Haggart (United States) | ||||
William D. Mosley (United States) | ||||
Stephanie Tilenius (United States) | ||||
Edward J. Zander (United States) | ||||
SECRETARY | Katherine E. Schuelke | |||
REGISTERED OFFICE | 38/39 Fitzwilliam Square, | |||
Dublin 2, Ireland. | ||||
D02 NX53 | ||||
REGISTERED NUMBER OF INCORPORATION | 606203 | |||
| Arthur Cox, | |||
Ten Earlsfort Terrace, | ||||
Dublin 2 | ||||
D02 T380. | ||||
| Ernst & Young, | |||
Chartered Accountants, | ||||
Ernst & Young Building, | ||||
Harcourt Centre, | ||||
Harcourt Street, | ||||
Dublin 2. |
SEAGATE TECHNOLOGY HOLDINGS PLC
DIRECTORS’ REPORT
FOR THE YEAR ENDED 30 June 20171 July 2022
The directors present herewith their report and audited consolidated financial statements of Seagate Technology Holdings plc and its subsidiaries for the year ended 30 June 2017.1 July 2022.
In this Directors’ Report, unless the context indicates otherwise, as used herein, the terms “we,” “us,” “group,” “Seagate,” the “Company” and “our” refer to the Seagate Group.group.
REVIEW OF THE DEVELOPMENT OF THE BUSINESS
We are a leading provider of data storage technology and infrastructure solutions. Our principal products are hard disk drives, commonly referred to as disk drives, hard drives or HDDs. In addition to HDDs, we produce a broad range of data storage products including solid state drives (“SSD”SSDs”) and their related controllers,, solid state hybrid drives (“SSHD”SSHDs”), storage subsystems, and offer storage subsystems.solutions such as a scalable edge-to-cloud mass data platform that includes data transfer shuttles and a storage-as-a-service cloud.
Hard disk drivesHDDs are devices that store digitally encoded data on rapidly rotating disks with magnetic surfaces. Disk drivesHDDs continue to be the primary medium of mass data storage due to their performance attributes, reliability, high capacities, superior quality and cost effectiveness. Complementing existing data center storage architecture, solid-state storage devicesarchitectures, SSDs use integrated circuit assemblies as memory to store data, and most SSDs use NAND-basedNAND flash memory. In additioncontrast to HDDs and SSDs, SSHDs combine the features of SSDs and HDDs in the same unit, containing a large hard disk drivehigh-capacity HDD and ana smaller SSD acting as a cache to improve performance of frequently accessed data.performance.
Our HDD products are designed for mission criticalmass capacity storage and nearline applicationslegacy markets. Mass capacity storage involves well-established use cases—such as hyperscale data centers and public clouds as well as emerging use cases. Legacy markets are those that we continue to sell to but we do not plan to invest in enterprise serverssignificantly. Our HDD and storage systems; client compute applications, where our products are designed primarily for desktopSSD product portfolio includes Serial Advanced Technology Attachment (“SATA”), Serial Attached SCSI (“SAS”) and mobile computing; and clientnon-computeNon-Volatile applications, where our products are designed forMemory Express (“NVMe”) based designs to support a wide variety of end user devices such as portable external storage systems, surveillance systems, network-attached storage (“NAS”), digital video recorders (“DVRs”)mass capacity and gaming consoles.legacy applications.
Our cloud systems and solutions extend innovation from the device into the information infrastructure, onsite and in the cloud. Our portfolio includes modular original equipment manufacturer (“OEM”) storage systems andsubsystems for enterprises, cloud service providers, scale-out storage servers.servers and original equipment manufacturers (“OEMs”). Engineered for modularity, mobility, capacity and performance, these solutions include our enterprise HDDs and SSDs, enabling customers to integrate powerful, scalable storage within existing environments or create new ecosystems from the ground up in a secure, cost-effective manner.
Our Lyve portfolio provides a simple, cost-efficient and secure way to manage massive volumes of data across the distributed enterprise. The Lyve platform includes a shuttle solution that enables enterprises to transfer massive amounts of data from endpoints to the core cloud, a storage-as-a-service cloud offering that provides frictionless mass capacity storage at the metro edge, and Cortx, an open-source object storage software optimized for mass capacity and data intensive workloads.
Industry Overview
Data Storage Industry
The data storage industry is comprised ofincludes companies that manufacture components or subcomponents designed for data storage devices, and companies that provideas well as providers of storage solutions, software and services for enterprise cloud, big data, computing platforms and computing platforms.
Markets
consumer markets. The principal markets served byrapid growth of data generation and the intelligent application of data are driving demand for data storage. As more data is created at endpoints outside traditional data centers, which requires processing at the edge and in the core or cloud, the need for data storage industry are:
Enterprise Storage.We define enterprise storage as dedicated storage area networks and hyperscalemanagement between the edge and cloud storage environments. Enterprise data centers run solutions which are designed for mission critical performancehas also increased. Use cases include connected and nearline high capacity applications.
Mission critical applications are defined as those that are vital to the operation of large-scale enterprise workloads, requiring high performanceautonomous vehicles, smart manufacturing 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 data centers by cloud service providers and other enterprises which utilize high capacity nearline devices.
Enterprise serial 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.Non-Volatile Memory Express (“NVMe”) SSDs andadd-in cards are designed to optimize enterprise applications with a persistent, high-performance, high-capacity memory design. They also leverage flash and software to accelerate any server virtualized deployment and moves any big data to the realm of real time.
Client Compute.We define client compute applications as solutions designed for desktop and mobile compute applications ranging from traditional laptops, tablets and convertible 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 branded external hard drives.
ClientNon-Compute. We define clientnon-compute applications as solutions designed for consumer electronic devices and disk drives used for external storage. Disk drives designed for consumer electronic devices are primarily used in applications such as surveillance systems, NAS and DVRs that require a higher capacity, lowcost-per-gigabyte storage solution. Disk drives for external storage is designed for purposes such as portable external storage, and to augment storage capacity in the consumer’s current desktop, notebook, tablet or DVR devices.smart cities. We believe the proliferation and personal creation of media-rich digital content, further enabled by fifth-generation wireless (“5G”) technology, the edge, the Internet of Things (“IoT”), machine learning (“ML”) and artificial intelligence (“AI”), will continue to create increasing consumer demand for higher capacity storage solutions. The resulting mass data ecosystem is expected to require increasing amounts of data storage at the edge, in the core and in between.
Markets
The principal data storage markets include:
Cloud SystemsMass Capacity Storage Markets
Mass capacity storage supports high capacity, low-cost per terabyte (“TB”) storage applications, including nearline, video and Solutions. We define cloud systemsimage applications (“VIA”) and solutions asnetwork-attached storage (“NAS”) and edge-to-cloud data storage infrastructures.
Nearline. Nearline applications require mass capacity devices and mass capacity subsystems that provide cloud basedend-to-end solutions to businesses for the purpose ofscale-out modular and scalable storage. Enterprise storage applications require both high-capacity and energy efficient storage devices to support low total cost of ownership. Seagate systems offer mass capacity storage solutions that provide foundational infrastructure for public and modular systems. Systems can containprivate clouds. The nearline market includes storage for cloud computing, content delivery, archival, backup services and newer use cases.
VIA and NAS. VIA and NAS drives are specifically designed to ensure the appropriate performance and reliability of the system for video analytics and camera enabled environments or network storage environments. These markets include storage for security and smart video installations.
Edge-to-cloud data storage infrastructures, transport, and activation of mass data. The Seagate Lyve portfolio grew out of our mass capacity storage portfolio. It provides a simple, cost-efficient and secure way to manage, transport and activate massive volumes of data across the distributed enterprise. Among other elements, the Lyve portfolio includes a shuttle solution that enables enterprises to transfer vast amounts of data from endpoints to the core cloud and a storage-as-a-service cloud that provides frictionless mass capacity storage at the metro edge.
Legacy Markets
Legacy markets include consumer, mission critical and client applications. We continue to sell to these markets but do not plan significant additional investment.
Consumer storage. Consumer applications are externally connected storage, both HDD and SSD-based, used to provide backup capabilities, augmented storage capacity, or portable storage for PCs, mobile devices and gaming consoles.
Mission critical storage. Mission critical applications are defined as those that use very high-performance enterprise class HDDs and SSDs with sophisticated firmware to reliably support very high workloads. We expect that enterprises utilizing dedicated storage area networks will continue to drive market demand for mission critical enterprise storage solutions.
Client storage. Client applications include desktop and can offer file managementnotebook storage that rely on low cost-per-HDD and SSD devices to provide built-in storage, digital video recorder (“DVR”) storage for video streaming in always-on consumer premise equipment and media center, and gaming storage for PC-based gaming systems software,as well as console gaming applications including both internal and even compute power.external storage options.
Participants in the data storage industry include:
Major subcomponent manufacturers.Companies that manufacture components or subcomponents used in data storage devices or solutions include companies that supply spindle motors, heads and media, and application specific integrated circuits (“ASICs”).
Hardware storage solutionsStorage device manufacturers.Companies that transform components into storage products include disk drive manufacturers and semiconductor storage manufacturers which include integratingthat integrate flash memory into storage products such as SSDs.
SystemStorage solutions manufacturers and system integrators. Companies, such as OEMs,Original Equipment Manufacturers (“OEMs”), that bundle and package storage solutions, into client compute, clientnon-compute or enterprise applications as well as enterprise storage solutions. Distributorsdistributors that integrate storage hardware and software intoend-user applications, and Cloud Service Providerscloud service providers (“CSP”CSPs”) that provide cloud based solutions to businesses for the purpose ofscale-out storage solutions and modular systems, thatand producers of solutions such as storage racks.
Hyperscale data centers.Large hyperscale data center companies, many of which are also includedCSPs, are increasingly designing their own storage subsystems and having them built by contract manufacturers for their own data centers. This trend is reshaping the
storage system and subsystem market, driving both innovation in this category.system design and changes in the competitive landscape of large storage system vendors.
Storage services. Companies that provide and host services and solutions, which include storage, backup, archiving, recovery and discovery of data.
Hyperscale Data Centers.Increasingly, large hyperscale data center companies are designing their own storage subsystems and having those built by contract manufacturers for use inside their own data centers. This trend is reshaping the storage system and subsystem market and driving innovation in system design and changes in the competitive landscape of the large storage system vendors.
Demand for Data Storage
In the Seagate-sponsored “Worldwide Global DataSphere Forecast, 2022-2026”, the International Data Corporation (“IDC”) forecasted that the global datasphere should grow from 84 zettabytes in 2021 to 221 zettabytes by 2026. According to IDC, we are fast approaching a new era of the Data Age, which we expect will have a positive impact on storage demand. The digital transformation has given rise to many new applications, all of which rely on faster access to and secure storage of data proliferating from endpoints through edge to cloud.
The continued advancementDataSphere Forecast study found that data is shifting to both the core and the edge, and by 2026 nearly 65% of the world’s data will be stored in the core and edge, up from 41% in 2016.
As more applications require real-time decision making, some data processing and storage is moving closer to the network edge. We believe this will result in a buildup of private and edge cloud environments that will enable fast and secure access to data throughout the proliferation of a variety of mobile devices globally, development of the Internet of 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. IoT ecosystem.
Factors contributing to the growth of digital content include:
Creation, sharing and consumption of media-rich digital content, such as high-resolution photos, high definition video,videos and digital music through smart phones, tablets, digital cameras, personal video cameras, DVRs, gaming consoles or other digital devices;
Increasing use of video and distribution of digital content through servicesimaging sensors to collect and other offerings suchanalyze data used to improve traffic flow, emergency response times and manufacturing production costs, as Facebook®, Instagram®, iTunes®, Netflix®, Google® and YouTube®;
Creation and collection of data through the development and evolution of the IoT ecosystem, big data analytics, AI and new technology trends such as self-driving carsautonomous vehicles and drones;drones, smart manufacturing, and smart cities, as well as emerging trends that converge the digital and physical worlds such as the metaverse or use of digital twins;
The growing use of analytics, especially for action on data created at the edge instead of processing and analyzing at the data center, which is particularly important for verticals such as autonomous vehicles, property monitoring systems, and smart manufacturing;
Cloud migration initiatives and the ongoing advancement of the cloud, including the build out of large numbers of cloud data centers by cloud service providersCSPs and private companies transitioningon-site data centers into the cloud; and
Need for protection of increased digital content through redundant storage on backup devices and externally provided storage services.
As a result of these factors, we anticipate that the nature and volume of contentdata being created requireswill require greater storage capability, which is more efficiently and economically facilitated by higher capacity mass storage devices in order to store, manage, distribute, analyze and backup such content. We expect this to support the growth in demand for data storage solutions in developed and emerging economies well into the future.devices.
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 IoT. In addition, the economics of storage infrastructure are also evolving with theevolving. The utilization of public and private hyper-scalehyperscale storage and open-source solutions is 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 data storage products and solutions going forward.
Demand Trends for Disk Drives
We believe that continued growth in digital content requirescreation will require increasingly higher storage capacity in order to store, aggregate, host, distribute, analyze, manage, backupprotect, back up and use such content. We also believe that as architectures evolve to serve thea growing commercial and consumer user base throughout the world, the manner in which hard drives are delivered to market and utilized by our customersstorage solutions will evolve as well.
We believe that in the foreseeable future the traditional enterprise
Mass capacity is and client compute markets that require high-capacity storage solutions, and the data intensive clientnon-compute markets will continue to be best served by hard disk drives duethe enabler of scale. We expect increased data creation will lead to the industry’s ability to deliverexpansion of the most cost effective, reliableneed for storage in the form of HDDs, SSDs and energy efficient mass storage devices althoughsystems. While the advance of solid state technology in the abovemany end markets is expected to increase, as well. Furthermore, the increased use of clientnon-compute deviceswe believe that both consume media-rich digital content streamed from the cloud and create rich digital content that is stored in the foreseeable future, cloud, increasesedge and traditional enterprise which require high-capacity storage solutions will be best served by HDDs due to their ability to deliver reliable, energy-efficient and the demand for high capacity hard disk drives in enterprise nearline applications.
most cost effective mass storage devices. We also believe that as hard disk driveHDD capacities continue to increase, a focus exclusively on unit demand does not reflect the increase in exabytes demand. In recent years, this trend has resulted in demand for exabytes. As demand for higher capacity drives increases, the demand profile has shifted to reflect fewer total HDD units, but with higher average capacity per drive.drive and higher overall exabyte demand.
Industry Supply Balance
From time to time, the HDDstorage industry has experienced periods of imbalance between supply and demand. To the extent that the disk drivestorage 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 TechnologyData Storage Technologies
The design and manufacturing of disk drivesHDDs depends on highly advanced technology and manufacturing techniques and thereforetechniques. Therefore, it 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 aroundfocus on the areal density of media and read/write head technologies. Using an integrated platformtechnologies, including innovations like shingled-magnetic-recording (“SMR”) technology, the high-capacity enabling heat-assisted magnetic recording (“HAMR”) technology, and the throughput-optimizing multi actuator MACH.2 technology. This design and manufacturing leverage approach allows us to deliver a portfolio of disk drivestorage products to service a wide range of data storage applications and industries.
Disk drives that we manufacture are commonly differentiated by the following key characteristics:
storage capacity, commonly expressed in TB, which is the amount of data that can be stored on the disk drive;
spindle rotation speed, commonly expressed in revolutions per minute (“RPM”), which has an effect on speed of access to data;
interface transfer rate, commonly expressed in megabytes per second, which is the rate at which data moves between the disk drive and the computer controller;
average seek time, commonly expressed in milliseconds, which is the time needed to position the heads over a selected track on the disk surface;
data transfer rate, commonly expressed in megabytes per second, which is the rate at which data is transferred to and from the disk drive;
product quality and reliability, commonly expressed in annualized return rates; and
energy efficiency, commonly measured by the power output such as energy per TB necessary to operate the disk drive.
Areal density is measured by storage capacity per square inch on the recording surface of a disk. The storage capacity of a disk drive is determined by the size and 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 rangealso offer SSDs as part of our products for expanding disk drive capacitiesstorage solutions portfolio. Our portfolio includes devices with SATA, SAS and reducing the numberNVMe interfaces. The SSDs differ from HDDs in that they are without mechanical parts.
SSDs store data on NAND flash memory cells, or metal-oxide semiconductor transistors using a charge on a capacitor to represent a binary digit. SSD technology offers fast access to data and robust performance. SSDs complement hyperscale applications, high-density data centers, cloud environments and web servers. They are also used in mission-critical enterprise applications, consumer, gaming and NAS applications.
The SSHDs that we manufacture contain technology that fuses some features of disksSSDs and heads per driveHDDs. They include HDDs with flash memory that acts as a cache to further reduce product costs.
Manufacturing
We primarily design and producemanufacture 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 suitedpositioned 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 costcosts by:
employing manufacturing automation;
employing machine learning algorithms and artificial intelligence;
improving product quality and reliability;
integrating our supply chain with suppliers and customers to enhance our demand visibility and reduce our working capital requirements;
coordinating between our manufacturing group and our research and development organization to rapidly achieve volume manufacturing; and
operating our facilities at optimal capabilities.capacities.
A vertically integrated model, however, tends to have less flexibility when demand moderatesdeclines as it exposes us to higher unit costs aswhen 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 controlledcontamination-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 recordingread/write heads and recording 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 recordingread/write 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 inrelated to 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 Data is written to or read from the media, or disk, as it rotates at very high speeds past the read/write head. The media is made fromnon-magnetic material,substrates, usually an 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.
Printed Circuit Board Assemblies.The printed circuit board assemblies (“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”); small computer system interface (“SCSI”); SAS;SATA, SCSI, or Fibre Channel (“FC”)SAS 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”) 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 testingmachine learning prior to packaging and shipment. Disk drive assembly and testmachine learning operations occur primarily at our 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,States (“US”).
Contract Manufacturing. We outsource the manufacturing and assembly of certain components and products to third parties manufacture and assemble components and disk drive assemblies for us in various countries worldwide. This includes outsourcing the PCBAs used in our disk drives, SSDs and storage subsystems. We continue to participate in the design of our components and products, and we are directly involved in qualifying key suppliers and components used in our products.
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 like us, who manufacture their own components, are less dependent on external component suppliers than less vertically integrated disk drive manufacturers. However, certain parts of our business have been adversely affected by our suppliers’ capacity constraints and this could occur in the future.
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 pricesprice and the supply of which has at times been constrained. In addition to increased costs of components and commodities, volatility in fuel and other transportation costs may also increase our costs related to commodities, manufacturing and freight. As a result, we may increase our use of ocean shipmentsalternative shipment methods to help offset any increase in freight costs, and we will continually review various forms of shipments and routes in order to minimize the exposure to higher freight costs.
Products
We offer a broad range of storage solutions for the enterprise, data center, client computemass capacity storage and clientnon-computelegacy applications. We offer more than one product within each product category and differentiate products on the basis of capacity, performance, product quality, reliability, 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 whichthat contribute to rapid product life cycles. We listCurrently our main current product offerings below.include:
Mass Capacity Storage
Enterprise Storage
Enterprise PerformanceNearline 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 RPMhigh-capacity enterprise HDDs ship in storage capacities ranging from 300GB to 2.4TB, and our 15,000 RPM HDDs ship in storage capacities ranging from 146GB to 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 12TB that mainly rotate at a speed of 7,200 RPM.20TB. These products
are designed for bulkmass capacity data storage in the core and at the edge, as well as server environments and cloud systems that require high capacity, enterprise reliability, energy efficiency and integrated security, andsecurity. They are available in 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.
Enterprise Nearline SSDs. Our enterprise SSDs are designed for high-performance, hyperscale, high-density and cloud applications. They are offered with multiple interfaces, including SAS, SSD are availableSATA, and NVMe and in capacities up to 3.8TB15TB.
Enterprise Nearline Systems. Our systems portfolio provides modular storage arrays, storage server platforms, multi-level configuration for disks (commonly referred as JBODs) and expansion shelves to expand and upgrade data center storage infrastructure and other enterprise applications. They feature 12GB per second interface to deliver the speed, scalability and consistency needed for demanding enterprise storagesecurity. Our capacity-optimized systems feature multiple scalable configurations and server applications. We also offer a wide range of NVMe and SATA interface SSDs andadd-in cards in our Nytro family with capacitiescan accommodate up to 7.7TB.106 20TB drives per chassis. We offer capacity and performance-optimized systems that include all-flash, all-disk and hybrid arrays for workloads demanding high performance, capacity and efficiency.
Client Compute
Desktop HDDs and SSHDs. Our3.5-inch desktop drives ship in both traditional HDD and SSHD configurations and offer up to 10TB of capacity. Desktop drives are designed for applications such as personal computers and workstations.
Mobile HDDs and SSHDs.VIA. Our family of2.5-inch laptop drives ship in a variety of capacities (up to 5TB)video and technologies (HDD and SSHD) to support mobile needs. Used in applications ranging from traditional laptops, convertible systems and external storage, our drives are built to address a range of performance needs and sizes for affordable, high capacity storage.
ClientNon-Compute
Surveillance HDDs. Our surveillance drivesimage HDDs are built to support the high-write workload of analways-on, always-recording video surveillance system.systems. These surveillance optimized drives are built to support the growing needs of the surveillancevideo imaging market with support for multiple hard drive (“HD”) streams and capacities up to 10TB.20TB.
NAS HDDs.NAS. Our NAS drives are built to support the performance and reliability demanded by small and medium businesses, and incorporate interface software with custom-built health management, error recovery controls, power settings and vibration tolerance. Our NAS HDD solutions are available in capacities up to 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 applications20TB. We also offer NAS SSDs with capacities up to 4TB2TB.
Legacy Applications
Mission Critical HDDs and SSDs. We continue to support leading-edge digital entertainment.
Gaming HDDs. Gaming10,000 and 15,000 RPM HDDs, are specifically optimized for console gaming usage. These products are designedoffered in capacities up to enhance gaming experience during game-load and game-play and2.4TB, which enable increased throughput while improving energy efficiency. Our enterprise SSDs are available in capacities up to 2TB.15TB, with endurance options up to 10 drive writes per day and various interfaces. Our SSDs deliver the speed and consistency required for demanding enterprise storage and server applications.
BrandedConsumer Solutions. Our external backup storage solutions, with capacities up to 20TB are shipped, under the Backup PlusSeagate Ultra Touch, One Touch, Expansion and ExpansionBasics product lines, as well as under the Maxtor and LaCie brand names. These product linesname. We strive to deliver the best customer experience by leveraging our core technologies, offering services such as Seagate Recovery Services (data recovery) and partnering with leading brands such as Microsoft’s Xbox, Sony’s PlayStation and Disney’s Star Wars and Marvel.
Client Applications. Our 3.5-inch desktop drives offer up to 8TB of capacity, designed for personal computers and workstation applications and our 2.5-inch notebook drives offer up to 5TB for HDD and up to 2TB for SSD designed for applications such as traditional notebooks, convertible systems and external storage to address a range of performance needs and sizes for affordable, high-capacity storage. Our DVR HDDs are availableoptimized for video streaming inalways-on consumer premise equipment applications with capacities up to 120TB.6TB. Ourgaming SSDs are specifically optimized internal storage for gaming rigs and are designed to enhance the gaming experience during game load and game play with capacities up to 4TB for SSD.
Lyve Edge-to-Cloud Mass Capacity Platform
Lyve. Lyve is our new platform built with mass data in mind. These solutions, including modular hardware and software, deliver a portfolio that streamlines data access, transport and management for today’s enterprise.
Cloud. Lyve Cloud storage-as-a-service platform is an S3-compatible storage-only cloud designed to allow enterprises to unlock the value of their massive unstructured datasets. We collaborate with certain partners to maximize accessibility and provide extensive interconnect opportunities for additional cloud services and geographical expansion.
Data Services. Lyve Mobile Data Transfer Services consists of Lyve Mobile modular and scalable hardware, purpose-built for simple and secure mass-capacity edge data storage, lift-and-shift initiatives, and other data movement for the enterprise. These products are cloud-vendor agnostic and can be integrated seamlessly with public or private cloud data centers and providers.
Cortx. Cortx is an intelligent object storage software that is optimized for mass capacity and data-intensive workloads. This software is open source and has cloud interoperability, including S3-compatibility.
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 | ||||||||
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 | % |
OEM customers, including large hyperscale data center companies and CSPs, 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 rightrights of return and price protection rights.protection. 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 2017 and 2016, Dell Inc. accounted for approximately 10% and 12% 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 Risks andUncertainties-We may be adversely affected by the loss of, or reduced, delayed or canceled purchases by, one or more of our major customers”
Competition
We compete primarily with manufacturers of hard drives used in the enterprise, client computemass capacity storage and clientnon-compute applications. We are also a supplier of Enterprise SSDs, NVMeadd-in cards, cloud storage solutionslegacy markets, and storage subsystems through our acquisitions. The markets that we participate 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 data storage industry that provide SSDs and NVMeadd-in technology.systems. Some of the principal factors used by customers to differentiate among 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,TB, 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 many of these factors in the markets that we currently address.compete in.
Principal Disk Drive Competitors. There are three companiesWe compete with manufacturers of storage solutions and the other principal manufacturers in the data storage solution industry that manufacture disk drives:including:
Micron Technology, Inc.;
Samsung Electronics;
SK hynix, Inc.;
Kioxia Holdings Corporation;
Toshiba Corporation; and Maxtor brands;
Western Digital Corporation, operating the Western Digital, Hitachi Global Storage Technologies subsidiaries and SanDisk; andSanDisk brands.
Other Competition.We are 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 market to satisfy the growing demand for data storage.
Price Erosion. Historically, our industry has been characterized by price declines for disk drivedata storage products with comparable capacity, performance and feature sets(“like-for-like products”). Price declines forlike-for-like products (“price erosion”) tend to be more pronounced during periods of:
economic contraction in which competitors may use discounted pricing to attempt to maintain or gain market share;
few new product introductions when competitors have comparable or alternative product offerings; and
industry supply exceeding demand.
Disk driveData storage manufacturers typically attempt to offset price erosion with an improved mix of disk drivedata storage products characterized by higher capacity, better performance and additional feature sets and product cost reductions.
We believe the HDD industry experienced modest price erosion in fiscal years 20172022 and 2016.2021.
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 andor economic declines. Further, there is a continuedcontinuing 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.
Cyclicality and Seasonality
The disk drive industryOur mass capacity markets are subject to variability of sales, which can be attributed to the timing of IT spending or a reflection of cyclical demand from CSPs based on the timing of their procurement and deployment requirements and their ability to procure other components needed to build out data center infrastructure. Our legacy markets, such as consumer storage applications, traditionally experiencesexperienced seasonal variability in demand with higher levels of demand in the secondfirst half of the calendar year. This seasonality isfiscal year, primarily driven by consumer spending in therelated to back-to-school season from late summer to fall and the traditional holiday shopping season from fall to winter. In fiscal year 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 the shift of the underlying technology. We believe fiscal year 2017 reflected seasonality consistent with historical patterns.season.
Research and Development
We are committed to developing new component technologies, products, and alternative storage technologies.technologies inclusive of systems, software and other innovative technology solutions to support emerging applications in data use and storage. Our research and development focus isactivities are 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 towardswe believe may lead to new business opportunities. The primary purpose of our advanced technology integration effort is to ensure timely availability of mature component technologies tofor our product development teams as well as allowingto allow 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 2017 and 2016, we had product development expenses of approximately $1,232 million and $1,237 million respectively, which represented 11% and 11% of our consolidated revenue, respectively.
Patents and Licenses
As of 30 June 2017,1 July 2022, we had approximately 5,6004,800 US patents and 1,300720 patents issued in various foreign jurisdictions as well as approximately 1,100550 US and 900140 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 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 data storage companies and component manufacturers with respect to patent licenses.
The 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 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 effect 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 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 US and foreign laws and regulations in the various jurisdictions in which we operate 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 US Comprehensive Environmental Response Compensation and Liability Act of 1980 (as amended, the “Superfund” law) a US 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 responsible or 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, basedBased 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,environmental matters, including those restricting the presence of certain substances in electronic products. For example, the European Union (“EU”) enacted the Restriction of the Use of Certain Hazardous Substances in Electrical and Electronic Equipment (2011/65/EU), 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, including in the United States,US, Canada, Mexico, Taiwan, China Japan and others.Japan. The European UnionEU REACH Directive (Registration, Evaluation, Authorization, and Restriction of Chemicals, EC 1907/2006) also restricts substances of very high concern (“SVHCs”) in products. If we or our suppliers fail 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 our business.
Employees
At 30 June 2017,As of 1 July 2022 we employed approximately 41,00040,000 employees and temporary employees worldwide, of which approximately 33,00036,000 were located in our AsianAsia operations. We believe that our employees are crucial to our current success and that our future success will depend, in part, on our ability to attract, retain and retainfurther motivate qualified employees at all levels. We believe that our employee relations are good.
REVIEW OF THE PERFORMANCE OF THE BUSINESS
Fiscal Year 20172022 Summary
During the fiscal year 2017,2022, we shipped 263631 exabytes generatingof HDD storage capacity. We generated revenue of $10.8$11.7 billion and gross marginprofit of 29%. Our30%, net income of $1.6 billion and diluted EPS of $7.36 and our operating cash flow was $1.9$1.7 billion. We increased our unsecured revolving credit facility (“Revolving Credit Facility”) to $1.75 billion, borrowed $1.2 billion under our new term loan facility and repaid $701 million of our long-term debt. We repurchased approximately 1220 million of our ordinary
shares during the year for approximately $460 million. We issued $750 million of 4.25% Senior Notes due 2022 and $500 million of 4.875% Senior Notes due 2024$1.8 billion and paid $316$610 million forin dividends.
Impact of COVID-19 Pandemic
The pandemic continues to impact our business and results of operations. During fiscal year 2022, we experienced the redemptionongoing impacts of supply chain disruptions, higher logistics, materials and repurchase of our outstanding debt,operational costs globally, as well as paid $561 millionother inflationary and macroeconomic pressures. Additionally, constraints from certain component shortages impacted our ability to fulfill demand primarily for our non-HDD business. Our customers also continued to experience certain supply chain and demand disruptions, resulting in dividendsdemand variations across certain of our end markets, including impacts from periodic governmental lockdown measures. We expect these factors will continue to impact our business and results of operations over the near term.
We continue to actively monitor the effects and potential impacts of the pandemic, inflation and other macroeconomic factors on all aspects of our business, supply chain, liquidity and capital resources including governmental policies that could
periodically shut down an entire city where we, our suppliers or our customers operate. We are also actively working on opportunities to lower our cost structure, drive further operational efficiencies and maintain supply chain discipline including adjusting our manufacturing production plans in fiscal year 2017.response to these business conditions. We are complying with governmental rules and guidelines across all of our sites. Although we are unable to predict the future impact of the pandemic on our business, results of operations, liquidity or capital resources at this time, we expect we will continue to be negatively affected if the pandemic and related public and private health measures result in substantial manufacturing or supply chain challenges, substantial reductions or delays in demand due to disruptions in the operations of our customers or partners, disruptions in local and global economies, volatility in the global financial markets, sustained reductions or volatility in overall demand trends, restrictions on the export or shipment of our products or our customer’s products, or other unexpected ramifications from the pandemic. For further discussion of the uncertainties and business risks associated with the pandemic, see the “Principal Risk and Uncertainties” section of the Directors’ Report.
Results of Operations
We list in the tables below summarized information from our Consolidated Profit and Loss Account by dollarsdollar amounts and as a percentage of revenue:
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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Fiscal Years Ended | Fiscal Years Ended | |||||||||||||||
(as a percentage of Revenue) | 30 June 2017 | 1 July 2016 | ||||||||||||||
(US Dollars in millions) | 1 July 2022 | 2 July 2021 | ||||||||||||||
Revenue | 100% | 100% | $ | 11,661 |
| $ | 10,681 |
| ||||||||
Cost of revenue | 71 | 77 |
| 8,192 |
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| 7,764 |
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Gross profit | 29 | 23 | 3,469 | 2,917 | ||||||||||||
Product development | 11 | 11 |
| 941 |
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| 903 |
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Marketing and administrative | 5 | 6 |
| 559 |
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| 502 |
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Amortization of intangibles | 1 | 1 |
| 11 |
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| 12 |
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Restructuring and other, net | 2 | 2 |
| 3 |
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| 8 |
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Operating earnings | 10 | 4 | 1,955 | 1,492 | ||||||||||||
Other income and charges, net | (2) | (2) |
| (276 | ) |
| (144 | ) | ||||||||
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Income before taxes | 8 | 2 | 1,679 | 1,348 | ||||||||||||
Income tax expense | 1 | — |
| 30 |
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| 34 |
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Net income | 7% | 2% | $ | 1,649 | $ | 1,314 | ||||||||||
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Fiscal Years Ended | ||||||||
(As a percentage of Revenue) | 1 July 2022 | 2 July 2021 | ||||||
Revenue |
| 100 | % |
| 100 | % | ||
Cost of revenue |
| 70 |
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| 73 |
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Gross margin | 30 | 27 | ||||||
Product development |
| 8 |
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| 8 |
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Marketing and administrative |
| 5 |
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| 5 |
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Amortization of intangibles |
| — |
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| — |
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Restructuring and other, net |
| — |
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| — |
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Operating margin |
| 17 |
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| 14 |
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Other income and charges, net |
| (3 | ) |
| (2 | ) | ||
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Income before taxes |
| 14 |
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| 12 |
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Income tax expense |
| — |
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| — |
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Net income |
| 14 | % |
| 12 | % | ||
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The following table summarizes HDD information regarding average drive selling prices (“ASPs”), exabytes shipped, andconsolidated revenues by channel, geography, and geography:market and HDD exabytes shipped by market and price per terabyte:
Fiscal Years Ended | Fiscal Years Ended | |||||||||||||||
30 June 2017 | 1 July 2016 | 1 July 2022 | 2 July 2021 | |||||||||||||
ASPs (US Dollars per unit) | $ | 66 | $ | 61 | ||||||||||||
Exabytes Shipped | 263 | 233 | ||||||||||||||
Revenues by Channel (%) | ||||||||||||||||
OEMs | 67% | 69% |
| 75 | % |
| 69 | % | ||||||||
Distributors | 18% | 17% |
| 14 | % |
| 18 | % | ||||||||
Retailers | 15% | 14% |
| 11 | % |
| 13 | % | ||||||||
Revenues by Geography (%) | ||||||||||||||||
Revenues by Geography (%) (1) | ||||||||||||||||
Asia Pacific |
| 46 | % |
| 49 | % | ||||||||||
Americas | 31% | 29% |
| 40 | % |
| 34 | % | ||||||||
EMEA | 17% | 17% |
| 14 | % |
| 17 | % | ||||||||
Asia Pacific | 52% | 54% | ||||||||||||||
Revenues by Market (%) | ||||||||||||||||
Mass capacity | 68 | % | 60 | % | ||||||||||||
Legacy | 23 | % | 32 | % | ||||||||||||
Other | 9 | % | 8 | % | ||||||||||||
HDD Exabytes Shipped by Market | ||||||||||||||||
Mass capacity | 541 | 417 | ||||||||||||||
Legacy | 90 | 118 | ||||||||||||||
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Total | 631 | 535 | ||||||||||||||
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HDD Price per Terabyte | $ | 17 | $ | 18 |
(1) Revenue is attributed to geography based on the bill from location.
Revenue
Fiscal Years Ended | Fiscal Years Ended | Change | % Change | |||||||||||||||||||||||||||||
(US Dollars in millions) | 30 June 2017 | 1 July 2016 | Change | % Change | 1 July 2022 | 2 July 2021 | ||||||||||||||||||||||||||
Revenue | $ | 10,771 | $ | 11,160 | $ (389) | (3)% | $ | 11,661 |
| $ | 10,681 |
| $ | 980 |
|
| 9 % |
|
Revenue in fiscal year 2017 decreased2022 increased approximately 3%9% or $0.4 billion,$980 million, from fiscal year 2016, as a result of price erosion2021, primarily due to an increase in mass capacity exabytes shipped, partially offset by an increasea decrease in legacy exabytes shipped.
Gross Profit
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 2017, gross margin The mass capacity storage markets continued to increase as a percentage of our total revenue and exabytes shipped in fiscal year 2022. We expect this transition from legacy to mass capacity storage markets will continue, resulting in mass capacity continuing to increase as a percentage of our total revenue and total exabytes shipped in fiscal year 2023 and beyond. The long-term outlook for legacy markets is for a decrease in exabyte demand.
Cost of Revenue and Gross Profit
Fiscal Years Ended | Change | % Change | ||||||||||||||
(US Dollars in millions) | 1 July 2022 | 2 July 2021 | ||||||||||||||
Cost of revenue | $ | 8,192 |
| $ | 7,764 |
| $ | 428 |
|
| 6 | % | ||||
Gross profit | $ | 3,469 |
| $ | 2,917 |
| $ | 552 |
|
| 19 | % | ||||
Gross profit percentage |
| 30 | % |
| 27 | % |
For fiscal year 2022, gross margin increased by 600 basis points compared to the prior fiscal year primarily due to a favorablean increase in mass capacity exabytes shipped and improved product mix and improved factory utilization resulting from cost savings due to our ongoing workforce reductions and manufacturing consolidation activities,shift towards higher capacity HDDs, partially offset by price erosion.higher component and logistics costs resulting from the pandemic and global inflationary pressures.
Operating Expenses
Fiscal Years Ended | ||||||||||||||||
(US Dollars in millions) | 30 June 2017 | 1 July 2016 | Change | % Change | ||||||||||||
Product development | $ | 1,232 | $ | 1,237 | $ | (5) | — % | |||||||||
Marketing and administrative | 606 | 635 | (29) | (5)% | ||||||||||||
Amortization of intangibles | 104 | 123 | (19) | (15)% | ||||||||||||
Restructuring and other, net | 178 | 175 | 3 | 2 % | ||||||||||||
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Operating expenses | $ | 2,120 | $ | 2,170 | $ | (50) | ||||||||||
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(US Dollars in millions) Product development $ 941 $ 903 $ 38 4 % Marketing and administrative 559 502 57 11 % Amortization of intangibles 11 12 (1 ) (8 )% Restructuring and other, net 3 8 (5 ) (63 )% Operating expenses $ 1,514 $ 1,425 $ 89 Fiscal Years Ended Change %
Change 1 July 2022 2 July 2021
Product Development Expense.Product development expenses for fiscal year 2017 decreased2022 increased by $38 million from fiscal year 20162021 primarily due to a $102$25 million increase in materials expense, a $17 million increase in depreciation expenses, an $8 million increase in compensation and other employee benefits as a result of increase in share-based compensation and a $3 million increase in equipment expense, partially offset by a $12 million decrease in salariesoutside services expense and relateda $9 million decrease in variable compensation expense.
Marketing and Administrative Expense. Marketing and administrative expenses for fiscal year 2022 increased by $57 million from fiscal year 2021 primarily due to a $17 million increase in compensation and other employee benefits as a result of an increase in operational efficiencies in our business and the restructuring of our workforce in the prior periods, offset byshare-based compensation, a $71$16 million increase in variable compensation and share-based compensation driven by better financial performance andoutside services expense, a $26$6 million increase in impairment charges related to the closure of our Korea design center.
Marketing and Administrative Expense. Marketing and administrativetravel expenses for fiscal year 2017 decreased from fiscal year 2016 primarily due to a decrease in salaries and related benefits of $52 million as a result of the restructuringeasing of our workforce in prior periods,pandemic-related travel restrictions, a $28 million cost reduction resulting from an increase in operational efficiencies in our business and the completion of certain promotional and branding activities in fiscal year 2016, partially offset by a $51$5 million increase in variable compensationadvertising costs and share-based compensation driven by better financial performance.a $3 million increase in information technology costs.
Amortization of Intangibles. Amortization of intangibles for fiscal year 20172022 decreased by $19$1 million, as compared to fiscal year 2016,2021, due to certain intangible assets reachingthat reached the end of their useful life.lives.
Restructuring and Other, net. Restructuring and other, net for fiscal year 20172022 was comprised primarily of restructuring charges recorded during the September 2016 quarter and March 2017 quarter to reduce our workforce by approximately 6,800 employees, as we continue to consolidate our global footprint across Asia, EMEA and the Americas.not material.
Restructuring and other, net for fiscal year 20162021 was $8 million, primarily comprised of restructuring charges recorded duringworkforce reduction costs and supplier transition costs, partially offset by a gain from the September 2015 quarter, March 2016 quartersale of a certain property and June 2016 quarter, to reduce our workforce by approximately 4,600 employees and align our manufacturing footprint with current macroeconomic conditions.a gain upon termination of an operating lease.
Other income and charges, net
Fiscal Years Ended | Fiscal Years Ended | Change | % Change | |||||||||||||||||||||||||||||
(US Dollars in millions) | 30 June 2017 | 1 July 2016 | Change | % Change | 1 July 2022 | 2 July 2021 | ||||||||||||||||||||||||||
Other income and charges, net | $ | (239) | $ | (171) | $ | (68) | 40% | $ | (276) |
| $ | (144) |
| $ | (132) |
|
| 92 | % |
Other income and charges, net for fiscal year 20172022 increased by $68$132 million as compared to fiscal year 20162021 primarily due to the $33a net $97 million of other income associated with the final payment of unpaid interest on the arbitration award amounthigher non-recurring gain from our strategic investments in the Company’s case against Western Digital in fiscal year 2016 which did not recur in fiscal year 2017,prior-year period, a $12$29 million increase from impairment of certain strategic investments and $24 millionin interest expense onfrom the issuance of $750long-term debt and a $21 million of 4.25% Senior Notes due 2022 and $500increase in losses on de-designated cash flow hedges. These changes were partially offset by a $16 million of 4.875% Senior Notes due 2024.decrease in foreign exchange remeasurement expense.
Income Taxes
Fiscal Years Ended | Fiscal Years Ended | Change | % Change | |||||||||||||||||||||||||||||
(US Dollars in millions) | 30 June 2017 | 1 July 2016 | Change | % Change | 1 July 2022 | 2 July 2021 | ||||||||||||||||||||||||||
Income tax expense | $ | 43 | $ | 26 | $ | 17 | 65% | $ | 30 |
| $ | 34 |
| $ | (4) |
|
| (12 | )% |
We recorded an income tax expense of $43$30 million for fiscal year 20172022 compared to an income tax expense of $26$34 million for fiscal year 2016.2021. Our fiscal year 20172022 income tax expense included approximately $2 million of net tax expensebenefits of approximately $15 million related to share-based compensation, $6 million resulting from recognition of deferred tax assets and $5 million associated with variouschange in the applicable tax rate within our non-recurringnon-US items.operations. Our fiscal year 20162021 income tax expense included approximately $22 million of incomenet tax benefits of approximately $8 million primarily associated with the release of tax reserves dueshare-based compensation and $13 million related to the expiration of certain statutes of limitation.United Kingdom tax rate changes enacted in June 2021.
Our Irish tax resident parent holding company owns various US andnon-USnon-Irish 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 holidayincentive programs we operate under in Malaysia, Singapore and Thailand. These tax holidaysincentives are scheduled to expire in whole or in part at various dates through 2024.2033. Certain tax incentives may be extended if specific conditions are met.
Our income tax expense recorded for fiscal year 20172022 and 2021 differed from the expense for income tax expensetaxes that would be derived by applying the Irish statutory rate of 25% to income before income taxes, primarily due to the net effect of (i) tax benefits related tonon-US and non-Irish earnings generated in jurisdictions that are subject to tax holidays or tax incentive programs and are considered indefinitely reinvested outside of Ireland,Ireland; and (ii) a decrease in valuation allowance for certain deferred tax assets, and (iii) permanent differences. Our income tax expense recorded for fiscal year 2016 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 tonon-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 (iii) a decrease in valuation allowance for certain deferred tax assets. The acquisition of Dot Hill System Corporation did not have a material impact on our effective tax rate. research credits.
Based on ournon-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, weWe anticipate that our effective tax rate in future periods will generally be less than the Irish statutory rate.
At 30 June 2017,rate based on our ownership structure, our intention to indefinitely reinvest earnings from our subsidiaries outside of Ireland and the potential future increases in our valuation allowance for deferred tax asset valuation allowance was approximately $966 million.
At 30 June 2017, we had net deferred tax assets of $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 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 US and certainnon-US taxable income.
As of 30 June 2017, approximately $560 million and $101 million of our total US net operating loss and tax credit carryforwards, respectively, are subject to annual limitations from $1 million to $45 million pursuant to US tax law.assets.
We are required to file US federal, US, state, andnon-US income tax returns. We are no longer subject to tax examination of US federal income tax returns for years prior to fiscal year 2014. With respect to US state andnon-US income tax returns, we are generally no longer subject to tax examination for years ending prior to fiscal year 2006.
The Company generated a net income of $772 million$1.6 billion and $248 million$1.3 billion for the fiscal years ended 30 June 2017 and 1 July 2016,2022 and 2 July 2021, respectively. These amounts have been transferred to reserves.
PRINCIPAL RISKS AND UNCERTAINTIES
Summary of Principal Risks and Uncertainties
The Company’s operations expose it tofollowing is a varietysummary of the principal risks and uncertainties that could cause actualmaterially adversely affect our business, results to differ materially from those anticipated. Suchof operations, financial condition, cash flows, brand and/or the price of our outstanding ordinary shares, and make an investment in our ordinary shares speculative or risky. You should read this summary together with the more detailed description of each of the risks and uncertainties include, but are not limitedcontained below. Additional risks and uncertainties beyond those summarized below or discussed elsewhere in this report may apply to our business and operations as currently conducted or as we may conduct them in the future or to the following:markets in which we currently, or may in the future, operate.
Risks Related to our Business, Operations and Industry
Our ability to increase our revenue and maintain our market share depends on our ability to successfully introduce and achieve market acceptance of new products on a timely basis. If our products do not keep pace with customer requirements, our results of operations will be adversely affected.
We operate in highly competitive markets and our failure to anticipate and respond to technological changes and other market developments, including price, could harm our ability to compete.
We may be adversely affected by the loss of, or reduced, delayed or canceled purchases by, one or more of our key customers.
We are dependent on sales to distributors and retailers, which may increase price erosion and the volatility of our sales.
We must plan our investments in our products and incur costs before we have customer orders or know about the market conditions at the time the products are produced. If we fail to predict demand accurately for our products in any quarter,or if the markets for our products change, we may not be ableunable to recapture the cost of our investmentsmeet demand or we may have insufficient demand, which may materially adversely affect our financial resultscondition and the results of our operations.
Our industry operates primarily on quarterly purchasing cycles, with much of the order flowChanges in any given quarter typically coming at the end of that quarter. Our quarterly results are subject to substantial fluctuations
demand for computer systems, data storage subsystems 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’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 provide any assurance that we will be able to accurately predict demandconsumer electronic devices may 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’ estimated requirements are not always accurate and we therefore cannot predict our quarterly revenues with any degree of certainty. In addition, we derivecause 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 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’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’ cost and capacity metrics, resulting in a rapid shift in demand from our products and disk drive technology, generally, to alternative storage technologies. Unpredictable fluctuationsdecline in demand for our products, or rapid shiftsan increase in demand fromfor our products that we are unable to alternativemeet.
We have a long and unpredictable sales cycle for nearline storage technologiessolutions, which impairs our ability to accurately predict our financial and operating results in new clientany period and may adversely affect our ability to forecast the need for investments and expenditures.
We experience seasonal declines in the sales of our consumer products during the second half of our fiscal year which may adversely affect our results of operations.
We may not be successful in our efforts to grow our systems, SSD and Lyve revenues.
Our worldwide sales operations subject us to risks that may adversely affect our business related to disruptions in international markets, currency exchange fluctuations, increased costs, and global health outbreaks.
The ongoing non-computeCOVID-19 applicationspandemic has impacted our business, operating results and financial condition, as well as the operations and financial performance of many of the customers and suppliers in industries that we serve. We are unable to predict the extent to which the pandemic and related effects will adversely impact our business operations, financial performance, results of operations, financial position and the achievement of our strategic objectives.
If we do not control our costs, we will not be able to compete effectively.
Risks Associated with Supply and Manufacturing
Shortages or delays in the receipt of, or cost increases in, critical components, equipment or raw materials necessary to manufacture our products, may cause us to suffer lower operating margins, production delays and other material adverse effects.
Shortages or delays in critical components, as well as reliance on single-source suppliers, can affect our production and development of products and may harm our operating results.
If revenues fall or customer demand decreases significantly, we may not meet all of our purchase commitments to certain suppliers.
Due to the complexity of our products, some defects may only become detectable after deployment.
Risks Related to Human Capital
The loss of or inability to attract, retain and motivate key executive officers and employees could negatively impact our business prospects.
We are subject to risks related to corporate and social responsibility and reputation.
Risks Related to Financial Performance or General Economic Conditions
We may not be able to generate sufficient cash flows from operations and our investments to meet our liquidity requirements, including servicing our indebtedness.
We are subject to counterparty default risks.
Our quarterly results of operations fluctuate, sometimes significantly, from period to period, and may cause our share price to decline.
Any cost reduction initiatives that we undertake may not deliver the results we expect, and these actions may adversely affect our business.
Changes in the macroeconomic environment may in the future negatively impact our results of operations.
The effect of geopolitical uncertainties, war, terrorism, natural disasters, public health issues and other circumstances, on national and/ or international commerce and on the global economy, could materially adversely affect our results of operations and financial condition.
Legal, Regulatory and Compliance Risks
Our business is subject to various laws, regulations, governmental policies, litigation, governmental investigations or governmental proceedings that may cause us to incur significant expense or adversely impact our futureresults or operations and financial condition.
Some of our products and services are subject to export control laws and other laws affecting the countries in which our products and services may be sold, distributed, or delivered, and any changes to or violation of these laws could have a material adverse effect on our business, results of operations, financial condition and cash flows.
Changes in U.S. trade policy, including the imposition of sanctions or tariffs and the resulting consequences, may have a material adverse impact on our business and results of operations.
We may be unable to protect our intellectual property rights, which could adversely affect our business, financial condition and results of operations.
We are at times subject to intellectual property 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.
Our business and certain products and services depend in part on IP and technology licensed from third parties, as well as data centers and infrastructure operated by third parties.
MarketRisks Related to Information Technology, Data and Information Security
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 in the event of cyber-attacks, ransomware or other cyber security breaches or incidents that disrupt our operations or result in unauthorized access to, or the loss, corruption, unavailability or dissemination of proprietary or confidential information of our customers or about us or our customers or other third parties.
We must successfully maintain and upgrade our IT systems, and our failure to do so could have a material adverse effect on our business, financial condition and results of operations.
Risks Related to Owning our Ordinary Shares
The price of our ordinary shares may be volatile and could decline significantly.
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.
RISKS RELATED TO OUR BUSINESS, OPERATIONS AND INDUSTRY
Our ability to increase our revenue and maintain our market share depends on our ability to successfully introduce and achieve market acceptance of new product introductions cannot be accurately predicted, andproducts on a timely basis. If our products do not keep pace with customer requirements, our results of operations will suffer if there is less demand for our new products than is anticipated.be adversely affected.
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 dependentproducts and services also often depends on a number of factors, including market acceptance,whether 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 thefirst-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’ products to meet their production requirements. We cannot assure that we will be among the leaders intime-to-market with newthird-parties’ products or that we will be able to successfully qualify new products with our customers in the future.
We face the related risk that consumersservices and businesses may wait to make their purchases if they want to buy a new product that has been 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 thefirst-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’ 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. This competition has traditionally been in the markets for handheld consumer electronics applications 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.
changing technologies. Our customers demand new generations of disk drivestorage products as advances in computer hardware and software have created the need for improved storage, products, with features such as increased storage capacity, enhanced security, energy efficiency, 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
Historically, our results 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 impactoperations have substantially depended upon our ability to be successful.among the first-to-market with new data storage product offerings. We may face technological, operational and financial challenges in developing new products. In addition, our investments in new product development may not yield the anticipated benefits. Our market share, revenue and results of operations in the future may be adversely affected if we fail to:
develop new products, identify business strategies and timely introduce competitive product offerings to meet technological shifts, or we are unable to execute successfully;
consistently maintain our time-to-market performance with our new products;
produce these products in adequate volume;
meet specifications or satisfy compatibility requirements;
qualify these products with key customers on a timely basis by meeting our customers’ performance and quality specifications; or
achieve acceptable manufacturing yields, quality and costs with these products.
Accordingly, we cannot accurately determine the ultimate effect that our new products will have on our results of operations. Our failure to accurately anticipate customers’ needs and accurately identify the shift in technological changes could materially adversely affect our long-term financial results.
In addition, the concentration of customers in our largest end markets magnifies the potential effect of missing a product qualification opportunity. If the delivery of our products is delayed, our customers may use our competitors’ products to meet their requirements.
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 sufferexperience increases in failures,failure rates, are of low quality or are not reliable, customers may reduce their purchases of our products, our factory utilization may decrease and our manufacturing rework and scrap costs and our service and warranty costs may increase. In addition, a decline in the reliability of our products may make it more difficult for us lessto effectively compete with our competitors.
Additionally, we may be unable to produce new products that have higher capacities and more advanced technologies in the volumes and timeframes that are required to meet customer demand. We are transitioning to key areal density recording technologies that use HAMR technology to increase HDD capacities. If our transitions to more advanced technologies, including the transition to HDDs utilizing HAMR technology, require development and production cycles that are longer than anticipated or if we otherwise fail to implement new HDD technologies successfully, we may lose sales and market share, which could significantly harm our financial results.
We cannot assure you that we will be among the leaders in time-to-market with new products or that we will be able to successfully qualify new products with our customers in the future. If our new products are not successful, our future results of operations may be adversely affected.
We operate in highly competitive as compared withmarkets and our failure to anticipate and respond to technological changes and other disk drive manufacturers or competing technologies.market developments, including price, could harm our ability to compete.
We face intense competition in the data storage industry. Our principal sources of competition include HDD and SSD manufacturers, and companies that provide storage subsystems, including electronic manufacturing services and contract electronic manufacturing.
The markets for our data storage products are characterized by technological change, which is driven in part by the adoption of new industry standards. These standards provide mechanisms to ensure technology component interoperability but they also hinder our ability to innovate or differentiate our products. When this occurs, our products may failbe deemed commodities, which could result in downward pressure on prices.
We also experience competition from other companies that produce alternative storage technologies such as flash memory, where increasing capacity, decreasing cost, energy efficiency and improvements in performance have resulted in increased competition with our lower capacity, smaller form factor disk drives and a declining trend in demand for HDDs in our legacy markets. Some customers for both mass capacity storage and legacy markets have adopted SSDs as an alternative to successfully anticipate technological shifts,hard drives in certain applications. Further adoption of SSDs or other alternative storage technologies may limit our total addressable HDD market, impact the competitiveness of our product portfolio and reduce our market share. Any resulting increase in competition could have a material adverse effect on our business, opportunitiesfinancial condition and results of operations.
We may be adversely affected by the loss of, or reduced, delayed or canceled purchases by, one or more of our key customers.
Some of our key customers such as OEM customers including large hyperscale data center companies and CSPs account for a large portion of our revenue in our mass capacity markets. While we have long-standing relationships with many of our customers, if any key customers were to significantly reduce, defer or cancel their purchases from us or delay product acceptances, or we were prohibited from selling to those key customers, our results of operations would be adversely affected. Although sales to key customers may vary from period to period, a key customer that permanently discontinues or significantly reduces its relationship with us, or that we are prohibited from selling to, could be difficult to replace. In line with industry practice, new key customers usually require that we pass a lengthy and rigorous qualification process. Accordingly, it may be difficult or costly for us to attract new key customers. Conversely, if one of our key customers unexpectedly increases its orders, we may be unable to produce the additional product volumes in a timely manner or take advantage of any overall increased market demand. Additionally, the barriers to entry in developing NAND flash memory productsThis could damage our customer relationships and SSDsreputation, which may materially adversely affect our future growth prospects. results of operations. Additionally, some of our key customers are subject to cyclical demand which may result in variability of their orders and timing of their purchase with us and if one of our key customers unexpectedly reduces, delays or cancels orders, our revenues and results of operations may be adversely affected.
Furthermore, if there is consolidation among our customer base, our customers may be able to command increased leverage in negotiating prices and other terms of sale, which could adversely affect our profitability. Furthermore, if such customer pressures require us to reduce our pricing such that our gross profits are diminished, it might not be feasible to sell to a particular customer, which could result in a decrease in our revenue. Consolidation among our customer base may also lead to reduced demand for our products, replacement of our products by the combined entity with those of our competitors and cancellations of orders, each of which could adversely affect our results of operations. If a significant transaction or regulatory impact 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 and financial condition.
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 and retailers of disk drive products. Certain of our distributors and retailers may also market competing products. We face significant competition in this distribution channel as a result of limited
product qualification programs and a focus on price, terms and product availability. Sales volumes through this channel are also less predictable and subject to greater volatility. In addition, deterioration in business and economic conditions could exacerbate price erosion and volatility as distributors or retailers lower prices to compensate for lower demand and higher inventory levels. Our distributors’ and retailers’ ability to access credit to fund their operations may also affect their purchases of our products. If prices decline significantly in this distribution channel or our distributors or retailers reduce purchases of our products or if distributors or retailers experience financial difficulties or terminate their relationships with us, our revenues and results of operations would be adversely affected.
We must plan our investments in our products and incur costs before we have customer orders or know about the market conditions at the time the products are produced. If we fail to develop newpredict demand accurately for our products identify business strategies and introduce competitive product offeringsor if the markets for our products change, we may be unable to meet those technological shiftsdemand or we may have insufficient demand, which may materially adversely affect our abilityfinancial condition and results of operations.
Our manufacturing process requires us to compete effectivelymake significant product-specific investments in inventory for production at least three to six months in advance. As a result, we incur inventory and manufacturing costs in advance of anticipated sales that may never materialize or that may be substantially lower than expected. If actual demand for our products is lower than the forecast, we may also experience higher inventory carrying costs, manufacturing rework costs and product obsolescence. Conversely, if we underestimate demand, we may have insufficient inventory to satisfy demand and may impact our future financial results.have to forego sales.
Servicing our indebtedness requires a significant amount of cash,Other factors that have affected and we may not have sufficient cash flow from our businesscontinue 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 operateanticipate or meet the demand for our businessproducts and may limit adversely affect our results of operations include:
competitive product announcements or technological advances that result in excess supply when customers cancel purchases in anticipation of newer products;
variable demand resulting from unanticipated upward or downward pricing pressures;
our ability to take advantage of potential business opportunitiessuccessfully qualify, manufacture and reducesell our options for capital allocation. For example, our high level of debt presents the following risks:data storage products;
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 abilitygross profits;
key customers deferring or canceling purchases or delaying product acceptances, or unexpected increases in their orders;
manufacturing delays or interruptions, particularly at our manufacturing facilities in China, Malaysia, Northern Ireland, Singapore, Thailand or the United States;
limited access to refinance existing debtcomponents that we obtain from a single or raise additional capital.a limited number of suppliers; and
In addition, our business may not generate cash flowthe impact of changes in an amount sufficient to enable us to pay the principal of, or interestforeign currency exchange rates 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, anddata storage subsystems and consumer electronic devices may in the future cause a decline in demand for our products.products, or an increase in demand for our products that we are unable to meet.
Our products are components in computers, data storage systems and consumer electronicselectronic devices. TheHistorically, the demand for these products has been volatile. Unexpected slowdowns in demand for computer systems,computers, data storage subsystems or consumer electronicselectronic devices generally causeresult in sharp declines in demand for our products. Declines in consumercustomer spending on the systems and devices that incorporate our products could have a material adverse effect on demand for our products and services and on our financial condition and results of operations. Uncertain global economic and business conditions can exacerbate these risks.
WhileWe are dependent on our long-term investments to manufacture adequate products. Our investment decisions in adding new assembly and test capacity require significant planning and lead-time, and a failure to accurately forecast demand for our products could cause us to over-invest or under-invest, which would lead to excess capacity, under-utilization charges, impairments or loss of sales to ClientNon-Computeand Cloud Systems and Solutions markets are becoming a more significant source of revenue salesopportunities.
Sales to the Client Compute marketlegacy markets remain an important part of our business. The Client Compute market,These markets, however, hashave been, and we expect itthem to continue to be, adversely affected byby:
announcements or introductions of major new operating systems or semiconductor improvements or shifts in customer preferences, performance requirements and behavior, such as the growth ofshift to tablet computers, smart phones, andNAND flash memory or similar devices that meet customers’ cost and that perform many of the same capabilities as computers, the lengthening ofcapacity metrics;
longer product life cyclescycles; and
changes in macroeconomic conditions. conditions that cause customers to spend less, such as the imposition of new tariffs, increased laws and regulations, and increased unemployment levels.
We believe that the deterioration of demand for disk drives in certain of the Client Compute marketlegacy markets 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,In addition, we believe announcements orregarding competitive product 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 have caused consumerscustomers to defer or cancel their purchases, and mademaking certain inventory obsolete. Whenever an oversupply of our products in the market causes participants in our industry to have higher than anticipated inventory levels, we experience even more intense price competition from other manufacturers than usual, which may materially adversely affect our financial results.
Increases in the areal density of disk drives may outpace 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’ demand for aggregate storage capacity, particularly in certain market applications like client compute. As a result, our 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 silicon group.
We have made and are continuing to make investments to develop our Cloud Systems and Silicon group. Our Cloud Systems and Silicon 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 volatility in credit 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. Additionally, enterprise spending continues to remain cautious in many regions around the world. Other factors that could influence demand include conditions in the labor market, 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.
Macroeconomic developments like the ongoing withdrawal of the United Kingdom from the European Union, 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 condition 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 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.
Our quarterly results of operations fluctuate, sometimes significantly, from period to period, and may cause our share price to decline.
Our quarterly revenue and results of operations 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’ 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’ 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 datanearline storage solutions.solutions, which impairs our ability to accurately predict our financial and operating results in any period and may adversely affect our ability to forecast the need for investments and expenditures.
Our enterprise datanearline 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:
the time required for developing, testing and evaluating our products before they are deployed;
the size of the deployment; and
the degreecomplexity of system configuration necessary to deploy our products.
As a result, our sales cycle for enterprise datanearline storage solutions could exceed one year and frequently unpredictable. Additionally, our nearline storage solutions is often in excesssubject to variability of one year,sales primarily due to the timing of IT spending or a reflection of cyclical demand from CSPs based on the timing of their procurement and deployment requirements and their ability to procure other components needed to build out data center infrastructure. Given the length of ourdevelopment and qualification programs and unpredictability of the 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 wereunable 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,accurately forecast product demand, which may increase price erosionresult in lost sales or excess inventory and the volatilityassociated inventory reserves or write-downs, each of which could harm 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’ 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 retailWe experience seasonal declines in the sales of our brandedconsumer products during the second half of our fiscal year which may adversely affect our results of operations.
In certain end markets, sales of computers, storage subsystems and consumer electronic devices tend to be seasonal, and therefore, we expect to continue to experience seasonality in our business as we respond to variations in our customers’ demand for our products. In particular, we anticipate that sales of our consumer products will continue to be lower during the second half of our fiscal year. Retail sales of certain of our legacy markets 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,We experience seasonal reductions in the second half of our ability to reach such consumers depends on us maintaining effectivefiscal year in the business activities of our customers during international holidays like Lunar New Year, as well as in the summer months (particularly in Europe), which typically result in lower sales during those periods. Since our working relationships with major retailers and distributors.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 even if the forecasted demand for our products proves accurate. 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 also adversely impact our future results of operations. 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, as well as macroeconomic conditions.
We may not be successful in our efforts to grow our systems, SSD and Lyve revenues.
We have made and continue to make investments to grow our systems, SSD and Lyve platform revenues. Our ability to grow systems, SSD and Lyve revenues is subject to the following risks:
we may be unable to accurately estimate and predict data center capacity and requirements;
we may not be able to offer compelling solutions or services to enterprises, subscribers, or consumers;
we may be unable to obtain cost effective supply of NAND flash memory in order to offer competitive SSD solutions; and
our cloud systems revenues generally have a longer sales cycle, and growth is likely to depend on relatively large customer orders, which may increase the variability of our results of operations and the difficulty of matching revenues with expenses.
Our results of operations and share price may be adversely affected if we are not successful in our efforts to grow our revenues as anticipated. In addition, our growth in these markets may bring us into closer competition with some of our customers or potential customers, which may decrease their willingness to do business with us.
Our internationalworldwide sales and manufacturing operations subject us to risks that may adversely affect our business related to disruptions in foreigninternational 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.global health outbreaks.
We are a global company and have significant sales and manufacturing operations in foreign countries,outside of the United States, including manufacturing facilities, sales personnel and customer support operations. We have manufacturing facilities in China, Malaysia, Northern Ireland, Singapore and Thailand, in addition to those in the United States. Additionally, the manufacturing of somealso generate a significant portion of our products is concentrated in certain geographical locations. The production of certain drive subassemblies are limited to Thailand andrevenue from sales outside the production of media is limited to Singapore.US Disruptions in the economic, environmental, political, legal or regulatory landscape in thesethe countries where we operate may have a material adverse impact on our manufacturing and sales operations. Disruptions in financial markets, the deterioration of global economic conditions, and geopolitical uncertainty and instability or war, such as the military action against Ukraine launched by Russia, have had and may continue to have an impact on our sales to customers and end-users located in the EMEA region.
Our international operationsPrices for our products are subjectdenominated predominantly in dollars, even when sold to economic risks inherentcustomers that are located outside the US. An increase in doing businessthe 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. In addition, we have revenue and expenses denominated in currencies other than the dollar, primarily the Thai Baht, Singaporean dollar, Chinese Renminbi and British Pound Sterling, which further exposes us to adverse movements in foreign countries, includingcurrency exchange rates. A weakened dollar could increase the following:
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 encounter 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 entering into foreign currency forward exchange contracts from time to time, which could be designated as cash flow hedges or not designated as hedging instruments. Our hedging strategy may be ineffective, and specific hedges may expire and not be renewed or may not offset any or more than a portion of the adverse financial impact resulting from currency variations. The hedging activities may not cover our full exposure, subject us to certain counterparty credit risks and may impact our results of operations. See “Financial Risk Management” of this report for additional information about our foreign currency exchange risk.
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 countries. Volatility in fuel costs, political instability or constraints in or increases in the costs of air transportation may lead us to develop alternative shipment methods, which could disrupt our ability to receive raw materials, or ship finished product, and as a result our business and results of operations may be harmed.
The occurrence of a pandemic disease, such as the recent COVID-19 pandemic, has impacted and may adversely impact our operations (including, without limitation, logistical and other operational costs) and the operations of some of our customers.
The ongoing COVID-19 pandemic has impacted our business, operating results and financial condition, as well as the operations and financial performance of many of the customers and suppliers in industries that we serve. We are unable to predict the extent to which the pandemic and related effects will adversely impact our business operations, financial performance, results of operations, financial position and the achievement of our strategic objectives.
The COVID-19 pandemic has resulted in a widespread health crisis and numerous disease control measures being taken to limit its spread. The impact of the pandemic on our business has included or could in the future include:
disruptions telecommunications failures, actsto or restrictions on our ability to ensure the continuous manufacture and supply of terrorismour products and services, including insufficiency of our existing inventory levels and temporary or war, employee misconduct, physicalpermanent closures or electronicbreak-ins, cyber-attacks, ransomware, system security breachesreductions in
operational capacity of our facilities or the facilities of our direct or indirect suppliers or customers, and any supply chain disruptions; |
temporary shortages of skilled employees available to staff manufacturing facilities due to stay at home orders and travel restrictions within as well as into and out of countries;
increases in operational expenses and other costs related to requirements implemented to mitigate the impact of the COVID-19 pandemic;
delays or similar eventslimitations on the ability of our customers to perform or disruptions. We managemake timely payments;
reductions in short- 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 datalong-term demand 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 virusesproducts, or other malicious codes, cyber-attacks,disruptions in technology buying patterns;
adverse effects on economies and financial markets globally or other computer-related attemptsin various markets throughout the world, potentially leading to breach the information technology (“IT”) systems we usea prolonged economic downturn or reductions in business and consumer spending, which may result in decreased net revenue, gross profits, or earnings and/or in increased expenses and difficulty in managing inventory levels;
delays to and/or lengthening of our sales or development cycles or qualification activity;
challenges for these purposes. We may also be subjectus, our direct and indirect suppliers and our customers in obtaining financing due to IT system failures and networkturmoil in financial markets;
workforce disruptions due to these factors. Experienced computer programmersillness, quarantines, governmental actions, other restrictions, and/or the social distancing measures we have taken to mitigate the impact of the COVID-19 pandemic in an effort to protect the health 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 vulnerabilitieswell-being of our products. In addition, sophisticated hardwareemployees, customers, suppliers and operating system software and applications that we produce or procure from third-parties may contain defects in design or manufacture, including “bugs” and other problems that could unexpectedly interfere with the operation of the system.communities in which we operate;
increased vulnerability to cyberattacks due to the significant number of employees working remotely; and
our management team continuing to commit significant time, attention and resources to monitoring the COVID-19 pandemic and seeking to mitigate its effects on our business and workforce.
The costsCOVID-19 pandemic has increased economic and demand uncertainty. It continues to us to eliminateaffect our business in both positive and negative ways, and there is uncertainty around its duration and impact. The ultimate extent of the impact of the COVID-19 pandemic on our business, financial condition and results of operations will depend on future developments, including the impact of any virus mutations 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 cessationnew strains 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 IT solutions in connection with any actual or perceived security vulnerabilities in our products. In addition, breaches of our security measuresCOVID-19 virus and the unapproved disseminationdistribution and efficacy of proprietary informationthe vaccine, which are highly uncertain and cannot be predicted at this time. These impacts, individually 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 US, UK, European Unionaggregate, could have a material 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 andadverse effect on 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.
From time to time, we may be subject to litigation, government investigations or governmental proceedings, which may adversely impact our results of operations and financial condition.
From time to time, the Company Such effect may be involved in various legal, regulatory or administrative investigations, negotiations or proceedings arisingexacerbated in the normal course of business.
Inevent the event of litigation, government investigations or governmental proceedings, we are subjectpandemic and the measures taken in response to the inherent risksit, and uncertainties that may result if outcomes differ from our expectations. In the event of adverse outcomes in any 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 complexity and lengththeir effects, persist for an extended period of time, devoted to such litigation or investigation. Litigation, investigationsif there is a resurgence of the outbreak or government proceedingsvariants thereof. Under any of these circumstances, the resumption of normal business operations may be delayed or hampered by lingering effects of the COVID-19 pandemic on our operations, direct and indirect suppliers, partners, and customers. The pandemic may also divert the effortsheighten other risks described in this Principal Risks and attention of our key personnel, which could also harm our business.Uncertainties section.
If we do not control our fixed costs, we will not be able to compete effectively in our industry.effectively.
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 productexabytes volume while at the same time controlling operating expenses. Because our vertical design and manufacturing strategy, our operations have higher costs that are fixed or difficult to reduce in the short-term, including our costs related to utilization of existing facilities and equipment. If we fail to forecast demand accurately or if there is a partial or complete reduction in long-term demand for our products, we could be required to write off inventory, record excess capacity charges which could negatively impact our gross margin and our financial results. If we do not control our manufacturing and 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 facilities, significant personnel reductions, restructuring efforts and efforts to increase automation. Our restructuring efforts may not yield the intended benefits and may be unsuccessful or disruptive to our business operations which may materially adversely affect our financial results.
RISKS ASSOCIATED WITH SUPPLY AND MANUFACTURING
If we experience shortagesShortages or delays in the receipt of, or cost increases in, critical components, equipment or raw materials necessary to manufacture our products, we may cause us to suffer lower operating margins, production delays and other material adverse effects.
The cost, quality, availability 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. TheParticularly important for our products are components such as read/write heads, substrates for recording media, ASICs, spindle motors, printed circuit boards, suspension assemblies and NAND flash memory. In addition, 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
importantOur efforts to control our costs, including capital expenditures, may also affect our ability to obtain or maintain such inputs and equipment, which could affect our ability to meet future demand for our products include read/write heads, aluminum or glass substrates for recording media, ASICs, spindle motors, printed circuit boards, and suspension assemblies.products.
We rely on sole suppliers or a limited number of direct and indirect suppliers for some or all of these components that we do not manufacture, including aluminum and glass substrates for recording media, read/write heads, ASICs, spindle motors, printed circuit boards, suspension assemblies and suspension assemblies. ManyNAND flash memory. In light of this small, consolidated supplier base, if our suppliers increased their prices as a result of inflationary pressures from the current macroeconomic conditions or other changes in economic conditions, our results of operations would be negatively affected. Also, many of such direct and indirect component suppliers are geographically concentrated, which makesmaking our supply chain more vulnerable to regional disruptions such as severe weather, the occurrence of local or global health issues or pandemics, acts of terrorism, war and an unpredictablegeo-political geopolitical climate, which may have a material impact on the production, availability and availabilitytransportation of many components. We have experienced and continue to experience disruptions in our supply chain due to the impact of the COVID-19 pandemic, which has also impacted and may adversely impact our operations (including, without limitation, logistical and other operational costs) and the operations of some of our key direct and indirect suppliers. If our direct and indirect vendors for these components are unable to meet our cost, quality, supply and supplytransportation requirements, continue to remain financially viable or fulfill their contractual commitments and obligations, we could experience a shortagedisruption in our supply chain, including shortages in supply or an increaseincreases in production costs, which would materially adversely affect our results of operations and our financial results.operations. The current worldwide shortage of semiconductors exacerbates these risks.
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 or trade barriers including tariffs, duties, 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 and continuing to experience 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. Further, if our customers experience shortages of components or materials used in their products it could result in a decrease in demand for our products and have an adverse effect on our results of operations. 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 resultedShortages or delays in critical components, as well as reliance on single-source suppliers, can affect our production and development of products and may continue to result in some component manufacturers exiting the industryharm our operating results.
We are dependent on a limited number of qualified suppliers who provide critical materials 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:
it is likely that our suppliers would raise their prices and, if we could not pass these price increases to our customers, our operating margin would decline;
we mightmay have to reengineer some products, which would likely cause production and shipment delays, make the reengineered products more costly and provide us with a lower rate of return on these products;
we would likely have to allocate the components we receive to certain of our products and ship less of others, which could reduce our revenues and could cause us to lose sales to customers who could purchase more of their required products from manufacturers that either did not experience these shortages or delays or that made different allocations; and
we mightmay be late in shipping products, causing potential customers to make purchases from our competitors, thus causing our revenue and operating margin to decline.
We cannot assure you that we will be able to obtain critical components in a timely and economic manner. The industry is currently experiencing a global shortage of semiconductors and other electronic components. In addition, many of our suppliers’ manufacturing facilities are fully utilized. If they fail to invest in additional capacity or deliver components in the required timeframe, such failure would have an impact on our ability to ramp new products, and may result in a loss of revenue or market share if our competitors did not utilize the same components and were not affected.
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 cases are limited and the supplier based technology has been and may consequentlycontinue to 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 deployments and therefore harm our financial position.
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 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 future are lower than our projections or if customer demand decreases significantly below our projections, we may not meet all of our purchase commitments with these suppliers. As a result, it is possible that our revenues will not be sufficient to recoup ourup-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 the terms of these contracts. Additionally, because our markets are volatile, competitive and subject to rapid technology and price changes, we face inventory and other asset risks in the event we do not fully utilize purchase commitments. If we are unable to fully utilize our purchase commitments or if we shift output from our internal manufacturing facilities in order to meet the commitments, our gross profit and operating earnings could be materially adversely impacted.
Conflict mineralsDue 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. Our products may contain a defect or be perceived as containing a defect by our customers as a result of improper use or maintenance. Lead times required to manufacture certain components are significant, and a quality excursion may take significant time and resources to remediate. Defects in our products, third-party components 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:
increased costs and product delays until complex solution level interoperability issues are resolved;
costs associated with the remediation of any problems attributable to our products;
loss of or delays in revenues;
loss of customers;
failure to achieve market acceptance and loss of market share;
increased service and warranty costs; and
increased insurance costs.
Defects in our products could also result in legal actions by our customers for breach of warranty, property damage, injury or death. Such legal actions, including but not limited to product liability claims could exceed the level of insurance coverage that we have obtained. Any significant uninsured claims could significantly harm our financial condition.
RISKS RELATED TO HUMAN CAPITAL
The loss of or inability to attract, retain and motivate 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. 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 qualified and capable personnel, including in the US, Thailand, China, Singapore and Northern Ireland, 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. Additionally, because a portion of our key personnel’s compensation is contingent upon the performance of our business, including through cash bonuses and equity compensation, when the market price of our ordinary shares fluctuates or our results of operations or financial condition are negatively impacted, we may be at a competitive disadvantage for retaining and hiring employees. The reductions in workforce that result from our historical restructurings have also made and may continue to make it difficult for us to recruit and retain personnel. Increased difficulty in accessing, recruiting or retaining personnel may lead to increased manufacturing and employment compensation costs, which could adversely affect our results of operations. The loss of one or more of our key personnel or the inability to hire and retain key personnel could have a material adverse effect on our business, results of operations and financial condition.
We are subject to risks related to corporate and social responsibility and reputation.
Many factors influence our reputation including the perception held by our customers, suppliers, partners, shareholders, other key stakeholders, and the communities in which we operate. We face increasing scrutiny related to environmental, social and governance activities. We risk damage to our reputation if we fail to act responsibly in a number of areas, such as diversity and inclusion, environmental stewardship, sustainability, supply chain management, climate change, workplace conduct, and human rights. Any harm to our reputation could impact employee engagement and retention, our corporate culture, and the willingness of customers, suppliers, and partners to do business with us, which could have a material adverse effect on our business, results of operations and cash flows. Further, despite our policies to the contrary, we may not be able to control the conduct of every individual actor, and our employees and personnel may violate environmental, social or governance standards or engage in other unethical conduct. These acts, or any accusation of such conduct, even if proven to be false, could adversely impact the reputation of our business.
RISKS RELATED TO FINANCIAL PERFORMANCE OR GENERAL ECONOMIC CONDITIONS
We may not be able to generate sufficient cash flows from operations and our investments to meet our liquidity requirements, including servicing our indebtedness.
Our business may not generate sufficient cash flows to enable us to meet our liquidity requirements, including working capital, capital expenditures, product development efforts, investments, servicing our indebtedness and other general corporate requirements. If we cannot fund our liquidity requirements, we may have to reduce or delay capital expenditures, product development efforts, investments and other general corporate expenditures. We cannot assure you that any of these remedies would, if necessary, be effected on commercially reasonable terms, or at all, or that they would permit us to meet our obligations, which would affect our results of operations.
We are leveraged and require significant amounts of cash to service our debt. Our 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. Our high level of debt presents the following risks:
we are required to use a substantial portion of our cash flow from operations to pay principal and interest on our debt, thereby reducing the availability of our cash flow to fund working capital, capital expenditures, product development efforts, strategic acquisitions, investments and alliances and other general corporate requirements;
our substantial leverage increases our vulnerability to economic downturns, decreased availability of capital, and adverse competitive and industry conditions and could place us at a competitive disadvantage compared to those of our competitors that are less leveraged;
our debt service obligations could limit our flexibility in planning for, or reacting to, changes in our business and our industry, and could limit our ability to pursue other business opportunities, borrow more money for operations or capital in the future and implement our business strategies;
our level of debt may restrict us from raising, or make it more costly to raise, additional financing on satisfactory terms to fund working capital, capital expenditures, product development efforts, strategic acquisitions, investments and alliances and other general corporate requirements; and
covenants in our debt instruments limit our ability to pay future dividends or make other restricted payments and investments.
In addition, in the event that we need to refinance all or a portion of our outstanding debt as it matures or incur additional debt to fund our operations, we may not be able to obtain terms as favorable as the terms of our existing debt or refinance our existing debt or incur additional debt to fund our operations at all. If prevailing interest rates or other factors 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.
We are subject to counterparty default risks.
We have numerous arrangements with financial institutions that subject us to counterparty default risks, including cash and investment deposits, and foreign currency forward exchange contracts and other derivative instruments. As a result, we are subject to the risk that the counterparty to one or more of these arrangements will, voluntarily or involuntarily, default on its performance obligations. In times of market distress in particular, a counterparty may not comply with its contractual commitments that could then lead to it defaulting on its obligations with little or no notice to us, thereby limiting our ability to take action to lessen or cover our exposure. Additionally, our ability to mitigate our counterparty exposures could be limited by the terms of the relevant agreements or because market conditions prevent us from taking effective action. If one of our counterparties becomes insolvent or files for bankruptcy, our ability to recover any losses suffered as a result of that counterparty’s default may be limited by the liquidity of the counterparty or the applicable laws governing the bankruptcy proceedings. In the event of any such counterparty default, we could incur significant losses, which could have a material adverse effect on our business, results of operations, or financial condition.
Further, our customers could have reduced access to working capital due to global economic conditions, higher interest rates, reduced bank lending resulting from contractions in the money supply or the deterioration in the customer’s, or their bank’s financial condition or the inability to access other financing, which would increase our credit and non-payment risk, and could result in an increase in our operating costs or a reduction in our revenue. Also, 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. In addition, some of our OEM customers have adopted a subcontractor model that requires us to contract directly with companies, such as original design manufacturers, that provide manufacturing and fulfillment services to our OEM customers. Because these subcontractors are generally not as well capitalized as our direct OEM customers, this subcontractor model exposes us to increased credit risks. Our agreements with our OEM customers may not permit us to increase our product prices to alleviate this increased credit risk.
Our quarterly results of operations fluctuate, sometimes significantly, from period to period, and may cause our share price to decline.
Our quarterly revenue and results of operations fluctuate, sometimes significantly, from period to period. These fluctuations, which we expect to continue, have been and may continue to be precipitated by a variety of factors, including:
uncertainty in global economic and political conditions, and instability or war (such as the military action against Ukraine launched by Russia) or adverse changes in the level of economic activity in the major regions in which we do business;
pandemics, such as COVID-19, or other global health issues that impact our operations as well as those of our customers and suppliers;
competitive pressures resulting in lower prices by our competitors which may shift demand away from our products;
announcements of new products, services or technological innovations by us or our competitors, and delays or problems in our introduction of new, more cost-effective products, the inability to achieve high production yields or delays in customer qualification or initial product quality issues;
changes in customer demand or the purchasing patterns or behavior of our customers;
application of new or revised industry standards;
disruptions in our supply chain, including increased costs or adverse changes in availability of supplies of raw materials or components;
increased costs of electricity and/or other energy sources, freight and logistics costs or other materials or services necessary for the operation of our business;
the impact of corporate restructuring activities that we have and may continue to engage in;
changes in the demand for the computer systems and data storage products that contain our products;
unfavorable supply and demand imbalances;
our high proportion of fixed costs, including manufacturing and research and development expenses;
any impairments in goodwill or other long-lived assets;
changes in tax laws, such as global tax developments applicable to multinational businesses; the impact of trade barriers, such as import/export duties and restrictions, sanctions, tariffs and quotas, imposed by the U.S. or other countries in which the Company conducts business;
the evolving legal and regulatory, economic, environmental and administrative climate in the international markets where the Company operates; and
adverse changes in the performance of our products.
As a result, we believe that quarter-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 our market value.
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 have resulted and may continue to 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 restructurings, we have experienced and may in the future experience a loss of continuity, loss of accumulated knowledge, disruptions to our operations and inefficiency during transitional periods. Additionally, global footprint consolidation and reduction in excess capacity may result in us being unable to respond to increases in forecasted volume of customer demand and loss of revenue opportunity if our competitors have underutilized factories. Any cost-cutting measures could impact employee retention. In addition, we cannot be sure that any future cost reductions or global footprint consolidations will deliver the results we expect, 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 results of operations may be adversely affected.
Changes in the macroeconomic environment may in the future negatively impact our results of operations.
Changes in macroeconomic conditions may affect consumer and enterprise spending, and as a result, our customers may postpone or cancel spending in response to volatility in credit and equity markets, negative financial news and/or declines in income or asset values, all of which may have a material adverse effect on the demand for our products and/or result in significant decreases in our product prices. Other factors that could have a material adverse effect on demand for our products and on our financial condition and results of operations include inflation, slower growth or recession, conditions in the labor
market, healthcare costs, access to credit, consumer confidence and other macroeconomic factors affecting consumer and business spending behavior.
Macroeconomic developments such as the withdrawal of the United Kingdom (“U.K.”) from the European Union (“EU”), slowing global economies, increased tariffs between the U.S and China, Mexico and other countries, US or adverse economic conditions worldwide resulting from the COVID-19 pandemic and efforts of governments and private industry to slow the pandemic or efforts of governments to stimulate or stabilize the economy may adversely impact our business. For example, significant inflation and related increases in interest rates, or a recession, could negatively affect our business, operating results or financial condition or the markets in which we operate, which, in turn, could adversely affect the price of our ordinary shares. 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 data storage 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.
The effect of geopolitical uncertainties, war, terrorism, natural disasters, public health issues and other circumstances, on national and/or international commerce and on the global economy, could materially adversely affect our results of operations and financial condition.
Geopolitical uncertainty, terrorism, instability or war, such as the military action against Ukraine launched by Russia, 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 direct and indirect suppliers, logistics providers, manufacturing vendors and customers. Our business operations are subject to interruption by natural disasters such as floods and earthquakes, fires, power or water shortages, terrorist attacks, other hostile acts, labor disputes, public health issues (such as the COVID-19 pandemic) and related mitigation actions, and other events beyond our control. Such events may 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 direct and indirect suppliers, and create delays and inefficiencies in our supply chain.
A significant natural disaster, such as an earthquake, fire, flood, or significant power outage could have an adverse impact on our business, results of operations, and financial condition. The impact of climate change may increase these risks due to changes in weather patterns, such as increases in storm intensity, sea-level rise, melting of permafrost and temperature extremes in areas where we or our suppliers and customers conduct business. We have a number of our employees and executive officers located in the San Francisco Bay Area, a region known for seismic activity, wildfires and drought conditions, and in Asia, near major earthquake faults known for seismic activity. To mitigate wildfire risk, electric utilities are deploying public safety power shutoffs, which affects electricity reliability to our facilities and our communities. Many of our suppliers and customers are also located in areas with risks of natural disasters. For example, many of our component suppliers are geographically concentrated in Thailand, which suffered severe flooding in October 2011 resulting in a material impact on the production and availability of many components, which caused significant increases in the cost of components. In the event of a natural disaster, losses and significant recovery time could be required to resume operations and our financial condition and results of operations could be materially adversely affected. Further, governmental regulations related to the environment such as Singapore’s recent adoption of a law restricting data center development may also adversely affect our customers or our introduction of new products or services resulting in adverse effects on our financial condition and results of operations.
Should major public health issues, including pandemics, arise, we could be negatively affected by stringent employee travel restrictions, additional limitations or cost increases in freight and other logistical services, governmental actions limiting the movement of products or employees between regions, increases in or changes to data collection and reporting obligations, delays in production ramps of new products, and disruptions in our operations and those of some of our key direct and indirect suppliers and customers. For example, the recent COVID-19 pandemic resulted in government-imposed travel restrictions, border closures, stay-at-home orders, facility closures or operating constraints in a number of our global locations, disruptions in our operations and those of our suppliers, partners, and customers, increases in air freight rates, limited numbers of employees available to staff manufacturing operations, and shortages of supplies of personal protective equipment required for our manufacturing operations. If any of these circumstances continue for an extended period of time, our manufacturing ability and
capacity, or those of our key direct and indirect suppliers or customers, could be impacted, and our results of operations and financial condition could be adversely affected.
LEGAL, REGULATORY AND COMPLIANCE RISKS
Our business is subject to various laws, regulations, governmental policies, litigation, governmental investigations or governmental proceedings that may cause us to incur additional expensessignificant expense or adversely impact our results or operations and could limitfinancial condition.
Our business is subject to regulation under a wide variety of US federal and state and non-US laws, regulations and policies. There can be no assurance that laws, regulations and policies will not be changed in ways that will require us to modify our business model and objectives or affect our returns on investments by restricting existing activities and products, subjecting them to escalating costs or prohibiting them outright. In particular, governmental focus on antitrust and competition law, improper payments, the supplyenvironment, data privacy, protection, security and sovereignty, currency exchange controls, conflict minerals, import and export controls, complex economic sanctions, and potential further changes to global tax laws and tax laws in any jurisdiction in which we operate US have had and may continue to have an effect on our business, corporate structure, operations, sales, liquidity, capital requirements, effective tax rate, results of operations, and financial performance. China, Malaysia, Northern Ireland, Singapore and Thailand, in which we have significant operating assets, and the European Union each 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, anti-trust, data privacy, protection, security and sovereignty, price controls and international trade.
Our business is subject to state, federal, and international laws and regulations, relating to data privacy, data protection and data security involving matters including data use, data localization, data transfer, data storage, data retention and deletion, data access, and the protection of data and systems. Compliance with these laws and regulations can be onerous and have increased and may continue to increase theour cost of doing business globally or otherwise adversely impact financial results. Our introduction of new products or services, changes to our existing products or services, or the manner in which our customers utilize our products or services may result in new or enhanced costly compliance requirements or governmental or regulatory scrutiny that could adversely affect our business and financial results. Data privacy and data protection regulations also continue to change and may be inconsistent from jurisdiction to jurisdiction and may adversely affect our business by requiring changes to our business practices, limiting our ability to offer a product or service, or making our products or services less attractive to customers. Laws and regulations related to data transfers, including, data localization, data access, and data storage, also continue to develop and have been subject to regulatory and judicial scrutiny. In many cases, these laws apply to transfers of information between us and our subsidiaries, and among us, our subsidiaries and our customers or other parties with which we have commercial relations. If we are restricted in our sharing of data among countries and regions in which we operate, among our subsidiaries, or with third parties with which we have a commercial relationship, it may increase our compliance costs and adversely impact our operations, the ability to provide our products or services, or the manner in which we provide our product or services. Our business is subject to state, federal, and international laws and regulations that subject us to requirements to notify vendors, customers, or employees of a data security breach. Any actual or perceived data security breach or incident or actual or perceived non-compliance with laws relating to privacy, data protection or data security could result in damage to our brand and reputation including decreased customer demand for our products or services, significant financial penalties and liability, governmental investigations and proceedings, ongoing audit requirements, private or class actions, and unanticipated changes to our data handling or processing practices. We cannot be certain metalsthat our insurance coverage is adequate for data-handling or data-security liabilities incurred, or that insurance will continue to be available to us on economically reasonable terms or at all, or that any insurer will not deny coverage as to any future claim. The successful assertion of one or more claims against us that exceed our insurance coverage, or changes in our insurance policies, could have a material adverse effect on our business, including our financial condition, operating results and reputation. For example, the European General Data Protection Regulation (“GDPR”) took effect in May 2018, and applies to our operations, and our products and services used by individuals in Europe. The UK has implemented legislation that substantially implements the GDPR, with penalties for noncompliance. Various states, such as California, Colorado, Utah and Connecticut, have implemented similar privacy laws and regulations that impose restrictive
requirements regulating the use and disclosure of personal information. The California Consumer Privacy Act (“CCPA”), which
took effect in January 2020, imposed compliance requirements and new rights for California consumers. The US federal government also is contemplating privacy legislation.
Further, the sale and manufacturing of products in certain states and countries has and may continue to subject us and our products.suppliers to state, federal and international laws and regulations governing protection of the environment, including those governing climate change, 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 has increased and may continue to increase our operating costs and may 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 our financial condition or results of operations.
In August 2012, the SEC adopted rules establishing additional disclosure and reporting requirementsrequire certain disclosures regarding the use of specified minerals, oroften referred to as conflict minerals, that are necessary to the functionality or production of products manufactured or contracted to be manufactured. These 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. These rules could affect our ability to source, directly or indirectly, 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” 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 inFurthermore, our products, as well as costs related to possible changes to products, processes, or sources of supply as a consequence of such verificationcustomers and disclosure requirements. Additionally, the regulatory and compliance framework for conflict minerals may undergo changes which may further increase the cost of compliance. Ourmanufacturing stakeholders and customers may place increased demands on our compliance framework which may in turn negatively impact our relationships with our suppliers.
The loss If we are unable to comply with requirements regarding the use of key executive officersconflict and employees could negatively impactother minerals, our business, prospects.financial condition or results of operations may be materially adversely affected.
Our future performance dependsFrom time to a significant degree upontime, we have been and may continue to be involved in various legal, regulatory or administrative investigations, inquiries, negotiations or proceedings arising in the continued servicenormal course of key membersbusiness. In the event of management as well as marketing, saleslitigation, government investigations or governmental proceedings, we are subject to the inherent risks and product development personnel.uncertainties that may result if outcomes differ from our expectations. In the event of adverse outcomes in any 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 losscosts associated with litigation and government investigations can also be unpredictable depending on the complexity and length of onetime devoted to such litigation or moreinvestigation. Litigation, investigations or government proceedings may also divert the efforts and attention of our key personnel, which could also harm our business.
In addition, regulation or government scrutiny may impact the requirements for marketing our products and slow our ability to introduce new products, resulting in an adverse impact on our business. 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 are and 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, damage to our reputation and corporate brand, criminal proceedings and regulatory or other actions that could materially adversely affect our results of operations. The political and media scrutiny surrounding a materialgovernmental investigation for the violation of such laws, even if an investigation does not result in a finding of violation, could cause us significant expense and collateral consequences, including reputational harm, that could have an 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 complexitySome 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 operationsservices 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,export control laws and other events beyond our control. Such events could decrease demand forlaws affecting the countries in which our products make it difficultand services may be sold, distributed, or impossible for usdelivered, and any changes 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 eventviolation 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 environmentalthese laws and regulations could have a material adverse effect on our business, results of operations, financial condition and financial condition.cash flows.
The saleDue to the global nature of our business, we are subject to import and manufacturing of products in certain states and countries may subject us and our suppliers to state, federal and international lawsexport restrictions and regulations, governing protectionincluding the Export Administration Regulations administered by the US Commerce Department’s Bureau of Industry and Security (“BIS”) and the trade and economic sanctions regulations administered by the US Treasury Department’s Office of Foreign Assets Control (“OFAC”). We incorporate encryption technology into certain of our products and solutions. These encryption products and the underlying technology may be exported outside of the environment,United States only with export authorizations, including those governing dischargesby license, a license exception or other appropriate government authorizations, including the filing of pollutants intoan encryption registration. The US, through the airBIS and water, the management and disposal of hazardous substances and wastes, the cleanup of contaminated sites,OFAC, places restrictions on the presencesale or export of certain substances in electronic products and the responsibilityservices to certain countries, persons and entities, as well as for environmentally safe disposal or recycling. We endeavorcertain end-uses, such as military, military-intelligence and weapons of mass destruction end-uses. The US government also imposes sanctions through executive orders restricting US companies from conducting business activities with specified individuals and companies. Although we have controls and procedures to ensure that we and our suppliers complycompliance with all applicable environmentalregulations and orders, we cannot predict whether changes in laws andor regulations however, compliance may increaseby the US, China or another country will affect 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 failability to comply with applicable environmental laws, regulations, initiatives, or standards of conduct, our customers may refuse to purchasesell our products and services to existing or new customers. Additionally, we couldcannot ensure that our interpretation of relevant restrictions and regulations will be accepted in all cases by relevant regulatory and enforcement authorities.
Violators of any US export control and sanctions laws may be subject to significant penalties, which may include monetary fines, criminal proceedings against them and their officers and employees, a denial of export privileges, and suspension or debarment from selling products to the US government. Moreover, the sanctions imposed by the US government could be expanded in the future. Our products could be shipped to those targets or for restricted end-uses by third parties, including potentially our channel partners, despite our precautions. In addition, if our partners fail to obtain appropriate import, export or re-export licenses or permits, we may also be adversely affected, through reputational harm as well as other negative consequences including government investigations and penalties. A significant portion of our sales are to customers which are located in geographies that have been the focus of recent changes in US policies. Any further limitation that impedes our ability to export or sell our products and services could materially adversely affect our business, results of operations and financial condition.
Other countries also regulate the import and export of certain encryption and other technology, including import and export licensing requirements, and have enacted laws that could limit our ability to sell or distribute our products and services or could limit our partners’ or customers’ ability to sell or use our products and services in those countries, which could materially adversely affect our business, results of operations and financial condition. Violations of these regulations may result in significant penalties and possible prohibition of salesfines. Changes in our products and services or future changes in export and import regulations may create delays in the introduction of our products into one or more states orand services in those countries, liability toprevent our customers from deploying our products and damageservices globally or, in some cases, prevent the export or import or sale of our products and services to our reputation, which could result in a material adverse effect on the financial conditioncertain countries, governments 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.
persons altogether. From time to time, various governmental agencies have proposed additional regulation of encryption technology, including the escrow and government recovery of private encryption keys. Any change in export or import regulations, economic sanctions or related legislation, increased export and import controls, or change in the countries, governments, persons or technologies targeted by such regulations, in the countries where we engage in restructuring plans that mayoperate could result in workforce reduction and consolidationdecreased use of our real estate facilitiesproducts and services by, or in our manufacturing footprint.decreased ability to export or sell our products and services to, new or existing customers, which could materially adversely affect our business, results of operations and financial condition.
If we were ever found to have violated applicable export control laws, we may be subject to various penalties available under the laws, any of which could have a material and adverse impact on our business, results of operations and financial condition. Even if we were not found to have violated such laws, the political and media scrutiny surrounding any governmental investigation of us could cause us significant expense and reputational harm. Such collateral consequences could have a material adverse impact on our business, results of operations, financial condition and cash flows.
Changes in US trade policy, including the imposition of sanctions or tariffs and the resulting consequences, may have a material adverse impact on our business and results of operations.
We face uncertainty with regard to US government trade policy. Current US government trade policy includes tariffs on certain non-US goods, including information and communication technology products. These measures may materially increase costs for goods imported into the United States. This in turn could require us to materially increase prices to our customers which may reduce demand, or, if we are unable to increase prices to adequately address any tariffs, quotas or duties, could lower our margin on products sold and negatively impact our financial performance. Changes in US trade policy have resulted in, and could result in more, US trading partners adopting responsive trade policies, including imposition of increased tariffs, quotas or duties. Such policies could make it more difficult or costly for us to export our products to those countries, therefore negatively impacting our financial performance.
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 agreements, security measures and licensing arrangements to protect our intellectual property rights. In addition, managementthe past, we have been involved in significant and expensive disputes regarding our intellectual property rights and those of others, including claims that we may be infringing patents, trademarks and other intellectual property rights of third parties. We expect that we will be involved in similar disputes in the future.
There can be no assurance that:
any of our existing patents will continue to evaluate our global footprint and cost structure, and additional restructuring plans are expected to be formalized. As a resultheld valid, if challenged;
patents will be issued for any of our restructuring, pending applications;
any claims allowed from existing or pending patents will have sufficient scope or strength to protect us;
our patents will be issued in the primary countries where our products are sold in order to protect our rights and potential commercial advantage;
we may experience a loss of continuity, loss of accumulated knowledge, disruptionswill be able to protect our trade secrets and other proprietary information through confidentiality agreements with our customers, suppliers and employees and through other security measures; and
others will not gain access to our operations and/or inefficiency during transitional periods. Any cost-cutting measures could impact employee retention. trade secrets.
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 countries where intellectual property laws and enforcement policies are often less developed, less stringent or more difficult to enforce than in the United States. Therefore, we cannot be surecertain that the cost reduction and global footprint consolidationwe will be successfulable to protect our intellectual property rights 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 ofjurisdictions outside 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.United States.
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 theirthe 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“Note 14. Legal, Environmental and Other Contingencies” contained in this report for a description of pending intellectual property proceedings.
Our business and certain products and services depend in part on IP and technology licensed from third parties, as well as data centers and infrastructure operated by third parties.
Some of our business and some of our products rely on or include software licensed from third parties, including open source licenses. We may not be able to obtain or continue to obtain licenses from these third parties at all or on reasonable terms, or such third parties may demand cross-licenses to our intellectual property. Third-party components and technology may become obsolete, defective or incompatible with future versions of our products or services, or our relationship with the third party may deteriorate, or our agreements may expire or be terminated. We may face legal or business disputes with licensors that may threaten or lead to the disruption of inbound licensing relationships. In order to remain in compliance with the terms of our licenses, we monitor and manage our use of third-party software, including both proprietary and open source license terms to avoid subjecting our products and services to conditions we do not intend, such as the licensing or public disclosure of our intellectual property without compensation or on undesirable terms. The terms of many open source licenses have not been interpreted by US courts, and these licenses could be construed in a way that could impose unanticipated conditions or restrictions on our ability to commercialize our products or services. Additionally, some of these licenses may not be available to us in the future on terms that are acceptable or that allow our product offerings to remain competitive. Our inability to obtain licenses or rights on favorable terms could have a material effect on our business, financial condition, results of operations and cash flow, including if we are required to take remedial action that may divert resources away from our development efforts.
In addition, we also rely upon third-party hosted infrastructure partners globally to serve customers and operate certain aspects of our business or services. Any disruption of or interference at our hosted infrastructure partners would impact our operations and our business could be adversely impacted.
RISKS RELATED TO INFORMATION TECHNOLOGY, DATA AND INFORMATION SECURITY
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 in the event of cyber-attacks, ransomware or other cyber security breaches or incidents that disrupt our operations or result in unauthorized access to, or the loss, corruption, unavailability or dissemination of proprietary or confidential information of our customers or about us or other third parties.
Our operations are dependent upon our ability to protect our digital infrastructure and data. We manage and store various proprietary information and sensitive or confidential data relating to our operations, as well as to our customers, suppliers, employees and other third parties, and we will store subscribers’ data on our edge-to-cloud mass storage platform. As our operations become more automated and increasingly interdependent and our edge-to-cloud mass storage platform service grows, our exposure to the risks posed by storage, transfer, and maintenance of data, such as corruption, loss or unavailability of, or damage to, and other security risks to, data, will continue to increase. We use third-party vendors to store and otherwise process data for us and they face similar risks. The measures we and our vendors have implemented to secure our computer equipment and data belonging to us, our customers, suppliers, employees or other third parties have been and may continue to be vulnerable to phishing, employee error, hacking, ransomware and other cyberattacks, malfeasance, system error or other irregularities or incidents, including from breaches and incidents or attacks at third party vendors we utilize, and may not be sufficient for all eventualities. We cannot ensure that any limitation-of-liability provisions in our customer and user agreements, contracts with third-party vendors and service providers or other contracts are enforceable or adequate or would protect us from any liabilities or damages with respect to claims relating to a security breach or other security-related matter. Threat actors may be able to penetrate our network security, misappropriate or compromise confidential information and other data, create system disruptions or cause shutdowns. Threat actors also may be able to develop and deploy viruses, worms and other malicious software programs that attack our products and services or otherwise exploit any security vulnerabilities of our products and services. Such attempts are increasing in technical sophistication, number and the ability to evade detection or to obscure such activities. We anticipate that these threats will continue to grow in scope and complexity over time. Because the techniques used to obtain unauthorized access, or to sabotage systems, change frequently and generally are not recognized until launched against a target, we may be unable to anticipate these techniques or to implement adequate preventative measures. Although we take steps to protect against and detect such attempts, our intellectual property rights, whichefforts may not be sufficient for all eventualities, including sustained maintenance of remote working requirements. 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” and other problems that could unexpectedly interfere with the operation of the system or our services. We have been, and will likely continue to be, subject to computer viruses or other malicious code, cyber-attacks or other computer-related attempts to breach the IT systems we use for these purposes. We have been and may also continue to be subject to IT system failures and network disruptions due to these factors. To date, these attacks have not had a material impact on our operations, but we cannot provide assurance that they will not have a material impact in the future. The insurance coverage we maintain that is intended to address certain data security risks may be insufficient to cover all types of claims or losses that may arise, and such insurance has been increasing in price over time. We cannot be certain that insurance coverage will continue to be available to us on economically reasonable terms, or at all.
The costs to us to eliminate or address the foregoing security problems and security vulnerabilities before or after a security breach or incident could be significant. System redundancy may be ineffective or inadequate, certain legacy IT systems may not be easily remediated, 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 cloud and outsourcing services or other IT solutions in connection with any actual or perceived security vulnerabilities in our products and services. Some of our products and services contain encryption and other measures implemented in an effort to protect third-party content stored on our products. Such measures may be compromised, breached or circumvented or otherwise fail and losses or unauthorized access to or releases of our, our customers’ or third parties’ confidential information may occur. Security breaches or incidents and unauthorized access to, or loss, corruption, unavailability, or the unapproved dissemination of proprietary information or sensitive or confidential data about us or our customers or other third parties, has exposed us and could expose us, our vendors and customers or other third parties affected to a risk of loss or misuse of this information, and result in litigation or governmental investigations, fines, penalties, indemnity obligations and other potential liability and costs for us,
materially damage our brand or otherwise materially harm our business. In addition, we rely in certain capacities on third-party data management providers whose possible security problems and security vulnerabilities may have similar effects on us. Our business, brand and reputation could also be materially adversely affectaffected by media or other reports of perceived security vulnerabilities in our products, services, network or processes, even if unsubstantiated.
We must successfully maintain and upgrade our IT systems, and our failure to do so could have a material adverse effect on our business, financial condition and results of operations.
We rely on a combination of patent, trademark, copyrightFrom time to time, we expand and trade secret laws, confidentiality procedures and licensing arrangementsimprove our IT systems to protectsupport our IP rights. In the past,business going forward. Consequently, 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 disputesare in the future.
There can be no assurance that:
We are engaged in a multi-year implementation of a new global enterprise resource planning system (“ERP”) which requires significant investment of human and financial resources. The ERP is designed to efficiently maintain our financial records and provide information important to the operation of our pending applications;
productivity improvements at a level that outweighs the costs of implementation, or at all. In addition, difficulties with implementing new technology systems, such as ERP, delays in our competitors may be abletimeline for planned improvements, significant system failures or our inability to design their products aroundsuccessfully modify our patents and other proprietary rights. Enforcement ofIT systems, policies, procedures or monitoring tools to respond to changes in 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 thanbusiness needs in the United States.past have caused and in the future may cause disruptions in our business operations, increase data security risks, and may have a material adverse effect on our business, financial condition and results of operations.
RISKS RELATED TO OWNING OUR ORDINARY SHARES
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 couldhas fluctuated and may continue to fluctuate or decline significantly in response to severalvarious factors including among others:some of which are beyond our control, including:
general stock market conditions, or general uncertainty in stock market conditions occasioned bydue to global economic conditions and negative financial news unrelated to our business or industry, including the impact of the COVID-19 pandemic;
the timing and amount of or the continued instabilitydiscontinuance of several large financial institutions;our share repurchases;
announcements of innovations, new products, significant contracts, acquisitions, or significant price reductions by us or our competitors, including those competitors who offer alternative storage technology solutions;
our failure to meet our guidance or the performance estimates of investment research analysts; the timing of announcements by usanalysts, or our competitors of significant contracts or acquisitions;
significant announcements by or changes in financial condition of a large customer;
the ability of our customers to procure necessary components which may impact their demand or timing of their demand for our products, especially during a period of persistent supply chain shortages;
actual or perceived security breaches or security vulnerabilities;
the occurrence of major catastrophic events, including natural disasters, acts of war or climate change;
actual or anticipated changes in the credit ratings of our indebtedness by rating agencies; and
the sale of our ordinary shares held by certain equity investors or members of management.
In addition, 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.
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 historically we have announced targeted regular cash dividend amountspayments and a share repurchase program, we are under no obligation to pay cash dividends to our shareholders in the future at the announced targetedhistorical 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 ourDirectors. 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, distributable reserves, 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 effectsour principal liquidity requirements, as well as our sources and uses of changes in our balance sheetcash and cash flows, contractual obligations, and other commitments on our liquidity and capital resources. 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 fund our operations and meet our cash needsrequirements for the next 12 months. Although there can be no assurance, we believe that our financial resources, along with controlling our costs, will allow us to manage the ongoing impacts of the pandemic on our business operations for the foreseeable future. However, some challenges posed by the pandemic to our industry and to our business continue to remain uncertain and cannot be predicted at this time. Consequently, we will continue to evaluate our financial position in light of future developments, particularly those relating to the pandemic.
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 we do not believe the fair value of our short-term investments has significantly changed from the values reported as of 30 June 2017.1 July 2022.
Cash and cash equivalents and investmentsCash Equivalents
As of | As of | |||||||||||||||||||||||
(US Dollars in millions) | 30 June 2017 | 1 July 2016 | Change | 1 July 2022 | 2 July 2021 | Change | ||||||||||||||||||
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Cash and cash equivalents | $ | 2,539 | $ | 1,125 | $ | 1,414 | $ | 615 |
| $ | 1,209 |
| $ | (594) |
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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 increaseddecreased by $594 million from 12 July 20162021 primarily as a result of repurchases of our ordinary shares of $1.8 billion, repayment of long-term debt of $701 million, payment of dividends to our shareholders of $610 million and payments for capital expenditures of $381 million, partially offset by net cash of $1.7 billion provided by operating activities and thenet proceeds of $1.2 billion 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 capital expenditures of $434 million, dividends paid to our shareholders of $561 million, repurchase of our ordinary shares of $460 million and early redemption and repurchase of debt of $316 million.long-term debt. The following table summarizes results from the statementConsolidated Statement of cash flowsCash Flows for the periods indicated:
Fiscal Years Ended | Fiscal Years Ended | |||||||||||||||
(US Dollars in millions) | 30 June 2017 | 1 July 2016 | 1 July 2022 | 2 July 2021 | ||||||||||||
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Net cash flow provided by (used in): | ||||||||||||||||
Operating activities | $ | 1,916 | $ | 1,680 | $ | 1,657 |
| $ | 1,626 |
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Investing activities | (459) | (1,211) |
| (352) |
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| (466) |
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Financing activities | (46) | (1,820) |
| (1,899) |
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| (1,673) |
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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) | ||||||||||||
Net decrease in cash, cash equivalents and restricted cash | $ | (594) |
| $ | (513) |
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Cash Provided by Operating Activities
Cash provided by operating activities for fiscal year 2017 was approximately $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 20162022 was approximately $1.7 billion and includes the effects of net income adjusted fornon-cash items including depreciation, and amortization, share-based compensation and:
an increase of $228 million in revenue acceleratedtrade creditors, primarily due to timing of payments and an increase in materials purchased; partially offset by a reduction
an increase of $374 million in trade debtors, primarily due to linearity of sales; and
an increase of $361 million in inventories, primarily due to timing of shipments, and an increase in materials purchased for production of higher capacity drives and to mitigate supply chain disruptions.
Cash provided by operating activities for fiscal year 2021 was approximately $1.6 billion and includes the cash conversion cycle, leadingeffects of net income adjusted for non-cash items including depreciation, amortization, share-based compensation and:
an increase of $58 million in accrued employee compensation, primarily due to a decreasean increase in working capital.our variable compensation expense; partially offset by
an increase of $64 million in inventories, primarily due to an increase in materials purchased for increased production of higher capacity drives and to mitigate supply chain disruptions; and
an increase of $42 million in trade debtors, primarily due to an increase in revenue.
Cash Used in Investing Activities
In fiscal year 2017,2022, we used $459$352 million for net cash investing activities, which was primarily due to payments for the purchase of tangible assetsproperty, equipment and leasehold improvements of approximately $434$381 million and payments for the purchase of investments of $18 million, partially offset by proceeds from the sale of investments of $47 million.
In fiscal year 2016,2021, we used $1.2 billion$466 million for net cash investing activities, which was primarily due to payments for the purchase of property, equipment and leasehold improvements of approximately $587$498 million, andpartially offset by proceeds from the acquisitionsale of Dot Hill, netinvestments of cash acquired for $634$29 million.
Cash Used in Financing Activities
Net cash used in financing activities of $46 million$1.9 billion for fiscal year 20172022 was primarily attributable to the following activities:
$1.8 billion in payments for repurchases of our ordinary shares;
$701 million net proceedsrepurchases of $1.2long-term debt; and
$610 million in dividend payments; partially offset by
$1.2 billion received from the issuance of $750 million of 4.25% Senior Notes due 2022long-term debt; and $500 million of 4.875% Senior Notes due 2024;
$8668 million in proceeds from the issuance of ordinary shares under employee stock plans, offset by
plans.
Net cash used in financing activities of $1.8$1.7 billion for fiscal year 20162021 was primarily attributable to the following activities:
$1.12.0 billion paid to repurchase 24 millionin payments for repurchases of our ordinary shares; and
$0.7 billion649 million in dividends paid to our shareholders.dividend payments; partially offset by
Dividends
From$986 million from the closingissuance of our initial public offeringSenior Notes; and
$108 million in December 2002 through 2017, we have paid dividends, pursuant to our dividend policy then in effect, totaling approximately $4.9 billion inproceeds from the aggregate.issuance of ordinary shares under employee stock plans.
Liquidity Sources and Going Concern
Our primary sources of liquidity as of 30 June 2017, consisted1 July 2022, consist of: (1) approximately $2.5 billion$615 million in cash and cash equivalents, (2) a $700 million senior revolving credit facility and (3) cash we expect to generate from operations.operations and (3) $1.75 billion available for borrowing under our senior unsecured revolving credit facility (“Revolving Credit Facility”), which is part of our credit agreement (the “Credit Agreement”).
As of 30 June 2017,1 July 2022, no borrowings had been drawn under the revolving credit facility or had been(including swing line loans) were outstanding and no commitments were utilized for letters of credit issued under this credit facility.the Revolving Credit Facility. The line of creditRevolving Credit Facility is available for borrowings, through 15 January 2020, subject to compliance with financial covenants and other customary conditions to 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.borrowing.
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 agreementCredit Agreement includes three financial covenants: (1) minimum cash, cash equivalents and marketable securities;interest coverage ratio, (2) a fixed charge coverage ratio;total leverage ratio and (3) a net leverage ratio on 28 April 2016,minimum liquidity amount. The term of the Revolving Credit Agreement was
amended in order to increase the allowable net leverage ratio to adjust for our current financial liquidity position. WeFacility is through 14 October 2026. As of 1 July 2022, we were in compliance with all of the modified covenants as of 30 June 2017under our debt agreements. Based on our current outlook and the information we currently have available to us, we expect to be in compliance forwith the covenants in our debt agreements over the next 12 months.
As of 30 June 2017,1 July 2022, cash and cash equivalents held bynon-Irish subsidiaries was $2.5 billion.$614 million. 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.
As of 1 July 2022, the principal amount of our debt outstanding was $5.7 billion. We were in compliance with all covenants as of 1 July 2022. See “Note 4. Debentures and Bank Loans” for further detail.
Given the impact of the pandemic on our business, operating results, and financial condition, the Directors have placed a particular focus on the appropriateness of adopting the going concern basis in the preparation of the financial statements for the year ended 1 July 2022.
Our going concern assessment considers our Principal Risks and Uncertainties, including those specific to the pandemic, and is dependent on a number of factors including financial performance and maintenance of supply chain operations. The going concern assessment has been performed for a period of at least 12 months from the approval of the financial statements. The following factors were considered in our going concern assessment:
Based on the results of our forecasting procedures and assessment of its liquidity requirements, including our contractual and debt repayment commitments, we believe our sources of cash, including the undrawn revolving credit facility of $1.75 billion, have been and will continue to be sufficient to meet our cash needs for at least the next 12 months.
We believe that our sourcescash equivalents are liquid and accessible.
We were in compliance with the covenants as of cash1 July 2022 and expect to be in compliance for the next 12 months.
While there is a high level of uncertainty concerning the challenges posted by the pandemic, supply chain disruptions as well as other inflationary and macroeconomic pressures to our industry, we believe that our financial resources, along with controlling our costs and maintaining supply chain discipline including adjusting our manufacturing production plans will be sufficientallow us to manage the potential impacts of the pandemic, inflation and other macroeconomic factors on our business operations for the foreseeable future.
Taking into account the financial resources available to us, it is management’s view, to the best of their current knowledge, that the pandemic will not have a material adverse impact on our ability to continue as a going concern. Accordingly, the Directors have adopted the going concern basis in preparing the financial statements.
For additional information on factors that could impact our ability to fund our operations and meet our cash requirements, for at leastincluding the next 12 months.pandemic, see the section entitled “Principal Risks and Uncertainties” section of the Directors’ Report.
Cash Requirements and Commitments
Our liquidity requirements are primarily to meet our working capital, product development and capital expenditure needs, to fund scheduled payments of principal and interest on our indebtedness, and to fund our quarterly dividend. Our abilitydividend and any future strategic investments.
Purchase obligations
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. From time to fundtime, 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 or to supplement our internal manufacturing capacity for certain components. As of 1 July 2022, we had unconditional purchase obligations of approximately $4.5 billion, primarily related to purchases of inventory components with our suppliers. We expect $1.5 billion of these requirements willcommitments to be paid within one year.
Capital expenditures
We incur material capital expenditures to design and manufacture our products that depend on our future cash flows, which are determined by future operating performance,advanced technologies and therefore, subjectmanufacturing techniques. As of 1 July 2022, we had unconditional commitment of $307 million primarily related to prevailing global macroeconomic conditions and financial, business and other factors, somepurchases of equipment, of which approximately $167 million is expected to be paid within one year. For fiscal year 2023, we expect capital expenditures to be aligned to our long-term targeted range of 4% to 6% of revenue.
Operating leases
We are beyonda lessee in several operating leases related to real estate facilities for warehouse and office space. As of 1 July 2022, the amount of future minimum rent expense for both occupied and vacated facilities net of sublease income under non-cancelable operating lease contracts was $58 million, of which $14 million is expected to be paid within one year. Refer to “Note 6. Leases” for details.
Long-term debt and interest payments on debt
As of 1 July 2022, the future principal payment obligation on our control.long-term debt was $5.7 billion, of which $585 million will mature within one year. As of 1 July 2022, future interest payments on these outstanding debt is estimated to be approximately $1.3 billion, of which $223 million is expected to be paid within one year. From time to time, we may repurchase any of our outstanding senior notes in open market or privately negotiated purchases or otherwise, or we may repurchase outstanding senior notes pursuant to the terms of the applicable indenture. Refer to “Note 4. Debentures and Bank Loans“ for more details.
Income Tax
As of 1 July 2022, we had a liability for unrecognized tax benefits and an accrual for the payment of related interest totaling $3 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.
Dividend
On 2521 July 2017,2022, our Board of Directors declared a quarterly cash dividend of $0.63$0.70 per share, which will be payable on 45 October 20172022 to shareholders of record as of the close of business on 2021 September 2017.
As2022. Our ability to pay dividends in the future will be subject to, among other things, general business conditions within the data storage industry, our financial results, the impact of 30 June 2017, we were in compliance with allpaying dividends on our credit ratings and legal and contractual restrictions on the payment of thedividends by our subsidiaries to us or by us to our ordinary shareholders, including restrictions imposed by covenants underon 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.instruments.
The carrying value of our long-term debt as of 30 June 2017 and 1 July 2016 was $5.0 billion and $4.1 billion, respectively. The table below presents the principal amounts of our outstanding long-term debt:Share repurchases
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, at the Company’s discretion, we may repurchase any of our outstanding ordinary shares through private, open market, tender offers,or broker assisted purchases, tender offers, or other means.means, including through the use of derivative transactions. Our Board of Directors increased the authorization for the repurchase of our outstanding ordinary shares by $3.0 billion on 21 October 2020 and $2.0 billion on 22 February 2021. During fiscal year 2017,2022, we repurchased approximately 1321 million of our ordinary shares including shares withheld for statutory tax withholdings related to vesting of employee equity awards. As of 30 June 2017, $1.31 July 2022, $2.4 billion remained available for repurchase under our existing repurchase authorization limit. We may limit or terminate the repurchase program at any time. All repurchases are effected as redemptions in accordance with the Company’s Articles of Association.
For fiscal year 2018, we expect capital expenditures to be 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 and 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, joint ventures and investments, which may require additional capital.
Contractual Obligations and Commitments
Our contractual cash obligations and commitments as of 30 June 2017, have been summarized in the table below:
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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As of 30 June 2017, we had a liability for unrecognized tax benefits and an accrual for the payment of related interest totaling $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 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 and equity and bond markets. A portion of these risks may be hedged, but fluctuations could impact our results of operations, financial position and cash flows.
Interest Rate Risk.Our exposure to market risk for changes in interest rates relates primarily to our cash investment portfolio. As of 30 June 2017, the Company1 July 2022, we had noavailable-for-sale debt securities that had been in a continuous unrealized loss position for a period greater than 12 months. The Company determined noDuring fiscal year 2022, we recorded a $13 million impairment loss relating to available-for-sale securities were other-than-temporarily impaired as of 30 June 2017. We currently do not use derivative financial instruments in our investment portfolio.debt securities.
We have fixed rate and variable rate debt obligations. We enter into debt obligations for general corporate purposes including capital expenditures and working capital needs. Our Term Loans bear interest at a variable rate equal to LIBOR plus a variable margin. At this time, we have not identified any material exposure associated with the phase out of LIBOR by the end of 2022.
We have entered into certain interest rate swap agreements to convert the variable interest rate on the Term Loans to fixed interest rates. The objective of the interest rate swap agreements is to eliminate the variability of interest payment cash flows associated with the variable interest rate under the Term Loans. We designated the interest rate swaps as cash flow hedges. As of 1 July 2022, the aggregate notional amount of the Company’s interest-rate swap contracts was $1.2 billion, of which $600 million will mature in September 2025 and $600 million will mature in July 2027.
The table below presents principal amounts and related fixed or weighted-average interest rates by year of maturity for our investment portfolio and debt obligations as of 30 June 2017.1 July 2022.
Fiscal Years Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fiscal Years Ended
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(US Dollars in millions, except percentages) | 2018 | 2019 | 2020 | 2021 | 2022 | Thereafter | Total | Fair Value at 30 June 2017 | 2023
| 2024
| 2025
| 2026
| 2027
| Thereafter
| Total
| Fair Value at 1 July 2022
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Assets | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Cash equivalents: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Money market funds, time deposits and certificates of deposit | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Floating rate | $ | 61 |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | 61 |
| $ | 61 |
| ||||||||||||||||||||||||||||||||||||||||
Average interest rate |
| 0.99 | % |
| 0.99 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other debt securities | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fixed rate | $ | 1,178 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 1,178 | $ | 1,178 | $ | — |
| $ | — |
| $ | — |
| $ | 15 |
| $ | — |
| $ | 8 |
| $ | 23 |
| $ | 23 |
| ||||||||||||||||||||||||
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 | $ | 540 |
| $ | 500 |
| $ | 479 |
| $ | — |
| $ | 505 |
| $ | 2,490 |
| $ | 4,514 |
| $ | 4,045 |
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Average interest rate | 3.75% | 4.25% | 4.93% | 4.66% |
| 4.75 | % |
| 4.88 | % |
| 4.75 | % |
| — | % |
| 4.88 | % |
| 4.09 | % |
| 4.41 | % | |||||||||||||||||||||||||||||||||||||||
Variable rate | $ | 45 |
| $ | 60 |
| $ | 83 |
| $ | 563 |
| $ | 60 |
| $ | 390 |
| $ | 1,201 |
| $ | 1,174 |
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Average interest rate |
| 2.92 | % |
| 2.92 | % |
| 2.92 | % |
| 2.94 | % |
| 2.90 | % |
| 2.90 | % |
| 2.92 | % |
Foreign Currency Exchange Risk.From time to time, we may enter into foreign currency forward exchange contracts to manage exposure related to certain foreign currency commitments and anticipated foreign currency 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 hedge portions 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 changeschange in fair value of these hedges arecontracts is recognized in earnings in the same period as the gains and losses from the remeasurement of the assets and liabilities. TheseAll foreign currency forward exchange contracts are not designated as hedging instruments under ASC 815,Derivatives and Hedging. The Company has no outstanding foreign currency forward exchange contracts as of 30 June 2017.mature within 12 months.
We evaluate hedging effectiveness prospectivelyrecognized a net loss of $11 million and retrospectively and record any ineffective portion of the hedging instruments$10 million in Cost of revenue and Interest expense related to the loss of hedge designations on the Consolidated Profitdiscontinued cash flow hedges during fiscal year 2022, respectively. We recognized a net gain of $14 million and Loss Account. We did not have any materiala net gains (losses) recognizedloss of $7 million in Cost of revenue for cash flow hedges dueand Interest expense related to the loss of hedge ineffectiveness ordesignations on discontinued cash flow hedges during the fiscal years 2017year 2021.
The table below provides information as of 1 July 2022 about our foreign currency forward exchange contracts. The table is provided in dollar equivalent amounts and 2016.presents the notional amounts (at the contract exchange rates) and the weighted-average contractual foreign currency exchange rates.
(US Dollars in millions, except average contract rate)
| Notional Amount
| Average Contract Rate | Estimated Fair Value(1) | |||||||||
Foreign currency forward exchange contracts: | ||||||||||||
Singapore Dollar | $ | 230 |
| $ | 1.36 |
| $ | (4) |
| |||
Thai Baht |
| 168 |
| $ | 33.58 |
|
| (8) |
| |||
Chinese Renminbi |
| 116 |
| $ | 6.54 |
|
| (3) |
| |||
British Pound Sterling |
| 79 |
| $ | 0.77 |
|
| (5) |
| |||
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Total | $ | 593 |
| $ | (20) |
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(1) | Equivalent to the unrealized net gain (loss) on existing contracts. |
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.
Changes in our corporate issuer credit ratings have minimal impact on our near-term financial results, but downgrades may negatively impact our future transaction costs andability to raise capital, our ability to execute transactions with various counterparties.counterparties and may increase the cost of such capital.
We are subject to equity market risks due to changes in the fair value of the notional investments selected by itsour employees as part of itsour Non-qualifiednon-qualified Deferred Compensation Plan—deferred compensation plan—the Seagate Deferred Compensation Plan (the “SDCP”). In fiscal year 2014, the Companywe entered into a Total Return Swap (“TRS”) in order to manage the equity market risks associated with the SDCP liabilities. The Company paysWe pay a floating rate, based on the LIBOR plus an interest rate spread, on the notional amount of the TRS. The TRS is designed to substantially offset changes in the SDCP liabilityliabilities due to changes in the value of the investment options made by employees. See “Note 8. Derivative Financial Instruments” for details.
LIKELY FUTURE DEVELOPMENT
We are committed to developing new component technologies, products, and alternative storage technologies.technologies inclusive of systems, software and other innovative technology solutions to support emerging applications in data use and storage. Our research and development focus isactivities are 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 towardswe believe may lead to new business opportunities. The primary purpose of our advanced technology integration effort is to ensure timely availability of mature component technologies tofor our product development teams as well as allowingto allow us to leverage and coordinate those technologies in the design centers across our products in order to take advantage of opportunities in the marketplace.
NON-FINANCIAL STATEMENT
Introduction
The European Union Directive 2014/95/EU (“the 2017 Regulations”) requires the disclosure of non-financial and diversity information by certain large undertakings and groups. This has been transposed into Irish legislation. This legislation requires us to identify and report on our business model and key non-financial matters related to the Company’s activities. Our fiscal year 2021 Global Citizenship Annual Report (“the 2021 GCAR”) provides additional information that may be relevant to investors in assessing the Company’s sustainability commitments and achievements but, except as expressly provided below, the information integrated in the 2021 GCAR is not incorporated by reference into the Irish Directors’ Report. Copies of the 2021 GCAR can be accessed at www.seagate.com, under “Global Citizenship”.
Business Overview
Refer to pages A-4 to A-10 for the ‘Industry Overview’, ‘Our Business’, and ‘Products’ section of the Directors’ Report.
Corporate Governance and Organization
We have concluded that the manufacture and distribution of storage solutions constitutes one reporting segment. We are governed by a Board of Directors (“the Board”). Our Corporate Governance Guidelines provide a framework for our Board of Directors in exercising their responsibilities toward our stakeholders, and these guidelines entrust the Board with the authority to review our business operations and make decisions independent of the Company’s management. The guidelines also provide a process for shareholders to communicate concerns with the Board. 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- Governance.”
Principal Risks and Management
Refer to pages A-18 to A-39 for the ‘Principal Risks and Uncertainties’ section of the Directors’ Report.
Environmental Matters
We understand and acknowledge that climate change is contributed to by human activity, and will lead to a number of social, economic and environmental consequences if not properly dealt with. We continue to set sustainability goals, track our progress, and audit our systems to reduce energy consumption, carbon emissions, waste and water usage throughout our global footprint. These efforts are both important to and fully supported by senior management. We also work closely with our suppliers and provide training to key stakeholders to educate them on sustainability best practices, with indicators to gauge performance. These actions comprise the majority of our environmental sustainability efforts. We report our metrics based on the fiscal year 2022 or the calendar year 2021, if fiscal year information is unavailable.
At Seagate, we understand the importance of reducing the impact our products and packaging have on the environment as identified by our Life Cycle Assessments (“LCA”). We take a holistic view of product impacts, considering the environment, our customers, suppliers and communities where our products and operations reside. Each LCA addresses impacts at every stage in the product life cycle, from raw material extraction to end-of-life disposal and recycling. The LCAs include four endpoints judged for particular relevance to the electronics industry: Climate Change, Human Toxicity, Metal Depletion and Water Depletion. In addition to LCAs, we maintain a Material Circularity Indicator for these products to identify opportunities for improvement and to move toward greater material efficiency. Most Seagate products are highly recyclable, containing aluminum, steel, copper and other recoverable materials, and many regions where our products are sold have electronic waste recycling programs. We also help to manage product waste by taking back warranty-returned drives, which then get refurbished or recycled.
We maintain a catalog of restricted substances, and product compliance data as it relates to restricted substances, which are made available to our customers upon request. We adhere to global restricted substance regulations, including the European regulation regarding the Registration, Evaluation, Authorization and Restriction of Chemicals (“REACH”), and the Restriction of Hazardous Substances (“RoHS”) “Recast” Directive, as amended by Directive (EU) 2015/863. We regularly participate in industry-wide reviews and discussions to assist in leading the development of industry standards that meet regulatory requirements.
Our environmental management system is shaped by the International Organization of Standardization (“ISO”) standards, the Responsible Business Alliance (“RBA”) Code of Conduct and the United Nations Global Compact (“UNGC”) principles. All of our manufacturing facilities are certified to ISO 14001 Environmental Management System and ISO50001 Energy Management System. We reduce the amount of energy and carbon required to produce HDDs by identifying energy conservation opportunities, auditing management systems, setting targets, creating awareness among employees and reporting on progress throughout our operations. Our Environment, Health, and Safety policy, which is available in our annual Global Citizenship Report published on our website, details our commitment to environmental responsibility and a safe workplace. To achieve our objective of reducing energy use and greenhouse gas emissions, each manufacturing site is required to achieve annual energy saving goals. In calendar year 2021, our total grid electricity consumption was 1,661,253 Megawatt hour (“MWh”), which is approximately a 2% increase compared to calendar year 2020. In fiscal year 2022, we saved approximately 21,472 MWh of electricity, exceeding our conservation goal of 10,000 MWh. Energy savings are calculated using the Metered Baseline Method (“MBM”); since fiscal year 2014, the site-initiated energy conservation projects have saved a cumulative approximately 232,000 MWh.
Carbon emissions are measured using three scopes: Scope 1 emissions are all direct emissions, Scope 2 emissions are indirect emissions from electricity purchased and used by the Company and Scope 3 emissions are all other indirect emissions. For technology products, we find that Scope 3 carbon emissions, particularly those from product use, are much greater than Scope 1 and Scope 2 carbon emissions, highlighting the importance of our continued efforts to reduce the amount of energy used by our products. One way that we achieve improvements in all aspects of our products, including sustainability impacts like energy usage, is to learn from current products and continuously improve upon each new generation. Our LCA results help to inform these improvements in products and packaging. As a result, each generation of products is more energy efficient (EB/ watt) compared to previous generations. In calendar year 2021, our carbon emissions under Greenhouse Gas Protocol for Scope 1 and Scope 2 totaled 355,206 metric tons and 749,492 metric tons (market based), which is approximately an 8% decrease compared to calendar year 2020. Our Scope 3 emissions totaled approximately 11.1 million metric tons in calendar year 2021, which was higher compared to calendar year 2020.
Our hazardous waste disposition continues to shift away from treatment to recycling due to the electrowinning process at our Johor, Malaysia manufacturing facility. In fiscal year 2022, we kept 99.95% of our hazardous waste out of landfills. In fiscal year 2022, our hazardous waste disposition was approximately 10,113 metric tons, with 82% of the waste recycled. Additionally, we maintained the solid waste diversion rate of 87% in fiscal year 2022, leveraging site initiatives as well as the insights of our dedicated teams, to achieve this metric.
Our progress in reducing water consumption has been driven by reducing water use through more efficient processes, and recycling the water we use. We have applied measures to reduce water consumption, improve water recycling, increase awareness among employees, and reduce water intensity over the past several years. In calendar year 2021, our water withdrawal was 7,968 Megaliters (“ML”) and our water recycling was 3,557 ML.
Social and Employee Matters
Diversity, Equity & Inclusion. One of our core values is inclusion. We rely on our diverse workforce to develop, deliver and sustain our business strategy and achieve our goals. One way we embrace our diverse employees and promote a culture of inclusion is through the support of employee resource groups (“ERG”). These voluntary, employee-led communities are built on a shared diversity of identity, experience or thought and provide a number of benefits to employees, including professional and leadership development. Seagate’s ERG community encompasses a wide array of diversity, such as LGBTQ+, women, people of color and interfaith, and includes over 26 chapters across six countries. We also support inclusion through active employee communications, unconscious bias education and ongoing efforts to ensure our employees feel safe, respected and welcomed. During fiscal years 2017year 2022, we published our third annual Diversity, Equity, and 2016, we had product development expenses of approximately $1,232 million and $1,237 million, respectively,Inclusion (“DEI”) Report, which represented 11% and 11%provides an overview of our consolidated revenue,DEI efforts and outcomes including demographics on our workforce. The fiscal year 2021 DEI Report is available on our website.
Health & Safety. All our manufacturing sites have health and safety management systems certified to ISO 45001. In addition, we are audited to health and safety standards set forth by the Responsible Business Alliance. Our global health and
safety standards, as well as our accompanying management systems, frequently go beyond country or industry-level guidelines to ensure that we keep our employees healthy and safe. Our recordable incident rate and lost workday rate in fiscal year 2022 was 0.19 and 0.12, respectively. We also host regulatory visits that focus on issues such as safety, radiation, fire codes, food and transportation. Through our Environment, Health and Safety (“EHS”) Management Systems, we ensure that the focus remains on the continuous improvement and provide comprehensive health and safety training to our employees. We emphasize e-learning courses as our main vehicle for delivering such training because employees can learn at their own pace. In response to the COVID-19 pandemic and to protect the health and well-being of our employees, customers, suppliers and the communities in which we operate we implemented significant safety protocols over the past two and a half years. We continue to ensure that our COVID-19 pandemic protocols remain in place as needed to ensure the health and safety of our employees. We continue to monitor the impact of the COVID-19 pandemic and adjust these measures over time as appropriate to protect the health and well-being of our employees, customers, suppliers and communities.
Development, Retention, Compensation, Benefits & Engagement. Our performance management system is a continuous process that helps team members focus on the right priorities. Meaningful conversations between managers and employees are the foundation of performance management at Seagate. We focus on dialogue centered around manager and employee conversations, and ongoing feedback, to align goals. This approach focuses on achieving high-quality productive dialogue between managers and employees. We also encourage our employees to participate in the many learning opportunities that are available at Seagate. The portfolio of learning and training formats include but are not limited to mentoring and coaching, e-learning opportunities, LinkedIn Learning classroom training, on-the-job training and other strategic internal programs that cover topics ranging from leadership and technical skills to health, safety and the environment. In addition, we are investing in upskilling and re-deploying employees as needed to support our future growth and respond to the changing demands of the business. For example, our internal mobility and career development tool provides Seagate employees the opportunity to establish networking and mentor connections, identify and participate in internal part-time projects, and explore internal full-time positions.
Our Total Rewards program is designed to attract, motivate and retain talented people in order to successfully meet our business goals. The program includes base pay, annual bonuses, commissions, equity awards, an employee share purchasing plan, retirement savings opportunities and other employee health and wellness benefits. Our compensation programs and guidelines are structured to align pay with performance and aim to provide internally and externally competitive total compensation.
Employee engagement is the psychological commitment and passion that drives discretionary effort. It predicts individual performance and is the measure of the relationship between employees and the Company. Our engagement survey includes facets of the employee experience throughout the employee life cycle. Employee experience is what employees encounter and observe over the course of their career at Seagate. A positive employee experience can have an impact on everything from recruiting to Seagate’s bottom line.
In our fiscal year 2022 survey, 92% of our global employees shared their feedback on their experience at Seagate. Following the conclusion of the survey, leaders were provided access to a dashboard with results that shared the key drivers of engagement specific to their own department. Leaders were asked to follow our “Review, Share and Take Action!” process to analyze their results, share and discuss with their teams, and create customized action plans designed to have the greatest impact on engagement for a particular department.
Giving Back. Our community engagement program is designed to provide support to our local communities, with an emphasis on science, technology, engineering and mathematics (“STEM”) and also address health and human services, and environmental opportunities. The program is reflective of Seagate’s vertically integrated model, with multiple large facilities across EMEA, Asia and the United States. Accordingly, the program is highly localized, involving a cross-functional process to identify and execute on opportunities that are meaningful locally.
In general, we maintain an emphasis on STEM, targeting K-12 students, supporting STEM efforts in a way that is age-appropriate and allows for fun as well as learning. In fiscal year 2022, due to the COVID-19 pandemic, Seagate pivoted to virtual engagements and funding of STEM partners as they worked to deliver their programs online or in a socially distanced manner. Seagate also increased support of health & human services partnerships due to the pandemic, such as support of food
banks, clinics, and non-profit organizations providing COVID-19 pandemic health care and relief, while sustaining many of our ongoing community partnerships.
Respect for Human Rights
As part of our commitment to respect and protect human rights, we seek to uphold the highest standards in our labor practices. Our company policies adhere to applicable local labor laws, are consistent with both the UNGC and the International Labor Organization (“ILO”) core labor principles, and conform to the RBA Code of Conduct. We conduct annual assessments in our manufacturing sites to identify and mitigate labor and human rights risks that could arise. We also participate in internal labor audits to ensure policies and practices are aligned with local legislation and the RBA code. Our internal Human Rights Policy is reviewed annually and includes clear statements about our commitment to labor and human rights. According to the policy, we do not tolerate harassment in the workplace, involuntary labor, child labor and excessive working hours. We also look to foster open communication and employees have access to the Seagate Global Ethics Helpline to report complaints. The policy is communicated to new hires during orientation and onboarding, and annually to all employees to build awareness and drive transparency within our organization.
Supply Chain
To ensure integrity throughout our supply chain, we require all of our direct materials suppliers with whom we spend at least $1 million annually, as well as selected indirect suppliers, to undergo the RBA Validated Assessment Program (“VAP”) audit process. RBA VAP audit reports are valid for two years, and our suppliers are on a two-year audit cycle. Our top findings include Working Hours, Emergency Preparedness and Occupational Safety. We remain vigilant to the risk of child labor, forced labor and threats to the freedom of association within our supply chain. The highest risk of forced labor in our supply chain is where foreign labor is utilized; suppliers in Malaysia, Thailand and Singapore pose the highest risk. This is why our training on forced labor has been focused on suppliers in these countries over the past three years. Based on our supplier VAP audits, child labor has not been identified as a concern in our supply chain.
Anti-bribery and Corruption
We pursue our business objectives with integrity and in compliance with the law in every country in which we operate. We comply with applicable laws in the United States and other countries in which we do business, including the US Foreign Corrupt Practices Act, the UK Bribery Act, and other laws designed to prevent bribery and corruption. Violation of these laws may also result in fines and imprisonment for employees. Seagate prohibits offering or accepting all forms of bribes, kickbacks, facilitation payments and other forms of corruption.
We have a Code of Conduct Policy which serves as our guide for legal and ethical conduct at all times and outlines the values we exemplify and the applicable laws and regulations. On an annual basis all non-manufacturing specialist employees must carry out Anti-Bribery and Anti-Corruption, and Code of Conduct training.
We also have a Code of Ethics for senior financial officers, which promotes honest and ethical conduct and compliance with the law as it relates to the maintenance of Seagate’s accounting records and the preparation of the financial statements. Both policies are made available publicly on our website and are reviewed annually by the Board.
Conflict Minerals
Our hardware products in the aggregate contain each of the 3TG (tin, tantalum, tungsten, and gold), which are necessary to the functionality or production of the products. We have implemented due diligence measures to conform to the Organization for Economic Co-operation and Development Due Diligence (“OECD”) Guidance for Responsible Supply Chains of Minerals from Conflict-Affected and High-Risk Areas. We have established strong management systems for 3TG supply chain due diligence, identified and assessed 3TG risks in its supply chain, designed and implemented strategies to respond to identified risks, supported independent third-party audits of the due diligence practices and reported on 3TG supply chain due diligence activities.
We have established a Responsible Sourcing of Minerals policy which is available on our external corporate website and has been communicated to Seagate’s suppliers. We have also established Corporate Standard Operating Procedures for Responsible Sourcing of Mineral Management to satisfy the OECD guidance. We also have an internal team to implement the procedure, including establishing requirements in supplier contracts to define our expectations of suppliers’ sourcing of 3TG, conducting a review to identify direct suppliers of products containing 3TG, requesting all 3TG suppliers provide information to us regarding their 3TG using the template developed by the RBA and validating the information provided by our 3TG direct suppliers.
DIRECTORS AND SECRETARY
The directors and secretary are as listed on page 3.A-3. Ms. Kristen M. Onken resigned from the board on 19 October 2016. Mr. Mark W. AdamsYolanda L. Conyers was appointed as director on 24 January 2022. Mr. Stephen J. Luczo is no longer a director on 19 January 2017. Mr. William D. Mosley was appointed as a director on 25 July 2017.result of his retirement in October 2021.
SECRETARY
Ms. Regan J. MacPherson resigned as the secretary effective 2 June 2017. Ms. Katherine E. Schuelke was appointed as the secretary on 26 June 2017.
DIRECTORS’ AND SECRETARY’S INTERESTS IN SHARES
Details of directors’ and secretary’s interests in the ordinary shares of Seagate Technology Holdings plc as at 30 June 20171 July 2022 were as follows:
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 | — | — | — | — | — |
Interests held as at 1 July 2022(1)
| ||||||||||||||||||||
Director
| Shares
| Vested options
| Unvested options
|
Restricted
| Restricted shares
| |||||||||||||||
Mark W. Adams |
| 12,285 |
|
| — |
|
| — |
|
| 3,162 |
|
| — |
| |||||
Shankar Arumugavelu |
| 1,853 |
|
| — |
|
| — |
|
| 3,162 |
|
| — |
| |||||
Prat S. Bhatt |
| 3,096 |
|
| — |
|
| — |
|
| 3,162 |
|
| — |
| |||||
Judy Bruner |
| 13,987 |
|
| — |
|
| — |
|
| 3,162 |
|
| — |
| |||||
Michael R. Cannon |
| 30,802 |
|
| — |
|
| — |
|
| 4,024 |
|
| — |
| |||||
Yolanda L. Conyers (2) |
| — |
|
| — |
|
| — |
|
| 2,112 |
|
| — |
| |||||
Jay L. Geldmacher |
| 2,725 |
|
| — |
|
| — |
|
| 3,162 |
|
| — |
| |||||
Dylan Haggart (3) |
| 3,742 |
|
| — |
|
| — |
|
| 3,162 |
|
| — |
| |||||
Dr. William D. Mosley (4) |
| 522,033 |
|
| 764,190 |
|
| 247,170 |
|
| 36,025 |
|
| — |
| |||||
Stephanie Tilenius |
| 6,210 |
|
| — |
|
| — |
|
| 3,162 |
|
| — |
| |||||
Edward J. Zander |
| 41,357 |
|
| — |
|
| — |
|
| 3,162 |
|
| — |
| |||||
Secretary |
|
|
| |||||||||||||||||
Katherine E. Schuelke (5) |
| 21,201 |
|
| 21,505 |
|
| — |
|
| 26,606 |
|
| — |
|
(1) | All interests declared are in the ordinary shares of $0.00001 par value of Seagate Technology Holdings plc. |
(2) | Ms. Conyers’s interests held at the date of appointment consisted of 2,112 restricted share units. |
(3) | Mr. |
(4) | Dr. Mosley’s interests held as at |
Ms. Schuelke’s interests held as at |
Details of directors’ and secretary’s interests in the ordinary shares of Seagate Technology Holdings plc as at 12 July 2016,2021 or subsequent date of appointment, were as follows:
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 | — | — | — | — | — |
Interests held as at 2 July 2021(1)
| ||||||||||||||||||||
Director
| Shares
| Vested
| Unvested
|
Restricted
| Restricted
| |||||||||||||||
|
|
| ||||||||||||||||||
Mark W. Adams |
| 15,543 |
|
| — |
|
| — |
|
| 5,847 |
|
| — |
| |||||
Shankar Arumugayelu (2) |
| — |
|
| — |
|
| — |
|
| 2,896 |
|
| — |
| |||||
Prat S. Bhatt (3) |
| — |
|
| — |
|
| — |
|
| 4,838 |
|
| — |
| |||||
Judy Bruner |
| 10,245 |
|
| — |
|
| — |
|
| 5,847 |
|
| — |
| |||||
Michael R. Cannon |
| 27,060 |
|
| — |
|
| — |
|
| 5,847 |
|
| — |
| |||||
Jay L. Geldmacher |
| 3,283 |
|
| — |
|
| — |
|
| 5,847 |
|
| — |
| |||||
Dylan Haggart (4) |
| — |
|
| — |
|
| — |
|
| 5,847 |
|
| — |
| |||||
Stephen J. Luczo |
| 122,199 |
|
| — |
|
| — |
|
| 5,847 |
|
| — |
| |||||
Dr. William D. Mosley (5) |
| 492,410 |
|
| 632,726 |
|
| 314,054 |
|
| — |
|
| — |
| |||||
Stephanie Tilenius |
| 16,468 |
|
| — |
|
| — |
|
| 5,847 |
| ||||||||
Edward J. Zander | 49,658 | — | — | 5,847 | — | |||||||||||||||
Secretary | ||||||||||||||||||||
Katherine E. Schuelke (6) |
| 19,503 |
|
| 19,199 |
|
| 2,306 |
|
| 35,545 |
|
| — |
|
(1) | All interests declared are in the ordinary shares of $0.00001 par value of Seagate Technology Holdings plc. |
(2) | Mr. |
(3) | Mr. Bhatt’s interests held at the date of appointment consisted of 4,838 restricted share units. |
(4) | Mr. Haggart is a Partner at ValueAct Capital and he relinquishes all cash and equity compensation received for service on the board to ValueAct Capital. |
(5) | Dr. Mosley’s interests held as at |
Ms. Schuelke’s interests held as at |
The directors and the company secretary had no interests in shares and debentures in any other group company as required to be disclosed in accordance with Section 329 of the Companies Act 2014.
REPURCHASES OF SHARES
The following table sets forth information with respect to repurchases of the Company’s ordinary shares during fiscal years 2022 and 2021 pursuant to the share repurchase program. Shares repurchased are redeemed and cancelled immediately by the Company and no shares were held by the Company at 1 July 2022 and 2 July 2021.
(US Dollars and shares in millions)
| Number of Shares Repurchased
| Nominal Value
| Consideration Paid
| |||
Repurchased, redeemed and cancelled in fiscal year 2021 | 34 | $— | $2,080 | |||
Repurchased, redeemed and cancelled in fiscal year 2022 | 21 | $— | $1,857 |
IMPORTANT EVENTS SINCE THE PERIOD END
Dividends
On 2521 July 2017,2022, our Board of Directors declared a quarterly cash dividend of $0.63$0.70 per share, which will be payable on 45 October 20172022 to shareholders of record as of the close of business on 2021 September 2017.
July 2017 Restructuring Plan
On 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 Mr. Brace agreed that the effective date of his departure will be October 2, 2017.2022.
POLITICAL DONATIONS
During the yearyears ended 30 June 2017 and 1 July 2016,2022 and 2 July 2021 the Company made no political donations.
BRANCHES OUTSIDE THE STATE
As required to be disclosed in accordance with Section 326 of the Companies Act 2014, the group has established branches, within the meaning of European Communities Council Directive 89/666/EEC in Brazil, China, France, Germany, Ireland, India, Russia, the Netherlands, Singapore,Sweden and Northern Ireland (Springtown), India, Korea and Thailand.Ireland.
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’s principal accounting offices at 10200 South De Anza Boulevard, Cupertino,47488 Kato Rd., Fremont, 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’s registered office at intervals not exceeding six months.
RELEVANT AUDITDISCLOSURE OF INFORMATION TO THE AUDITOR
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’sgroup’s statutory auditorsauditor are aware of that information. In so far as they are aware, there is no relevant audit information of which the Group’sgroup’s statutory auditorsauditor are unaware.
AUDIT COMMITTEE
In accordance with Section 167(3) of the Companies Act 2014, the Groupgroup 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’ 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 Groupgroup and of the profit or loss of the Groupgroup for that period.
In preparing the financial statements of the Group,group, the Directors are required to:
select suitable accounting policies and then apply them consistently;
make judgments and estimates that are reasonable and prudent;
comply with applicable US generally accepted accounting principles to the extent that the use of US generally accepted accounting principles does not contravene any provision of the Companies Act 2014, subject to any material departures disclosed and explained in the financial statements; and
prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Groupgroup will continue in business
The considerations set out above for the Groupgroup 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-109 to A-116)A-111), 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’s financial statements in accordance with accounting standards issued by the Financial Reporting Council and promulgated by the Institute of Chartered Accountants in Ireland, including FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland (Generally Accepted Accounting Practice in Ireland).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 Groupgroup 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 Groupgroup and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
Under company law, the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the assets, liabilities and financial position, of the group and Parent Company as at the end of the financial year, and the profit or loss for the group for the financial year, and otherwise comply with the Companies Act 2014.
DIRECTORS’ COMPLIANCE STATEMENT
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.
AUDITORSAUDITOR
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 2522 August 20172022.
/s/ | /s/ | |
Dr. William D. Mosley | Judy Bruner |
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF SEAGATE TECHNOLOGY HOLDINGS PLC
Report on the audit of the financial statements
Opinion
We have audited the financial statements of Seagate Technology Holdings plc (the ‘parent company’) and its subsidiaries (the ‘group’) for the year ended 30 June 20171 July 2022, 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 Statement of Comprehensive Income, the Parent Company Statement of Financial Position, the Parent Company Statement of Changes in Equity, the related notes 1 to 2021 in respect of the Groupconsolidated financial statements and the related notes 1 to 9 in respect toof the parent company financial 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 Groupconsolidated financial statements is Irish law and U.S.US Generally Accepted Accounting Principles (U.S.(US GAAP), issued in the United States of America by the Financial Accounting Standards Board, 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. The financial reporting framework that has been applied in the preparation of the parent company financial statements is 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), including FRS 102The Financial Reporting Standard applicable in the UK and Republic of Ireland.Ireland issued in the United Kingdom by the Financial Reporting Council.
In our opinion:
the groupconsolidated financial statements give a true and fair view of the assets, liabilities and financial position of the Groupgroup as at 30 June 20171 July 2022 and of the profit for the Groupgroup for the year then ended, and have been properly prepared in accordance with U.S.US Generally Accepted Accounting Principles (U.S.(US 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;
• | 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 |
the consolidated financial statements and parent company financial statements have been properly prepared in accordance with the requirements of the Companies Act 2014.
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 Groupgroup 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 AccountingAuditing and AuditingAccounting Supervisory Authority (IAASA), as applied to listed entities, 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.
Conclusions relating to going concern
In auditing the financial statements, we have concluded that the directors’ use of the going concern basis of accounting in the preparation of the financial statements is appropriate. Our evaluation of the directors’ assessment of the group and parent company’s ability to continue to adopt the going concern basis of accounting included:
In conjunction with our walkthrough of the Group’s financial close process, we confirmed our understanding of management’s going concern assessment process and also engaged with management early to ensure all key factors were considered in their assessment;
We obtained management’s going concern assessment, including the cash forecast for the going concern period which covers at least a year from the date of signing this audit opinion.
We tested the factors and assumptions included in the cash forecast and we have tested the impact of Covid-19 included. We considered the appropriateness of the methods used to calculate the cash forecasts and covenant calculations and determined through inspection and testing of the methodology and calculations that the methods utilised were appropriately sophisticated to be able to make an assessment for the entity.
We considered mitigating factors that are within control of the Group. This includes review of the Company’s non-operating cash outflows and evaluating the Company’s ability to control these outflows as mitigating actions if required. We also verified credit facilities available to the Group.
We have performed reverse stress testing in order to identify what factors would lead to the Group utilising all liquidity or breaching financial covenants during the going concern period.
We reviewed the Group’s going concern disclosures included in the annual report in order to assess that the disclosures were appropriate and in conformity with the reporting standards.
Conclusion
Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that, individually or collectively, may cast significant doubt on the group and parent company’s ability to continue as a going concern for a period of at least twelve months from when the financial statements are authorised for issue.
Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant sections of this report. However, because not all future events or conditions can be predicted, this statement is not a guarantee as to the group’s ability to continue as a going concern.
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) that 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.
Description of the matter | How we addressed the matter in our opinion | Key observations | ||||||
Revenue recognition—Sales incentive program rebates and discounts Refer to the Accounting policies (page A-68); and Note 17 of the consolidated financial statements (page A-105). Reported revenue is a key financial statement metric of higher importance to users of the consolidated financial statements. The group sells its products to original equipment manufacturers, distributors and retailers (collectively, “customers”). Revenue is recognised when the criteria in Accounting Standards Codification Topic 606 (ASC 606) have been met, including upon the transfer of control to customers in an amount that reflects the consideration the group expects to receive in exchange for those products, net of sales tax. As disclosed in Note 1 Basis of Presentation and Summary of Significant Accounting Policies, the group reduces revenue for estimated future reductions to the final selling prices for shipped products including sales incentive programs, such as price protection and volume incentives. Auditing management’s estimates of future reductions to the final selling prices is complex as it requires management to make subjective assumptions including the amount of price adjustments on products as well as the timing of its channel sales of products through to end customers. | We obtained an understanding by performance of walkthrough procedures, evaluated the design and tested the operating effectiveness of controls over the completeness of sales incentive programs, the accuracy and completeness of the underlying data used in the calculations and management’s assumptions of the amount of future reductions to the final selling prices as well as the timing of its channel sales of products through to end customers. To test the estimated sales incentive programs, our audit procedures included, among others, testing the completeness of sales incentive programs as well as the accuracy and completeness of the underlying data used in the calculations and evaluating the significant assumptions used by management to estimate its reserves related to remaining channel inventory. To test the completeness of the sales incentive programs, we inspected significant new sales contracts and agreements that include the contractual rights to discounts and rebates to validate they are being properly considered in the incentives reserve calculations, and examined credit memos issued after year end. We also directly confirmed terms and conditions of agreements with a sample of the group’s customers as well as inquired of sales representatives and other members of management to assess whether all contractual terms were provided to the Finance Department. To test the underlying data used in the sales incentive program reserve calculations, we confirmed ending on hand inventory at a sample of distributors and retailers. To test management’s assumptions of the amount of future reductions to the final selling prices as well as the timing of its distributors’ sales of products through to end customers we inquired with operations management and compared estimates with industry and analysts’ forecasts. In addition, we performed a retrospective review comparing prior period assumptions to the actual results in subsequent periods and performed sensitivity analyses to evaluate the potential effect of changes in the group’s significant assumptions. | Our observations included an outline of the range of audit procedures performed and a summary of the results. We provided our assessment of the critical accounting estimates used in the sales program accrual, including estimated future price erosion. |
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.
Description of the matter | How we addressed the matter in our opinion | Key observations | ||||||
Deferred income taxes Refer to the Accounting policies (page A-69) and Note 5 of the consolidated financial statements (pages A-81 to A-84). As disclosed by the group in Note 5 Income Taxes, at 1 July 2022 and 2 July 2021, the group has gross deferred tax assets of $1,561 million and $1,551 million, partially offset by a valuation allowance of $434 million and $429 million, respectively. As discussed in Note 5 to the consolidated financial statements, the group recognizes a valuation allowance to reduce the carrying value of its deferred tax assets to the amount that management believes is more likely than not to be realized. Auditing the realizability of the deferred tax assets was complex as the assessment process includes forecasting future sources of taxable income and scheduling the use of the applicable deferred tax assets which includes subjective management assumptions, and the amounts involved are material to the financial statements as a whole. | We obtained an understanding by performance of walkthrough procedures, evaluated the design and tested the operating effectiveness of controls that address the risks of material misstatement relating to the realizability of deferred tax assets. This included controls over management’s determination of sources and amount of future taxable income including income from operations and scheduling of the future reversal of existing taxable temporary differences. Among other audit procedures performed, we evaluated the assumptions used by the group to develop projections of future taxable income by jurisdiction and tested the completeness and accuracy of the underlying data used in its projections. For example, we compared the projections of future taxable income with the actual results of prior periods, as well as management’s consideration of current industry and economic trends. We also assessed the historical accuracy of management’s projections and compared the projections of future taxable income with other forecasted financial information prepared by the group. In addition, we tested the group’s scheduling of the reversal of existing temporary taxable differences. | Our observations included our assessment of the valuation allowance in light of current budget and forecasts, open tax authority examinations periods, transfer-pricing and other country matters. |
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 Groupgroup and the parent company to be $40$85 million (2021: $62 million), which is approximately 5% (2021: 5%) of Groupgroup profit before tax. We believe that profit before tax is a key performance indicator for the Group.group. We therefore considered Profitprofit 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.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 Groupgroup in the year.
Performance materiality
ThePerformance materiality is 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’sgroup’s overall control environment, our judgement was that performance materiality should be set at 75% (2021: 75%) of our planning materiality, namely $30 million.$63 million (2021: $46 million). We have set performance materiality at this percentage due to our past history of a low number 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 Groupgroup 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$12 million to $24 million.$48 million (2021: $8.0 million to $32 million).
Reporting threshold
AnReporting threshold is the 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$4.2 million (2021: $3.1 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 report
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.consolidated financial statements. We take into account size, risk profile, the organisation of the group and effectiveness of group wide controls, changes in the business environment and other factors such as recent Internal audit results when assessing the level of work to be performed at each entity.
In assessing the risk of material misstatement to the Groupconsolidated financial statements, and to ensure we had adequate quantitative coverage of significant accounts in the financial statements, we selected 109 components covering entities across the Americas, Asia and Europe, which represent the principal business units within the Group.group.
Of the 109 components selected, one was characterised as all U.S.US locations for which we reviewed allperformed an audit of the relevantcomplete financial information (‘full scope component’) which was selected based on its size or risk characteristics. For the remaining 98 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%98% (2021: 97%) of the Group’sgroup’s profit before tax, 100% (2021: 100%) of the Group’s Revenuegroup’s revenue and 99%97% (2021: 98%) of the Group’s Total Assets.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%30% (2021: 64%) of the Group’sgroup’s profit before tax, 35%40% (2021: 34%) of the Group’s Revenuegroup’s revenue and 91%40% (2021: 65%) of the Group’s Total Assets.group’s total assets. The specific scope components contributed 60%68% (2021: 33%) of the Group’s Profitgroup’s profit before tax, 65%60% (2021: 66%) of the Group’s Revenuegroup’s revenue and 8%57% (2021: 33%) of the Group’s Total Assets.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.group.
The remaining components together represent 1%less than 2% (2021: 3%) of the Group’sgroup’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.
Involvement with component teams
Conclusions relatingIn establishing our overall approach to going concern
We have nothingthe group audit, we determined the type of work that needed to report in respectbe undertaken at each of the following matters in relationcomponents by us, EY Ireland, as the primary audit engagement team, or by component auditors from other EY global network firms operating under our instruction. For all components we determined the appropriate level of involvement to which ISA 570 (Ireland) ‘Going concern’ requiresenable 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 reportDirectors’ Report and Financial Statements 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, ourOur 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.
MattersOpinions on which we are required to reportother matters prescribed by the Companies Act 2014
In our opinion, based solely on the work undertaken in the course of the audit:audit, we report that:
the information given in the directors’Directors’ Report, other than those parts dealing with the non-financial statement pursuant to the requirements of the European Union (Disclosure of non-financial and diversity information by certain large undertakings and groups) Regulations 2017 (as amended) on which we are not required to report forin the financialcurrent year, for which the statutory financial statements are prepared is consistent with the company’s statutory financial statements in respect of the financial year concerned; and
the directors’Directors’ Report, other than those parts dealing with the non-financial statement pursuant to the requirements of the European Union (Disclosure of non-financial and diversity information by certain large undertakings and groups) Regulations 2017 (as amended) on which we are not required to report in the current year, has been prepared in accordance with the applicable legal requirements.
We have obtained all the information and explanations which, to the best of our knowledge and belief, are necessary for the purposes of our audit.
In our opinion the accounting records of the parent company were sufficient to permit the financial statements to be readily and properly audited and the parent company statement of financial position is in agreement with the accounting records.
Matters on which we are required to report by exception
Based on ourthe knowledge and understanding of the companygroup and its environment obtained in the course of the audit, we have not identified material misstatements in the directors’ report.Directors’ Report.
The Companies Act 2014 requires us to report to you if, in our opinion, the accounting recordsdisclosures of Director’s remuneration and transaction required by sections 305 to 312 of the Company were sufficientAct, which relate to permitdisclosures of directors’ remuneration and transactions, are not complied with by the financial statements to be readily and properly audited;
Matters on which we are requiredCompany. We have nothing to report by exceptionin this regard.
We have nothing to report in respect of Sections 305 to 312section 13 of the Companies Act 2014European Union (Disclosure of Non-Financial and Diversity Information by certain large undertakings and groups) Regulations 2017 (as amended), which require us to report to you if, in our opinion, the disclosuresCompany has not provided in the non-financial statement the information required by Section 5(2) to (7) of directors’ remuneration and transactions specified by law are not made.those Regulations, in respect of year ended 2 July 2021.
Respective responsibilities
Responsibilities of directors for the financial statements
As explained more fully in the directors’ responsibilities statementDirectors’ Responsibilities Statement set out on page A-47,A-53, the directors are responsible for the preparation of the financial statements and for being satisfiedin accordance with the applicable financial reporting framework 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’sgroup and parent 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 the parent company 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.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
ThisOur report is made solely to the parent 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 parent 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 parent company and the parent company’s members as a body, for our audit work, for this report, or for the opinions we have formed.
/s/ DERMOT DALYBREFFNI MAGUIRE
Dermot DalyBreffni Maguire
For and on behalf of Ernst & Young
Chartered Accountants and Statutory Audit Firm
Dublin
2522 August 20172022
SEAGATE TECHNOLOGY HOLDINGS PLC
CONSOLIDATED PROFIT AND LOSS ACCOUNT
Fiscal Years Ended | Fiscal Years Ended | |||||||||||||||||||||
(US Dollars in millions) | Note | 30 June 2017 | 1 July 2016 | |||||||||||||||||||
(US Dollars in millions except per share data) | Note | 1 July 2022 | 2 July 2021 | |||||||||||||||||||
Revenue | $ | 10,771 | $ | 11,160 | 17 | $ | 11,661 |
| $ | 10,681 |
| |||||||||||
Cost of revenue | 7,597 | 8,545 |
| 8,192 |
|
| 7,764 |
| ||||||||||||||
|
|
|
| |||||||||||||||||||
Gross profit | 3,174 | 2,615 |
| 3,469 |
|
| 2,917 |
| ||||||||||||||
Product development | 1,232 | 1,237 |
| 941 |
|
| 903 |
| ||||||||||||||
Marketing and administrative | 606 | 635 |
| 559 |
|
| 502 |
| ||||||||||||||
Amortization of intangibles | 4 | 104 | 123 | 3 |
| 11 |
|
| 12 |
| ||||||||||||
Restructuring and other, net | 5 | 178 | 175 | 7 |
| 3 |
|
| 8 |
| ||||||||||||
|
|
|
| |||||||||||||||||||
2,120 | 2,170 |
| 1,514 |
|
| 1,425 |
| |||||||||||||||
|
|
|
| |||||||||||||||||||
Operating earnings | 1,054 | 445 |
| 1,955 |
|
| 1,492 |
| ||||||||||||||
Interest income | 12 | 3 |
| 2 |
|
| 2 |
| ||||||||||||||
Interest expense | (222) | (193) |
| (249) |
|
| (220) |
| ||||||||||||||
Other income and charges, net | (29) | 19 |
| (29) |
|
| 74 |
| ||||||||||||||
|
|
|
| |||||||||||||||||||
Income before taxes | 815 | 274 |
| 1,679 |
|
| 1,348 |
| ||||||||||||||
Income tax expense | 7 | 43 | 26 | 5 |
| 30 |
|
| 34 |
| ||||||||||||
|
|
|
| |||||||||||||||||||
Net income | $ | 772 | $ | 248 | $ | 1,649 |
| $ | 1,314 |
| ||||||||||||
|
|
|
| |||||||||||||||||||
Net income per share: | ||||||||||||||||||||||
Basic | 12 | $ | 2.61 | $ | 0.83 | 13 | $ | 7.50 |
| $ | 5.43 |
| ||||||||||
Diluted | 12 | 2.58 | 0.82 | 13 | $ | 7.36 |
| $ | 5.36 |
| ||||||||||||
Number of shares used in per share calculations: | ||||||||||||||||||||||
Number of shares used in per share calculations (in millions): | ||||||||||||||||||||||
Basic | 12 | 296 | 299 | 13 |
| 220 |
|
| 242 |
| ||||||||||||
Diluted | 12 | 299 | 302 | 13 |
| 224 |
|
| 245 |
|
SEAGATE TECHNOLOGY HOLDINGS PLC
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Fiscal Years Ended | Fiscal Years Ended | |||||||||||||||
(US Dollars in millions) | 30 June 2017 | 1 July 2016 | 1 July 2022 | 2 July 2021 | ||||||||||||
Net income | $ | 772 | $ | 248 | $ | 1,649 |
| $ | 1,314 |
| ||||||
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 | ||||||||||||||
Change in net unrealized gains on cash flow hedges: | ||||||||||||||||
Net unrealized gains arising during the period |
| 48 |
|
| 15 |
| ||||||||||
Losses (gains) reclassified into earnings |
| 21 |
|
| (9) |
| ||||||||||
|
|
|
| |||||||||||||
Net change | 1 | (2) |
| 69 |
|
| 6 |
| ||||||||
|
|
|
| |||||||||||||
Post-retirement plans | ||||||||||||||||
Change in unrealized gain on post-retirement plans | — | 8 | ||||||||||||||
Less: reclassification for amounts included in net income | 2 | — | ||||||||||||||
Change in unrealized components of post-retirement plans: | ||||||||||||||||
Net unrealized gains arising during the period |
| 6 |
|
| 1 |
| ||||||||||
Losses reclassified into earnings |
| 2 |
|
| 3 |
| ||||||||||
|
|
|
| |||||||||||||
Net change | 2 | 8 |
| 8 |
|
| 4 |
| ||||||||
|
|
|
| |||||||||||||
Foreign currency translation adjustments | 5 | (1) |
| — |
|
| 15 |
| ||||||||
|
|
|
| |||||||||||||
Total other comprehensive income, net of tax | 8 | 5 |
| 77 |
|
| 25 |
| ||||||||
|
|
|
| |||||||||||||
Comprehensive income | 780 | 253 | $ | 1,726 | $ | 1,339 | ||||||||||
|
|
|
|
SEAGATE TECHNOLOGY HOLDINGS PLC
CONSOLIDATED BALANCE SHEET
(US Dollars in millions) | Note | 30 June 2017 | 1 July 2016 | Note | 1 July 2022 | 2 July 2021 | ||||||||||||||||||
ASSETS | ||||||||||||||||||||||||
Fixed assets: | ||||||||||||||||||||||||
Goodwill | 4 | $ | 1,238 | $ | 1,237 |
| 3 |
| $ | 1,237 |
| $ | 1,237 |
| ||||||||||
Intangible assets | 4 | 281 | 448 |
| 3 |
|
| 9 |
|
| 29 |
| ||||||||||||
Right of use assets |
| 6 |
|
| 94 |
|
| 97 |
| |||||||||||||||
Tangible assets | 2 | 1,950 | 2,160 |
| 2 |
|
| 2,243 |
|
| 2,185 |
| ||||||||||||
Financial assets | 9 | 125 | 113 |
| 9 |
|
| 173 |
|
| 213 |
| ||||||||||||
|
|
|
| |||||||||||||||||||||
3,594 | 3,958 |
| 3,756 |
|
| 3,761 |
| |||||||||||||||||
Current assets: | ||||||||||||||||||||||||
Inventories | 2 | 982 | 868 |
| 2 |
|
| 1,565 |
|
| 1,204 |
| ||||||||||||
Trade debtors | 2 | 1,199 | 1,318 |
| 2 |
|
| 1,532 |
|
| 1,158 |
| ||||||||||||
Other debtors - amounts falling due within one year | 2 | 246 | 216 |
| 2 |
|
| 317 |
|
| 204 |
| ||||||||||||
Investments | 2 | — | 6 | |||||||||||||||||||||
Cash and cash equivalents | 2 | 2,539 | 1,125 |
| 2 |
|
| 615 |
|
| 1,209 |
| ||||||||||||
|
|
|
| |||||||||||||||||||||
4,966 | 3,533 |
| 4,029 |
|
| 3,775 |
| |||||||||||||||||
Other debtors - amounts falling due after one year | 2 | 708 | 722 |
| 2 |
|
| 1,159 |
|
| 1,139 |
| ||||||||||||
|
|
|
| |||||||||||||||||||||
Total Assets | $ | 9,268 | $ | 8,213 | $ | 8,944 |
| $ | 8,675 |
| ||||||||||||||
|
| |||||||||||||||||||||||
|
| |||||||||||||||||||||||
LIABILITIES AND EQUITY | ||||||||||||||||||||||||
Capital and reserves: | ||||||||||||||||||||||||
Share capital | 10 | $ | — | $ | — |
| 10 |
| $ | — |
| $ | — |
| ||||||||||
Share premium | 10 | 5,595 | 5,509 |
| 10 |
|
| 68 |
|
| 23,000 |
| ||||||||||||
Other reserves | 10 | 540 | 395 |
| 10 |
|
| (17,731) |
|
| (17,953) |
| ||||||||||||
Profit and loss account | 10 | (4,771) | (4,311 | ) |
| 10 |
|
| 17,772 |
|
| (4,416) |
| |||||||||||
|
|
|
| |||||||||||||||||||||
1,364 | 1,593 |
| 109 |
|
| 631 |
| |||||||||||||||||
Provisions for liabilities: | ||||||||||||||||||||||||
Taxation | 7 | 30 | 31 |
| 5 |
|
| 31 |
|
| 24 |
| ||||||||||||
Other provisions | 2 | 276 | 269 |
| 2 |
|
| 153 |
|
| 144 |
| ||||||||||||
|
|
|
| |||||||||||||||||||||
306 | 300 |
| 184 |
|
| 168 |
| |||||||||||||||||
Creditors - amounts falling due within one year: | ||||||||||||||||||||||||
Debt |
| 4 |
|
| 584 |
|
| 245 |
| |||||||||||||||
Trade creditors | 1,626 | 1,517 |
| 2,058 |
|
| 1,725 |
| ||||||||||||||||
Other creditors | 2 | 840 | 560 |
| 2 |
|
| 832 |
|
| 876 |
| ||||||||||||
|
|
|
| |||||||||||||||||||||
2,466 | 2,077 |
| 3,474 |
|
| 2,846 |
| |||||||||||||||||
Creditors - amounts falling due after one year: | ||||||||||||||||||||||||
Debt | 9 | 5,021 | 4,091 |
| 4 |
|
| 5,062 |
|
| 4,894 |
| ||||||||||||
Other creditors | 111 | 152 |
| 115 |
|
| 136 |
| ||||||||||||||||
|
|
|
| |||||||||||||||||||||
Total Liabilities | $ | 9,268 | $ | 8,213 | ||||||||||||||||||||
Total Liabilities and Equity | $ | 8,944 |
| $ | 8,675 |
| ||||||||||||||||||
|
|
|
|
Approved by the Board of Directors and signed on its behalf on 2522 August 20172022.
/s/ | /s/ Judy Bruner | |||
Dr. William D. Mosley |
| |||
SEAGATE TECHNOLOGY HOLDINGS PLC
CONSOLIDATED STATEMENT OF CASH FLOWS
Fiscal Years Ended | Fiscal Years Ended | |||||||||||||||
(US Dollars in millions) | 30 June 2017 | 1 July 2016 | 1 July 2022 | 2 July 2021 | ||||||||||||
OPERATING ACTIVITIES | ||||||||||||||||
Net income | $ | 772 | $ | 248 | $ | 1,649 |
| $ | 1,314 |
| ||||||
Adjustments to reconcile net income to net cash from operating activities: | ||||||||||||||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||||||||
Depreciation and amortization | 749 | 815 |
| 451 |
|
| 397 |
| ||||||||
Share-based compensation | 137 | 120 |
| 145 |
|
| 112 |
| ||||||||
Loss (gain) on redemption and repurchase of debt | 7 | (3) | ||||||||||||||
Impairment of other long-lived assets | 42 | 26 | ||||||||||||||
Loss on redemption and repurchase of debt |
| — |
|
| 1 |
| ||||||||||
Deferred income taxes | 3 | (2) |
| (9) |
|
| (4) |
| ||||||||
Othernon-cash operating activities, net | 20 | 12 |
| 64 |
|
| (50) |
| ||||||||
Changes in operating assets and liabilities: | ||||||||||||||||
Trade debtors | 122 | 464 |
| (374) |
|
| (42) |
| ||||||||
Inventories | (114) | 145 |
| (361) |
|
| (64) |
| ||||||||
Trade creditors | 121 | (24) |
| 228 |
|
| (14) |
| ||||||||
Accrued employee compensation | 53 | (78) |
| (30) |
|
| 58 |
| ||||||||
Accrued expenses, income taxes and warranty | 47 | (42) |
| (26) |
|
| (38) |
| ||||||||
Other assets and liabilities | (43) | (1) |
| (80) |
|
| (44) |
| ||||||||
|
|
|
| |||||||||||||
Net cash provided by operating activities | 1,916 | 1,680 |
| 1,657 |
|
| 1,626 |
| ||||||||
|
|
|
| |||||||||||||
INVESTING ACTIVITIES | ||||||||||||||||
Acquisition of tangible assets | (434) | (587) |
| (381) |
|
| (498) |
| ||||||||
Proceeds from the sale of tangible assets |
| — |
|
| 4 |
| ||||||||||
Purchases of investments | (37) | — |
| (18) |
|
| (4) |
| ||||||||
Proceeds from sale of investments |
| 47 |
|
| 29 |
| ||||||||||
Maturities of investments | 6 | — |
| — |
|
| 3 |
| ||||||||
Cash used in acquisition of businesses, net of cash acquired | — | (634) | ||||||||||||||
Other investing activities, net | 6 | 10 | ||||||||||||||
|
|
|
| |||||||||||||
Net cash used in investing activities | (459) | (1,211) |
| (352) |
|
| (466) |
| ||||||||
|
|
|
| |||||||||||||
FINANCING ACTIVITIES | ||||||||||||||||
Net proceeds from issuance of long-term debt | 1,232 | — | ||||||||||||||
Repayment of long-term debt | (316) | (22) | ||||||||||||||
Redemption and repurchase of debt |
| (701) |
|
| (33) |
| ||||||||||
Dividends to shareholders |
| (610) |
|
| (649) |
| ||||||||||
Repurchases of ordinary shares |
| (1,799) |
|
| (2,047) |
| ||||||||||
Taxes paid related to net share settlement of equity awards | (27) | (56) |
| (51) |
|
| (33) |
| ||||||||
Repurchases of ordinary shares | (460) | (1,090) | ||||||||||||||
Dividends to shareholders | (561) | (727) | ||||||||||||||
Proceeds from issuance of long-term debt |
| 1,200 |
|
| 1,000 |
| ||||||||||
Proceeds from issuance of ordinary shares under employee stock plans | 86 | 79 |
| 68 |
|
| 108 |
| ||||||||
Other financing activities, net | — | (4) |
| (6) |
|
| (19) |
| ||||||||
|
|
|
| |||||||||||||
Net cash used in financing activities | (46) | (1,820) |
| (1,899) |
|
| (1,673) |
| ||||||||
|
|
|
| |||||||||||||
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) | ||||||||||||||
Decrease in cash, cash equivalents and restricted cash |
| (594) |
|
| (513) |
| ||||||||||
Cash, cash equivalents and restricted cash at the beginning of the year | 1,132 | 2,486 |
| 1,211 |
|
| 1,724 |
| ||||||||
|
|
|
| |||||||||||||
Cash, cash equivalents and restricted cash at the end of the year | $ | 2,543 | $ | 1,132 | $ | 617 |
| $ | 1,211 |
| ||||||
|
|
|
| |||||||||||||
Supplemental Disclosure of Cash Flow Information | ||||||||||||||||
Cash paid for interest | $ | 172 | $ | 200 | $ | 244 |
| $ | 184 |
| ||||||
Cash paid for income taxes, net of refunds | $ | 33 | $ | 40 | $ | 33 |
| $ | 44 |
|
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation and Summary of Significant Accounting Policies
Organization
Seagate Technology Holdings plc became(“STX”) is the parent company in the Seagate group following a reorganization that took place in 2010.May 2021. On 18 May 2021, Seagate Technology plc, now known as Seagate Technology Unlimited Company (“STUC”), and STX completed a scheme of arrangement pursuant to which STUC’s ordinary shares were acquired by STX and the ordinary shareholders of STUC received, on a one-for-one basis, new ordinary shares of STX (the “Scheme”). As a result of the Scheme, STUC is now a direct, wholly-owned subsidiary of STX, which is the successor issuer to STUC. In connection with the Scheme, STX assumed STUC’s existing obligations in connection with awards granted under STUC’s incentive plans and other similar employee awards and amended such plans and awards as necessary to provide for the issuance of STX’s registered shares rather than the ordinary shares of STUC upon the exercise or vesting of awards.
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 TechnologySTUC for periods prior to this transaction are considered to be the historical consolidated financial statements of Seagate Technology plc.STX. No changes in consolidated assets or liabilities resulted from this transaction, other than Seagate Technology plcSTX has provided a guarantee of amounts due under certain borrowing arrangements as described in Note 6.“Note 4. Debentures and Bank Loans.” See Note 10“Note 10. Capital and Reserves” for a discussion of the capital structure of Seagate Technology plc.STX.
The Company is incorporated in Ireland. The Company’s registration number is 606203 and its registered address is 38/39 Fitzwilliam Square, Dublin 2, Ireland D02 NX53.
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.group.
The directors have elected to prepare the consolidated financial statements of Seagate Technology Holdings plc (the “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 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 Act 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 wereare 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 Companies Act 2014 in addition to those disclosures required under US GAAP.
In addition, in these financial statements, terminology typically utilized in a set of US GAAP financial statements has been retained for the benefit of those users of these financial statements who also access 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 havinghave 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.reserves.
Going Concern
Given the impact of the COVID-19 pandemic on the Company’s business, operating results, and financial condition, the Directors have placed a particular focus on the appropriateness of adopting the going concern basis in the preparation of the financial statements for the year ended 1 July 2022.
The Company’s going concern assessment considers its Principal Risks and Uncertainties, including those specific to the pandemic (Refer to Page A-18 for details.) and is dependent on a number of factors including financial performance and maintenance of supply chain operations. The going concern assessment has been performed for a period of at least 12 months from the approval of the financial statements. The following factors were considered in the Company’s going concern assessment:
Based on the results of the Company’s forecasting procedures and assessment of its liquidity requirements, including its contractual and debt repayment commitments, the Company believes its sources of cash, including the undrawn revolving credit facility of $1.75 billion, have been and will continue to be sufficient to meet its cash needs for at least the next 12 months.
The Company believes that its cash equivalents are liquid and accessible.
The Company was in compliance with the covenants as of 1 July 2022 and expects to be in compliance for the next 12 months.
While there is a high level of uncertainty concerning the challenges posted by the pandemic, supply chain disruptions as well as other inflationary and macroeconomic pressures to our industry, the Company believe that financial resources, along with controlling costs and maintaining supply chain discipline including adjusting manufacturing production plans will allow us to manage the potential impacts of the pandemic, inflation and other macroeconomic factors on our business operations for the foreseeable future.
Taking into account the financial resources available to the Company, it is management’s view, to the best of their current knowledge, that pandemic will not have a material adverse impact on the Company’s ability to continue as a going concern. Accordingly, the Directors have adopted the going concern basis in preparing the financial statements.
Basis of Presentation and Consolidation
The Company’s 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 USthe United States generally accepted accounting principles also requires management to make estimates and assumptions that affect the amounts reported in the
Company’s consolidated financial statements and accompanying notes. These estimates and assumptions include the impact of the COVID-19 pandemic. 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. 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 30 June. Accordingly, fiscal years 2017year 2022 and 2016 were2021 both comprised of 52 weeks and ended on 30 June 2017 and 1 July 2016,2022 and 2 July 2021, respectively. All references to years in these Notes to the Consolidated Financial Statements represent fiscal years unless otherwise noted. Fiscal year 20182026 will also be 52comprised of 53 weeks and will end on 29 June 2018.3 July 2026.
Summary of Significant Accounting Policies
Cash and Cash Equivalents and Investments.Equivalents. 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’s highly liquid investments are primarily comprised of money market funds, time deposits and certificates of deposits. The Company has classified its marketable debt securities asavailable-for-sale and they are stated at fair value with unrealized gains and losses included in Accumulated other comprehensive loss,income, which is a component of Other Reserves.Shareholders’ Equity. The Company evaluates theavailable-foravailable-for-sale saledebt securities in an unrealized loss position for other-than-temporary impairment. Realized gains and losses are included in Other income and charges, net.net on the Company’s Consolidated Profit and Loss Account. The cost of securities sold is based on the specific identification method. Other cash equivalents are carried at cost, which approximates fair value.
Restricted Cash and Investments.Cash Equivalents.Restricted cash and investmentscash equivalents represent cash and cash equivalents and investments that are restricted as to withdrawal or use for other than current operations.
AllowancesAllowance for Doubtful Accounts.expected credit loss. The Company maintains an allowance for uncollectible trade debtorsexpected credit loss relating to its accounts receivable based upon expected collectability. This reserve is established based upon historical trends, global macroeconomic conditions, reasonable and supportable forecasts of future conditions and an analysis of specific exposures. The provision for doubtful accountsexpected credit loss is recorded as a charge to Marketing and administrative expense.expense on the Company’s Consolidated Profit and Loss Account.
Inventory.Inventories. Inventories are valued at the lower of cost (using thefirst-in,first-out method) or market. Marketand net realizable value. Net realizable value is based upon anthe estimated average selling price reduced by estimatedprices in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. Adjustments to reduce cost of completion and disposal.inventories to its net realizable value are made, if required, for estimated excess or obsolescence determined primarily by future demand forecasts.
Tangible Assets. Tangible assets are stated at cost.cost less accumulated depreciation and amortization. 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.Goodwill. 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 US GAAP, Seagatethe Company 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”) Topic 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 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 2017, the Company adopted Accounting Standard Update (“ASU”)No. 2017-04,Intangibles - Goodwill and Other (ASC Topic 350) - Simplifying the Test for Goodwill Impairment. The Company performs a qualitative assessment in 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 will perform a quantitative impairment test. The quantitative goodwill impairment test is performed by comparing the fair value of a reporting unit with its carrying amount. Any excess in the carrying value of a reporting unit’s goodwillunit over its fair value is recognized as an impairment loss, limited to the total amount of goodwill allocated to that reporting unit.
Other Long-lived Assets.The Company tests other tangiblelong-lived 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.
Leases. The Company determines if an arrangement is a lease or contains a lease at inception. Right-of-use (“ROU”) assets are presented on the Company’s Consolidated Balance Sheet as Right of use assets. ROU assets represent the Company’s right to use an underlying asset for the lease term and the corresponding lease liabilities represent its obligation to make lease payments arising from the lease.
Lease liabilities are measured at the present value of the remaining lease payments and ROU assets are based on the lease liability, adjusted for lease prepayments, lease incentives received and the lessee’s initial direct costs. For the Company’s leases
that do not provide an implicit rate, the net present value of future minimum lease payments is determined using the Company’s estimated incremental borrowing rate based on the information available at the lease commencement date. Additionally, the Company’s lease term may include options to extend or terminate the lease. These options are reflected in the ROU asset and lease liability when it is reasonably certain that the Company will exercise the option. The Company’s lease agreements do not contain any material residual value guarantees.
The Company recognizes lease expense on a straight-line basis over the lease term. Variable lease payments not dependent on an index or a rate primarily consist of common area maintenance charges, are expensed as incurred, and are not included in the ROU asset and lease liability calculation. The total operating and variable lease costs were included in operating expenses in the Company’s Consolidated Profit and Loss Account.
Derivative Financial Instruments. The Company applies the requirements of ASC Topic 815 (“ASC 815”),Derivatives and Hedging. ASC 815 requires thatrecords all derivatives be recorded on the balance sheet at fair value and establishes criteria for designation and effectiveness of hedging relationships (see note 8).relationships. The Company excludes the change in forward points from the assessment of hedge effectiveness and recognizes the excluded component in Other income and charges, net in the Consolidated Profit and Loss Account. Foreign currency forward exchange contracts not designated as hedge instruments are used to economically hedge the foreign currency exposure on forecasted expenditures in currencies other than US dollar. The Company recognizes the unrealized gains and losses due to the changes in the fair value of these contracts, as well as the related costs in Other income and charges, net in the Consolidated Profit and Loss Account.
Establishment of Warranty Accruals.Warranty. The Company estimates probable product warranty costs at the time revenue is recognized. The Company generally warrantsprovides warranty on its products for a period of 1 to 5 years. The Company’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 judgmentjudgement in estimating its ability to sell certain repairedrefurbished products. Should actualThe Company’s judgment is subject to a greater degree of subjectivity with respect to newly introduced products because of limited experience in any future period differ significantly from its estimates, the Company’s future results of operations could be materially affected.with those products upon which to base our warranty estimates.
Revenue Recognition Sales Returns and Allowances, and Sales Incentive Programs.The Company’sCompany determines revenue recognition policy compliesthrough the following steps: (1) identification of the contract with ASC Topic 605 (“ASC 605”),Revenue Recognition.a customer; (2) identification of the performance obligations in the contract; (3) determination of the transaction price; (4) allocation of the transaction price to the performance obligations in the contract; and (5) recognition of revenue when, or as, the Company satisfies a performance obligation.
Revenue from sales of products including sales to distribution customers, is generally recognized when title and riskupon transfer of loss has passedcontrol to customers in an amount that reflects the buyer, whichconsideration the Company expects to receive in exchange for those products, net of sales taxes. This typically occurs upon shipment from the Company. When applicable, the Company or third 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 andincludes shipping charges billed to customers in certain indirect retail channels is recognizedRevenue and includes the related shipping costs in Cost of revenue on a sell-through basis.the Company’s Consolidated Profit and Loss Account.
The Company records estimated product returnsvariable consideration at the time of shipment. The Company also estimates reductionsrevenue recognition as a reduction to revenue forrevenue. Variable consideration generally consists of 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 OEMoriginal equipment manufacturers (“OEMs”) sales, rebates are typically established by estimating the most likely amount of consideration expected to be received based on an OEM customer’s volume of purchases from Seagatethe Company or other agreed upon rebate programs. For the distribution and retail channel, these programs typically involve estimating the most likely amount of rebates related to a distributor’scustomer’s level of sales, order size, advertising or point of sale activity andas well as the expected value of price protection adjustments. The Company provides for these obligations at the time that revenue is recordedadjustments based on estimated requirements.historical analysis and forecasted pricing environment. Marketing development programsprogram costs are accrued and recorded as a reduction to revenue.revenue at the same time that the related revenue is recognized.
The Company expenses sales commissions as incurred because the amortization period would have been one year or less. These costs are recorded as Marketing and administrative on the Company’s Consolidated Profit and Loss Account.
Product Development Costs.Product development costs, which includesinclude both research and development costs, are recognized as expense.
Distribution Costs.The Company includes distribution costs, which includesinclude shipping and handling, in Cost of revenue in the Consolidated Profit and Loss Account for all periods presented. These costs amount to $116$296 million and $132$227 million in fiscal years 20172022 and 2016,2021, respectively.
Restructuring Costs. The Company records restructuring activities including costs forone-time termination benefits in accordance with ASC Topic 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 benefitsbenefit costs covered by existing benefit arrangements are recorded in accordance with ASC Topic 712,Non-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 $16 million and $31 million in fiscal years 2017 and 2016, respectively.
Share-Based Compensation. The Company accounts for share-based compensation under the provisionsnet of ASC Topic 718 (ASC 718),Compensation-Stock Compensation. The Company has electedestimated forfeitures. Refer to apply thewith-and-without method to assess the realization of related excess tax benefits.“Note 11. Share-based Compensation” for details.
Accounting for Income Taxes. The Company accounts for income taxes pursuant to ASC Topic 740 (“ASC 740”), Income Taxes.In applying ASC 740, the Company makes certain estimates and judgments in determiningrecords an income tax expense or benefit for the anticipated tax consequences of the reported results of operations using the asset and liability method. Deferred income tax expense or benefit is recognized by applying enacted statutory tax rates applicable to future years to differences between the financial statement purposes. These estimatescarrying amounts of existing assets and judgments occur in the calculation ofliabilities and their respective tax credits, recognition of incomebases as well as net operating loss and deductions and calculation of specifictax credit carryforwards. The effect on deferred tax assets and liabilities which arise from differencesof a change in tax rates is recognized in income in the timingperiod that includes the enactment date. The measurement 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’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 Company records each period depend primarily on the Company’s ability to generate future taxable income in the United States and certainnon-US jurisdictions. Each period, the Company evaluates the need foris reduced, if necessary, by a valuation allowance for its deferredany tax assets and,benefits for which future realization is uncertain.
The Company recognizes a tax benefit only 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 deferredthe tax assetsposition will be realized. Ifsustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such positions are then measured based on the largest benefit that has a greater than 50% likelihood of being realized upon settlement.
Equity Investments. From time to time, the Company enters into certain strategic investments for the promotion of business and strategic objectives, which are accounted for either under equity method or the measurement alternative. These investments are included in Other income and charges, net in the Consolidated Profit and Loss Account.
Investments are accounted for under the equity method if the Company has the ability to exercise significant influence, but does not have a controlling financial interest. These investments are measured at cost, less any impairment plus the Company’s outlookportion of investee’s income or loss. The Company uses the financial statements of investees to determine any adjustments, which are received on a one-quarter lag.
For equity investments where the Company does not have the ability to exercise significant influence and there are no readily determinable fair values, the Company has elected to apply the measurement alternative, under which investments are measured at cost, less impairment, and adjusted for future taxable incomequalifying observable price changes significantly,on a prospective basis.
The Company’s strategic investments are periodically analyzed to determine whether or not there are indicators of impairment by assessing factors such as deterioration of earnings, adverse change in market/industry conditions, the Company’s assessmentability to operate as a going concern, and other factors which indicate that the carrying amount of the need for,investment might not be recoverable. In such a case, the decrease in value is recognized in the period the impairment occurs in the Consolidated Profit and the amount of, a valuation allowance may also change.Loss Account.
Comprehensive Income. The Company presents comprehensive income in a separate statement. Comprehensive income is comprised of net income and other gains and losses affecting equity that are excluded from net income.
Foreign Currency Remeasurement and Translation.The US dollar is the functional currency for the majority of the Company’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’s Consolidated Profit and Loss Account. The Company had $4 millionCompany’s subsidiaries that use the US dollar as their functional currency remeasure monetary assets and $0 millionliabilities at exchange rates in remeasurement losses in fiscal years 2017effect at the end of each period, and 2016, respectively.nonmonetary assets and liabilities at historical rates.
The Company translates the assets and liabilities of itsnon-US dollar functional currency subsidiaries into 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 Other reserves,Accumulated other comprehensive income, which is a component of shareholders’ equity. The Company’s subsidiaries that use the 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’s Consolidated Profit and Loss Account.Other reserves.
Concentrations
Concentration of Credit Risk. The Company’s customer base for disk drive products is concentrated with a small number of OEMs and distributors.customers. The Company does not generally require collateral or other security to support trade debtors.accounts receivable. To reduce credit risk, the Company performs ongoing credit evaluations on its customers’ financial condition. The Company establishes an allowanceallowances for doubtful accountsexpected credit losses based upon factors surrounding the credit risk of customers, historical trendsglobal macroeconomic conditions and other information. Dell Inc.an analysis of specific exposures. One customer accounted for more than10%20% and 11% of the Company’s trade debtors as of 30 June 2017.1 July 2022 and 2 July 2021, respectively.
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 investmentsfinancial instruments through diversification, by limiting its investments in the debt securities of a single issuer, and investing in highly-rated securities.securities and/or major multinational companies.
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 and investment 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 single-sourced direct and indirect 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 all or 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 may make prepayments to certain 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.
Recently Issued Accounting Pronouncements
In May 2014, August 2015, April 2016, May 2016 and December 2016, the Financial 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, Deferral of the Effective Date,ASU2016-10 (ASC Topic 606)Revenue from Contracts with Customers, Identifying Performance Obligations and Licensing, ASU2016-12 (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,March 2020, the FASB issued ASU2015-112020-04 (ASC Topic 330)848),Inventory: SimplifyingReference Rate Reform. This ASU provides optional expedients and exceptions for applying US GAAP to contracts, hedging relationships and other transactions affected by reference rate reform if certain criteria are met. Adoption of the Measurementexpedients and exceptions is permitted upon issuance of Inventory. The amendments in this ASU require 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.update through 31 December 2022. The Company does not expect the adoption of this ASU to have a material impact on its consolidated financial statements.
In January 2016,November 2021, the FASB issued ASU2016-012021-10 (ASC SubtopicTopic 832), Disclosures by Business Entities about Government Assistance. This ASU requires annual disclosures that increase the transparency of transactions involving government grants, including (1) the type of transactions, (2) the accounting for those transactions and (3) the effect of those transactions on an entity’s financial statements. The Company will adopt this new guidance beginning first quarter of fiscal year 2023 on a prospective basis and plans to disclose the aforementioned requirements in consolidated financial statements for the fiscal year ended 30 June 2023.
In June 2022, the FASB issued ASU 825-10)2022-03 (ASC Topic 820),Financial Instruments - Overall Recognition andFair Value Measurement of Financial AssetsEquity Securities Subject to Contractual Sale Restrictions. This ASU clarifies that a contractual restriction on the sale of equity security is not considered when measuring its fair value and Financial Liabilities.The amendments in this ASU require entities to measure all investments inrequires new disclosures for equity securities at fair value with changes recognized through net income. This requirement does not applysubject 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.contractual sale restriction. The Company is required to adopt thethis guidance in the first quarter of fiscal 2019. Early adoption is permitted for only certain portions of the ASU. The Company is in the process of assessing the impact 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 2020.2025. 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 March 2016,December 2019, the FASBFinancial Accounting Standards Board (“FASB”) issued ASU2016-092019-12 (ASC Topic 718)740), Stock Compensation - Improvements to Employee Share-Based Payment Accounting.Simplifying the Accounting for Income Taxes. The amendments in thisThis ASU are intended to simplify several areas ofsimplifies accounting for share-based compensation arrangements, includingincome taxes by removing certain exceptions to the income tax consequences, classification ongeneral principles and amending existing guidance to improve consistent application. This ASU became effective and the consolidated statement of cash flows and treatment of forfeitures. The Company is
required and intends to adoptadopted 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.
Inended 1 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 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 ASUs 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.2021. 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 did not have an impact on the Company’s consolidated financial statements and disclosures.statements.
In September 2015,July 2021, the FASB issued ASU2015-162021-05 (ASC Topic 805)842),Business Combinations SimplifyingLessors—Certain Leases with Variable Lease Payments. This ASU requires lessors to classify and account for a lease with variable lease payments that do not depend on a reference index or a rate as an operating lease if the Accounting for Measurement-Period Adjustments.lease would have been classified as a sales-type lease or a direct financing lease and the lessor would have otherwise recognized a day-one loss. The amendments in this update require that an acquirer recognize measurement period adjustmentsCompany adopted the guidance 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 ended 1 October 2021 on a prospective basis with no materialbasis. The adoption of this ASU did not have an impact on the Company’s consolidated financial statements and disclosures.statements.
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 intended to clarify how certain cash receipts and 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 guidance had no material impact on the Company’s consolidated financial statements and disclosures.
2. Balance Sheet Information
Investments
The following table summarizes, by major type, the fair value and amortized cost of the Company’s investments as of 30 June 2017:
(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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As of 30 June 2017, the Company’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 30 June 2017, the Company had no materialavailable-for-saleAvailable-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 30 June 2017.
The fair value and amortized cost of the Company’s investments classified asavailable-for-sale at 30 June 2017 by remaining contractual maturity was as follows:
(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.
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.Debt Securities
The following table summarizes, by major type, the fair value and amortized cost of the Company’s investments as of 1 July 2016:2022 and 2 July 2021:
1 July 2022 | 2 July 2021 | |||||||||||||||||||||||||||||||||||
(US Dollars in millions) | Amortized Cost | Unrealized Gain/(Loss) | Fair Value (2) | Amortized Cost | Unrealized Gain/(Loss) | Fair Value(1) | Amortized Cost | Unrealized Gain/(Loss) | Fair Value(1) | |||||||||||||||||||||||||||
Available-for-sale securities: | ||||||||||||||||||||||||||||||||||||
Available-for-sale debt securities: | ||||||||||||||||||||||||||||||||||||
Money market funds | $ | 232 | $ | — | $ | 232 | $ | 60 | $ | — | $ | 60 | $ | 552 | $ | — | $ | 552 | ||||||||||||||||||
Corporate bonds | 6 | — | 6 | |||||||||||||||||||||||||||||||||
Certificates of deposit | 5 | — | 5 | |||||||||||||||||||||||||||||||||
Time deposits and certificates of deposit | 1 | — | 1 | 1 | — | 1 | ||||||||||||||||||||||||||||||
Other debt securities | 23 | — | 23 | 18 | — | 18 | ||||||||||||||||||||||||||||||
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Total | $ | 243 | $ | — | $ | 243 | $ | 84 | $ | — | $ | 84 | $ | 571 | $ | — | $ | 571 | ||||||||||||||||||
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Included in Cash and cash equivalents(1) | $ | 230 | ||||||||||||||||||||||||||||||||||
Included in Investments | 6 | |||||||||||||||||||||||||||||||||||
Included in Cash and cash equivalents(2) | $ | 59 | $ | 551 | ||||||||||||||||||||||||||||||||
Included in Other debtors - amounts falling due within one year | 7 | 2 | 2 | |||||||||||||||||||||||||||||||||
Included in Other debtors - amounts falling due after one year | 23 | 18 | ||||||||||||||||||||||||||||||||||
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Total | $ | 243 | $ | 84 | $ | 571 | ||||||||||||||||||||||||||||||
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(1) |
Represents the Company’s investments that are listed with the exception of |
(2) | Amount does not include $556 million and $658 million of cash held in banks for the years ended 1 July 2022 and 2 July 2021, respectively. |
As of 1 July 2016,2022 and 2 July 2021, the Company’s Other debtors - amounts falling due within one year included of $7$2 million in restricted cash and investmentsequivalents held as collateral at banks for various performance obligations.
As of 1 July 2016,2022 and 2 July 2021, the Company had no material available-for-sale debt securities that had been in a continuous unrealized loss position for a period greater than 12 months. During fiscal year 2022, the Company recorded a $13 million impairment loss relating to available-for-sale debt securities. The Company determined no impairment related to credit losses for available-for-sale debt securities were other-than-temporarily impaired as of 2 July 2021.
The fair value and amortized cost of the Company’s investments classified as available-for-sale debt securities at 1 July 2016.
(US Dollars in millions) | Amortized Cost | Fair Value | ||||||
Due in less than 1 year | $ | 61 | $ | 61 | ||||
Due in 1 to 5 years | 15 | 15 | ||||||
Due in 6 to 10 years | — | — | ||||||
Thereafter | 8 | 8 | ||||||
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Total | $ | 84 | $ | 84 | ||||
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Cash, Cash Equivalents and Restricted Cash
The following table provides a summary of cash, cash equivalents and restricted cash reported within the Consolidated Balance SheetSheets that reconciles to the corresponding amount in the Consolidated StatementStatements of Cash Flows:
(Dollars in millions) | June 30 2017 | 1 July 2016 | 3 July 2015 | |||||||||
Cash and cash equivalents | $ | 2,539 | $ | 1,125 | $ | 2,479 | ||||||
Restricted cash included in Other debtors - amounts falling due within one year | 4 | 7 | 7 | |||||||||
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Total cash, cash equivalents, and restricted cash shown in the Statements of Cash Flows | 2,543 | $ | 1,132 | 2,486 | ||||||||
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(US Dollars in millions) | 1 July 2022
| 2 July 2021
| 3 July 2020
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Cash and cash equivalents | $ | 615 |
| $ | 1,209 |
| $ | 1,722 |
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Restricted cash included in Other debtors - amounts falling due within one year |
| 2 |
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| 2 |
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| 2 |
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Total cash, cash equivalents and restricted cash shown in the Statements of Cash Flows | $ | 617 |
| $ | 1,211 |
| $ | 1,724 |
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Trade Debtors
The following table provides details of the trade debtors balance sheet item:
(US Dollars in millions) | 30 June 2017 | 1 July 2016 | 1 July 2022
| 2 July 2021
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Trade Debtors | $ | 1,204 | $ | 1,327 | $ | 1,536 |
| $ | 1,162 |
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Allowance for doubtful accounts | (5) | (9) | ||||||||||||||
Allowance for expected credit losses |
| (4) |
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| (4) |
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Trade Debtors, net | $ | 1,532 |
| $ | 1,158 |
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$ | 1,199 | $ | 1,318 |
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Activity in the allowance for doubtful accountsexpected credit losses is as follows:
(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 |
(US Dollars in millions) | Balance at Beginning of Period | Charges to Profit and Loss | Deductions(1) | Balance at End of Period | ||||||||||||
Fiscal year ended 2 July 2021 | $ | 5 | — | (1) | $ | 4 | ||||||||||
Fiscal year ended 1 July 2022 | $ | 4 | — | — | $ | 4 |
(1) | Uncollectible accounts written off, net of recoveries. |
In connection with an existing factoring agreement, the Company sells trade receivables to a third party for cash proceeds less a discount. During fiscal year 2022, the Company sold trade receivables without recourse for cash proceeds of $275 million of which $200 million remained subject to servicing by the Company as of 1 July 2022. During fiscal year 2021, the Company sold trade receivables without recourse for cash proceeds of $183 million, of which none remained subject to servicing by the Company as of 2 July 2021. The discounts on trade receivables sold were not material for fiscal years 2022 and 2021.
Inventories
The following table provides details of the inventory balance sheet item:
(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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(US Dollars in millions) | 1 July 2022 | 2 July 2021 | ||||||
Raw materials and components | $ | 601 | $ | 375 | ||||
Work-in-process | 414 | 443 | ||||||
Finished goods | 550 | 386 | ||||||
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Total inventories | $ | 1,565 | $ | 1,204 | ||||
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Other Debtors - amounts falling due within one year
The following table provides details of the other debtors—debtors - amounts falling due within one year balance sheet item:
(US Dollars in millions) | 30 June 2017 | 1 July 2016 | 1 July 2022 | 2 July 2021 | ||||||||||||
Vendornon-trade debtors | $ | 96 | $ | 66 | $ | 83 | $ | 84 | ||||||||
Prepaid expenses | 73 | 36 | ||||||||||||||
Other | 150 | 150 | 161 | 84 | ||||||||||||
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$ | 246 | $ | 216 | $ | 317 | $ | 204 | |||||||||
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Other Debtors - amounts falling due after one year
The following table provides details of the other debtors - amounts falling due after one year balance sheet item:
(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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(US Dollars in millions) | 1 July 2022 | 2 July 2021 | ||||||
Deferred income taxes | $ | 1,132 | $ | 1,117 | ||||
Other | 27 | 22 | ||||||
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$ | 1,159 | $ | 1,139 | |||||
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Tangible Assets
The following table provides details of the tangible assets balance sheet item:
(US Dollars in millions) | Land (a) | Equipment | Buildings and Leasehold Improvements(a) | Construction in Progress (CIP) | Total | Land
| Equipment
| Buildings and Leasehold Improvements(1)
| Construction in Progress (CIP)
| Total
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Useful lives (years) | 3 - 5 | Up to 30 | 3 – 7 | Up to 30 | ||||||||||||||||||||||||||||||||||||
Cost: | ||||||||||||||||||||||||||||||||||||||||
At 3 July 2015 | $ | 48 | $ | 7,440 | $ | 1,595 | $ | 547 | $ | 9,630 | ||||||||||||||||||||||||||||||
At 3 July 2020 | $ | 48 | $ | 8,033 | $ | 1,848 | $ | 283 | $ | 10,212 | ||||||||||||||||||||||||||||||
Additions | 2 | 117 | 34 | 414 | 567 | — | 110 | 7 | 309 | 426 | ||||||||||||||||||||||||||||||
Disposals | — | (261) | (26) | — | (287) | (2) | (242) | (8) | — | (252) | ||||||||||||||||||||||||||||||
Reclassifications | — | 4 | 1 | (31) | (26) | — | 8 | (8) | — | — | ||||||||||||||||||||||||||||||
CIP Reclassifications | 19 | 381 | 296 | (696) | — | 2 | 341 | 49 | (392) | — | ||||||||||||||||||||||||||||||
Impairments | — | — | — | — | — | |||||||||||||||||||||||||||||||||||
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At 1 July 2016 | $ | 69 | $ | 7,681 | $ | 1,900 | $ | 234 | $ | 9,884 | ||||||||||||||||||||||||||||||
At 2 July 2021 | $ | 48 | $ | 8,250 | $ | 1,888 | $ | 200 | $ | 10,386 | ||||||||||||||||||||||||||||||
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Additions | — | 49 | 13 | 360 | 422 | — | 154 | 12 | 322 | 488 | ||||||||||||||||||||||||||||||
Disposals | (10) | (484) | (49) | (1) | (544) | — | (202) | (6) | — | (208) | ||||||||||||||||||||||||||||||
Reclassifications | 10 | 6 | 16 | (12) | 20 | |||||||||||||||||||||||||||||||||||
CIP Reclassifications | — | 290 | 142 | (432) | — | 271 | 5 | (276) | — | |||||||||||||||||||||||||||||||
Impairments | (4) | (6) | (31) | — | (41) | |||||||||||||||||||||||||||||||||||
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At 30 June 2017 | $ | 65 | $ | 7,536 | $ | 1,991 | $ | 149 | $ | 9,741 | ||||||||||||||||||||||||||||||
At 1 July 2022 | $ | 48 | $ | 8,473 | $ | 1,899 | $ | 246 | $ | 10,666 | ||||||||||||||||||||||||||||||
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Accumulated Depreciation: | ||||||||||||||||||||||||||||||||||||||||
At 3 July 2015 | $ | (6) | $ | (6,483) | $ | (863) | $ | — | $ | (7,352) | ||||||||||||||||||||||||||||||
At 3 July 2020 | $ | (7) | $ | (6,962) | $ | (1,114) | $ | — | $ | (8,083) | ||||||||||||||||||||||||||||||
Additions | — | (531) | (110) | — | (641) | (1) | (278) | (89) | — | (368) | ||||||||||||||||||||||||||||||
Disposals | — | 245 | 24 | — | 269 | — | 242 | 8 | — | 250 | ||||||||||||||||||||||||||||||
Reclassifications | — | — | — | — | — | — | (8) | 8 | — | — | ||||||||||||||||||||||||||||||
Impairments | — | — | — | — | — | |||||||||||||||||||||||||||||||||||
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At 1 July 2016(a) | $ | (6) | $ | (6,769) | $ | (949) | $ | — | $ | (7,724) | ||||||||||||||||||||||||||||||
At 2 July 2021 | $ | (8) | $ | (7,006) | $ | (1,187) | $ | — | $ | (8,201) | ||||||||||||||||||||||||||||||
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Additions | — | (456) | (125) | — | (581) | (1) | (345) | (85) | — | (431) | ||||||||||||||||||||||||||||||
Disposals | — | 483 | 49 | — | 532 | — | 203 | 6 | — | 209 | ||||||||||||||||||||||||||||||
Reclassifications | — | (9) | (9) | — | (18) | |||||||||||||||||||||||||||||||||||
Impairments | — | — | — | — | — | |||||||||||||||||||||||||||||||||||
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At 30 June 2017 | $ | (6) | $ | (6,751) | $ | (1,034) | $ | — | $ | (7,791) | ||||||||||||||||||||||||||||||
At 1 July 2022 | $ | (9) | $ | (7,148) | $ | (1,266) | $ | — | $ | (8,423) | ||||||||||||||||||||||||||||||
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Net Book Value: | ||||||||||||||||||||||||||||||||||||||||
At 1 July 2016 | $ | 63 | $ | 912 | $ | 951 | $ | 234 | $ | 2,160 | ||||||||||||||||||||||||||||||
At 2 July 2021 | $ | 40 | $ | 1,244 | $ | 701 | $ | 200 | $ | 2,185 | ||||||||||||||||||||||||||||||
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At 30 June 2017 | $ | 59 | $ | 785 | $ | 957 | $ | 149 | $ | 1,950 | ||||||||||||||||||||||||||||||
At 1 July 2022 | $ | 39 | $ | 1,325 | $ | 633 | $ | 246 | $ | 2,243 | ||||||||||||||||||||||||||||||
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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.
(1) | The net book value of land and building classified as assets held for sale was $4 million as of both 1 July 2022 and 2 July 2021. |
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 20172022 and 2016,2021, the Company capitalized interest of $4$3 million and $13$5 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 thewrite-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 | 30 June 2017 | 1 July 2016 | Note | 1 July 2022 | 2 July 2021 | ||||||||||||||||||
Accrued warranty | 16 | $ | 233 | $ | 206 | 12 | $ | 148 | $ | 136 | ||||||||||||||
Accrued restructuring | 5 | 43 | 63 | 7 | 5 | 8 | ||||||||||||||||||
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Other provisions | $ | 153 | $ | 144 | ||||||||||||||||||||
$ | 276 | $ | 269 |
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Other Creditors - amounts due within one year
The following table provides details of the other creditors - amounts falling due within one year balance sheet item:
(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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(US Dollars in millions) | Note | 1 July 2022 | 2 July 2021 | |||||||||
Accrued expenses | $ | 398 | $ | 415 | ||||||||
Dividend payable | 147 | 153 | ||||||||||
Lease liabilities | 6 | 14 | 15 | |||||||||
Deferred income | 21 | 11 | ||||||||||
Accrued employee compensation | 252 | 282 | ||||||||||
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Other creditors - amounts due within one year | $ | 832 | $ | 876 | ||||||||
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Accumulated Other Comprehensive Income (Loss) (“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 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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(US Dollars in millions) Other comprehensive gain before reclassifications Amounts reclassified from AOCI Other comprehensive income Other comprehensive gain before reclassifications Amounts reclassified from AOCI Other comprehensive income Unrealized Gains
(Losses) on Cash
Flow Hedges Unrealized Gains
(Losses) on Post-
Retirement Plans Foreign Currency
Translation
Adjustments Total Balance at 3 July 2020 $ (24) $ (26) $ (16) $ (66) 15 1 15 31 (9) 3 — (6) 6 4 15 25 Balance at 2 July 2021 (18) (22) (1) (41) 48 6 — 54 21 2 — 23 69 8 — 77 Balance at 1 July 2022 $ 51 $ (14) $ (1) $ 36
3. Acquisitions
Dot Hill Systems Corp.
On 6 October 2015, the Company acquired all of the outstanding shares of Dot Hill Systems Corp. (“Dot Hill”), a supplier of software and hardware storage systems. The Company paid $9.75 per share, or $674 million, in cash for the acquisition. The acquisition of Dot Hill further expands the Company’sOEM-focused cloud storage systems business and advances the Company’s strategic efforts.
The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the acquisition date:
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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:
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The recognized goodwill, which is not deductible for income tax purposes, is primarily attributable to cost synergies expected to arise after the acquisition and the benefits the Company expects to derive from enhanced market opportunities.
The expenses related to the acquisition of Dot Hill for the fiscal year ended 1 July 2016, which are included within Marketing and administrative expense in the Consolidated Profit and Loss Account, are not significant.
The amounts of revenue and earnings of Dot Hill included in the Company’s Consolidated Profit and Loss Account from the acquisition date were not significant.
4. Goodwill and Other Long-lived Assets
Goodwill
The changes in the carrying amount of goodwill arewas $1,237 million as follows:of 1 July 2022 and 2 July 2021. There were no additions to, disposals of, impairments of or translation adjustments to goodwill in fiscal years 2022 and 2021.
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Other Intangible Assets
Other intangible assets consist primarily of existing technology, customer relationships and trade names acquired in business combinations. During fiscal year 2017, thein-process research and development (“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 is charged to Operating expenses in the Consolidated Profit and Loss Account.
The carrying value of other intangible assets subject to amortization, excluding fully amortized intangible assets, as of 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 | $ | 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 1 July 20162022, is set forth in the following table:
(US Dollars in millions) | Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | Weighted Average Remaining Useful Life | Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | Weighted Average Remaining Useful Life | ||||||||||||||||||||||||
Existing technology | $ | 297 | $ | (79) | $ | 218 | 4.1 years | $ | 29 | $ | (24) | $ | 5 | 1.0 Year | ||||||||||||||||||
Customer relationships | 510 | (328) | 182 | 3.2 years | 71 | (68) | 3 | 0.2 Year | ||||||||||||||||||||||||
Trade name | 29 | (14) | 15 | 2.6 years | ||||||||||||||||||||||||||||
Other intangible assets | 29 | (10) | 19 | 3.2 years | 8 | (7) | 1 | 0.8 Year | ||||||||||||||||||||||||
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Total amortizable other intangible assets | $ | 865 | $ | (431) | $ | 434 | 3.6 years | $ | 108 | $ | (99) | $ | 9 | 0.8 Year | ||||||||||||||||||
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The carrying value of IPR&D notother intangible assets subject to amortization, was $14 million onexcluding fully amortized intangible assets, as of 2 July 2021 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 | $ | 43 | $ | (30) | $ | 13 | 1.8 Years | |||||||||
Customer relationships | 71 | (58) | 13 | 1.2 Years | ||||||||||||
Other intangible assets | 9 | (6) | 3 | 1.7 Years | ||||||||||||
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Total amortizable other intangible assets | $ | 123 | $ | (94) | $ | 29 | 1.5 Years | |||||||||
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As of 1 July 2016.
As of 30 June 2017,2022, expected amortization expense for other intangible assets for each of the next five years and thereafterfiscal year 2023 is as follows:$9 million.
(US Dollars in millions) | Amount | |||
2018 | $ | 108 | ||
2019 | 71 | |||
2020 | 53 | |||
2021 | 25 | |||
2022 | 17 | |||
Thereafter | 7 | |||
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$ | 281 | |||
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The carrying values of intangible assets were $281$9 million and $448$29 million as of 30 June 2017 and 1 July 2016,2022 and 2 July 2021, respectively. In fiscal year 20172022, amortization expense for other intangible assets was $168$20 million, of which $64$9 million was included in Cost of revenue and $104$11 million was included in Amortization of intangibles in the Consolidated Profit and Loss account. In fiscal year 2016,2021, amortization expense for other intangible assets was $174$29 million, of which $51$17 million was included in Cost of revenue and $123$12 million was included in Amortization of intangibles in the Consolidated Profit and Loss account.
(US dollars in millions) | Existing Technology | Customer Relationships | Trade Names | Other Intangible Assets | Total(1) | |||||||||||||||
Cost: | ||||||||||||||||||||
At 3 July 2020 | $ | 300 | $ | 499 | $ | 30 | $ | 55 | $ | 884 | ||||||||||
Disposals/Retirements | (264) | (428) | (30) | (36) | (758) | |||||||||||||||
Reclassifications | 10 | — | — | (10) | — | |||||||||||||||
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At 2 July 2021 | $ | 46 | $ | 71 | $ | — | $ | 9 | $ | 126 | ||||||||||
Disposals/Retirements | (3) | — | — | (1) | (4) | |||||||||||||||
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At 1 July 2022 | $ | 43 | $ | 71 | $ | — | $ | 8 | $ | 122 | ||||||||||
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Accumulated Amortization: | ||||||||||||||||||||
At 3 July 2020 | $ | (280) | $ | (476) | $ | (30) | $ | (40) | $ | (826) | ||||||||||
Additions | (17) | (10) | — | (2) | (29) | |||||||||||||||
Disposals/Retirements | 264 | 428 | 30 | 36 | 758 | |||||||||||||||
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At 2 July 2021 | $ | (33) | $ | (58) | $ | — | $ | (6) | $ | (97) | ||||||||||
Additions | (8) | (10) | — | (2) | (20) | |||||||||||||||
Disposals/Retirements | 3 | — | — | 1 | 4 | |||||||||||||||
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At 1 July 2022 | $ | (38) | $ | (68) | $ | — | $ | (7) | $ | (113) | ||||||||||
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Net Book Value: | ||||||||||||||||||||
At 2 July 2021 | $ | 13 | $ | 13 | $ | — | $ | 3 | $ | 29 | ||||||||||
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At 1 July 2022 | $ | 5 | $ | 3 | $ | — | $ | 1 | $ | 9 | ||||||||||
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(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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Net Book Value: | ||||||||||||||||||||||||
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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(1) The carrying value of intangible assets subject to amortization |
5. Restructuring and Exit Costs
During fiscal years 2017 and 2016, the Company recorded restructuring charges of $178 million and $175 million, respectively, comprised primarily of charges related to workforce reduction costs and facility exit costs associated with restructuring of its workforce during each fiscal year. The Company’s significant restructuring plans are described below. All restructuring charges are reported in Restructuring and Other net on the Consolidated Profit and Loss Account.
March 2017 Plan - On 9 March 2017, the Company committed to an additional restructuring plan (the “March 2017 Plan”) in connection with the continued consolidation of its global footprint. The Company closed its design center in Korea, resulting in the reductionabove table includes fully amortized intangible assets as of 1 July 2022 and 2 July 2021.
4. Debentures and Bank Loans
The following table provides details of the Company’s headcountdebt as of 1 July 2022 and 2 July 2021:
(Dollars in millions) | 1 July 2022 | 2 July 2021 | ||||||
Unsecured Senior Notes(1) | ||||||||
$750 issued on 3 February 2017 at 4.25% due 1 March 2022 (the “2022 Notes”), interest payable semi-annually on 1 March and 1 September of each year. Fully repaid on 1 February 2022. | $ | — | $ | 220 | ||||
$1,000 issued on 22 May 2013 at 4.75% due 1 June 2023 (the “2023 Notes”), interest payable semi-annually on 1 June and 1 December of each year. | 540 | 541 | ||||||
$500 issued on 3 February 2017 at 4.875% due 1 March 2024 (the “2024 Notes”), interest payable semi-annually on 1 March and 1 September of each year. | 499 | 499 | ||||||
$1,000 issued on 28 May 2014 at 4.75% due 1 January 2025 (the “2025 Notes”), interest payable semi-annually on 1 January and 1 July of each year. | 479 | 479 | ||||||
$700 issued on 14 May 2015 at 4.875% due 1 June 2027 (the “2027 Notes”), interest payable semi-annually on 1 June and 1 December of each year. | 504 | 504 | ||||||
$500 issued on 18 June 2020 at 4.091% due 1 June 2029 (the “June 2029 Notes”), interest payable semi-annually on 1 June and 1 December of each year. | 466 | 461 | ||||||
$500 issued on 8 December 2020 at 3.125% due 15 July 2029 (the “July 2029 Notes”), interest payable semi-annually on 15 January and 15 July of each year. | 500 | 500 | ||||||
$500 issued on 10 June 2020 at 4.125% due 15 January 2031 (the “January 2031 Notes”), interest payable semi-annually on 15 January and 15 July of each year. | 500 | 499 | ||||||
$500 issued on 8 December 2020 at 3.375% due 15 July 2031 (the “July 2031 Notes”), interest payable semi-annually on 15 January and 15 July of each year. | 500 | 500 | ||||||
$500 issued on 2 December 2014 at 5.75% due 1 December 2034 (the “2034 Notes”), interest payable semi-annually on 1 June and 1 December of each year. | 489 | 489 | ||||||
Term Loan | ||||||||
$600 borrowed on 14 October 2021 at London Interbank Offered Rate (“LIBOR”) plus a variable margin ranging from 1.125% to 2.375%, (the “Term Loan A1”), repayable in quarterly installments beginning on 31 December 2022, with a final maturity date of 16 September 2025. | 600 | — | ||||||
$600 borrowed on 14 October 2021 at LIBOR plus a variable margin ranging from 1.25% to 2.5%, (the “Term Loan A2”), repayable in quarterly installments beginning on 31 December 2022, with a final maturity date of 30 July 2027. | 600 | — | ||||||
$500 borrowed on 17 September 2019 at LIBOR, (the “September 2019 Term Loan”), repayable in quarterly installments of 1.25% of the original principal amount beginning on 31 December 2020, with a final maturity date of 16 September 2025, fully repaid on 14 October 2021. | — | 481 | ||||||
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5,677 | 5,173 | |||||||
Less: unamortized debt issuance costs | (31) | (34) | ||||||
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Debt, net of debt issuance costs | 5,646 | 5,139 | ||||||
Less: current portion of long-term debt | (584) | (245) | ||||||
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Long-term debt, less current portion | $ | 5,062 | $ | 4,894 | ||||
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(1) All unsecured senior notes are issued by approximately 300 employees. The March 2017 PlanSeagate HDD Cayman, and the obligations under these notes are fully and unconditionally guaranteed, on a senior unsecured basis, by Seagate Technology Unlimited Company (“STUC”) and, pursuant to a supplemental indenture dated as of 18 May 2021, STX.
Unsecured Senior Notes
2022 Notes. On 1 February 2022, the entire outstanding principal amount of $220 million was largely completed by the end ofrepaid at par, plus accrued and unpaid interest. During fiscal year 2017. In addition, the Company committed to sell its land and building in Korea as part2021, $9 million aggregate principal amount of the plan. This land2022 Notes were repurchased for cash at a premium to their principal amount, plus accrued and building metunpaid interest. During fiscal year 2020, $521 million aggregate principal amount of the criteria2022 Notes were repurchased for cash at a premium to be classified as assets heldtheir principal amount, plus accrued and unpaid interest, $250 million and $248 million principal amount of which were repurchased pursuant to cash tender offers for salecertain senior notes on 18 September 2019 and were included in Tangible assets on the Consolidated Balance Sheet at 3018 June 2017.2020, respectively. The Company recorded an impairment chargea loss of $26$29 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,on repurchases during fiscal year 2020, which is included in Operating expensesOther, net in the Company’s Consolidated Profit and Loss Account.
July 2016 Plan2023 Notes.- 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 During fiscal year 2017.
June 2016 Plan- On 27 June 2016, the Company committed to a restructuring plan (the “June 2016 Plan”) as part2021, $5 million aggregate principal amount of the Company’s efforts2023 Notes were repurchased for cash at a premium 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 thetheir principal amount, plus accrued and unpaid interest. During fiscal quarter ended 30 December 2016 with no material future costs expected to be incurred.
The following table summarizes the Company’s restructuring activities under allyear 2020, $395 million aggregate principal amount of the Company’s active restructuring plans2023 Notes were repurchased for cash at a premium to their principal amount, plus accrued and unpaid interest, $200 million and $178 million principal amount of which was repurchased pursuant to the cash tender offers on 18 September 2019 and 18 June 2020, respectively. The Company recorded a loss of $1 million and $20 million for fiscal years 20172021 and 2016:
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 balance2020, which is included in Other, provisionsnet in the Company’s Consolidated Balance SheetProfit and Loss Account.
2025 Notes. On 18 September 2019, $170 million principal amount of the 2025 Notes was repurchased at a premium pursuant to the cash tender offers. For fiscal year 2020, the Company recorded a loss of $8 million on repurchase, which is included in Other, net in the Company’s Consolidated Profit and Loss Account. On 18 June 2020, Seagate HDD Cayman completed an exchange offer in which the principal amount of $271 million of the 2025 Notes was exchanged for fiscal years 2017 and 2016.the principal amount of $297 million of the July 2029 Notes. The exchange was accounted for as a debt modification with no gain or loss recognized. 2027 Notes. On 18 June 2020, Seagate HDD Cayman completed an exchange offer in which the principal amount of $185 million of the 2027 Notes was exchanged for the principal amount of $203 million of the July 2029 Notes. The exchange was accounted for as a debt modification with no gain or loss recognized.
6. Debentures and Bank Loans
Short-Term BorrowingsCredit Agreement
The credit agreement entered into by the Company and itsCompany’s subsidiary, Seagate HDD Cayman, entered into a credit agreement on 20 February 2019, which was amended on 28 May 2019, 16 September 2019, 13 January 2021, 18 January 2011May 2021, and subsequently amended14 October 2021 (the “Revolving“Credit Agreement”).
Prior to the 14 October 2021 amendment, the Credit Agreement provided a term loan facility in an aggregate principal amount of $500 million and a $1.75 billion senior unsecured revolving credit facility (“Revolving Credit Facility”) provides the Company with. The September 2019 Term Loan had a $700 million
senior secured revolving credit facility. The termfinal maturity date of 16 September 2025 and the Revolving Credit Facility is through 15 January 2020, provided that ifhad a final maturity of 20 February 2024. On 17 September 2019, Seagate HDD Cayman borrowed the Company does not have Investment Grade Ratings (as defined$500 million principal amount under the September 2019 Term Loan.
On 14 October 2021, STX and Seagate HDD Cayman entered into an amendment to the Credit Agreement (“Fifth Amendment”), which provides for a new term loan facility in the Revolving Credit Facility)aggregate principal amount of $1.2 billion that was extended in two tranches of $600 million each (“Term Loan A1” and “Term Loan A2” and together the “Term Loans”). Term Loan A1 and Term Loan A2 were each drawn in full on 15 August 2018, thenthe closing date for the Fifth Amendment. Term Loan A1 bears interest at a rate of LIBOR plus a variable margin ranging from 1.125% to 2.375% that will be determined based on the corporate credit rating of the Company. Term Loan A1 is repayable in quarterly installments beginning on 31 December 2022 and has a final maturity date of 16 September 2025. Term Loan A2 bears interest at a rate of LIBOR plus a variable margin ranging from 1.25% to 2.5% that will be determined based on the corporate credit rating of the Company. Term Loan A2 is repayable in quarterly installments beginning on 31 December 2022 and has a final maturity date of 30 July 2027. The proceeds of the Terms Loans may be used for, among other things, general corporate purposes.
In addition, pursuant to the Fifth Amendment, the maturity date will be 16 August 2018 unless certain extension conditions have been satisfied. The loans madefor the revolving loan commitments under the Revolving Credit Facility was extended until 14 October 2026, the revolving commitments were increased to 1.75 billion and the interest rate margins for the revolving loans were amended to LIBOR plus a variable margin ranging from 1.125% to 2.375% that will bearbe determined based on the corporate credit rating of the Company.
STX and certain of its material subsidiaries, including STUC, fully and unconditionally guarantee both the Revolving Credit Facility and the Term Loans.
The Credit Agreement includes three financial covenants: (1) interest coverage ratio, (2) total leverage ratio and (3) a minimum liquidity amount. The Company was in compliance with the covenants as of 1 July 2022 and expects to be in compliance for the next 12 months. As of 1 July 2022, no borrowings (including swing line loans) were outstanding and no commitments were utilized for letters of credit issued under the Revolving Credit Facility.
Subsequent event
On 18 August 2022, Seagate Technology Holdings plc and Seagate HDD Cayman (the “Borrower”) entered into an amendment to the Credit Agreement (the “Sixth Amendment”), which provides for a new term loan facility in the aggregate principal amount of $600 million (“Term Loan A3”). The Term Loan A3 was borrowed in full at the closing of the Sixth Amendment. The Term Loan A3 bears interest at Secured Overnight Financing Rate (“SOFR”) plus a ratevariable margin of 1.25% to 2.50%, in each case with such margin being determined based on the corporate credit rating of the Borrower or one of its parent entities. The Term Loan A3 is repayable in quarterly installments beginning on 31 December 2022 and is scheduled to mature on 30 July 2027.
The Sixth Amendment to the Credit Agreement also replaced the LIBOR interest rates plus variable margin of Term Loan A1 and Term Loan A2 with the SOFR interest rates plus a variable margin that will be determined based on the corporate credit rating of the Company. The Company and certainBorrower or one of its material subsidiaries fully and unconditionally guaranteeparent entities. The Sixth Amendment also permits 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 orderBorrower to increase the allowable net leverage ratiorevolving loan commitments or obtain new term loans of up 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 30 June 2017, no borrowings had been drawn or letters of credit utilized under the Revolving Credit Facility.
Long-Term Debt
$800 million Aggregate Principal Amount of 3.75% Senior Notes due November 2018 (the “2018 Notes”).On 5 November 2013, Seagate HDD Cayman, issued $800$100 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’ notice, at a “make-whole” premium redemption price. The “make-whole” premium redemption price will be equalsubject to the greatersatisfaction 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 principalcertain terms 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. During fiscal year 2017, the Company repurchased $90 million aggregate principal amount of the 2018 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 $3 million, which is included in Other income and charges, net in the Consolidated Profit and Loss Account.
$600 millionAggregate Principal Amount of7.00%Senior Notes due November 2021 (the “2021 Notes”).On18May 2011, the Company’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” and accrued and unpaid interest, if any, to the redemption date. The “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’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 years 2016 and 2015, the Company repurchased $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. For 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 $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’s Consolidated Profit and Loss Account.
$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 4.25% Senior Notes which 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 ‘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 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 2022 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 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 Seagate HDD Cayman, and the obligations under the 2022 Notes are fully and unconditionally guaranteed, on a senior unsecured basis, by the Company.
$1 billionAggregate Principal Amount of4.75% Senior Notes due June 2023 (the “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 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 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 million 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”). 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 and July 1 of each year, commencing on 1 January 2015. At any time, upon not less than 30 nor more than 60 days’ notice, Seagate HDD may redeem some or all of the Notes at a ‘‘make-whole’’ redemption price. The ‘‘make-whole’’ redemption price will be equal to the 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 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% 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”). 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” 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 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. During fiscal year 2016, the Company repurchased $10 million aggregate principal amount of its 2034 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 $3 million, which is included in Other income and charges, net in the Company’s Consolidated Profit and Loss Account.conditions.
Interest chargesexpense shown in the Consolidated Profit and Loss Account are related to the Company’s debentures.
At 30 June 2017,1 July 2022, future principal payments on long-term debt were as follows (in(US Dollars in millions):
Fiscal Year | Amount | |||
2018 | $ | — | ||
2019 | 710 | |||
2020 | — | |||
2021 | — | |||
2022 | 750 | |||
Thereafter | 3,613 | |||
|
| |||
$ | 5,073 | |||
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Fiscal Year | Amount | |||
2023 | $ | 585 | ||
2024 | 560 | |||
2025 | 562 | |||
2026 | 563 | |||
2027 | 565 | |||
Thereafter | 2,880 | |||
|
| |||
Total | $ | 5,715 | ||
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7.
5. Income Taxes
Income before taxes consisted of the following:
Fiscal Years Ended | ||||||||
(US Dollars in millions) | 1 July 2022 | 2 July 2021 | ||||||
US | $ | 145 | $ | 191 | ||||
Non-US | 1,534 | 1,157 | ||||||
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$ | 1,679 | $ | 1,348 | |||||
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The provision for liabilities and charges related to taxation as reported in the Consolidated Balance Sheet consisted of the following:
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 | ||||||
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| |||||
Total | $ | 30 | $ | 31 | ||||
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(US Dollars in millions) Accrued income taxes falling due within one year Accrued income taxes falling due after one year Deferred income tax liabilities due after one year Total Fiscal Years Ended 1 July 2022 2 July 2021 $ 11 $ 7 3 3 17 14 $ 31 $ 24
Income tax expense expense/(benefit) consisted of the following:
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 | ||||||
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| |||||
Total Current | 40 | 28 | ||||||
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| |||||
Deferred tax expense (benefit): | ||||||||
US Federal | (5) | — | ||||||
US State | — | — | ||||||
Non-US | 8 | (2) | ||||||
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| |||||
Total Deferred | 3 | (2) | ||||||
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| |||||
Income tax expense (benefit) | $ | 43 | $ | 26 | ||||
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(US Dollars in millions) Current income tax expense: US Non-US Total Current Deferred income tax expense/(benefit): US Non-US Total Deferred Income tax expense Income before income taxes consisted of the following: Fiscal Years Ended 1 July 2022 2 July 2021 $ 4 $ — 35 38 39 38 3 8 (12) (12) (9) (4) $ 30 $ 34
Fiscal Years Ended | ||||||||
(US Dollars in millions) | 30 June 2017 | 1 July 2016 | ||||||
US | $ | (22) | $ | — | ||||
Non-US | 837 | 274 | ||||||
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| |||||
$ | 815 | $ | 274 | |||||
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The Company recorded no 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 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’s deferred tax assets and liabilities were as follows:
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 | ||||||
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| |||||
Total deferred tax assets | 1,640 | 1,693 | ||||||
Valuation allowance | (966) | (984) | ||||||
|
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| |||||
Net deferred tax assets | 674 | 709 | ||||||
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| |||||
Deferred tax liabilities | ||||||||
Unremitted earnings of certainnon-US entities | (7) | (11) | ||||||
Acquisition-related items | (65) | (92) | ||||||
|
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| |||||
Total Deferred tax liabilities | (72 | ) | (103 | ) | ||||
|
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| |||||
Deferred taxes on intra-entity transactions | $ | 2 | $ | — | ||||
|
|
|
| |||||
Total Net Deferred tax assets | $ | 604 | $ | 606 | ||||
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| |||||
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 | ||||
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The deferred tax asset valuation allowance decreased by $18 million in fiscal year 2017 and increased by $55 million in fiscal years 2017 and 2016, respectively.
Fiscal Years Ended | ||||||||
(US Dollars in millions) | 1 July 2022 | 2 July 2021 | ||||||
Deferred tax assets | ||||||||
Accrued warranty | $ | 34 | $ | 31 | ||||
Inventory valuation accounts | 43 | 39 | ||||||
Debtor reserve | 20 | 15 | ||||||
Accrued compensation and benefits | 73 | 66 | ||||||
Depreciation | 45 | 47 | ||||||
Other accruals and deferred items | 24 | 25 | ||||||
Net operating losses | 671 | 698 | ||||||
Tax credit carryforwards | 650 | 628 | ||||||
Other assets | 1 | 2 | ||||||
|
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| |||||
Gross: Deferred tax assets | 1,561 | 1,551 | ||||||
Less: Valuation allowance | (434) | (429) | ||||||
|
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| |||||
Net: Deferred tax assets | 1,127 | 1,122 | ||||||
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| |||||
Deferred tax liabilities | ||||||||
Unremitted earnings of certain non-US entities | (5) | (5) | ||||||
Acquisition-related items | (2) | (5) | ||||||
Other liabilities | (5) | (9) | ||||||
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| |||||
Net: Deferred tax liabilities | (12) | (19) | ||||||
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| |||||
Total net deferred tax assets | $ | 1,115 | $ | 1,103 | ||||
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At 30 June 2017,1 July 2022, the Company recorded $602 million$1.1 billion of net deferred tax assets, excluding $2 million of deferred taxes on intra-entity transactions.assets. The realization of most of these deferred tax assets is primarily dependent on the Company’s ability to generate sufficient US and certainnon-USnon-Irish taxable income in future periods. Although realization is not assured, the Company’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 reevaluatesre-evaluates the underlying basis for its estimates of future US.US and certainnon-US.non-Irish taxable income.
The deferred tax asset valuation allowance increased by $5 million in fiscal year 2022.
At 30 June 2017,1 July 2022, the Company had US federal, state andnon-US tax net operating loss carryforwards of approximately $3.4 billion, $2.0$4.3 billion and $173$120 million, respectively, which will expire at various dates beginning in fiscal year 2018,2023, if not utilized. Net operating loss carryforwards of approximately $68$26 million are scheduled to expire in fiscal year 2018.2023. At 30 June 2017,1 July 2022, the Company had US. federal and stateUS tax credit
carryforwards of $444$743 million and $105 million, respectively, which will expire at various dates beginning in fiscal year 2018,2023 if not utilized.
As of 30 June 2017,1 July 2022, approximately $560$190 million and $101$88 million of the Company’s total US net operating loss and tax credit carryforwards, respectively, are subject to annual limitations ranging from $1 million to $45 million pursuant to US.US tax law.
For purposes of the reconciliation between the income tax expensesexpense at the statutory rate and the effective tax rate, applicable to the Company in Ireland, theIrish statutory rate applicable to the Company of 25% was applied as follows:
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 | — | ||||||
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| |||||
Income tax expense | $ | 43 | $ | 26 | ||||
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|
Fiscal Years Ended | ||||||||
(US Dollars in millions) | 1 July 2022 | 2 July 2021 | ||||||
Income tax expense at the statutory rate applicable to the Company in Ireland | $ | 420 |
| $ | 337 |
| ||
Permanent differences |
| 5 |
|
| 8 |
| ||
Change in valuation allowance |
| 7 |
|
| (2) |
| ||
Earnings taxed at less than statutory rate applicable to the Company in Ireland |
| (371) |
|
| (287) |
| ||
Research Credit |
| (26) |
|
| (27) |
| ||
Other individually immaterial items |
| (5) |
|
| 5 |
| ||
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| |||||
Income tax expense | $ | 30 |
| $ | 34 |
| ||
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A substantial portion of the Company’s operations in Malaysia, Singapore and Thailand operate under various tax holidayincentive programs, which expire in whole or in part at various dates through 2024.2033. Certain tax holidaysincentives may be extended if specific conditions are met. The net impact of these tax holidayincentive programs was an increase to the Company’s net income by approximately $290 million in fiscal year 2022 ($1.29 per share, diluted) and an increase the Company’s net income by approximately $163$226 million in fiscal year 20172021 ($0.54 per share, diluted) and to increase the Company’s net income by approximately $67 million in fiscal year 2016 ($0.220.92 per share, diluted).
The Company consistsanalyzes the potential for deferred tax liabilities with respect to the accumulated earnings of an Irish tax resident parent holding company with various US andnon-USnon-Irish subsidiaries that operate in multiplenon-Irish taxing jurisdictions.on an annual basis. The amount of temporary differences (including undistributed earnings) related toanalysis focuses on the outside basis differences in the stock of the non-Irish resident subsidiaries considered indefinitely reinvested outside of Irelandas well as the withholding tax obligations those subsidiaries may have with respect to any distribution. The undistributed earnings for which Irish income taxes haveare not been provided as of 30 June 2017, was approximately $1.5 billion. If such amount were remitted to Ireland as a dividend, it is likely thatare permanently reinvested or can be repatriated without incremental tax at 25% or approximately $375 million would result.liability.
As of 30 June 2017 and 1 July 2016,2022 and 2 July 2021, the Company had approximately $74$114 million and $76$108 million, respectively, of unrecognized tax benefits excluding interest and penalties. The amount of unrecognized tax benefits that,These amounts, if recognized, would impact the effective tax rate is $74 million and $76 million as of 30 June 2017 and 1 July 2016, respectively, subject to certain future valuation allowance offsets.
The following table summarizes the activityactivities related to the Company’s gross unrecognized tax benefits:
Fiscal Years Ended | ||||||||||||||||
Fiscal Years Ended | ||||||||||||||||
(US Dollars in millions) | 30 June 2017 | 1 July 2016 | 1 July 2022 | 2 July 2021 | ||||||||||||
Balance of unrecognized tax benefits at the beginning of the year | $ | 76 | $ | 89 | $ | 108 | $ | 89 | ||||||||
Gross increase for tax positions of prior years | 2 | 12 | 1 | 7 | ||||||||||||
Gross decrease for tax positions of prior years | (7) | (8) | (1) | (1) | ||||||||||||
Gross increase for tax positions of current year | 16 | 11 | 6 | 15 | ||||||||||||
Gross decrease for tax positions of current year | — | — | — | — | ||||||||||||
Settlements | — | — | — | (1) | ||||||||||||
Lapse of statutes of limitation | (13) | (27) | — | (1) | ||||||||||||
Non-US. exchange gain | — | (1) | ||||||||||||||
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| |||||||||||||
Balance of unrecognized tax benefits at the end of the year | $ | 74 | $ | 76 | $ | 114 |
| $ | 108 |
| ||||||
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|
It is the Company’s 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 2017, the Company recognized net income tax benefit for interestInterest and penalties of $1 million as comparedrecorded were not material to net income tax expense of $8 million during fiscal year 2016.any periods presented in the Consolidated Profit and Loss Account. As of 30 June 2017,1 July 2022, the Company had $4 million of accrued interest and penalties related to unrecognized tax benefits did not materially change compared to $6 million in fiscal year 2016.2021.
During the 12 months beginning 12 July 2017,2022, the Company expects thatdoes not expect a material change to its unrecognized tax benefits could be reduced by approximately $14 million as a result of the expiration of certain statutes of limitation.
The Company is required to file US federal, US state andnon-US income tax returns. The Company is no longer subject to tax examination of its US federal income tax returns for years prior to fiscal year 2014. With respect2018 and prior to US state andfiscal year 2011 for non-US income tax returns, the Company is generally no longer subject to tax examination for years ending prior to fiscal year 2006.returns.
The following table shows the activity in the deferred tax liability balance for fiscal year 2017:2022:
(US Dollars in millions) | Amount | |||
Balance at | $ | |||
Unremitted earnings of certainnon-US entities | ||||
Other activities | 2 | |||
|
| |||
Balance at | $ | | ||
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6. Leases
The Company is a lessee in several operating leases related to real estate facilities for warehouse and office space.
The Company’s lease arrangements comprise operating leases with various expiration dates through 2068. The lease term includes the non-cancelable period of the lease, adjusted for options to extend or terminate the lease when it is reasonably certain that an option will be exercised.
Operating lease costs include short-term lease costs and are shown net of immaterial sublease income. The components of lease costs and other information related to leases were as follows:
Fiscal Years Ended | ||||||||
(US Dollars in millions) | 1 July 2022 | 2 July 2021 | ||||||
Operating lease cost | $ | 16 | $ | 15 | ||||
Variable lease cost | 4 | 4 | ||||||
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| |||||
Total lease cost | $ | 20 | $ | 19 | ||||
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| |||||
Operating cash outflows from operating leases | $ | 20 | $ | 19 |
| 1 July 2022 | 2 July 2021 | ||||||
Weighted-average remaining lease term | 9.3 years | 7.2 years | ||||||
Weighted-average discount rate | 6.40% | 6.02% |
ROU assets and lease liabilities are included on the Company’s Consolidated Balance Sheet as follows:
(US Dollars in millions) | Balance Sheet Location | 1 July 2022 | 2 July 2021 | |||||||
ROU assets | Right of use assets | $ | 94 | $ | 97 | |||||
Current lease liabilities | Other creditors – amounts due within one year | 14 | 15 | |||||||
Non-current lease liabilities | Other creditors – amounts due after one year | 36 | 39 |
The following table provides details of the ROU assets:
(US Dollars in millions) | 1 July 2022 | 2 July 2021 | ||||||
Balance, beginning of period | $ | 97 | $ | 103 | ||||
Assets recognized for new leases | 13 | 12 | ||||||
Amortization | (19) | (20) | ||||||
Other (interest accretion and other adjustments) | 3 | 2 | ||||||
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|
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| |||||
Balance, end of period | $ | 94 | $ | 97 | ||||
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At 1 July 2022, future lease payments included in the measurement of lease liabilities were as follows (US Dollars in millions):
Fiscal Year | Amount | |||
2023 | $ | 14 | ||
2024 | 10 | |||
2025 | 8 | |||
2026 | 6 | |||
2027 | 4 | |||
Thereafter | 16 | |||
|
| |||
Total lease payments | 58 | |||
Less: imputed interest | (8) | |||
|
| |||
Present value of lease liabilities | $ | 50 | ||
|
|
7. Restructuring and Exit Costs
During fiscal years 2022 and 2021, the Company recorded restructuring charges of $3 million and $8 million, respectively, comprised primarily of charges related to workforce reduction costs and facilities and other exit costs associated with the restructuring of its workforce. The Company’s significant restructuring plans are described below. All restructuring charges are reported in Restructuring and other, net on the Consolidated Profit and Loss Account.
June 2020 Plan - On 1 June 2020, the Company committed to a restructuring plan (the “June 2020 Plan”) consistent with its long-term strategy to drive operational efficiencies, reduce its cost structure and invest in future opportunities. The June 2020 Plan included reducing its headcount worldwide by approximately 500 employees. The June 2020 Plan was substantially completed during the first quarter of fiscal year 2021.
The following table summarizes the Company’s restructuring activities under all of the Company’s active restructuring plans for fiscal years 2022 and 2021:
June 2020 Plan | Other Plans | |||||||||||||||||||
|
| |||||||||||||||||||
(US Dollars in millions) | Workforce Reduction Costs | Facilities and Other Exit Costs | Workforce Reduction Costs | Facilities and Other Exit Costs | Total | |||||||||||||||
Accrual balances at 3 July 2020 | $ | 38 | $ | 2 | $ | 5 | $ | 3 | $ | 48 | ||||||||||
Restructuring charges | — | — | 6 | 8 | 14 | |||||||||||||||
Cash payments | (37) | (1) | (10) | (5) | (53) | |||||||||||||||
Adjustments | — | — | — | (1) | (1) | |||||||||||||||
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| |||||||||||
Accrual balances at 2 July 2021 | 1 | 1 | 1 | 5 | 8 | |||||||||||||||
Restructuring charges | — | — | 2 | 1 | 3 | |||||||||||||||
Cash payments | (1) | (1) | (3) | (1) | (6) | |||||||||||||||
Adjustments | — | — | — | — | — | |||||||||||||||
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| |||||||||||
Accrual balances at 1 July 2022 | $ | — | $ | — | $ | — | $ | 5 | $ | 5 | ||||||||||
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| |||||||||||
Total costs incurred to date as of 1 July 2022 | $ | 56 | $ | 2 | $ | 26 | $ | 61 | $ | 145 | ||||||||||
|
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| |||||||||||
Total expected cost to be incurred as of 1 July 2022 | $ | — | $ | — | $ | — | $ | 1 | $ | 1 | ||||||||||
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The accrued restructuring balance is included in Other provisions in the Company’s Consolidated Balance Sheet for fiscal years 2022 and 2021.
During fiscal year 2021, the Company recognized a gain of $3 million from the sale of a certain property and a gain of $2 million from termination of an operating lease, which are reported in Restructuring and other, net on the Company’s Consolidated Profit and Loss Account.
8. Derivative Financial Instruments
The Company is exposed to foreign currency exchange rate, interest rate and to a lesser extent, equity market risks relating to its ongoing business operations. TheFrom time to time, the Company enters into cash flow hedges in the form of foreign currency forward exchange contracts in order to manage the foreign currency exchange rate risk on forecasted expenses and investments denominated in foreign currencies.
The Company has entered into certain interest rate swap agreements to convert the variable interest rate on its Term Loans to fixed interest rates. The objective of the interest rate swap agreements is to eliminate the variability of interest payment cash flows associated with the variable interest rate under the Term Loans. The Company designated the interest rate swaps as cash flow hedges. As of 1 July 2022, the aggregate notional amount of the Company’s interest-rate swap contracts was $1.2 billion, of which $600 million will mature in September 2025 and $600 million will mature in July 2027.
The Company’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 theon its Consolidated Balance SheetSheets at fair value. The changes in the fair value of thehighly effective portions of designated cash flow hedges are recorded in Accumulated other comprehensive loss, which is a component of Other Reserves,income until the hedged item is recognized in earnings. Derivatives that are not designated as hedging instruments and the ineffective portions of cash flow hedgesor are not assessed to be highly effective are adjusted to fair value through earnings. The Company has no outstanding cash flow hedges as of 30 June 2017. The amount of net unrealized lossgain on cash flow hedges was $2$51 million and net unrealized loss was $18 million as of 1 July 2016.2022 and as of 2 July 2021, respectively. As of 1 July 2022, the amount of existing net gains related to cash flow hedges recorded in Accumulated other comprehensive income included a net gain of $8 million that is expected to be reclassified to earnings within twelve months.
The Companyde-designates its cash flow hedges when the forecasted hedged transactions are realizedaffect earnings or it is probable the forecasted hedged transactions will not occur in the initially identified time period. At such time, the associated gains and losses deferred in Accumulated other comprehensive loss, which is a component of Other Reserves,income on the Company’s Consolidated Balance Sheets are reclassified immediately into earnings and any subsequent changes in the fair value of such derivative instruments are immediately reflected in earnings. The Company did not recognize anyrecognized a net gains or lossesloss of $11 million and $10 million in Cost of revenue and Interest expense, respectively related to the loss of hedge designation on discontinued cash flow hedges during fiscal year 20172022. The Company recognized a net gain of $14 million in Cost of revenue and did not recognize any material amountsa net loss of $7 million in Interest expense related to the loss of hedge designation on discontinued cash flow hedges during fiscal year 2016.2021.
AsOther derivatives not designated as hedging instruments consist of 30 June 2017, the Company does not have outstanding foreign currency forward exchange contracts. contracts that the Company uses to hedge the foreign currency exposure on forecasted expenditures denominated in currencies other than the US dollar. The Company recognizes gains and losses on these contracts, as well as the related costs in Other income and charges, net on its Consolidated Profit and Loss Account.
The following tables show the total notional value of the Company’s outstanding foreign currency forward exchange contracts as of 1 July 2016:2022 and 2 July 2021. All of the foreign currency forward exchange contracts mature within 12 months.
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 1 July 2022 | ||||||||
(US Dollars in millions) | Contracts Designated as Hedges | Contracts Not Designated as Hedges | ||||||
Singapore Dollar | $ | 178 | $ | 52 | ||||
Thai Baht | 133 | 35 | ||||||
Chinese Renminbi | 92 | 24 | ||||||
British Pound Sterling | 64 | 15 | ||||||
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$ | 467 | $ | 126 | |||||
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As of 2 July 2021 | ||||||||
(US Dollars in millions) | Contracts Designated as Hedges | Contracts Not Designated as Hedges | ||||||
Singapore Dollar | $ | 172 | $ | 43 | ||||
Thai Baht | 131 | 46 | ||||||
Chinese Renminbi | 73 | 21 | ||||||
British Pound Sterling | 54 | 16 | ||||||
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$ | 430 | $ | 126 | |||||
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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-qualifiednon-qualified Deferred Compensation Plan—deferred compensation plan: the Seagate Deferred Compensation Plan (the “SDCP”). In fiscal year 2014, the Company entered into a Total Return Swap (“TRS”) in order to manage the equity market risks associated with the SDCPSDCP’s 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 liabilitySDCP’s liabilities due to changes in the value of the investment options made by employees. As of 30 June 2017,1 July 2022, the notional investments underlying the TRS amounted to $105$104 million. The contract term of the TRS is through January 20182023 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 SDCPSDCP’s 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’s derivative instruments measured at gross fair value as reflected in the Consolidated Balance SheetSheets as of 1 July 2016:2022 and 2 July 2021:
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 | — | ||||||||||||
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Total derivatives | $ | 3 | $ | (3) | ||||||||||||
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(US Dollars in millions) Foreign currency forward exchange contracts Interest rate swap Foreign currency forward exchange contracts Total return swap Total derivatives (US Dollars in millions) Foreign currency forward exchange contracts Interest rate swap Foreign currency forward exchange contracts Total return swap Total derivatives As of 1 July 2022 Derivative Assets Derivative Liabilities Balance Sheet Location Fair
Value Balance Sheet Location Fair
Value Derivatives designated as hedging instruments: Other debtors $ — Other creditors $ (14) Other debtors 65 Other creditors — Derivatives not designated as hedging instruments: Other debtors — Other creditors (5) Other debtors — Other creditors (4) $ 65 $ (23) As of 2 July 2021 Derivative Assets Derivative Liabilities Balance Sheet
Location Fair
Value Balance Sheet
Location Fair
Value Derivatives designated as hedging instruments: Other debtors $ 1 Other creditors $ (5) Other debtors — Other creditors (14) Derivatives not designated as hedging instruments: Other debtors 1 Other creditors (2) Other debtors 2 Other creditors — $ 4 $ (21)
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 30 June 2017:1 July 2022:
(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 | $ | — |
(US Dollars in millions) Derivatives Not Designated as Hedging Instruments | Location of Gain or | 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 | |
(US Dollars in millions) Derivatives Designated as Hedging Instruments | Amount of Gain/ (Loss) Recognized in OCI on Derivatives (Effective Portion) | Location of Gain/ | Amount of Gain/ (Loss) Reclassified from Accumulated OCI into Income (Effective Portion) | Location of Gain/ | Amount of Gain/ (Loss) Recognized in Income (Ineffective Portion and Amount Excluded from Effectiveness Testing) | |||||||||||
Foreign currency forward exchange contracts | $ | (22) | Cost of revenue | $ | (11) | Other income and charges, net | $ | 1 | ||||||||
Interest rate swap | 70 | Interest expense | (10) | Interest expense | — |
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 12 July 2016:2021:
(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 | $ | — |
(US Dollars in millions) Derivatives Not Designated as Hedging Instruments | Location of Gain or (Loss) Recognized in Income on Derivatives | Amount of Gain or (Loss) Recognized in Derivatives | ||||||
Foreign currency forward exchange contracts | Other income and charges, net | | $ | 10 | ||||
Total return swap | Operating expenses | 30 |
(US Dollars in millions) Derivatives Designated as Hedging Instruments Location of Gain/ Location of Gain/ Foreign currency forward exchange contracts Interest rate swap Amount of Gain/
(Loss)
Recognized in
OCI on
Derivatives
(Effective
Portion)
(Loss)
Reclassified from
Accumulated
OCI into Income
(Effective
Portion) Amount of Gain/
(Loss)
Reclassified from
Accumulated
OCI into Income
(Effective
Portion)
(Loss)
Recognized in
Income on
Derivatives
(Ineffective
Portion and
Amount
Excluded from
Effectiveness
Testing) Amount of Gain/
(Loss)
Recognized in
Income
(Ineffective
Portion and
Amount
Excluded from
Effectiveness
Testing) $ 7 Cost of revenue $ 14 Other income and charges, net $ 1 8 Interest expense (7) Interest expense —
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 reflectsreflect the Company’s own assumptions of market participant valuation (unobservable inputs). A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The three levels of inputs that may be used to measure fair value:value are:
Level 1—1 - Quoted prices in active markets that are unadjusted and accessible at the measurement date for identical, unrestricted assets or liabilities;
Level 2—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—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’s or the counterparty’snon-performance risk is considered in determining the fair values of liabilities and assets, respectively.
Items Measured at Fair Value on a Recurring Basis
The following table presents the Company’s assets and liabilities that are measured at fair value on a recurring basis, excluding accrued interest components, as of 30 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 | ||||||||||||
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Total cash equivalents and investments | 592 | 582 | — | 1,174 | ||||||||||||
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Restricted cash and investments: | ||||||||||||||||
Money market funds | 1 | — | — | 1 | ||||||||||||
Time deposits and certificates of deposit | — | 3 | — | 3 | ||||||||||||
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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 | ||||||||||||
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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 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 tables present the Company’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 1 July 2016:of:
1 July 2022 | 2 July 2021 | |||||||||||||||||||||||||||||||||||||||||||||||
Fair Value Measurements at Reporting Date Using | Fair Value Measurements at Reporting Date Using | 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 | Quoted Prices in Active Markets for Identical Instruments (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | Total Balance | 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 | $ | 59 | $ | — | $ | — | $ | 59 | $ | 551 | $ | — | $ | — | $ | 551 | ||||||||||||||||||||||||
Corporate bonds | — | 6 | — | 6 | ||||||||||||||||||||||||||||||||||||||||||||
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Total cash equivalents and investments | 230 | 6 | — | 236 | ||||||||||||||||||||||||||||||||||||||||||||
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Restricted Cash and Investments: | ||||||||||||||||||||||||||||||||||||||||||||||||
Total cash equivalents | 59 | — | — | 59 | 551 | — | — | 551 | ||||||||||||||||||||||||||||||||||||||||
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Restricted cash and investments: | ||||||||||||||||||||||||||||||||||||||||||||||||
Money market funds | 2 | — | — | 2 | 1 | — | — | 1 | 1 | — | — | 1 | ||||||||||||||||||||||||||||||||||||
Certificates of deposit | — | 5 | — | 5 | ||||||||||||||||||||||||||||||||||||||||||||
Time deposits and certificates of deposit | — | 1 | — | 1 | — | 1 | — | 1 | ||||||||||||||||||||||||||||||||||||||||
Other debt securities | — | — | 23 | 23 | — | — | 18 | 18 | ||||||||||||||||||||||||||||||||||||||||
Derivative assets | — | 3 | — | 3 | — | 65 | — | 65 | — | 4 | — | 4 | ||||||||||||||||||||||||||||||||||||
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Total assets | $ | 232 | $ | 14 | $ | — | $ | 246 | $ | 60 | $ | 66 | $ | 23 | $ | 149 | $ | 552 | $ | 5 | $ | 18 | $ | 575 | ||||||||||||||||||||||||
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Liabilities: | ||||||||||||||||||||||||||||||||||||||||||||||||
Derivative liabilities | $ | — | $ | (3) | $ | — | $ | (3) | $ | — | $ | 23 | $ | — | $ | 23 | $ | — | $ | 21 | $ | — | $ | 21 | ||||||||||||||||||||||||
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Total liabilities | $ | — | $ | (3) | $ | — | $ | (3) | $ | — | $ | 23 | $ | — | $ | 23 | $ | — | $ | 21 | $ | — | $ | 21 | ||||||||||||||||||||||||
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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 | ||||||||||||
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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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1 July 2022 | 2 July 2021 | |||||||||||||||||||||||||||||||
Fair Value Measurements at Reporting Date Using | 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 | 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 | $ | 59 | $ | — | $ | — | $ | 59 | $ | 551 | $ | — | $ | — | $ | 551 | ||||||||||||||||
Other debtors—amounts falling due within one year | 1 | 66 | — | 67 | 1 | 5 | — | 6 | ||||||||||||||||||||||||
Financial assets | — | — | 23 | 23 | — | — | 18 | 18 | ||||||||||||||||||||||||
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Total assets | $ | 60 | $ | 66 | $ | 23 | $ | 149 | $ | 552 | $ | 5 | $ | 18 | $ | 575 | ||||||||||||||||
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Liabilities: | ||||||||||||||||||||||||||||||||
Other creditors—amounts falling due within one year | $ | — | $ | 23 | $ | — | $ | 23 | $ | — | $ | 21 | $ | — | $ | 21 | ||||||||||||||||
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Total liabilities | $ | — | $ | 23 | $ | — | $ | 23 | $ | — | $ | 21 | $ | — | $ | 21 | ||||||||||||||||
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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, US Treasuries, time deposits and certificates of deposit. These debt investments are priced using observable inputs and valuation models which vary by asset class. The Company uses a pricing service to assist in determining the fair valuesvalue of
all of its cash equivalents and investments.equivalents. For the cash equivalents and investments in the Company’s portfolio, multiple pricing sources are generally available. The pricing service uses inputs from multiple industry standard data providers or other third partythird-party sources and various methodologies, such as weighting and models, to determine the appropriate price at the measurement date. The Company corroborates the prices obtained from the pricing service against other independent sources and, as of 30 June 2017,1 July 2022, has not found it necessary to make any adjustments to the prices obtained. The Company’s derivative financial instruments are also classified within Level 2. The Company’s derivative financial instruments consist of foreign currency forward exchange contracts, interest rate swaps and the TRS. The Company recognizes derivative financial instruments in its 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 30 June 2017 and 1 July 2016, the Company had no Level 3 assets or liabilities measured at fair value on a recurring basis.
Items Measured at Fair Value on aNon-Recurring Basis
From time to time, the Company enters into certain strategic investments for the promotion of business and strategic objectives. These strategic investments primarily include cost basis investments representing those whereobjectives, which are accounted for either under the Company does not have the ability to exercise significant influence as well as equity method investments representing those whereor the Company does have the ability to exercise significant influence but does not have control. These investments are included in Financial assets, netmeasurement alternative. If measured at fair value in the Consolidated Balance Sheet,Sheets, these investments would generally be classified in Level 3 of the fair value hierarchy.
For the investments that are accounted for under the equity method, the Company recorded a net gain of $8 million in fiscal year 2022 and $48 million in fiscal year 2021. The adjusted carrying value of the investments accounted under the equity method amounted to $61 million and $78 million as of 1 July 2022 and 2 July 2021, respectively.
For the investments that are periodically analyzedaccounted under the measurement alternative, the Company recorded $4 million of net gains in fiscal year 2022. For the investments that are accounted for under the measurement alternative, Company recorded $51 million of net gains in fiscal year 2021, of which $27 million was unrealized as of 2 July 2021 related to determine whether or not there are indicatorsupward adjustments due to observable price changes. For fiscal year 2021, the Company recorded downward adjustment of impairment. The$12 million, to write down the carrying amount of certain investments to their fair value. As of 1 July 2022 and 2 July 2021, the carrying value of the Company’s strategic investments at 30 June 2017 and 1 July 2016 totaled $125under the measurement alternative was $88 million and $113$117 million, respectively, and consisted primarily of privately held equity securities without a readily determinable fair value.
During the fiscal years 2017 and 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 $25 million and $13 million, respectively, in order to write down the carrying amount of the investments to its estimated fair value. 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 years 2017 and 2016, respectively:
(US Dollars in millions) | Strategic Investments | Total | ||||||
Balance at 3 July 2015 | $ | 120 | $ | 120 | ||||
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Additional investments | 6 | 6 | ||||||
Impairments | (13) | (13) | ||||||
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Balance at 1 July 2016 | $ | 113 | $ | 113 | ||||
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Additional investments | 37 | 37 | ||||||
Impairments | (25) | (25) | ||||||
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Balance at 30 June 2017 | $ | 125 | $ | 125 | ||||
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Other Fair Value Disclosuresrespectively.
The Company’s debt is carried at amortized cost. The estimated fair value of the Company’s debt is derived using the closing price of the same debt instruments as of the date of valuation, which takes into account the yield curve, interest rates and other observable inputs. Accordingly, these fair value measurements are categorized as Level 2. The following table presents the fair value and amortized cost of the Company’s debt in order of maturity:
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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1 July 2022 | 2 July 2021 | |||||||||||||||
(US Dollars in millions) | Carrying Amount | Estimated Fair Value | Carrying Amount | Estimated Fair Value | ||||||||||||
4.250% Senior Notes due March 2022 | $ | — | $ | — | $ | 220 | $ | 224 | ||||||||
4.750% Senior Notes due June 2023 | 540 | 538 | 541 | 578 | ||||||||||||
4.875% Senior Notes due March 2024 | 499 | 494 | 499 | 544 | ||||||||||||
4.750% Senior Notes due January 2025 | 479 | 471 | 479 | 529 | ||||||||||||
4.875% Senior Notes due June 2027 | 504 | 483 | 504 | 561 | ||||||||||||
4.091% Senior Notes due June 2029 | 466 | 427 | 461 | 519 | ||||||||||||
3.125% Senior Notes due July 2029 | 500 | 396 | 500 | 488 | ||||||||||||
4.125% Senior Notes due January 2031 | 500 | 410 | 499 | 513 | ||||||||||||
3.375% Senior Notes due July 2031 | 500 | 393 | 500 | 487 | ||||||||||||
5.750% Senior Notes due December 2034 | 489 | 433 | 489 | 566 | ||||||||||||
LIBOR Based Term Loan A1 due September 2025 | 600 | 588 | — | — | ||||||||||||
LIBOR Based Term Loan A2 due July 2027 | 600 | 586 | — | — | ||||||||||||
LIBOR Based Term Loan due September 2025 | — | — | 481 | 478 | ||||||||||||
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|
|
| |||||||||
$ | 5,677 | $ | 5,219 | $ | 5,173 | $ | 5,487 | |||||||||
Less: debt issuance costs | (31) | — | (34) | — | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Debt, net of debt issuance costs | $ | 5,646 | $ | 5,219 | $ | 5,139 | $ | 5,487 | ||||||||
Less: current portion of debt, net of debt issuance costs | (584) | (582) | (245) | (249) | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Long-term debt, less current portion, net of debt issuance costs | $ | 5,062 | $ | 4,637 | $ | 4,894 | $ | 5,238 | ||||||||
|
|
|
|
|
|
|
|
Financial Assets
The following table shows the activity in Financial assets for fiscal years 2022 and 2021, respectively:
(US Dollars in millions) | Total | |||
Balance at 3 July 2020 | $ | 153 | ||
Additional investments | 1 | |||
Sales and settlements | (28) | |||
Upward adjustments | 51 | |||
Downward adjustments | (12) | |||
Gain from investments under equity method | 48 | |||
Balance at 2 July 2021 | $ | 213 | ||
Additional investments | 18 | |||
Sales and settlements | (57) | |||
Downward adjustments | — | |||
Upward adjustments | 4 | |||
Impairment loss relating to available-for-sale debt securities | (13) | |||
Gain from investments under equity method | 8 | |||
Balance at 1 July 2022 | $ | 173 | ||
10. Capital and Reserves
Share Capital
The Company’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 291,799,561209,850,169 shares were outstanding as of 30 June 2017,1 July 2022, and 100,000,000 preferred shares, par value $0.00001, of which none were issued or outstanding as of 30 June 20171 July 2022.
On 18 May 2021, in connection with a corporate reorganization, a new Irish public limited company, STX, began serving as the publicly traded parent company, and 40,000 deferredpursuant to a scheme of arrangement under Irish law, each STUC ordinary shareholder received one ordinary share, par value $0.00001, of STX on a one-for-one basis. As of 18 May 2021, there were 227,340,817 ordinary shares of $0.00001 par value€ 1 per share exchanged in connection with the reorganization. As of which 40,0002 July 2021, 227,382,980 ordinary shares of $0.00001 par value were outstanding as of 30 June 2017.outstanding.
Ordinary shares- Holders of ordinary shares are entitled to receive dividends when and as declared by the Company’s board of directors (the “Board of 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 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 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’s ArticlesConstitution.
The Company’s Board of Association.
Directors increased the authorization for the repurchase of its outstanding ordinary shares by $3.0 billion on 21 October 2020, and $2.0 billion on 22 February 2021. As of 30 June 2017, $1.31 July 2022, $2.4 billion remained available for repurchase under the existing repurchase authorization limit.
The following table sets forth information with respect to repurchases of the Company’s ordinary shares during fiscal years 20172022 and 2016:2021:
(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 | |||||
|
|
|
|
(US Dollars in millions)
| Number of Shares Repurchased
| Dollar Value of Shares Repurchased
| ||||||
Cumulative repurchased through 3 July 2020 |
| 392 |
| $ | 12,386 |
| ||
Repurchased in fiscal year 2021(1) |
| 34 |
|
| 2,081 |
| ||
|
|
|
| |||||
Cumulative repurchased through 2 July 2021 |
| 426 |
| $ | 14,467 |
| ||
Repurchased in fiscal year 2022(1) |
| 21 |
|
| 1,857 |
| ||
|
|
|
| |||||
Cumulative repurchased through 1 July 2022 |
| 447 |
| $ | 16,324 |
| ||
|
|
|
|
(1) For fiscal years 2022 and 2021, includes net share settlements of $51 million and $33 million, for 1 million and 1 million shares in connection with tax withholding related to vesting of restricted share units, respectively.
Reserves
Number of Ordinary Shares | Share Premium | Profit and Loss Account | Other Reserves | Total Equity | Number of Ordinary Shares
| Share Premium
| Profit and Loss Account
| Other Reserves
| Total Equity
| |||||||||||||||||||||||||||||||
(In millions) | (US Dollars in millions) |
(In millions)
|
(US Dollars in millions)
| |||||||||||||||||||||||||||||||||||||
Balance at 3 July 2015 | 315 | $ | 5,430 | $ | (2,686) | $ | 274 | $ | 3,018 | |||||||||||||||||||||||||||||||
Balance at 3 July 2020 |
| 257 |
| $ | 3,991 |
| $ | (3,015) |
| $ | 811 |
| $ | 1,787 |
| |||||||||||||||||||||||||
|
|
|
|
| ||||||||||||||||||||||||||||||||||||
Income for the period | 248 | 248 |
| — |
|
| 1,314 |
|
| — |
|
| 1,314 |
| ||||||||||||||||||||||||||
Repurchase and cancellation of ordinary shares | (23) | (1,090) | (1,090) |
| (33) |
|
| — |
|
| (2,047) |
|
| — |
|
| (2,047) |
| ||||||||||||||||||||||
Tax withholding related to vesting of restricted stock units | (1) | (56) | (56) |
| (1) |
|
| — |
|
| (33) |
|
| — |
|
| (33) |
| ||||||||||||||||||||||
Issuance of shares in respect of share-based payment plans | 8 | 79 | 79 |
| 4 |
|
| 108 |
|
| — |
|
| 108 |
| |||||||||||||||||||||||||
Dividends to shareholders | (727) | (727) |
| — |
|
| (635) |
|
| — |
|
| (635) |
| ||||||||||||||||||||||||||
Share-based compensation | 120 | 120 |
| — |
|
| — |
|
| 112 |
|
| 112 |
| ||||||||||||||||||||||||||
Other comprehensive income | 5 | 5 |
| — |
|
| — |
|
| 25 |
|
| 25 |
| ||||||||||||||||||||||||||
Other | (4) | (4) | ||||||||||||||||||||||||||||||||||||||
|
|
|
|
| ||||||||||||||||||||||||||||||||||||
Balance at 1 July 2016 | 299 | $ | 5,509 | $ | (4,311) | $ | 395 | $ | 1,593 | |||||||||||||||||||||||||||||||
Retirement of shares resulting from corporate reorganization |
| (227) |
|
| (4,099) |
|
| — |
|
| 4,099 |
|
| — |
| |||||||||||||||||||||||||
Issuance of shares resulting from corporate reorganization | 227 | 23,000 | — | (23,000) | — | |||||||||||||||||||||||||||||||||||
|
|
|
|
| ||||||||||||||||||||||||||||||||||||
Balance at 2 July 2021 | 227 | $ | 23,000 | $ | (4,416) | $ | (17,953) | $ | 631 | |||||||||||||||||||||||||||||||
Share premium reduction | (23,000) | 23,000 | — | — | ||||||||||||||||||||||||||||||||||||
|
|
|
|
| ||||||||||||||||||||||||||||||||||||
Income for the period | 772 | 772 | — | 1,649 | — | 1,649 | ||||||||||||||||||||||||||||||||||
Repurchase and cancellation of ordinary shares | (12) | (460) | (460) | (20) | — | (1,806) | — | (1,806) | ||||||||||||||||||||||||||||||||
Tax withholding related to vesting of restricted stock units | (1) | (27) | (27) | (1) | — | (51) | — | (51) | ||||||||||||||||||||||||||||||||
Issuance of shares in respect of share-based payment plans | 6 | 86 | 86 | 4 | 68 | — | — | 68 | ||||||||||||||||||||||||||||||||
Dividends to shareholders | (745) | (745) | — | (604) | — | (604) | ||||||||||||||||||||||||||||||||||
Share-based compensation | 137 | 137 | — | — | 145 | 145 | ||||||||||||||||||||||||||||||||||
Other comprehensive income | 8 | 8 | — | — | 77 | 77 | ||||||||||||||||||||||||||||||||||
|
|
|
|
| ||||||||||||||||||||||||||||||||||||
Balance at 30 June 2017 | 292 | $ | 5,595 | $ | (4,771) | $ | 540 | $ | 1,364 | |||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Balance at 1 July 2022 |
| 210 |
| $ | 68 |
| $ | 17,772 |
| $ | (17,731) |
| $ | 109 |
| |||||||||||||||||||||||||
|
|
|
|
|
Capital Redemption Reserve Fund
OtherOn 19 May 2021 the Company issued 1 preference share at a premium of $23.0 billion, by way of a bonus issue. This share was subsequently cancelled. On 14 May 2021, the Company’s shareholders approved a reduction of the Company’s share premium account to create distributable reserves. On 2 June 2021, the Company filed a petition with the High Court of Ireland to approve the creation of distributable reserves includes an amountthrough the reduction of $3,090 and $2,960 for fiscal years 2017 and 2016, respectively, representing a Capital Redemption Reserve Fund.the share premium account by approximately $23.0 billion. The High Court of Ireland approved the petition on 15 July 2021.
11. Share-based Compensation
Share-Based Compensation Plans
The Company’s share-based compensation plans have been established to promote the Company’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 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’s competitive ability to attract, retain and motivate participants for the benefit of the Company and its shareholders.
Seagate Technology Holdings plc 20122022 Equity Incentive Plan (the “EIP”“2022 EIP”).: On 2620 October 2011,2021, (the “Approval Date”), shareholders of the shareholdersCompany approved the adoption of the 2022 EIP in replacement of Seagate Technology Holdings plc
2012 Equity Inventive Plan (the “2012 EIP”), which was retired as of the Approval Date. The 2022 EIP provides for the grant of various types of awards including restricted share units (“RSUs”), options, performance-based share units (“PSUs”) and authorizedshare appreciation rights. The maximum number of shares that may be delivered to the issuance of up to a total of 27.0participants under the 2022 EIP shall not exceed (i) 14.1 million ordinary shares, par value $0.0001 per share, plus (ii) any shares remaining available for grant under the Seagate Technology plc 2004 Share
Compensation Plan (the “SCP”) as of the effective date of the EIP (which was equalsubject 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 theany outstanding share reserve in respect of awards previously granted under the SCP) (together,2012 EIP that, on or after the Approval Date expire, are cancelled or otherwise terminate, in whole or in part, without having been exercised or redeemed in full, or are settled in cash ((i) and (ii) together being the “Share Reserve”). On 22 October 2014, the shareholders authorized the issuance from the EIPThe maximum aggregate number of an additional 25shares that may be issued pursuant to RSUs or PSUs (collectively, “Full-Value Share Awards”) shall not exceed 12.3 million ordinary shares, par value $0.0001 per share.shares. Any shares that are subject to options or share appreciation rights granted under the 2022 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 Share Awards”) will generally be counted against the Share Reserve as two and five-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 2017,1 July 2022, there were approximately 30.812.0 million ordinary shares available for issuance of Full-Value Share Awards under the 2022 EIP.
Dot Hill Systems 2009 Equity Incentive Plan (the “DHEIP”).. Effective 18 May 2021, Seagate Technology Holdings plc acquiredassumed the Dot Hill Systems 2009 Equity Incentive Plan, which was acquired by STUC effective 6 October 2015. The Company assumed the remaining authorized but unused share reserve of approximately 22.0 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 30 June 2017, there were approximately 1 million ordinary shares available for issuance under the DHEIP.
Seagate Technology Holdings plc Employee Stock Purchase Plan (the “ESPP”). There are 50.060.0 million ordinary shares authorized to be issued under the ESPP. 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 30 June 20171 July 2022, there were approximately 4.87.5 million ordinary shares available for issuance under the ESPP.
Equity Awards
Full-Value Share Awards (e.g. restricted share units, “RSU”)RSUs generally vest over a period of three to four years, with cliff vesting of a portion of each award occurring 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 2022 EIP and SCP2012 EIP 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’s ordinary shares on NASDAQ on the grant date.
The Company granted awards of performance-based share units (“PSU”)PSUs to its senior executive officers under the SCP2022 EIP and the2012 EIP where vesting is subject to both the continued employment of the participant by the Company and the achievement of certain financial and operational performance goals established by the Compensation Committee of the Company’s Board of Directors including market-based performance goals.(the “Compensation Committee”). A single PSU represents the right to receive a single ordinary share of the Company. During fiscal years 20172022 and 2016,2021, the Company granted 0.60.3 million and 0.40.3 million PSUs, respectively, where performance is measured based on a three-year average return on invested capital (“ROIC”) goal and a relative total shareholder return (“TSR”) goal, which is based on the Company’s ordinary shares measured against a benchmark TSR of a peer group over the same three-year period (the “TSR/ROIC” awards). For fiscal year 2022, the PSUs granted to certain executive officers contain two ESG modifiers that will increase or decrease the PSU achievement level based on the Company’s performance against both a social goal of gender diversity and an environmental goal of greenhouse gas reduction. These 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 share 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 0.2 million and 0.20.1 million PSUs during fiscal years 2017 and 2016, respectively,year 2021, to certain of its senior executive officers which are subject to a performance goal related to the Company’s adjusted earnings per share (the “AEPS” awards)(“AEPS”). These awards have a maximum seven-year vesting period, with 25% annual vesting starting on the first anniversary of the grant date. If the performanceAEPS 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 yearseven-year period, any unvested shares will be forfeited.
Determining Fair Value of Seagate Technology StockShare Plans
Valuation and amortization method- The Company estimates the fair value of stockgranted share options, RSURSUs and performance awardsPSUs subject to an AEPS condition granted using the Black-Scholes-Merton valuation model and a single share 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 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 share-based awards, vesting schedules and expectations of future employee behavior as influenced by changes to the terms of its share-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’s current expectations about its anticipated dividend policy. Also, because the expected dividend yield should reflect marketplace 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 US Treasuryzero-coupon issues with an equivalent remaining term. Where the expected term of the Company’s share-based awards do 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 Company’s shares related to options and RSURSUs granted to employees, shares issued from the ESPP and PSUPSUs subject to TSR/ROIC or AEPS conditions for fiscal years 20172022 and 2016,2021, were estimated using the following assumptions:
Fiscal Years
| ||||||||
2022
| 2021 | |||||||
Options | ||||||||
Expected term (in years) |
| 4.2 |
|
| 4.2 |
| ||
Volatility |
| 38 % |
|
| 37 - 38 % |
| ||
Weighted-average volatility |
| 38 % |
|
| 38 % |
| ||
Expected dividend rate |
| 2.8 % |
|
| 3.2 - 5.2 % |
| ||
Weighted-average expected dividend rate |
| 2.8 % |
|
| 4.7 % |
| ||
Risk-free interest rate |
| 0.6 % |
|
| 0.2 - 0.7 % |
| ||
Weighted-average fair value | $ | 21.02 |
| $ | 10.77 |
| ||
RSUs | ||||||||
Expected term (in years) |
| 1 - 2.5 |
|
| 1 - 2.5 |
| ||
Expected dividend rate |
| 2.4 - 3.4 % |
|
| 2.5 - 5.4 % |
| ||
Weighted-average expected dividend rate |
| 2.8 % |
|
| 4.6 % |
| ||
Weighted-average fair value | $ | 82.40 |
| $ | 50.64 |
| ||
ESPP | ||||||||
Expected term (in years) |
| 0.5 |
|
| 0.5 |
| ||
Volatility |
| 36 - 39 % |
|
| 39 - 44 % |
| ||
Weighted-average volatility |
| 37 % |
|
| 42 % |
| ||
Expected dividend rate |
| 2.6 - 3.0 % |
|
| 4.0 - 5.8 % |
| ||
Weighted-average expected dividend rate |
| 2.8 % |
|
| 5.1 % |
| ||
Risk-free interest rate |
| 0.1 - 0.5 % |
|
| 0.1 % |
| ||
Weighted-average fair value | $ | 24.38 |
| $ | 13.77 |
| ||
PSUs subject to TSR/ROIC conditions | ||||||||
Expected term (in years) |
| 3.0 |
|
| 3.0 |
| ||
Volatility |
| 39 % |
|
| 38 % |
| ||
Weighted-average volatility |
| 39 % |
|
| 38 % |
| ||
Expected dividend rate |
| 3.1 % |
| �� | 5.6 % |
| ||
Weighted-average expected dividend rate |
| 3.1 % |
|
| 5.6 % |
| ||
Risk-free interest rate |
| 0.4 % |
|
| 0.2 % |
| ||
Weighted-average fair value | $ | 86.01 |
| $ | 43.20 |
| ||
PSUs subject to an AEPS condition | ||||||||
Expected term (in years) |
| — |
|
| 2.5 |
| ||
Expected dividend rate |
| — |
|
| 3.2 - 5.2 % |
| ||
Weighted-average expected dividend rate |
| — |
|
| 4.9 % |
| ||
Weighted-average fair value | $ | — |
| $ | 45.50 |
|
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 |
Share-based Compensation Expense
The Company recorded $137$145 million and $120$112 million of share-based compensation during fiscal years 20172022 and 2016,2021, 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 the historical analysis of actual forfeited awards.
StockShare Option Activity
The Company issues new ordinary shares upon exercise of stockshare 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) | (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 | ||||||||||
|
|
Options | Number of Shares (In millions) | Weighted- Average Exercise Price | Weighted- Average Remaining Contractual Term (In years) | Aggregate Intrinsic Value (US Dollars in millions) | ||||||||||||
Outstanding at Outstanding at 2 July 2021 | 1.6 | $ | 44.24 | 4.0 | $ | 69 | ||||||||||
Granted | 0.2 | $ | 87.34 | |||||||||||||
Exercised | (0.2) | $ | 45.48 | |||||||||||||
|
| |||||||||||||||
Outstanding at 1 July 2022 | 1.6 | $ | 49.26 | 3.6 | $ | 36 | ||||||||||
|
| |||||||||||||||
Vested and expected to vest at 1 July 2022 | 1.6 | $ | 49.01 | 3.5 | $ | 36 | ||||||||||
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Exercisable at 1 July 2022 | 1.1 | $ | 41.53 | 2.8 | $ | 31 | ||||||||||
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The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying awards and the quoted price of the Company’s ordinary shares for the options that werein-the-money at 30 June 2017.1 July 2022. During fiscal years 20172022 and 2016,2021, the aggregate intrinsic value of options exercised under the Company’s stockshare option plans was $29$11 million and $44$31 million, respectively, determined as of the date of option exercise. The aggregate fair value of options vested during fiscal years 20172022 and 2016 were2021 was approximately $15$4 million and $18$4 million, respectively.
At 30 June 2017,1 July 2022, the total compensation cost related to options granted to employees but not yet recognized was approximately $25$6 million, net of an immaterial amount of estimated forfeitures. This cost is being amortized on a straight-line basis over a weighted-average remaining term of approximately 2.4 years and will be adjusted for subsequent changes in estimated forfeitures.
Unvested Awards Activity
The following is a summary of unvested award activities which do not contain a performance condition:
Unvested Awards | Number of Shares (In millions) | Weighted- Average Grant- Date Fair Value | ||||||
Unvested at 2 July 2021 | 5.9 | $ | 47.81 | |||||
Granted | 1.4 | $ | 82.40 | |||||
Forfeitures | (0.3) | $ | 56.51 | |||||
Vested | (2.2) | $ | 44.45 | |||||
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Unvested at 1 July 2022 | 4.8 | $ | 58.86 | |||||
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At 1 July 2022, the total compensation cost related to unvested awards granted to employees but not yet recognized was approximately $199 million, net of estimated forfeitures of approximately $1$16 million. This cost is being amortized on a straight-line basis over a weighted-average remaining term of approximately 2.5 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 1 July 2016 | 4.8 | $ | 39.95 | |||||
Granted | 3.1 | $ | 30.85 | |||||
Forfeitures | (0.7) | $ | 39.72 | |||||
Vested | (2.0) | $ | 37.02 | |||||
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Nonvested at 30 June 2017 | 5.2 | $ | 35.75 | |||||
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At 30 June 2017, the total compensation cost related to nonvested awards granted to employees but not yet recognized was approximately $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 of 2.62.2 years and will be adjusted for subsequent changes in estimated forfeitures. The aggregate fair value of nonvestedunvested awards vested during fiscal years 20172022 and 2016 were2021, was approximately $73$96 million and $102$75 million, respectively.
Performance Awards
The following is a summary of nonvestedunvested award activities which contain a performance condition:
Performance Awards | Number of Shares | Weighted- Average Grant- Date Fair Value | Number of Shares (In millions) | Weighted- Average Grant-Date Fair Value | ||||||||||||
(In millions) | ||||||||||||||||
Performance units at 1 July 2016 | 1.4 | $ | 47.41 | |||||||||||||
Performance units at 2 July 2021 | 1.0 | $ | 46.56 | |||||||||||||
Granted | 0.8 | $ | 32.16 | 0.3 | $ | 89.69 | ||||||||||
Forfeitures | (0.3) | $ | 41.06 | |||||||||||||
Forfeited | (0.3) | $ | 47.35 | |||||||||||||
Vested | (0.4) | $ | 41.91 | (0.1) | $ | 41.71 | ||||||||||
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Performance units at 30 June 2017 | 1.5 | $ | 41.88 | |||||||||||||
Performance units at 1 July 2022 | 0.9 | $ | 59.72 | |||||||||||||
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At 30 June 2017,1 July 2022, the total compensation cost related to performance awards granted to employees but not yet recognized was approximately $36$30 million, net of estimated forfeitures of approximately $4 million. This cost is being amortized on a straight-line basis over a weighted-average remaining term of 3.291.3 years. The aggregate fair value of performance awards vested during fiscal years 2022 and 2021, was approximately $4 million and $8 million, respectively.
ESPP
During fiscal years 20172022 and 2016,2021, the aggregate intrinsic value of shares purchased under the Company’s ESPP was approximately $24$29 million and $12$27 million, respectively. At 30 June 2017,1 July 2022, the total compensation cost related to options to purchase the Company’s ordinary shares under the ESPP but not yet recognized was approximately $1.7$1.6 million. This cost will be amortized on a straight-line basis over a weighted-average period of approximately one month. During fiscal year 2017,2022, the Company issued 2.00.9 million ordinary shares with a weighted-average purchaseexercise price of $26.68$64.85 per share.
Tax-Deferred Savings Plan
The Company has atax-deferred savings plan, the Seagate 401(k) Plan (the “40l(k)“401(k) plan”), for the benefit of qualified employees. The 40l(k)401(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$6,000 per participating employee. During fiscal years 20172022 and 2016,2021, the Company made matching contributions of $18$15 million and $19$15 million, respectively.
Deferred Compensation Plan
On 1 January 2001, theThe Company has adopted the SDCP for the benefit of eligible employees. ThisThe 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. During fiscal year 2014, the Company entered into a TRS in order to manage the equity market risks associated with the SDCP liabilities. See “Note 8. Derivative Financial Instruments” contained in this report for additional information about the TRS.
Directors’ EmolumentEmoluments
During fiscal year 2017,2022, the Company paid $4.8$11.0 million to its directors in respect of duties relating to Seagate Technology Holdings plc, including $2.4$6.2 million paid in ROIC awards to Dr. Mosley and $2.5 million paid in restricted stock units.share units to other directors. Gains on exercise of vested options were approximately $0.2$0.8 million in fiscal year 2017.2022.
During fiscal year 2016,2021, the Company paid $11.3$13.4 million to its directors in respect of duties relating to Seagate Technology Holdings plc, including $7.3$8.0 million paid in AEPS and ROIC awards to Mr. LuczoDr. Mosley and $1.6$3.1 million paid in restricted stockshare units to other directors. Gains on exercise of vested options were approximately $1.6$10.3 million in fiscal year 2016.2021.
12. Guarantees
Indemnifications of Officers and Directors
Seagate Technology, an exempted company incorporated with limited liability under the laws of the Cayman Islands (“Seagate-Cayman”) and wholly-owned subsidiary of STX, from time to time enters into indemnification agreements with the directors, officers, employees and agents of STX or any of its subsidiaries (each, an “Indemnitee”). The indemnification agreements provide indemnification in addition to any of Indemnitee’s indemnification rights under any relevant Articles of Association (or similar constitutional document), applicable law or otherwise, and indemnifies an Indemnitee for certain expenses (including attorneys’ fees), judgments, fines and settlement amounts actually and reasonably incurred by him or her in any action or proceeding, including any action by or in the right of STX or any of its subsidiaries, arising out of his or her service as a director, officer, employee or agent of STX or any of its subsidiaries or of any other entity to which he or she provides services at the Company’s request. However, Indemnitees are not indemnified under the indemnification agreements for (i) any fraud or dishonesty in the performance of Indemnitee’s duty to STX or the applicable subsidiary or (ii) Indemnitee’s conscious, intentional or willful failure to act honestly, lawfully and in good faith with a view to the best interests of the Company. In addition, the indemnification agreements provide that Seagate-Cayman will advance expenses incurred by an Indemnitee in connection with enforcement of the 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.
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 indemnification agreements and no amount has been accrued in the Company’s consolidated financial statements with respect to these indemnification obligations.
Indemnification Obligations
The Company from time to time enters into agreements with customers, suppliers, partners and others in the ordinary course of business that provide indemnification for certain matters including, but not limited to, intellectual property infringement claims, environmental claims and breach of agreement claims. The nature of the Company’s indemnification obligations prevents the Company from making a reasonable estimate of the maximum potential amount it could be required to pay. Historically, the Company has not made any significant indemnification payments under such agreements and no amount has been accrued in the Company’s 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 warranty return rates in order to determine its warranty obligation. As of 1 July 2022, the Company’s reserve for product warranty was $148 million compared to $136 million as of 2 July 2021. The increase of $12 million was primarily driven by an increase in the Company’s warranty return rate as compared to prior year and higher cost of repair, partially offset by continued decline in total number of units under warranty.
Changes in the Company’s product warranty liability during the fiscal years ended 1 July 2022 and 2 July 2021 were as follows:
Fiscal Years Ended | ||||||||
(US Dollars in millions) | 1 July 2022 | 2 July 2021 | ||||||
Balance, beginning of period | $ | 136 | $ | 151 | ||||
Warranties issued | 79 | 76 | ||||||
Repairs and replacements | (88) | (81) | ||||||
Changes in liability for pre-existing warranties, including expirations | 21 | (10) | ||||||
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Balance, end of period | $ | 148 | $ | 136 | ||||
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13. Earnings Per Share
Basic earnings per share is computed by dividing income available to shareholders by the weighted-average number of shares outstanding during the period. Diluted earnings per share is computed by dividing income available to shareholders by the weighted-average number of shares outstanding during the period and the number of additional shares that would have been outstanding if the potentially dilutive securities had been issued. Potentially dilutive securities include outstanding options, unvested RSUs and PSUs and shares to be purchased under the ESPP. The dilutive effect of potentially dilutive securities is reflected in diluted earnings per share by application of the treasury stock method. Under the treasury stock method, an increase in fair market value of the Company’s share price can result in a greater dilutive effect from potentially dilutive securities. The following table sets forth the computation of basic and diluted net income per share:share attributable to the shareholders of the Company:
Fiscal Years Ended | ||||||||||||||||
Fiscal Years Ended | ||||||||||||||||
(In millions, except per share data) | 30 June 2017 | 1 July 2016 | ||||||||||||||
(US dollars in millions, except per share data) | 1 July 2022 | 2 July 2021 | ||||||||||||||
Numerator: | ||||||||||||||||
Net income | $ | 772 | $ | 248 | $ | 1,649 | $ | 1,314 | ||||||||
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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 | 220 | 242 | ||||||||||||
Weighted-average effect of dilutive securities: | ||||||||||||||||
Employee equity award plans | 3 | 3 | 4 | 3 | ||||||||||||
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Total shares for purpose of calculating diluted net income per share | 299 | 302 | ||||||||||||||
Total shares for purposes of calculating diluted net income per share | 224 | 245 | ||||||||||||||
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Net income per share | ||||||||||||||||
Basic | $ | 2.61 | $ | 0.83 | $ | 7.50 | $ | 5.43 | ||||||||
Diluted | $ | 2.58 | $ | 0.82 | 7.36 | 5.36 |
The following potential shares from Employee equity award plans that were excluded from the computation of diluted net income per share as their effect would have been anti-dilutive:
Fiscal Years Ended | ||||||||
(In millions) | 30 June 2017 | 1 July 2016 | ||||||
Employee equity award plans | 1 | 3 |
13. Business Segment and Geographic Information
The Company has concluded that its manufacture and distribution of storage solutions constitutes one reporting segment. The Company’s manufacturing operations are based on technology platforms that are used to produce various storage and systems solutions that serve multiple applications and markets. The Company’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’s chief operating decision maker (“CODM”) as he is responsibleanti-dilutive were immaterial for reviewing and approving investments in the Company’s technology platforms and manufacturing infrastructure.
In fiscal years 20172022 and 2016, Dell Inc. accounted for approximately 10%2021.
14. Legal, Environmental and 12% 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 the Company’s consolidated revenue 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, financial assets and certain other debtors as recorded by the Company’s operations in each area.Contingencies
The following table summarizes the Company’s operations by geographic area:
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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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”) and Massachusetts Institute of Technology (“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 US District Court for the Southern District of New York, alleging infringement of US Patent No. 4,916,635 (the “‘635 patent”) and US Patent No. 5,638,267 (the “‘267 patent”), misappropriation of trade secrets, breach of contract, and other claims On 16 January, 2002, Convolve filed an amended complaint, alleging defendants infringe US Patent No. 6,314,473 (the “‘473 patent”). The district court ruled in 2010 that the ‘267 patent was out of the case.
On 16 August 2011, the district court granted in part and denied in part the Company’s motion for summary judgment. On 1 July 2013, the US Court of Appeals for the Federal Circuit: 1) affirmed the district
court’s summary judgment rulings that Seagate did not misappropriate any of the alleged trade secrets and that the asserted claims of the ‘635 patent are invalid; 2) reversed and vacated the district court’s summary judgment ofnon-infringement with respect to the ‘473 patent; and 3) remanded the case for further proceedings on the ‘473 patent On 11 July 2014, the district court granted the Company’s further summary judgment motion regarding the ‘473 patent. On 10 February 2016, the US Court of Appeals 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 asserted claims of the ‘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 intervening rights; and 5) remanded the case to the district court for further proceedings on the ‘473 patent. In view of the rulings made by the district court and the Court of Appeals and the uncertainty regarding the amount of damages, if any, that could be awarded Convolve in this matter, the Company does not believe that it is currently possible to determine a reasonable estimate of the possible range of loss related to this matter.
Alexander Shukh v. Seagate Technology—On 12 February 2010, Alexander Shukh filed a complaint against the Company in the US District Court for the District of Minnesota, alleging, among other things, employment discrimination and wrongful failure to name him as an inventor on certain Seagate patents. On 31 March 2014, the district court granted Seagate’s summary judgment 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. On 20 March 2017, the court of appeals issued its 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.
Lambeth Magnetic Structures LLC v. Seagate Technology (US) Holdings, Inc., et al.—On 29 April 2016, Lambeth Magnetic Structures LLC filed a complaint against Seagate Technology (US) Holdings, Inc. and Seagate Technology LLC in the US District Court for the Western District of Pennsylvania, alleging infringement of US
Patent No. 7,128,988, “Magnetic Material Structures, Devices and Methods.”Methods”. The complaint seeks damages as well as additional relief. The Company believes the claims asserted in the complaint are without merit and intends to vigorously defend this case. In viewThe court issued its claim construction
ruling on 18 October 2017. The trial began on 4 April 2022. On 14 April 2022, the jury returned a verdict of non-infringement for Seagate finding that Seagate had not infringed any of the uncertainty regardingasserted claims. The district court entered judgement in favor of Seagate on 19 April 2022. The parties filed post-trial motions with the amountdistrict court in May 2022.
Seagate Technology LLC, et al. v. NHK Spring Co. Ltd. and TDK Corporation, et al. On 18 February 2020, Seagate Technology LLC, Seagate Technology (Thailand) Ltd., Seagate Singapore International Headquarters Pte. Ltd., and Seagate Technology International (collectively, the “Seagate Entities”) filed a complaint in the United States District Court for the Northern District of damages, if any,California against defendant suppliers of HDD suspension assemblies. Defendants include NHK Spring Co. Ltd., TDK Corporation, Hutchinson Technology Inc., and several of their subsidiaries and affiliates. The complaint includes federal and state antitrust law claims, as well as a breach of contract claim. The complaint alleges that could be awardeddefendants and their co-conspirators knowingly conspired for more than twelve years not to compete in this matter, the Company does not believesupply of suspension assemblies; that it is currently possibledefendants misused confidential information that the Seagate Entities had provided pursuant to determinenondisclosure agreements, in breach of their contractual obligations; and that the Seagate Entities paid artificially high prices on purchases of suspension assemblies. The Seagate Entities seek to recover the overcharges they paid for suspension assemblies, as well as additional relief permitted by law. On 22 March 2022, Defendants TDK Corporation, Hutchinson Technology Inc. and their subsidiaries and affiliates (collectively “TDK”) and the Seagate Entities entered into a reasonable estimatecommercial arrangement and release of claims (“TDK Agreement”) to fully resolve the possible rangeglobal disputes between the Seagate Entities and TDK relating to the antitrust law claims, breach of loss relatedcontract claim, and other matters described in the complaint. On 1 April 2022, the Seagate Entities and TDK filed a Stipulation for Dismissal with Prejudice to this matter.dismiss with prejudice all claims against TDK.
Environmental MattersProduct Warranty
The Company’s operations are subject to 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’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 capitalestimates probable product warranty 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” 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.revenue is recognized. The Company has been identifiedgenerally 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 warranty return rates in order to determine its warranty obligation. As of 1 July 2022, the Company’s reserve for product warranty was $148 million compared to $136 million as a potentially responsible party at several sites. At each of these sites,2 July 2021. The increase of $12 million was primarily driven by an increase in the Company has an assigned portionCompany’s warranty return rate as compared to prior year and higher cost of repair, partially offset by continued decline in total number of units under warranty.
Changes in the financialCompany’s product warranty liability based onduring the typefiscal years ended 1 July 2022 and amount2 July 2021 were as follows:
Fiscal Years Ended | ||||||||
(US Dollars in millions) | 1 July 2022 | 2 July 2021 | ||||||
Balance, beginning of period | $ | 136 | $ | 151 | ||||
Warranties issued | 79 | 76 | ||||||
Repairs and replacements | (88) | (81) | ||||||
Changes in liability for pre-existing warranties, including expirations | 21 | (10) | ||||||
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Balance, end of period | $ | 148 | $ | 136 | ||||
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13. Earnings Per Share
Basic earnings per share is computed by dividing income available to shareholders by the weighted-average number of hazardous substances disposedshares outstanding during the period. Diluted earnings per share is computed by dividing income available to shareholders by the weighted-average number of by each party atshares outstanding during the siteperiod and the number of financially viable parties.additional shares that would have been outstanding if the potentially dilutive securities had been issued. Potentially dilutive securities include outstanding options, unvested RSUs and PSUs and shares to be purchased under the ESPP. The Company has fulfilled its responsibilities at somedilutive effect of these sites and remains involvedpotentially dilutive securities is reflected in only a few at this time.
Whilediluted earnings per share by application of the treasury stock method. Under the treasury stock method, an increase in fair market value of the Company’s ultimate costsshare price can result in connection with these sites is difficulta greater dilutive effect from potentially dilutive securities. The following table sets forth the computation of basic and diluted net income per share attributable to predict with complete accuracy, based on its current estimatesthe shareholders of cleanup coststhe Company:
Fiscal Years Ended | ||||||||
(US dollars in millions, except per share data) | 1 July 2022 | 2 July 2021 | ||||||
Numerator: | ||||||||
Net income | $ | 1,649 | $ | 1,314 | ||||
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Number of shares used in per share calculations: | ||||||||
Total shares for purposes of calculating basic net income per share | 220 | 242 | ||||||
Weighted-average effect of dilutive securities: | ||||||||
Employee equity award plans | 4 | 3 | ||||||
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Total shares for purposes of calculating diluted net income per share | 224 | 245 | ||||||
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Net income per share | ||||||||
Basic | $ | 7.50 | $ | 5.43 | ||||
Diluted | 7.36 | 5.36 |
The potential shares from Employee equity award plans that were excluded from the computation of diluted net income per share as their effect would have been anti-dilutive were immaterial for fiscal years 2022 and its expected allocation of these costs, the Company does not expect costs in connection with these sites to be material.2021.
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 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”) 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 beenjudgments that may, individually 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”) in products. If the Company or its suppliers fails to comply with the substance restrictions, recycle requirements or other environmental requirements as they are enacted worldwide, it could have a materially adverse effect on the Company’s business.
Other Matters
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 notaggregate, have a material adverse effect on its financial position or results of operations. Accordingly, actual results could differ materially.
Litigation
Leases.Lambeth Magnetic Structures LLC v. Seagate Technology (US) Holdings, Inc., et al. On 29 April 2016, Lambeth Magnetic Structures LLC filed a complaint against Seagate Technology (US) Holdings, Inc. and Seagate Technology LLC in the US District Court for the Western District of Pennsylvania, alleging infringement of US Patent No. 7,128,988, “Magnetic Material Structures, Devices and Methods”. The complaint seeks damages as well as additional relief. 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 increasesbelieves the claims asserted in the Consumer Price Index. Also, certain leases providecomplaint are without merit and intends to vigorously defend this case. The court issued its claim construction
ruling on 18 October 2017. The trial began on 4 April 2022. On 14 April 2022, the jury returned a verdict of non-infringement for renewalSeagate finding that Seagate had not infringed any of the lease atasserted claims. The district court entered judgement in favor of Seagate on 19 April 2022. The parties filed post-trial motions with the Company’s option at expiration ofdistrict court in May 2022.
Seagate Technology LLC, et al. v. NHK Spring Co. Ltd. and TDK Corporation, et al. On 18 February 2020, Seagate Technology LLC, Seagate Technology (Thailand) Ltd., Seagate Singapore International Headquarters Pte. Ltd., and Seagate Technology International (collectively, the lease. The lease term begins on“Seagate Entities”) filed a complaint in 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 which are expensed as incurred.
Future minimum lease payments for operating leases substantially all of which relates to land and buildings, (including accrued lease payments relating to restructuring plans) with initial or remaining terms of one year or more were as follows at 30 June 2017 (lease payments are shown net of sublease income):
Fiscal Years Ending | Operating Leases | |||
(US Dollars in millions) | ||||
2018 | $ | 19 | ||
2019 | 15 | |||
2020 | 11 | |||
2021 | 9 | |||
2022 | 6 | |||
Thereafter | 75 | |||
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$ | 135 | |||
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Total rent expense for all land, facility and equipment operating leases, net of sublease income, was $29 million and $43 million for fiscal years 2017 and 2016, respectively. Total sublease rental income for fiscal years 2017 and 2016 was $2 million and $3 million, respectively. The Company subleases a portion of its facilities that it considers to be in excess of current requirements. As of 30 June 2017, total future lease income to be recognizedUnited States District Court for the Company’s existing subleases is approximately $9 million.
Capital Expenditures.Northern District of California against defendant suppliers of HDD suspension assemblies. Defendants include NHK Spring Co. Ltd., TDK Corporation, Hutchinson Technology Inc., and several of their subsidiaries and affiliates. The Company’scomplaint includes federal and state antitrust law claims, as well as a breach of contract claim. The complaint alleges that defendants and their non-cancelableco-conspirators commitmentsknowingly conspired for constructionmore than twelve years not to compete in the supply of manufacturingsuspension assemblies; that defendants misused confidential information that the Seagate Entities had provided pursuant to nondisclosure agreements, in breach of their contractual obligations; and product development facilities andthat the Seagate Entities paid artificially high prices on purchases of equipment approximated $107 million at 30 June 2017,suspension assemblies. The Seagate Entities seek to recover the overcharges they paid for suspension assemblies, as well as additional relief permitted by law. On 22 March 2022, Defendants TDK Corporation, Hutchinson Technology Inc. and included $15 million related to researchtheir subsidiaries and development projects.
Unconditional Purchase Obligations.During fiscal year 2017,affiliates (collectively “TDK”) and 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.
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”), then the parent company,Entities entered into a new formcommercial arrangement and release of
indemnification agreement (the “Revised Indemnification claims (“TDK Agreement”) with its officersto fully resolve the global disputes between the Seagate Entities and directorsTDK relating to the antitrust law claims, breach of Seagate-Caymancontract claim, and its subsidiaries (each, an “Indemnitee”). The Revised Indemnification Agreement provides indemnification in addition to any of Indemnitee’s indemnification rights under Seagate-Cayman’s Articles of Association, applicable law or otherwise, and indemnifies an Indemnitee for certain expenses (including attorneys’ fees), judgments, fines and settlement amounts actually and reasonably incurred by him or her in any action or proceeding, including any action by orother matters described in the right of Seagate-Cayman or any of its subsidiaries, arising out of his or her service ascomplaint. On 1 April 2022, the Seagate Entities and TDK filed a director, officer, employee or agent of Seagate-Cayman or any of its subsidiaries or of any other entityStipulation for Dismissal with Prejudice to which he or she provides services at Seagate-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’s duty to Seagate-Cayman or the applicable subsidiary of Seagate-Cayman or (ii) Indemnitee’s conscious, intentional or willful failure to act honestly, lawfully and in good faithdismiss 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 proceedingprejudice all claims against him or her as to which he or she could be indemnified.TDK.
On 3 July 2010, pursuant to a corporate reorganization, the common shareholders of Seagate-Cayman became ordinary shareholders of Seagate Technology plc (the “Company”) and Seagate-Cayman became a wholly owned subsidiary of the Company, as described more fully in the Current Report on Form8-K filed by the Company on 6 July 2010 (the “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 of Indemnity”), which provides for the indemnification by Seagate-Cayman of any director, officer, employee or agent of the Company, Seagate-Cayman or any subsidiary of the Company (each, a “Deed Indemnitee”), in addition to any of a Deed Indemnitee’s indemnification rights under the Company’s Articles of Association, applicable law or otherwise, with a similar scope to the Revised Indemnification Agreement. Seagate-Cayman entered into the Deed of Indemnity with certain Deed Indemnitees effective as of 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.
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 warranty return rates in order to determine its warranty
obligation. As of 1 July 2022, the Company’s reserve for product warranty was $148 million compared to $136 million as of 2 July 2021. The increase of $12 million was primarily driven by an increase in the Company’s warranty return rate as compared to prior year and higher cost of repair, partially offset by continued decline in total number of units under warranty.obligation. Changes in the Company’s product warranty liability during the fiscal years ended 30 June 2017 and 1 July 20162022 and 2 July 2021 were as follows:
Fiscal Years Ended | ||||||||||||||||
Fiscal Years Ended | ||||||||||||||||
(US Dollars in millions) |
30 June 2017 |
1 July 2016 | 1 July 2022 | 2 July 2021 | ||||||||||||
Balance, beginning of period | $ | 206 | $ | 248 | $ | 136 | $ | 151 | ||||||||
Warranties issued | 131 | 125 | 79 | 76 | ||||||||||||
Repairs and replacements | (114) | (152) | (88) | (81) | ||||||||||||
Changes in liability forpre-existing warranties, including expirations | 10 | (17) | 21 | (10) | ||||||||||||
Warranty liability assumed from acquisitions | — | 2 | ||||||||||||||
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Balance, end of period | $ | 233 | $ | 206 | $ | 148 | $ | 136 | ||||||||
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13. Earnings Per Share
Basic earnings per share is computed by dividing income available to shareholders by the weighted-average number of shares outstanding during the period. Diluted earnings per share is computed by dividing income available to shareholders by the weighted-average number of shares outstanding during the period and the number of additional shares that would have been outstanding if the potentially dilutive securities had been issued. Potentially dilutive securities include outstanding options, unvested RSUs and PSUs and shares to be purchased under the ESPP. The dilutive effect of potentially dilutive securities is reflected in diluted earnings per share by application of the treasury stock method. Under the treasury stock method, an increase in fair market value of the Company’s share price can result in a greater dilutive effect from potentially dilutive securities. The following table sets forth the computation of basic and diluted net income per share attributable to the shareholders of the Company:
Fiscal Years Ended | ||||||||
(US dollars in millions, except per share data) | 1 July 2022 | 2 July 2021 | ||||||
Numerator: | ||||||||
Net income | $ | 1,649 | $ | 1,314 | ||||
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Number of shares used in per share calculations: | ||||||||
Total shares for purposes of calculating basic net income per share | 220 | 242 | ||||||
Weighted-average effect of dilutive securities: | ||||||||
Employee equity award plans | 4 | 3 | ||||||
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Total shares for purposes of calculating diluted net income per share | 224 | 245 | ||||||
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Net income per share | ||||||||
Basic | $ | 7.50 | $ | 5.43 | ||||
Diluted | 7.36 | 5.36 |
The potential shares from Employee equity award plans that were excluded from the computation of diluted net income per share as their effect would have been anti-dilutive were immaterial for fiscal years 2022 and 2021.
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.
Litigation
Lambeth Magnetic Structures LLC v. Seagate Technology (US) Holdings, Inc., et al. On 29 April 2016, Lambeth Magnetic Structures LLC filed a complaint against Seagate Technology (US) Holdings, Inc. and Seagate Technology LLC in the US District Court for the Western District of Pennsylvania, alleging infringement of US Patent No. 7,128,988, “Magnetic Material Structures, Devices and Methods”. The complaint seeks damages as well as additional relief. The Company believes the claims asserted in the complaint are without merit and intends to vigorously defend this case. The court issued its claim construction
ruling on 18 October 2017. The trial began on 4 April 2022. On 14 April 2022, the jury returned a verdict of non-infringement for Seagate finding that Seagate had not infringed any of the asserted claims. The district court entered judgement in favor of Seagate on 19 April 2022. The parties filed post-trial motions with the district court in May 2022.
Seagate Technology LLC, et al. v. NHK Spring Co. Ltd. and TDK Corporation, et al. On 18 February 2020, Seagate Technology LLC, Seagate Technology (Thailand) Ltd., Seagate Singapore International Headquarters Pte. Ltd., and Seagate Technology International (collectively, the “Seagate Entities”) filed a complaint in the United States District Court for the Northern District of California against defendant suppliers of HDD suspension assemblies. Defendants include NHK Spring Co. Ltd., TDK Corporation, Hutchinson Technology Inc., and several of their subsidiaries and affiliates. The complaint includes federal and state antitrust law claims, as well as a breach of contract claim. The complaint alleges that defendants and their co-conspirators knowingly conspired for more than twelve years not to compete in the supply of suspension assemblies; that defendants misused confidential information that the Seagate Entities had provided pursuant to nondisclosure agreements, in breach of their contractual obligations; and that the Seagate Entities paid artificially high prices on purchases of suspension assemblies. The Seagate Entities seek to recover the overcharges they paid for suspension assemblies, as well as additional relief permitted by law. On 22 March 2022, Defendants TDK Corporation, Hutchinson Technology Inc. and their subsidiaries and affiliates (collectively “TDK”) and the Seagate Entities entered into a commercial arrangement and release of claims (“TDK Agreement”) to fully resolve the global disputes between the Seagate Entities and TDK relating to the antitrust law claims, breach of contract claim, and other matters described in the complaint. On 1 April 2022, the Seagate Entities and TDK filed a Stipulation for Dismissal with Prejudice to dismiss with prejudice all claims against TDK.
Environmental Matters
The Company’s operations are subject to 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’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” 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 responsible or 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’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”) enacted the Restriction of the Use of Certain Hazardous Substances in Electrical and Electronic Equipment (2011/65/EU), 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, including in the US, Canada, Mexico, Taiwan, China, Japan and others. The EU REACH Directive (Registration, Evaluation, Authorization, and Restriction of Chemicals, EC 1907/2006) also restricts substances of very high concern in products. If the Company or its suppliers fails to comply with the substance restrictions, recycle requirements or other environmental requirements as they are enacted worldwide, it could have a materially adverse effect on the Company’s business.
Other Matters
The Company is involved in a number of other judicial, regulatory or administrative proceedings and investigations incidental to its business, and the Company may be involved in such proceedings and investigations 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
Unconditional Long-Term Purchase Obligations. As of 1 July 2022, the Company had unconditional long-term purchase obligations of approximately $3.0 billion, primarily related to purchases of inventory components. The Company expects the commitment to total $657 million, $589 million, $660 million, $745 million, and $393 million for fiscal years 2024, 2025, 2026, 2027 and thereafter, respectively.
Unconditional Long-Term Capital Expenditures. As of 1 July 2022, the Company had unconditional long-term commitment of approximately $140 million, primarily related to purchases of equipment. The Company expects the capital expenditures to total $132 million, $5 million and $3 million for fiscal years 2024, 2025 and 2026, respectively.
16. Business Segment and Geographic Information
The Company’s manufacturing operations are based on technology platforms that are used to produce various data storage and systems solutions that serve multiple applications and markets. The Company has determined that its Chief Operating Decision Maker, the Chief Executive Officer, evaluates performance of the Company and makes decisions regarding investments in the Company’s technology platforms and manufacturing infrastructure based on the Company’s consolidated results. As a result, the Company has concluded that its manufacture and distribution of storage solutions constitutes one reporting segment.
In fiscal years 2022 and 2021, one customer accounted for approximately 10% and 11% of consolidated revenue.
The following table summarizes the Company’s operations by country:
Fiscal Years Ended | ||||||||
(US Dollars in millions) | 1 July 2022 | 2 July 2021 | ||||||
Revenue from external customers(1): | ||||||||
Singapore | $ | 5,322 | $ | 5,180 | ||||
United States | 4,694 | 3,656 | ||||||
The Netherlands | 1,627 | 1,825 | ||||||
Other | 18 | 20 | ||||||
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Consolidated | $ | 11,661 | $ | 10,681 | ||||
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Long-lived assets: | ||||||||
Thailand | $ | 679 | $ | 682 | ||||
United States | 670 | 612 | ||||||
Singapore | 557 | 570 | ||||||
Other | 426 | 411 | ||||||
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Consolidated | $ | 2,332 | $ | 2,275 | ||||
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(1) Revenue is attributed to countries based on the bill from location.
17. Revenue
The following table provides information about disaggregated revenue by sales channel and geographical region for the Company’s single reportable segment:
Fiscal Years Ended | ||||||||
(US Dollars in millions) | 1 July 2022 | 2 July 2021 | ||||||
Revenue by Channel | ||||||||
OEMs | $ | 8,742 | $ | 7,403 | ||||
Distributors | 1,676 | 1,854 | ||||||
Retailers | 1,243 | 1,424 | ||||||
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Total | $ | 11,661 | $ | 10,681 | ||||
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Revenue by Geography(1) | ||||||||
Asia Pacific | $ | 5,340 | $ | 5,198 | ||||
Americas | 4,694 | 3,656 | ||||||
EMEA | 1,627 | 1,827 | ||||||
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Total | $ | 11,661 | $ | 10,681 | ||||
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(1) Revenue is attributed to countries based on the bill from location.
18. Post Balance Sheet Events
Dividend Declared
On 21 July 2022, the Company’s Board of Directors declared a quarterly cash dividend of $0.70 per share, which will be payable on 5 October 2022 to shareholders of record as of the close of business on 21 September 2022.
Credit Agreement
On 18 August 2022, Seagate Technology Holdings plc and Seagate HDD Cayman entered into an amendment to the Credit Agreement dated as of February 20, 2019. See “Note 4. Debentures and Bank Loans” for information regarding the amended credit agreement.
19. Employees and Remuneration
The average number of persons employed by the Company during each year was as follows:
Fiscal Years Ended | ||||||||||||||||
Fiscal Years Ended | ||||||||||||||||
30 June 2017 |
1 July 2016 | 1 July 2022 | 2 July 2021 | |||||||||||||
(in thousands) | (in thousands) | |||||||||||||||
Manufacturing | 34 | 38 | 33 | 33 | ||||||||||||
Product development | 6 | 6 | 4 | 4 | ||||||||||||
Sales, marketing, general & administrative | 3 | 4 | 3 | 3 | ||||||||||||
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43 | 48 | 40 | 40 | |||||||||||||
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Employee costs during each year consist of the following:
Fiscal Years Ended | Fiscal Years Ended | |||||||||||||||
30 June 2017 |
1 July 2016 | |||||||||||||||
(US Dollars in millions) | ||||||||||||||||
(US Dollars in millions) | 1 July 2022 | 2 July 2021 | ||||||||||||||
Salaries and wages | $ | 1,477 | $ | 1,458 | $ | 1,428 | $ | 1,413 | ||||||||
Social security costs(1) | 324 | 346 | ||||||||||||||
Social insurance costs | 114 | 123 | ||||||||||||||
Other employee benefits | 194 | 171 | ||||||||||||||
Share-based compensation | 137 | 120 | 145 | 112 | ||||||||||||
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$ | 1,938 | $ | 1,924 | $ | 1,881 | $ | 1,819 | |||||||||
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20. Auditor’s Remuneration
The fees paid to Ernst & Young Ireland in respect of the audit of the group accounts was $0.1were $0.17 million for both the yearsfiscal year ended 30 June 2017 and 1 July 2016.2022 and $0.14 million for fiscal year ended 2 July 2021. In addition, Ernst & Young Ireland received fees of $0.04$0.05 million and $0.09$0.54 million for other assurance services for fiscal years ended in 1 July 2022 and nil2 July 2021, respectively. Ernst & Young Ireland did not receive any fees for both tax andor othernon-audit services for both fiscal years ended 30 June 2017 andin 1 July 2016,2022 and 2 July 2021.
For fiscal year ended 1 July 2022, total auditor’s remuneration for Ernst & Young affiliates was $6.6 million, of which $6.0 million and $0.6 million were related to audit fees and audit-related fees, respectively.
Total For fiscal year ended 2 July 2021, total auditor’s remuneration was $5.9$7.1 million, of which $6.2 million and $6.2$0.9 million for the years ended 30 June 2017were related to audit fees and 1 July 2016,audit-related fees, respectively. These amounts reflect fees for all professional services rendered by Ernst & Young affiliates did not receive any fees for tax or other non-audit services in fiscal years ended in 1 July 2022 and its affiliated firms.2 July 2021.
Dividends21. Subsidiary Undertakings
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.
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 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 Mr. Brace agreed that the effective date of his departure will be 2 October 2017.
The subsidiary undertakings of Seagate Technology Holdings 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 Holdings plc and their financial results are included in the Company’s consolidated financial statements.
Company | Jurisdiction | Registered Address | Nature of Business | Percent Owned | ||||
Seagate Technology Unlimited Company |
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Holding Company | 100% | |||||||
Seagate HDD Cayman | Cayman Islands | c/o Maples Corporate Services Limited P. O. Box 309, Ugland House, South Church Street, George Town Grand Cayman KY1-1104, Cayman Islands | Holding Company | 100% | ||||
Seagate Technology (US) Holdings, Inc. | Delaware | The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, Delaware, 19801, USA | Holding Company | 100% |
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Seagate Technology International | Cayman Islands | c/o Maples Grand CaymanKY1-1104, Cayman Islands | 100% | |||||
Seagate Technology (Ireland) | Cayman Islands | c/o Maples Corporate Services Limited P. O. Box 309, Ugland House, South Church Street, George Town, Grand Cayman KY1-1104, Cayman Islands | Manufacture equipment for export | 100% | ||||
Penang Seagate Industries (M) Sdn. Bhd. | Malaysia | Tower, Janal Argyll, 10050 George Town, Pulau Pinang, Penang 10050, Malaysia | Manufacture, market and deal in all kinds of electronics data products. | 100% | ||||
Seagate Technology (Ireland) – Springtown Branch | c/o Maples Grand CaymanKY1-1104, Cayman Islands | 100% | ||||||
Seagate Singapore International Headquarters Pte. Ltd | ||||||||
Singapore | Singapore | Exports products manufactured in Asia | 100% |
Company | Jurisdiction | Registered Address | Nature of Business | Percent Owned | ||||
Seagate Technology International (Wuxi) Co. Ltd | China | No. 2, Second Xingchuang Road, Wuxi Export Processing Zone B, Wuxi, Jiangsu Province, Peoples Republic of China | Design, manufacture, service, market data storage products | 100% | ||||
Seagate Technology LLC | Delaware | The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, Delaware, 19801, USA | Dual member limited liability company – HDD operating business | 100% | ||||
Seagate Technology (Thailand) Limited | Thailand | 1627 Moo 7, Teparuk Road, Tambol Teparuk, Amphur Muang, Samutprakarn 10270, Thailand | Manufacturer of disk drives and related peripherals | 100% | ||||
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Seagate International (Johor) Sdn. Bhd | Malaysia | Kuala Lumpur 50450, Malaysia | Manufacturer of substrates | 100% | ||||
Seagate Cloud Systems, Inc. | Delaware | The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, Delaware, 19801, USA | 100% | |||||
Seagate | 1119 PA Schiphol-Rijk Netherlands | 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 HOLDINGS PLC
PARENT COMPANY STATEMENT OF COMPREHENSIVE INCOME
for the period ended 30 June 20171 July 2022
(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 | ||||
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Total comprehensive income for the period | $ | 645 | $ | 1,693 | ||||
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(US Dollars in millions) | 3 July 2021 to 1 July 2022 | 1 June 2020 to 2 July 2021 | ||||||
Loss for the period | $ | 7 | $ | 1 | ||||
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Total comprehensive loss for the period | $ | 7 | $ | 1 | ||||
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SEAGATE TECHNOLOGY HOLDINGS PLC
PARENT COMPANY STATEMENT OF FINANCIAL POSITION
at 30 June 20171 July 2022
(US Dollars in millions) | Note | 30 June 2017 | 1 July 2016 | Note | 1 July 2022 | 2 July 2021 | ||||||||||||||||||
ASSETS | ||||||||||||||||||||||||
Fixed assets: | ||||||||||||||||||||||||
Financial assets – investment in subsidiary | 3 | $ | 6,925 | $ | 6,792 |
| 3 |
| $ | 23,192 |
| $ | 23,146 |
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Current assets: | ||||||||||||||||||||||||
Debtors | — | 1 | ||||||||||||||||||||||
Debtors, principally amounts owed by group subsidiaries |
| 111 |
|
| 12 |
| ||||||||||||||||||
Cash | 3 | 1 |
| — |
|
| — |
| ||||||||||||||||
|
|
|
| |||||||||||||||||||||
Total Assets | $ | 6,928 | $ | 6,794 | $ | 23,303 | $ | 23,158 | ||||||||||||||||
|
|
|
| |||||||||||||||||||||
LIABILITIES | ||||||||||||||||||||||||
LIABILITIES AND EQUITY | ||||||||||||||||||||||||
Capital and reserves: | ||||||||||||||||||||||||
Share capital | 5 | $ | — | $ | — |
| 4 |
| $ | — |
| $ | — |
| ||||||||||
Share premium | 1,745 | 1,659 |
| 4 |
|
| 68 |
|
| 23,000 |
| |||||||||||||
Other reserves | 728 | 593 |
| 4 |
|
| 307 |
|
| 158 |
| |||||||||||||
Profit and loss account | 1,591 | 2,178 |
| 20,531 |
|
| (1) |
| ||||||||||||||||
|
|
|
| |||||||||||||||||||||
4,064 | 4,430 |
| 20,906 |
|
| 23,157 |
| |||||||||||||||||
Creditors – Amounts falling due within one year: | ||||||||||||||||||||||||
Amounts due to subsidiaries | 4 | 2,680 | 2,364 |
| 2,238 |
|
| 1 |
| |||||||||||||||
Creditors | 184 | — |
| 159 |
|
| — |
| ||||||||||||||||
|
|
|
| |||||||||||||||||||||
2,864 | 2,364 |
| 2,397 |
|
| 1 |
| |||||||||||||||||
|
|
|
| |||||||||||||||||||||
Total Liabilities | $ | 6,928 | $ | 6,794 | ||||||||||||||||||||
Total Liabilities and Equity | $ | 23,303 |
| $ | 23,158 |
| ||||||||||||||||||
|
|
|
|
The Company’s loss for the year amounted to $7 million (fiscal period 2021: $1 million).
Approved by the Board of Directors and signed on its behalf on 2522 August 20172022.
|
| |||
|
|
SEAGATE TECHNOLOGY HOLDINGS PLC
PARENT COMPANY STATEMENT OF CHANGES IN EQUITY
as at 30 June 20171 July 2022
(US Dollars in millions) | Share Capital | Share Premium | Other Reserves | Profit and Loss Account | Total | Share Capital
| Share Premium
| Merger Reserve
| Other Reserves
|
Profit and Account
| Total
| |||||||||||||||||||||||||||||||||
Balance at 3 July 2015 | $ | — | $ | 1,580 | $ | 477 | $ | 2,358 | $ | 4,415 | ||||||||||||||||||||||||||||||||||
Profit for the period | 1,693 | 1,693 | ||||||||||||||||||||||||||||||||||||||||||
Balance at 31 May 2020 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||||||||||||||||||||||
Loss for the period | — | — | — | — |
| (1) |
|
| (1) |
| ||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||||
Total comprehensive income | — | 1,580 | 477 | 4,051 | 6,108 | |||||||||||||||||||||||||||||||||||||||
Total comprehensive loss for the period |
| — |
|
| — |
| — |
| — |
|
| (1) |
|
| (1) |
| ||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||||
Transactions with owners recorded directly in equity: | ||||||||||||||||||||||||||||||||||||||||||||
Issuance of shares in exchange for the shares of Seagate Technology Unlimited Company (227,340,817 shares issued at $0.00001 par value) |
| — |
|
| — |
|
| 23,000 |
|
| — |
|
| — |
|
| 23,000 |
| ||||||||||||||||||||||||||
Capitalization of merger reserve |
| 23,000 |
|
| (23,000) |
|
| — |
| |||||||||||||||||||||||||||||||||||
Assumption of share-based payment plans |
| — |
|
| — |
|
| — |
|
| 141 |
|
| — |
|
| 141 |
| ||||||||||||||||||||||||||
Share-based compensation |
| — |
|
| — |
|
| — |
|
| 17 |
|
| — |
|
| 17 |
| ||||||||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||||
Total transactions with owners | — | 23,000 | — | 158 | — | 23,158 | ||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||||
Balance at 2 July 2021 | $ | — | $ | 23,000 | $ | — | $ | 158 | $ | (1) | $ | 23,157 | ||||||||||||||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||||
Loss for the period | — | — | — | — |
| (7) |
|
| (7) |
| ||||||||||||||||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||||
Total comprehensive loss for the period |
| — |
|
| — |
|
| — |
|
| — |
|
| (7) |
|
| (7) |
| ||||||||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||||
Transactions with owners recorded directly in equity: | ||||||||||||||||||||||||||||||||||||||||||||
Share premium reduction |
| — |
|
| (23,000) |
|
| — |
|
| — |
|
| 23,000 |
|
| — |
| ||||||||||||||||||||||||||
Repurchase and cancellation of ordinary shares | — | — | — | (1,090) | (1,090) |
| — |
|
| — |
|
| — |
|
| — |
|
| (1,806) |
|
| (1,806) |
| |||||||||||||||||||||
Tax withholding related to vesting of restricted stock units | — | — | — | (56) | (56) | |||||||||||||||||||||||||||||||||||||||
Tax withholding related to vesting of restricted share units |
| — |
|
| — |
|
| — |
|
| — |
|
| (51) |
|
| (51) |
| ||||||||||||||||||||||||||
Issuance of shares in respect of share-based payment plans | — | 79 | — | — | 79 |
| — |
|
| 68 |
|
| — |
|
| — |
|
| — |
|
| 68 |
| |||||||||||||||||||||
Dividends to shareholders | — | — | — | (727) | (727) |
| — |
|
| — |
|
| — |
|
| — |
|
| (604) |
|
| (604) |
| |||||||||||||||||||||
Share-based compensation | — | — | 116 | — | 116 |
| — |
|
| — |
|
| — |
|
| 149 |
|
| — |
|
| 149 |
| |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||||
Total transactions with owners | — | 79 | 116 | (1,873) | (1,678) | — | (22,932) | — | 149 | 20,539 | (2,244) | |||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||||
Balance at 1 July 2016 | $ | — | $ | 1,659 | $ | 593 | $ | 2,178 | $ | 4,430 | ||||||||||||||||||||||||||||||||||
Profit for the period | 645 | 645 | ||||||||||||||||||||||||||||||||||||||||||
Balance at 1 July 2022 | $ | — | $ | 68 | $ | — | $ | 307 | $ | 20,531 | $ | 20,906 | ||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||||
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 | ||||||||||||||||||||||||||||||||||
|
|
|
|
|
SEAGATE TECHNOLOGY HOLDINGS PLC
NOTES TO THE PARENT COMPANY FINANCIAL STATEMENTS
1. Accounting Policies
Accounting Convention and Basis of Preparation of Financial StatementsStatements. . The financial statements of Seagate Technology
Holdings 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.significant accounting policies. The financial statements have been prepared under the historical cost convention except for share basedshare-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 UK and Republic of 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’s functional and presentational currency and are rounded to the nearest million.
In the prior period, the Company changed its presentational and functional currency from Euro to US dollars.
In the prior period, the Company changed its financial year end to 2 July 2021, to align to the Seagate Technology Holdings plc group. Comparative values presented in the financial statements are therefore not directly comparable.
Reduced Disclosure Framework Exemptions AdoptedAdopted.. In accordance towith 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,group, Seagate Technology Holdings plc, which consolidates the results of the Company: 1) The requirements of Section 7 Statement of Cash Flows paragraph 3.17 (d);3.17; 2) requirements of Section 33 Related Party Disclosures paragraph 33.7 and 3) Section 26 Share based payment paragraph 26.18 (b), 26.19 to 26.21 and 26.23.
In accordance with Sections 304 (1) and 304 (2) of the Companies Act 2014, the Company is availing of the exemption from presenting the individual profit and loss account. For fiscal years 2017 and 2016,year 2022, the Company’s net profitloss was $645 million and $1,693 million, respectively.$7 million.
Related Party Transactions. The Company has availed itself of the exemption provided in FRS 102, Related Party Disclosures, which exempts disclosure 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.
Investment in Subsidiary.The Company’s investment in Seagate Technology (“Seagate-Cayman”)Unlimited Company (formerly known as Seagate Technology plc), a wholly owned subsidiary, was recorded at cost which equaled fair value on 3 July 2010,18 May 2021, the date that the Company became the parent of Seagate-Cayman,Seagate Technology Unlimited Company, based on the Company’s market capitalization at that time. This initial valuation is the Company’s cost basis for its investment in Seagate-Cayman.Seagate Technology Unlimited Company. The investment is tested for impairment if circumstances or indicators suggest that impairment may exist.
Amounts due to subsidiaries.subsidiaries. Intercompany notes payable which are basic financial instrumentsrepayable on demand and hence 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.transaction price.
Guarantees andand 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.
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 accountstatement of comprehensive income is charged with the expense related to the services received by Seagate Technology Holdings 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 to the extent that it is probable that they will be recovered against the reversal of deferred tax liabilities or other future taxable profits.
Foreign Currency.Transactions denominated in foreign currencies are recorded in the Company’s functional currency by applying the spot rate as at the date of the transaction. 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 are taken to the Statement of Comprehensive Income.
Judgments and key sources of estimation uncertainty. Preparation of the financial statements requires management to make significant judgments and estimates. The following judgments and estimates have the most significant effect on the amounts included in the financial statement. Financial Assets: Investments in subsidiaries, are stated at cost less any accumulated impairment and are reviewed for impairment if there are indicators that the carrying value may not be recoverable. Impairment assessment is considered as part of the group’s overall impairment assessment.
Impact of the COVID-19 Pandemic. The pandemic has resulted in a widespread health crisis and numerous disease control measures being taken to limit its spread; the effects of such measures were not material to the results of the periods ended 1 July 2022 and 2 July 2021. The Company did not incur significant disruptions during the period ended 1 July 2022 and is continuing to actively monitor the impacts and potential impacts of the pandemic on all aspects of its business, liquidity and capital resources.
2. History and Description of the Company
The Company was originally formed as a private company (initially named Sesamerow Limited and then renamed Seagate Technology Holdings Limited) and was later converted to a public company under Section 1291 of the Companies Act 2014, for the purposes of facilitating the acquisition of all the shares of Seagate Technology plc, an Irish company whose shares were listed on the NASDAQ Global Select Market (“NASDAQ”).
On 18 May 2021, Seagate Technology plc received approval from the Irish High Court (“Irish Court”) of a scheme of arrangement under Irish law (the “Scheme of Arrangement”) that, effective as of the Scheme Effective Time (as defined below) effected a transaction (the “Transaction”) that resulted in the ordinary shareholders of Seagate Technology plc becoming ordinary shareholders of Seagate Technology Holdings plc. The court order sanctioning the Scheme of Arrangement was filed by Seagate with the Registrar of Companies in Dublin, Ireland after market close on 18 May 2021 (“Scheme Effective Time”) and the Scheme of Arrangement became effective at that time.
At the Scheme Effective Time, the following steps occurred effectively simultaneously:
All issued and outstanding ordinary shares of Seagate Technology plc were acquired by Seagate Technology Holdings plc and Seagate Technology plc became the parent company in thea wholly-owned direct subsidiary of Seagate Technology group followingHoldings plc; and
Seagate Technology Holdings plc allotted and issued new ordinary shares of Seagate Technology Holdings plc (the “Holdings Ordinary Shares”) on a reorganizationone-for-one basis to the shareholders of Seagate Technology plc for each Seagate Technology plc ordinary share that took place in 2010.had been transferred to Seagate Technology Holdings plc.
Subsequent to the Scheme of Arrangement, shares of Seagate Technology Holdings plc began trading on NASDAQ under the symbol “STX” on 19 May 2021.
On 5 July 2021, Seagate Technology plc was re-registered as Seagate Technology Unlimited Company.
The principal activity of Seagate Technology Holdings plc is an investment holding company. Seagate Technology Holdings plc is the parent company of subsidiaries that design, manufacture, market and sell data storage products. The company had four employees as of 1 July 2022, and no employees in the prior period.
The Company, whichCompany’s registration number is publicly listed, was incorporated in Ireland606203 and itsit is registered address isat 38/39 Fitzwilliam Square, Dublin 2, Ireland.Ireland D02 NX53.
3. Financial Assets – Investment in Subsidiary
(US Dollars in millions) | Amount | |||
At | $ | |||
Investment in Seagate Technology plc as part of the Scheme of Arrangement | 23,000 | |||
Additions due to assumption of share-based payment plans | 141 | |||
Capital contribution in respect of share-based payment plans | ||||
Share-based compensation charge recharged to subsidiaries | (11) | |||
|
| |||
At | $ | |||
Capital contribution in respect of share-based payment plans | ||||
Share-based compensation charge recharged to subsidiaries | (100) | |||
|
| |||
At | $ | | ||
|
|
Additions due to the assumption of share-based payment plans relates to the assumption of Seagate Technology Unlimited Company’s share based long-term equity incentive plans. On 19 May 2021, the Company assumed the plans previously administered by Seagate Technology Unlimited Company and Seagate Technology Unlimited Company’s obligation to issue shares. As of 19 May 2021, the expense recognized to date related to a) restricted stock awards not yet fully vested, b) options not fully vested, and c) options fully vested but not exercised was recognized as additional investments in subsidiaries.
At 30 June 2017,1 July 2022, the Company had the following subsidiary:
Company name | Registered office | Nature of business | ||||
Seagate Technology Unlimited Company (formerly known as Seagate Technology plc) | 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 with no stated interest rate and that are payable on demand. During fiscal year 2017, the Company borrowed $964 million and repaid $650 million by way of applying dividends declared by Seagate-Cayman. The remaining balance outstanding as of 30 June
2017 of $2.7 billion is unsecured, interest free and due 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
(US Dollars in millions) | ||||||||
Authorized: | ||||||||
40,000 deferred shares of | $ | — | $ | — | ||||
1,250,000,000 ordinary shares of | — | — | ||||||
100,000,000 undesignated preferred shares of | ||||||||
| ||||||||
| ||||||||
| — | — | ||||||
|
|
|
| |||||
$ | — | $ | — | |||||
|
|
|
|
(US Dollars in millions) | ||||||||||||
Allotted, Called Up, and Fully Paid: | ||||||||||||
| — | |||||||||||
| — | |||||||||||
| ||||||||||||
| — | |||||||||||
|
|
|
| |||||||||
$ | — | $ | — | |||||||||
|
During the fiscal period 2021 the Company issued 39,994 deferred ordinary shares for €39,994. The deferred shares are non-voting shares with no right to a dividend and conferring the right on a return of capital only to repayment of the nominal amount paid up on them, such shares being “non-equity shares” for the purposes of section 72 of the Companies Act 2014.
As at 1 July 2022, 209,850,169 ordinary shares of $0.00001 par value were outstanding. During the fiscal period 2021 the Company issued 227,340,817 ordinary shares of $0.00001 par value per share in connection with the Transaction. As of 2 July 2021, 227,382,980 ordinary shares of $0.00001 par value were outstanding. During the fiscal period 2021, the 100 ordinary shares of €1 par value, which were issued and outstanding at 31 May 2020, were cancelled.
On 19 May 2021 the Company issued 1 preference share at a premium of $23.0 billion, by way of a bonus issue, thereby capitalizing the merger reserve. This share was subsequently cancelled.
Number of Ordinary Shares | Share Capital | |||||||
(In millions) | (US Dollars in millions) | |||||||
Balance at 31 May 2020 | — | $ | — | |||||
Issuance of shares in exchange for the shares of Seagate Technology plc | 227 | — | ||||||
Repurchase and cancellation of ordinary shares | — | — | ||||||
Tax withholding related to vesting of restricted share units | — | — | ||||||
Issuance of ordinary shares in respect of share-based payment plans | — | — | ||||||
Balance at 2 July 2021 | 227 | $ | — | |||||
Repurchase and cancellation of ordinary shares | — | |||||||
Tax withholding related to vesting of restricted | (1) | — | ||||||
Issuance of ordinary shares in respect of share-based payment plans | — | |||||||
|
|
|
| |||||
Balance at | $ | — | ||||||
|
|
|
|
“Note 10. Capital and Reserves” to the consolidated financial statements provides additional information regarding repurchase and cancellation of ordinary shares.
Share Premium
This reserve records the amount above the nominal value received for shares sold, less transaction costs. On 14 May 2021, the Company’s shareholders approved a reduction of the Company’s share premium account to create distributable reserves. On 2 June 2021, the Company filed a petition with the High Court of Ireland to approve the creation of distributable reserves through the reduction of the share premium account by approximately $23.0 billion. The High Court of Ireland approved the petition on 15 July 2021.
OtherMerger Reserves
Other reserves include an amountThis reserve records the excess of $3,090the fair value of Seagate Technology plc and $2,960 for fiscal years 2017 and 2016, respectively, representing a Capital Redemption Reserve Fund.
Dividends
During fiscal year 2017,its subsidiaries above the nominal value of shares issued by the Company paid cash dividendsin connection with the Scheme of $2.52 per share of its ordinary shares, aggregating $561 million. On 25 July 2017,Arrangement in exchange for 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 $2.43 per share of its ordinary shares, aggregating $727 million.
6.5. Share-Based Payments
Total share-based payment expense in respect of share-based payment plans was $135$149 million and $116$17 million for fiscal years 2017ended 1 July 2022 and 2016, of which $1332 July 2021, respectively, with $146 million and $115$16 million respectively, was included as a capital contribution in Investment in subsidiary (Note 3).“Note 3. Financial Assets – Investment in Subsidiary” for fiscal years ended 1 July 2022 and 2 July 2021, respectively. The share-based payment charge in the parent company balance sheetfinancial statements is calculated and recognized on a
graded basis as opposed to a straight line basis in the Consolidated Profit and Loss Account.consolidated financial statements. The Company has applied the requirements of Section 26 of FRS 102. Note 11“Note 11. Share-based Compensation” of the Consolidated Financial Statementsconsolidated financial statements contains relevant disclosures on the Company’s share-based payment plans.
7.6. Auditor’s Remuneration
The fees paid to Ernst & Young Ireland in respect of the audit of the Company individual accounts waswere $0.05 million for fiscal year ended 1 July 2022 and $0.04 million and $0.03 million for periodsfiscal year ended 30 June 2017 and 12 July 2016, respectively.2021. In addition, Ernst & Young Ireland received fees of $0.12$0.17 million and $0.17$0.64 million for other assurance services in those periods, respectively. Ernst & Young Ireland did not receive any fees for tax or othernon-audit services in 20172022 or 2016. Note 182021. “Note 21. Subsidiary Undertakings” to the Consolidated Financial Statementsconsolidated financial statements provides additional information regarding auditor’s remuneration.
7. Directors’ Emoluments
Director’s emoluments and interests are presented on page A-50 and page A-100 of this Annual Report.
8. SubsequentPost Balance Sheet Events
DividendsDividend Declared
On 2521 July 2017,2022, the Company’s Board of Directors declared a quarterly cash dividend of $0.63$0.70 per share, which will be payable on 45 October 20172022 to shareholders of record as of the close of business on 2021 September 2017.2022.
July 2017 Restructuring PlanCredit Agreement
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 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 2017,18 August 2022, the Company and Mr. Brace agreedSeagate HDD Cayman (the “Borrower”) entered into an amendment to the Credit Agreement (the “Sixth Amendment”), which provides for a new term loan facility in the aggregate principal amount of $600 million (“Term Loan A3”). The Term Loan A3 was borrowed in full at the closing of the Sixth Amendment. The Term Loan A3 bears interest at Secured Overnight Financing Rate (“SOFR”) plus a variable margin of 1.25% to 2.50%, in each case with such margin being determined based on the corporate credit rating of the Borrower or one of its parent entities. The Term Loan A3 is repayable in quarterly installments beginning on 31 December 2022 and is scheduled to mature on 30 July 2027.
The Sixth Amendment to the Credit Agreement also replaced the LIBOR interest rates plus variable margin of Term Loan A1 and Term Loan A2 with the SOFR interest rates plus a variable margin that the effective date of his departure will be 2 October 2017.determined based on the corporate credit rating of the Borrower or one of its parent entities. The Sixth Amendment also permits the Borrower to increase the revolving loan commitments or obtain new term loans of up to $100 million in aggregate, subject to the satisfaction of certain terms and conditions.
9. Approval of Financial Statements
The directors approved the financial statements and authorized them for issue on 2522 August 2017.2022.
Appendix B
SEAGATE TECHNOLOGY PUBLIC LIMITED COMPANY
AMENDED AND RESTATED EMPLOYEE STOCK PURCHASE PLAN
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.
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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.
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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.
4.1 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.
5.1 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.
6.1 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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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.
8.1 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.
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.
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.
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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12.1 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.
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.
14.1 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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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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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.
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.
17.1 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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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.
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.
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.
This Plan shall be governed by applicable laws of the State of California, without regard to such state’s conflict of laws rules.
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.
B-18
(ESPP –JanuaryJuly 2017)
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.
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.
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.
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.
26.1Code 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.
B-20
(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
APPENDIX C
SUBPLAN UNDER THE SEAGATE TECHNOLOGY PUBLIC LIMITED COMPANY EMPLOYEE STOCK PURCHASE PLAN FOR CERTAIN EMPLOYEES OUTSIDE OF THE UNITED STATES
SEAGATE TECHNOLOGYHOLDINGS PLC
38/39 FITZWILLIAM SQUARE
DUBLIN 2, D02 NX53, IRELAND
SCAN TO VIEW MATERIALS & VOTE w VOTE BY INTERNET -INTERNET—www.proxyvote.com
or scan the QR Barcode above Use the Internet to transmit your voting instructions and for electronic delivery of information up until 6:59 PMp.m. Eastern Daylight Time (11:59 p.m. Irish Standard Time) on October 17, 2017.23, 2022. Have your proxy card in hand when you access the web sitewebsite and follow the instructions to obtain your records and to create an electronic voting instruction form.
ELECTRONIC DELIVERY OF FUTURE PROXY MATERIALS
If you would like to reduce the costs incurred by our company in mailing proxy materials, you can consent to receiving all future proxy statements, proxy cards and annual reports electronically via e-mail or the Internet. To sign up for electronic delivery, please follow the instructions above to vote using the Internet and, when prompted, indicate that you agree to receive or access proxy materials including notices of shareholder meetings, electronically in future years.
SUBMIT YOUR PROXY VOTE BY PHONE - PHONE—1-800-690-6903
Use any touch-tone telephone to transmit your voting instructions up until 6:59 PMp.m. Eastern Daylight Time (11:59 p.m. Irish Standard Time) on October 17, 2017.23, 2022. Have your proxy card in hand when you call and then follow the instructions.
VOTE BY MAIL
Mark, sign and date your proxy card and return it in the postage-paid envelope we have provided or return it to Vote Processing, c/o Broadridge, 51 Mercedes Way, Edgewood, NY 11717, which11717. The proxy card must be received by 6:59 p.m. Eastern Daylight Time (11:59 p.m. Irish Standard Time) on October 17, 2017.
23, 2022. TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS:
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D90424-P76961 KEEP THIS PORTION FOR YOUR RECORDS 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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1c.
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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 | |||||||||||||||||||||
3. |
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. | ||||||||||||||||||||||||||||||
DETACH AND RETURN THIS PORTION ONLY Seagate Technology Holdings 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/her. Completion of a form of proxy will not preclude a member from attending and voting at the meeting in person at the InterContinental Hotel, Simmonscourt Road, Dublin 4, D04 A9K8, Ireland. THE BOARD OF DIRECTORS RECOMMEND YOU VOTE FOR EACH OF THE NOMINEES LISTED IN PROPOSAL 1 AND FOR PROPOSALS 2, 3 AND 4. 1. Election of Directors For Against Abstain Nominees: 1a. Shankar Arumugavelu ! ! ! 1b. Prat S. Bhatt ! ! ! 1c. Judy Bruner ! ! ! 1d. Michael R. Cannon ! ! ! 1e. Richard L. Clemmer ! ! ! 1f. Yolanda L. Conyers ! ! ! 1g. Jay L. Geldmacher ! ! ! 1h. Dylan Haggart ! ! ! 1i. William D. Mosley ! ! ! For Against Abstain 1j. Stephanie Tilenius ! ! ! 1k. Edward J. Zander ! ! ! 2. Approve, in an Advisory, Non-binding Vote, the Compensation of ! ! ! the Company’s Named Executive Officers (“Say-on-Pay”). 3. A Non-binding Ratification of the Appointment of Ernst & Young LLP ! ! ! as the Independent Auditors for the Fiscal Year Ending June 30, 2023 and Binding Authorization of the Audit and Finance Committee to Set Auditors’ Remuneration. 4. Determine the Price Range for the Re-allotment of Treasury Shares. ! ! ! 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. This proxy card when properly executed will be voted as directed herein for the undersigned shareholder. Where this proxy card is properly executed and returned and no such direction is made, this proxy will be voted FOR the proposals. 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. It will however be counted towards the determination of a quorum at the Annual General Meeting. 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. 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:
The Notice, and Proxy Statement, Form 10-Kand Form 10-KIrish Statutory Financial Statements are available at www.proxyvote.com. SEAGATE TECHNOLOGY HOLDINGS PLC Annual General Meeting of Shareholders October 24, 2022 at 5:00 PM Irish Standard Time This proxy is solicited by the Board of Directors The shareholder(s) hereby appoint(s) Michael R. Cannon and Katherine E. Schuelke, or each of them, as proxies, each with full power to appoint his or her substitute, and hereby authorize(s) them to represent and to vote, as designated on the reverse side of this ballot, all of the ordinary shares of Seagate Technology Holdings plc that the shareholder(s) is/are entitled to vote at the Annual General Meeting of Shareholders duly convened in accordance with the Company’s constitution, to be held at the InterContinental Hotel, Simmonscourt Road, Dublin 4, D04 A9K8, Ireland, and at any adjournment or postponement thereof, upon the matters described in the Notice of Annual General Meeting of Seagate Technology Holdings plc and the accompanying Proxy Statement. The undersigned hereby further authorize(s) such proxies to vote the undersigned’s shares in their discretion upon such other matters as may properly come before such Annual General Meeting and at any adjournment or postponement thereof. THIS PROXY, WHEN PROPERLY EXECUTED AND DELIVERED, WILL BE VOTED AS DIRECTED BY THE UNDERSIGNED SHAREHOLDER. IF THIS PROXY IS DULY EXECUTED AND RETURNED, BUT NO VOTING DIRECTIONS ARE GIVEN HEREIN, THEN THIS PROXY WILL BE VOTED “FOR” THE ELECTION OF EACH OF THE NOMINEES FOR DIRECTOR NAMED IN PROPOSAL 1, AND “FOR” PROPOSALS 2, 3 AND 4, AND IN THE DISCRETION OF THE PROXIES UPON SUCH OTHER MATTERS AS MAY PROPERLY COME BEFORE THE 2022 ANNUAL GENERAL MEETING OF SHAREHOLDERS. PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY USING THE ENCLOSED REPLY ENVELOPE. The signer hereby acknowledge(s) receipt of the Notice of the 2022 Annual General Meeting of Shareholders and accompanying Proxy Statement. Continued and to be signed on reverse side
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E31921-P96669
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