The information as of June 29, 2018 was derived from the Companys audited Consolidated Balance
Sheet as of June 29, 2018.
NOTES T
O CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1.
|
Basis of Presentation and Summary of Significant Accounting Policies
|
Organization
Seagate Technology plc (the
Company) is a leading provider of data storage technology and solutions. Its principal products are hard disk drives, commonly referred to as disk drives, hard drives or HDDs. In addition to HDDs, the Company produces a broad range of
data storage products including solid state drives (SSDs) and storage subsystems.
Hard disk drives are devices that
store digitally encoded data on rapidly rotating disks with magnetic surfaces. Disk drives continue to be the primary medium of mass data storage due to their performance attributes, high quality and cost effectiveness. Complementing existing data
center storage architecture, solid-state storage devices use integrated circuit assemblies as memory to store data, and most SSDs use NAND flash memory.
The Companys HDD products are designed for mission critical and nearline applications in enterprise servers and storage systems;
edge compute applications, where its products are designed primarily for desktop and mobile computing; and edge
non-compute
applications, where its products are designed for a wide variety of end user devices
such as portable external storage systems, surveillance systems, digital video recorders (DVRs), network-attached storage (NAS), and gaming consoles. The Companys SSD products mainly include serial attached SCSI
(SAS) and
Non-Volatile
Memory Express (NVMe) SSDs.
The
Companys enterprise data solutions (formerly referred to as the cloud systems and solutions) portfolio includes modular original equipment manufacturers (OEM) storage systems
and scale-out storage
servers.
Basis of Presentation and Consolidation
The Companys unaudited condensed consolidated financial statements include the accounts of the Company and all its wholly-owned and
majority-owned subsidiaries, after elimination of intercompany transactions and balances.
The preparation of financial statements in
accordance with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the Companys condensed consolidated financial statements and accompanying notes. Actual
results could differ materially from those estimates. The methods, estimates and judgments the Company uses in applying its most critical accounting policies have a significant impact on the results the Company reports in its condensed consolidated
financial statements. The condensed consolidated financial statements reflect, in the opinion of management, all material adjustments necessary to present fairly the condensed consolidated financial position, results of operations, comprehensive
income, cash flows and shareholders equity for the periods presented. Such adjustments are of a normal and recurring nature.
The Companys consolidated financial statements for the fiscal year ended June 29, 2018, are included in its Annual Report on
Form 10-K,
as filed with the United States Securities and Exchange Commission (SEC) on August 3, 2018. The Company believes that the disclosures included in the unaudited condensed consolidated
financial statements, when read in conjunction with its consolidated financial statements as of June 29, 2018, and the notes thereto, are adequate to make the information presented not misleading.
The results of operations for the three and nine months ended March 29, 2019 are not necessarily indicative of the results of
operations to be expected for any subsequent interim period or for the Companys fiscal year ending June 28, 2019. The Company operates and reports financial results on a fiscal year of 52 or 53 weeks ending on the Friday closest to
June 30. Both the three and nine months ended March 29, 2019 and March 30, 2018 consisted of 13 weeks and 39 weeks, respectively. Fiscal year 2019, which ends on June 28, 2019, and fiscal year 2018, which ended on June 29,
2018, are both comprised of 52 weeks. The fiscal quarters ended March 29, 2019, December 28, 2018, September 28, 2018, and March 30, 2018, are also referred to herein as the March 2019 quarter, the December 2018
quarter, the September 2018 quarter and the March 2018 quarter, respectively.
10
Summary of Significant Accounting Policies
Except for the change in the Companys revenue recognition policy described below, there have been no material changes to the
Companys significant accounting policies disclosed in Note 1 - Basis of Presentation and Summary of Significant Accounting Policies of Financial Statements and Supplementary Data contained in Part II, Item 8 of the Companys
Annual Report on
Form 10-K
for the fiscal year ended June 29, 2018, as filed with the SEC on August 3, 2018.
Revenue Recognition
Effective June 30,
2018, the Company adopted a new revenue recognition policy in accordance with Accounting Standard Codification (ASC) 606,
Revenue from Contracts with Customers
, using the modified retrospective transition approach as discussed in
the section titled
Recently Adopted Accounting Pronouncements
in this Note 1. Prior to fiscal year 2019, the revenue recognition policy was based on ASC 605,
Revenue Recognition
. Under ASC 606, the Company determines revenue
recognition through the following steps: (1) identification of the contract with 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 is generally recognized upon transfer of control to customers in an amount that reflects the consideration
the Company expects to receive in exchange for those products, net of sales taxes. This typically occurs upon shipment from the Company. When applicable, the Company includes shipping charges billed to customers in Revenue and includes the related
shipping costs in Cost of revenue on the Companys Condensed Consolidated Statements of Operations.
The Company records
estimated variable consideration at the time of revenue recognition as a reduction to net revenue. Variable consideration generally consists of sales incentive programs, such as price protection and volume incentives aimed at increasing customer
demand. For OEM sales, rebates are typically established by estimating the most likely amount of consideration expected to be received based on an OEM customers volume of purchases from Seagate or other agreed upon rebate programs. For the
distribution and retailing channel, these sales incentive programs typically involve estimating the most likely amount of rebates related to a customers level of sales, order size, advertising or point of sale activity as well as the expected
value of price protection adjustments based on historical analysis and forecasted pricing environment. Marketing development program costs are accrued and recorded as a reduction to revenue at the same time that the related revenue is recognized.
The Company elected a practical expedient to expense sales commissions when the commissions are incurred because the amortization
period would have been one year or less. These costs are recorded as Marketing and administrative on the Companys Condensed Consolidated Statements of Operations.
Recently Issued Accounting Pronouncements
In
February 2016 and July 2018, the Financial Accounting Standards Board (FASB) issued Accounting Standard Update
(ASU) 2016-02 (ASC
Topic 842),
Leases
ASU
2018-10,
Codification Improvements to Topic 842
, and
Leases
, ASU
2018-11,
Leases (ASC Topic 842), Target Improvements
, respectively. These ASUs amend 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
a right-of-use
asset and corresponding lease liability, measured at the present value of the lease payments. The Company plans to adopt this guidance in the first
quarter of fiscal year 2020. The Company is in the process of assessing the impact of these ASUs on its condensed consolidated financial statements.
In June 2016, the FASB issued
ASU 2016-13 (ASC
Topic 326),
Financial
Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments
. This ASU amends the requirement on the measurement and recognition of expected credit losses for financial assets held. The Company is required to adopt this
guidance in the first quarter of fiscal year 2021. Early adoption is permitted in the first quarter of fiscal year 2020. The Company is in the process of assessing the impact of this ASU on its condensed consolidated financial statements.
11
In February 2018, the FASB issued ASU
2018-02
(ASC Topic 220),
Income StatementReporting Comprehensive Income: Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income.
This ASU was issued following the enactment of the U.S. Tax Cuts and Jobs Act of
2017 (the Tax Act) and permits entities to elect a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Act. The Company is required to adopt this guidance in
the first quarter of fiscal year 2020. Early adoption is permitted. The Company is in the process of assessing the impact of this ASU on its condensed consolidated financial statements.
In August 2018, the FASB issued ASU
2018-15
(ASC Subtopic
350-40),
Intangibles - Goodwill and Other -
Internal-Use
Software - Customers Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement
That is a Service Contract
. This ASU aligns the accounting for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the accounting for implementation costs incurred to develop or obtain
internal-use
software. The Company is required to adopt the guidance in the first quarter of fiscal year 2021. Early adoption is permitted. The Company is in the process of assessing the impact of this ASU on its
condensed consolidated financial statements.
Recently Adopted Accounting Pronouncements
In May 2014, the FASB issued ASU
2014-09
(ASC Topic 606),
Revenue from Contracts with
Customers
, and FASB also issued certain interpretive clarifications on this new guidance which outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes the revenue
recognition guidance under ASC 605. 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. This ASU became effective and was adopted by the Company in the September 2018 quarter retrospectively with a cumulative adjustment to accumulated deficit at the date of adoption (modified retrospective
transition approach). The Company has completed the adoption and implemented policies, processes and controls to support the new standards measurement and disclosure requirements.
The Company applied the ASC 606 using a modified retrospective transition approach to all contracts that were not completed as of
June 29, 2018. Results for reporting periods beginning June 30, 2018 are presented under ASC 606, while prior period amounts were not adjusted and continue to be reported under the historical accounting standard. As a result of the
adoption, the Company identified a change in revenue recognition timing on its product sales made to certain retail customers and started to recognize revenue when the Company transfers control to the applicable customers rather than deferring
recognition until those customers sell the products. In addition, the Company established accruals for the variable consideration related to customer incentives on these arrangements. On the date of initial adoption, the Company removed the related
deferred income on the product sales made to these customers and recorded estimates of the accrual for variable consideration through a cumulative adjustment to accumulated deficit. The cumulative effect of the change to the Companys Condensed
Consolidated Balance Sheet from the adoption of ASC 606 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in millions)
|
|
As of June 29,
2018
|
|
|
Effect of
adoption of
ASC 606
|
|
|
As of June 30,
2018
|
|
Accounts receivable, net
|
|
$
|
1,184
|
|
|
$
|
9
|
|
|
$
|
1,193
|
|
Inventory
|
|
$
|
1,053
|
|
|
$
|
(9
|
)
|
|
$
|
1,044
|
|
Accrued expenses
|
|
$
|
598
|
|
|
$
|
(34
|
)
|
|
$
|
564
|
|
Accumulated deficit
|
|
$
|
(4,696
|
)
|
|
$
|
34
|
|
|
$
|
(4,662
|
)
|
The impact of applying the new accounting standard on the Companys condensed consolidated financial
statements for the three and nine months ended March 29, 2019 was not material.
In January 2016, the FASB issued
ASU 2016-01 (ASC
Subtopic 825-10),
Financial InstrumentsOverall Recognition and Measurement of Financial Assets and Financial Liabilities,
as
amended by ASU
2018-03,
Financial InstrumentsOverall: Technical Correction and Improvements,
issued in February 2018
.
The amendments in these ASUs require entities to measure
all equity investments at fair value with changes recognized through net income. Additionally, the amendments eliminate certain disclosure requirements related to financial instruments measured at amortized cost and add disclosures related to the
measurement categories of financial assets and financial liabilities. These ASUs became effective and were adopted by the Company in the September 2018 quarter. For equity investments without readily determinable fair value, the Company elected the
measurement alternative for measurement of equity investments, defined as cost, less impairments, if any, plus or minus changes resulting from observable price changes in orderly transactions for an identical or similar investment in the same issuer
until the equity investments fair value becomes readily determinable. The adoption of this guidance had no impact on the Companys condensed consolidated financial statements and disclosures.
12
In January 2017, the FASB issued
ASU 2017-01 (ASC
Topic 805),
Business Combination: Clarifying the Definition of a Business
. The amendments in this ASU change the definition of a business to assist with evaluating when a
set of transferred assets and activities is a business. The Company adopted the guidance in the September 2018 quarter. The adoption of this guidance had no impact on the Companys condensed consolidated financial statements and disclosures.
In May 2017, the FASB issued
ASU 2017-09 (ASC
Topic 718),
Stock
Compensation: Scope of Modification Accounting
. The amendments in this ASU provide guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting. The Company adopted the
guidance in the September 2018 quarter. The adoption of this guidance had no impact on its condensed consolidated financial statements and disclosures.
2.
|
Balance Sheet Information
|
Available-for-sale
Debt Securities
The following table summarizes, by major type, the fair value and amortized cost of the Companys investments as of March 29,
2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in millions)
|
|
Amortized
Cost
|
|
|
Unrealized
Gain/(Loss)
|
|
|
Fair
Value
|
|
Available-for-sale
debt
securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds
|
|
$
|
239
|
|
|
$
|
|
|
|
$
|
239
|
|
Time deposits and certificates of deposit
|
|
|
300
|
|
|
|
|
|
|
|
300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
539
|
|
|
$
|
|
|
|
$
|
539
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Included in Cash and cash equivalents
|
|
|
|
|
|
|
|
|
|
$
|
536
|
|
Included in Other current assets
|
|
|
|
|
|
|
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
$
|
539
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 29, 2019, the Companys Other current assets included $3 million in restricted
cash and investments held as collateral at banks for various performance obligations.
As of March 29, 2019, 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. The Company determined no
available-for-sale
debt securities were other-than-temporarily impaired as of March 29, 2019.
The fair value and amortized cost of the Companys debt securities investments classified as
available-for-sale
as of March 29, 2019, by remaining contractual maturity were as follows:
|
|
|
|
|
|
|
|
|
(Dollars in millions)
|
|
Amortized
Cost
|
|
|
Fair
Value
|
|
Due in less than 1 year
|
|
$
|
539
|
|
|
$
|
539
|
|
Due in 1 to 5 years
|
|
|
|
|
|
|
|
|
Due in 6 to 10 years
|
|
|
|
|
|
|
|
|
Thereafter
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
539
|
|
|
$
|
539
|
|
|
|
|
|
|
|
|
|
|
13
The following table summarizes, by major type, the fair value and amortized cost of the
Companys investments as of June 29, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in millions)
|
|
Amortized
Cost
|
|
|
Unrealized
Gain/(Loss)
|
|
|
Fair
Value
|
|
Available-for-sale
securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds
|
|
$
|
621
|
|
|
$
|
|
|
|
$
|
621
|
|
Time deposits and certificates of deposit
|
|
|
395
|
|
|
|
|
|
|
|
395
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,016
|
|
|
$
|
|
|
|
$
|
1,016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Included in Cash and cash equivalents
|
|
|
|
|
|
|
|
|
|
$
|
1,012
|
|
Included in Other current assets
|
|
|
|
|
|
|
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
$
|
1,016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 29, 2018, the Companys Other current assets included $4 million in restricted
cash and investments held as collateral at banks for various performance obligations.
As of June 29, 2018, the Company had no
material
available-for-sale
securities that had been in a continuous unrealized loss position for a period greater than 12 months. The Company determined no
available-for-sale
securities were other-than-temporarily impaired as of June 29, 2018.
Cash, Cash Equivalents and Restricted Cash
The
following table provides a summary of cash, cash equivalents and restricted cash reported within the Companys Condensed Consolidated Balance Sheets that reconciles to the corresponding amount in its Condensed Consolidated Statements of Cash
Flows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in millions)
|
|
March 29,
2019
|
|
|
June 29,
2018
|
|
|
March 30,
2018
|
|
|
June 30,
2017
|
|
Cash and cash equivalents
|
|
$
|
1,388
|
|
|
$
|
1,853
|
|
|
$
|
2,926
|
|
|
$
|
2,539
|
|
Restricted cash included in Other current assets
|
|
|
3
|
|
|
|
4
|
|
|
|
4
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cash, cash equivalents and restricted cash shown in the Statements of Cash Flows
|
|
$
|
1,391
|
|
|
$
|
1,857
|
|
|
$
|
2,930
|
|
|
$
|
2,543
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventories
The following table provides details of the inventory balance sheet item:
|
|
|
|
|
|
|
|
|
(Dollars in millions)
|
|
March 29,
2019
|
|
|
June 29,
2018
|
|
Raw materials and components
|
|
$
|
330
|
|
|
$
|
329
|
|
Work-in-process
|
|
|
260
|
|
|
|
347
|
|
Finished goods
|
|
|
411
|
|
|
|
377
|
|
|
|
|
|
|
|
|
|
|
Total inventories
|
|
$
|
1,001
|
|
|
$
|
1,053
|
|
|
|
|
|
|
|
|
|
|
Property, Equipment and Leasehold Improvements, net
The components of property, equipment and leasehold improvements, net, were as follows:
|
|
|
|
|
|
|
|
|
(Dollars in millions)
|
|
March 29,
2019
|
|
|
June 29,
2018
|
|
Property, equipment and leasehold improvements
|
|
$
|
9,736
|
|
|
$
|
9,525
|
|
Accumulated depreciation and amortization
|
|
|
(7,914
|
)
|
|
|
(7,733
|
)
|
|
|
|
|
|
|
|
|
|
Property, equipment and leasehold improvements, net
|
|
$
|
1,822
|
|
|
$
|
1,792
|
|
|
|
|
|
|
|
|
|
|
14
Investment in Debt Security
As of March 29, 2019 and June 29, 2018, the Company had approximately $1.3 billion investment
in non-convertible preferred
stock of Toshiba Memory Corporation (TMC, formerly known as K.K. Pangea). The Company has the positive intent and ability to hold the investment until
maturity. As such, the investment, with a contractual maturity of six years starting from May 31, 2018, is accounted for as
a held-to-maturity debt
security, carried at cost and adjusted for amortization of transaction costs into interest income. Additionally, the debt security has a contractual
payment-in-kind
(PIK) income which will be paid in cash upon redemption of the investment. PIK income computed at the contractual rate is accrued into Interest income in the Companys Condensed Consolidated Statements of Operations and added to the
carrying value of the Investment in debt security on its Condensed Consolidated Balance Sheets. For the three and nine months ended March 29, 2019, the PIK income earned was $16 million and $47 million, respectively. There was no
other-than-temporary impairment identified for the three and nine months ended March 29, 2019. Please refer to Note 8 - Fair Value for more details.
Accrued
Expenses
The following table provides details of the accrued expenses balance sheet item:
|
|
|
|
|
|
|
|
|
(Dollars in millions)
|
|
March 29,
2019
|
|
|
June 29,
2018
|
|
Dividends payable
|
|
$
|
174
|
|
|
$
|
181
|
|
Other accrued expenses
|
|
|
417
|
|
|
|
417
|
|
|
|
|
|
|
|
|
|
|
Total accrued expenses
|
|
$
|
591
|
|
|
$
|
598
|
|
|
|
|
|
|
|
|
|
|
Accumulated Other Comprehensive Income (Loss) (AOCI)
The components of AOCI, net of tax, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in millions)
|
|
Unrealized
Gains/(Losses)
on Cash Flow
Hedges
|
|
|
Unrealized
Gains/(Losses)
on
Available-for-Sale
Debt
Securities
|
|
|
Unrealized
Gains/(Losses)
on Post-
Retirement Plans
|
|
|
Foreign
Currency
Translation
Adjustments
|
|
|
Total
|
|
Balance at June 29, 2018
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(4
|
)
|
|
$
|
(12
|
)
|
|
$
|
(16
|
)
|
Other comprehensive income (loss) before reclassifications
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4
|
)
|
|
|
(4
|
)
|
Amounts reclassified from AOCI
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss)
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
(4
|
)
|
|
|
(5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at March 29, 2019
|
|
$
|
(1
|
)
|
|
$
|
|
|
|
$
|
(4
|
)
|
|
$
|
(16
|
)
|
|
$
|
(21
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2017
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(5
|
)
|
|
$
|
(12
|
)
|
|
$
|
(17
|
)
|
Other comprehensive income (loss) before reclassifications
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9
|
|
|
|
9
|
|
Amounts reclassified from AOCI
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9
|
|
|
|
9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at March 30, 2018
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(5
|
)
|
|
$
|
(3
|
)
|
|
$
|
(8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15
Revolving Credit Facility
On February 20,
2019, the Company terminated its senior unsecured revolving credit facility scheduled to expire on January 15, 2020, under which the Company was able to draw up to $700 million. Upon termination, the Company and its subsidiary Seagate HDD
Cayman entered into a new credit agreement (the 2019 Revolving Credit Facility) which provides the Company with a $1.3 billion senior unsecured revolving credit facility. The term of the 2019 Revolving Credit Facility is through
February 20, 2024. The loans made under the 2019 Revolving Credit Facility will bear interest at a rate of LIBOR plus a variable margin that will be determined based on the corporate credit rating of the Company. The Company and certain other
material subsidiaries of the Company fully and unconditionally guarantee the revolving credit facility. The 2019 Revolving Credit Facility also allows the Company to increase the facility by up to an aggregate of $300 million, provided that
(i) there has been, and will be after giving effect to such increase, no default, (ii) the increase is at least $25 million, and (iii) the existing commitments under the facility receive 0.50% most favored nation
protection. An aggregate amount of up to $75 million of the facility is available for the issuance of letters of credit, and an aggregate amount of up to $50 million of the facility is also available for swing line loans.
The 2019 Revolving Credit Facility includes three financial covenants: (1) interest coverage ratio, (2) total leverage ratio,
and (3) a minimum liquidity amount. The Company was in compliance with the covenants as of March 29, 2019 and expects to be in compliance for the next 12 months.
As of March 29, 2019, $200 million had been drawn and no letters of credit or swing line loans had been utilized under the 2019
Revolving Credit Facility.
Long-Term Debt
$800
million Aggregate Principal Amount of 3.75% Senior Notes due November
2018 (the 2018
Notes).
The Company recorded a loss of approximately $1 million and $3 million on repurchases during the three and nine months ended March 30, 2018, respectively, which is included in Other, net on the Companys
Condensed Consolidated Statements of Operations. On November 15, 2018, the 2018 Notes matured and the Company repaid the entire outstanding principal amount of $499 million, plus accrued and unpaid interest.
$750
million Aggregate Principal Amount of 4.25% Senior Notes due March
2022 (the 2022
Notes)
. The interest on the 2022 Notes is payable semi-annually on March 1 and September 1 of each year. 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
billion Aggregate Principal Amount
of 4.75% Senior Notes due June 2023 (the 2023 Notes).
The interest on the 2023 Notes is payable semi-annually on June 1 and December 1 of each year. The issuer under the 2023 Notes is Seagate HDD Cayman, and the obligations
under the 2023 Notes are fully and unconditionally guaranteed, on a senior unsecured basis, by the Company.
$500
million Aggregate Principal Amount of 4.875% Senior Notes due March
2024 (the 2024
Notes).
The interest on the 2024 Notes is payable semi-annually on March 1 and September 1 of each year. 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)
. The interest on the 2025 Notes is payable semi-annually on January 1 and July 1 of each year. The issuer under the 2025 Notes is Seagate HDD Cayman, and the
obligations under the 2025 Notes are fully and unconditionally guaranteed, on a senior unsecured basis, by the Company.
$700
million Aggregate Principal Amount of 4.875% Senior Notes due June 2027 (the 2027 Notes)
. The
interest on the Notes is payable semi-annually on June 1 and December 1 of each year. 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.
16
$500
million Aggregate Principal Amount of 5.75% Senior Notes due
December 2034 (the 2034 Notes)
. The interest on the 2034 Notes is payable semi-annually on June 1 and December 1 of each year. The issuer under the 2034 Notes is Seagate HDD Cayman, and the obligations under the 2034 Notes
are fully and unconditionally guaranteed, on a senior unsecured basis, by the Company.
At March 29, 2019, future principal
payments on long-term debt were as follows (in millions):
|
|
|
|
|
Fiscal Year
|
|
Amount
|
|
Remainder of 2019
|
|
$
|
|
|
2020
|
|
|
|
|
2021
|
|
|
|
|
2022
|
|
|
750
|
|
2023
|
|
|
951
|
|
Thereafter
|
|
|
2,862
|
|
|
|
|
|
|
Total
|
|
$
|
4,563
|
|
|
|
|
|
|
The Company recorded income tax provisions of $20 million and $52 million in the three and nine months ended March 29,
2019, respectively. The income tax provision for the three and nine months ended March 29, 2019 included approximately $9 million and $5 million of net discrete tax expense, respectively, primarily associated with a deferred
withholding tax liability resulting from a change in indefinite reinvestment assertion for a foreign subsidiary. This was partially offset by the recognition of previously unrecognized tax benefits related to the expiration of certain statutes of
limitation.
The Companys income tax provision recorded for the three and nine months ended March 29, 2019 differed from
the provision for income taxes that would be derived by applying the Irish statutory rate of 25% to income before income taxes, primarily due to the net effect of (i) tax benefits related to
non-U.S.
earnings generated in jurisdictions that are subject to tax incentive programs and are considered indefinitely reinvested outside of Ireland and (ii) a decrease in valuation allowance for certain deferred tax assets.
During the nine months ended March 29, 2019, the Companys unrecognized tax benefits excluding interest and penalties decreased
by approximately $19 million to $41 million. The unrecognized tax benefits that, if recognized, would impact the effective tax rate were $41 million at March 29, 2019, subject to certain future valuation allowance reversals.
During the twelve months beginning March 30, 2019, the Company expects that its unrecognized tax benefits could be reduced by approximately $6 million, primarily as a result of the expiration of certain statutes of limitation.
The Company recorded income tax provisions of $12 million and $231 million in the three and nine months ended March 30,
2018, respectively. The income tax provision for the three and nine months ended March 30, 2018 included approximately $2 million of net discrete tax benefit and approximately $195 million of net discrete expense, respectively. The
discrete items for the nine months ended March 30, 2018 are primarily associated with the revaluation of U.S. deferred tax assets as a result of the enactment of the Tax Act on December 22, 2017, partially offset by the recognition of
previously unrecognized tax benefits associated with the expiration of certain statutes of limitation.
The Companys income tax
provision recorded for the three and nine months ended March 30, 2018 differed from the provision for income taxes that would be derived by applying the Irish statutory rate of 25% to income before income taxes, primarily due to the net effect
of (i) tax benefits related to
non-U.S.
earnings generated in jurisdictions that are subject to tax incentive programs and are considered indefinitely reinvested outside of Ireland and (ii) a
reduction in the net U.S. deferred tax assets associated with revaluation to a lower U.S. tax rate.
17
On December 22, 2017, the Tax Act was enacted into law in the United States. The
Tax Act significantly revises U.S. corporate income tax law by, among other things, lowering U.S. corporate income tax rates from 35% to 21%, implementing a territorial tax system, and imposing a
one-time
transition tax on deemed repatriated earnings of
non-U.S.
subsidiaries.
The U.S. tax law
changes, including limitations on various business deductions such as executive compensation under Internal Revenue Code §162(m), will not impact the Companys tax expense in the short-term due to its large net operating loss and tax
credit carryovers and associated valuation allowance. The Tax Acts new international rules, including Global Intangible
Low-Taxed
Income (GILTI), Foreign Derived Intangible Income
(FDII), and Base Erosion Anti-Avoidance Tax (BEAT) are effective beginning in fiscal year 2019. For fiscal year 2019, the Company has included these effects of the Tax Act in its fiscal year 2019 financial statements and has
concluded the impact will not be material.
As of the fiscal quarter ended September 28, 2018, pursuant to SEC Staff Accounting
Bulletin (SAB) 118 (regarding the application of ASC 740
, Income Taxes (ASC 740)
associated with the enactment of the Tax Act), the Company had considered SAB 118 and believed its accounting under ASC 740 for the
provisions of the Tax Act was complete.
5.
|
Goodwill and Other Intangible Assets
|
Goodwill
The changes in the carrying amount of
goodwill for the nine months ended March 29, 2019, were as follows:
|
|
|
|
|
(Dollars in millions)
|
|
Amount
|
|
Balance at June 29, 2018
|
|
$
|
1,237
|
|
Goodwill acquired
|
|
|
|
|
Goodwill disposed
|
|
|
|
|
Foreign currency translation effect
|
|
|
|
|
|
|
|
|
|
Balance at March 29, 2019
|
|
$
|
1,237
|
|
|
|
|
|
|
Other Intangible Assets
Other intangible assets consist primarily of existing technology, customer relationships and trade names acquired in business
combinations. Intangibles are amortized on a straight-line basis over the respective estimated useful lives of the assets. Amortization is charged to Operating expenses in the Companys Condensed Consolidated Statements of Operations.
The carrying value of other intangible assets subject to amortization, excluding fully amortized intangible assets, as of March 29,
2019, is set forth in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in millions)
|
|
Gross Carrying
Amount
|
|
|
Accumulated
Amortization
|
|
|
Net Carrying
Amount
|
|
|
Weighted-Average
Remaining Useful Life
|
|
Existing technology
|
|
$
|
237
|
|
|
$
|
(167
|
)
|
|
$
|
70
|
|
|
|
2.0 years
|
|
Customer relationships
|
|
|
90
|
|
|
|
(53
|
)
|
|
|
37
|
|
|
|
3.4 years
|
|
Trade name
|
|
|
17
|
|
|
|
(16
|
)
|
|
|
1
|
|
|
|
0.8 years
|
|
Other intangible assets
|
|
|
41
|
|
|
|
(20
|
)
|
|
|
21
|
|
|
|
2.9 years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total amortizable other intangible assets
|
|
$
|
385
|
|
|
$
|
(256
|
)
|
|
$
|
129
|
|
|
|
2.5 years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The carrying value of other intangible assets subject to amortization, excluding fully amortized
intangible assets, as of June 29, 2018, is set forth in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in millions)
|
|
Gross Carrying
Amount
|
|
|
Accumulated
Amortization
|
|
|
Net Carrying
Amount
|
|
|
Weighted-Average
Remaining Useful Life
|
|
Existing technology
|
|
$
|
256
|
|
|
$
|
(145
|
)
|
|
$
|
111
|
|
|
|
2.5 years
|
|
Customer relationships
|
|
|
89
|
|
|
|
(42
|
)
|
|
|
47
|
|
|
|
4.0 years
|
|
Trade name
|
|
|
17
|
|
|
|
(13
|
)
|
|
|
4
|
|
|
|
1.3 years
|
|
Other intangible assets
|
|
|
45
|
|
|
|
(19
|
)
|
|
|
26
|
|
|
|
3.0 years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total amortizable other intangible assets
|
|
$
|
407
|
|
|
$
|
(219
|
)
|
|
$
|
188
|
|
|
|
2.9 years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18
For the three and nine months ended March 29, 2019, the amortization expense of
other intangible assets was $20 million and $59 million, respectively. For the three and nine months ended March 30, 2018, the amortization expense of other intangible assets was $21 million and $90 million, respectively. As
of March 29, 2019, expected amortization expense for other intangible assets for each of the next five fiscal years and thereafter was as follows:
|
|
|
|
|
(Dollars in millions)
|
|
Amount
|
|
Remainder of 2019
|
|
$
|
18
|
|
2020
|
|
|
57
|
|
2021
|
|
|
29
|
|
2022
|
|
|
20
|
|
2023
|
|
|
5
|
|
Thereafter
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
129
|
|
|
|
|
|
|
6.
|
Restructuring and Exit Costs
|
For the three and nine months ended March 29, 2019, the Company recorded restructuring charges of approximately $11 million and
$39 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 Companys significant restructuring plans are
described below. All restructuring charges are reported in Restructuring and other, net on the Companys Condensed Consolidated Statements of Operations.
December 2017 Plan
On December 8, 2017, the Company committed to a restructuring plan (the December 2017
Plan) to reduce its cost structure. The December 2017 Plan included reducing the Companys global headcount by approximately 500 employees. The December 2017 Plan was substantially completed by the end of fiscal year 2018.
July 2017 Plan
On July 25, 2017, the Company committed to a restructuring plan (the July 2017 Plan) to
reduce its cost structure. The July 2017 Plan included reducing the Companys global headcount by approximately 600 employees. The July 2017 Plan was substantially completed during fiscal year 2018.
March 2017 Plan
On March 9, 2017, the Company committed to a restructuring plan (the March 2017 Plan) in
connection with the continued consolidation of its global footprint. The Company closed its design center in Korea, resulting in the reduction of the Companys headcount by approximately 300 employees. The March 2017 Plan was substantially
completed by the end of fiscal year 2017.
July 2016 Plan
On July 11, 2016, the Company committed to a
restructuring plan (the July 2016 Plan) for continued consolidation of its global footprint across Asia, EMEA and the Americas. The July 2016 Plan included reducing worldwide headcount by approximately 6,500 employees. The July 2016
Plan was substantially completed during fiscal year 2018.
19
The following table summarizes the Companys restructuring activities under all of
the Companys active restructuring plans for the nine months ended March 29, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 2017 Plan
|
|
|
July 2017 Plan
|
|
|
March 2017 Plan
|
|
|
July 2016 Plan
|
|
|
Other Plans
|
|
|
|
|
(Dollars in millions)
|
|
Workforce
Reduction
Costs
|
|
|
Facilities
and Other
Exit
Costs
|
|
|
Workforce
Reduction
Costs
|
|
|
Facilities
and Other
Exit
Costs
|
|
|
Workforce
Reduction
Costs
|
|
|
Facilities
and Other
Exit
Costs
|
|
|
Workforce
Reduction
Costs
|
|
|
Facilities
and Other
Exit
Costs
|
|
|
Workforce
Reduction
Costs
|
|
|
Facilities
and Other
Exit
Costs
|
|
|
Total
|
|
Accrual balances at June 29, 2018
|
|
$
|
5
|
|
|
$
|
4
|
|
|
$
|
|
|
|
$
|
1
|
|
|
$
|
1
|
|
|
$
|
|
|
|
$
|
2
|
|
|
$
|
|
|
|
$
|
11
|
|
|
$
|
18
|
|
|
$
|
42
|
|
Restructuring charges
|
|
|
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4
|
|
|
|
29
|
|
|
|
4
|
|
|
|
40
|
|
Cash payments
|
|
|
(5
|
)
|
|
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
(4
|
)
|
|
|
(36
|
)
|
|
|
(6
|
)
|
|
|
(56
|
)
|
Adjustments
|
|
|
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrual balances at March 29, 2019
|
|
$
|
|
|
|
$
|
2
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1
|
|
|
$
|
|
|
|
$
|
1
|
|
|
$
|
|
|
|
$
|
5
|
|
|
$
|
16
|
|
|
$
|
25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs incurred to date as of March 29, 2019
|
|
$
|
26
|
|
|
$
|
8
|
|
|
$
|
37
|
|
|
$
|
3
|
|
|
$
|
31
|
|
|
$
|
3
|
|
|
$
|
82
|
|
|
$
|
38
|
|
|
$
|
270
|
|
|
$
|
63
|
|
|
$
|
561
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expected charges to be incurred as of March 29, 2019
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1
|
|
|
$
|
|
|
|
$
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additionally, the Company recorded an impairment charge of $2 million on its held for sale land and
building for the nine months ended March 29, 2019, which is included in Restructuring and other, net in the Companys Condensed Consolidated Statements of Operations. The Company did not record any impairment charge for the three months
ended March 29, 2019. Please refer to Note 8 - Fair Value for more details.
7.
|
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. From 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 Companys accounting policies for these instruments are based on whether the instruments are classified as designated or
non-designated
hedging instruments. The
Company records all derivatives in its Condensed Consolidated Balance Sheets at fair value. The changes in the fair value of highly effective designated cash flow hedges are recorded in Accumulated other comprehensive loss until the hedged item is
recognized in earnings. Derivatives that are not designated as hedging instruments or are not assessed to be highly effective are adjusted to fair value through earnings. The amount of net unrealized loss on cash flow hedges was less than
$1 million as of March 29, 2019 and the amount of net unrealized gain on cash flow hedges was less than $1 million as of June 29, 2018.
The
Company de-designates its
cash flow hedges when the forecasted hedged transactions
affect earnings or it is probable the forecasted hedged transactions will not occur in the initially identified time period. At such time, the associated gains and losses deferred in Accumulated other comprehensive loss on the Companys
Condensed Consolidated Balance Sheets are reclassified immediately into earnings and any subsequent changes in the fair value of such derivative instruments are immediately reflected in earnings. The Company recognized a net loss of $1 million
and net gain of $1 million in Other expense, net related to the loss of hedge designation on discontinued cash flow hedges during the three and nine months ended March 29, 2019, respectively. The Company did not recognize any net gains or
losses related to the loss of hedge designation on discontinued cash flow hedges during the three and nine months ended March 30, 2018.
Other derivatives not designated as hedging instruments consist of foreign currency forward exchange contracts that the Company uses to
hedge the foreign currency exposure on the investment in debt security and forecasted expenditures denominated in currency other than the U.S. dollar. The Company recognizes gains and losses on these contracts, as well as the related costs in
Other, net on its Condensed Consolidated Statement of Operations along with foreign currency gains and losses on investment in debt security, deferred gains of derivatives in Other current assets and deferred losses of derivatives in Accrued
expenses on the Condensed Consolidated Balance Sheets.
20
The following tables show the total notional value of the Companys outstanding
foreign currency forward exchange contracts as of March 29, 2019 and June 29, 2018. All these foreign currency forward exchange contracts mature within 12 months:
|
|
|
|
|
|
|
|
|
|
|
As of March 29, 2019
|
|
(Dollars in millions)
|
|
Contracts
Designated as
Hedges
|
|
|
Contracts Not
Designated as
Hedges
|
|
Thai Baht
|
|
$
|
|
|
|
$
|
19
|
|
Singapore Dollar
|
|
|
|
|
|
|
25
|
|
Chinese Renminbi
|
|
|
10
|
|
|
|
|
|
British Pound Sterling
|
|
|
20
|
|
|
|
18
|
|
Japanese Yen
|
|
|
39
|
|
|
|
1,314
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
69
|
|
|
$
|
1,376
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 29, 2018
|
|
(Dollars in millions)
|
|
Contracts
Designated as
Hedges
|
|
|
Contracts Not
Designated as
Hedges
|
|
Japanese Yen
|
|
$
|
66
|
|
|
$
|
1,310
|
|
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
its Non-qualified Deferred
Compensation Planthe Seagate Deferred Compensation Plan (the SDCP). In fiscal year 2014, the Company
entered into a Total Return Swap (TRS) in order to manage the equity market risks associated with the SDCP liabilities. The Company pays a floating rate, based on LIBOR plus an interest rate spread, on the notional amount of the TRS. The
TRS is designed to substantially offset changes in the SDCP liability due to changes in the value of the investment options made by employees. As of March 29, 2019, the notional investments underlying the TRS amounted to $114 million. The
contract term of the TRS is through January 2020 and is settled on a monthly basis, therefore limiting counterparty performance risk. The Company does not designate the TRS as a hedge. Rather, the Company records all changes in the fair value of the
TRS to earnings to offset the market value changes of the SDCP liabilities.
The following tables show the Companys derivative
instruments measured at gross fair value as reflected in its Condensed Consolidated Balance Sheets as of March 29, 2019 and June 29, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 29, 2019
|
|
|
|
Derivative Assets
|
|
|
Derivative Liabilities
|
|
(Dollars in millions)
|
|
Balance Sheet
Location
|
|
|
Fair
Value
|
|
|
Balance Sheet
Location
|
|
|
Fair
Value
|
|
Derivatives designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency forward exchange contracts
|
|
|
Other current assets
|
|
|
$
|
1
|
|
|
|
Accrued expenses
|
|
|
$
|
(1
|
)
|
Derivatives not designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency forward exchange contracts
|
|
|
Other current assets
|
|
|
|
1
|
|
|
|
Accrued expenses
|
|
|
|
(21
|
)
|
Total return swap
|
|
|
Other current assets
|
|
|
|
|
|
|
|
Accrued expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivatives
|
|
|
|
|
|
$
|
2
|
|
|
|
|
|
|
$
|
(22
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 29, 2018
|
|
|
|
Derivative Assets
|
|
|
Derivative Liabilities
|
|
(Dollars in millions)
|
|
Balance Sheet
Location
|
|
|
Fair
Value
|
|
|
Balance Sheet
Location
|
|
|
Fair
Value
|
|
Derivatives designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency forward exchange contracts
|
|
|
Other current assets
|
|
|
$
|
|
|
|
|
Accrued expenses
|
|
|
$
|
|
|
Derivatives not designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency forward exchange contracts
|
|
|
Other current assets
|
|
|
|
10
|
|
|
|
Accrued expenses
|
|
|
|
|
|
Total return swap
|
|
|
Other current assets
|
|
|
|
|
|
|
|
Accrued expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivatives
|
|
|
|
|
|
$
|
10
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following tables show the effect of the Companys derivative instruments on its Condensed
Consolidated Statements of Comprehensive Income and the Condensed Consolidated Statements of Operations for the three and nine months ended March 29, 2019:
|
|
|
|
|
|
|
|
|
|
|
(Dollars in millions)
Derivatives Not Designated as Hedging Instruments
|
|
Location of Gain/
(Loss) Recognized in
Income on Derivatives
|
|
Amount of Gain/
(Loss) Recognized in
Income on Derivatives
|
|
|
For the Three
Months
|
|
|
For the Nine
Months
|
|
Foreign currency forward exchange contracts
|
|
Other, net
|
|
$
|
10
|
|
|
$
|
38
|
|
Total return swap
|
|
Operating expenses
|
|
$
|
11
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in millions)
Derivatives Designated as Hedging Instruments
|
|
Amount of
Gain/(Loss)
Recognized
in OCI on
Derivatives
(Effective
Portion)
|
|
|
Location of
Gain/(Loss)
Reclassified
from
Accumulated
OCI
into
Income
(Effective
Portion)
|
|
|
Amount of
Gain/(Loss)
Reclassified
from
Accumulated
OCI
into
Income
(Effective
Portion)
|
|
|
Location of
Gain/(Loss)
Recognized in
Income
on
Derivatives
(Ineffective
Portion and
Amount Excluded
from
Effectiveness
Testing)
|
|
|
Amount of
Gain/(Loss)
Recognized in
Income
(Ineffective
Portion and
Amount
Excluded
from
Effectiveness
Testing)
|
|
|
For the
Three
Months
|
|
|
For the
Nine
Months
|
|
|
For the
Three
Months
|
|
|
For the
Nine
Months
|
|
|
For the
Three
Months
|
|
|
For the
Nine
Months
|
|
Foreign currency forward exchange contracts
|
|
$
|
1
|
|
|
$
|
|
|
|
|
Other expense, net
|
|
|
$
|
(1
|
)
|
|
$
|
1
|
|
|
|
Other expense, net
|
|
|
$
|
|
|
|
$
|
1
|
|
As of March 30, 2018, the Company had no outstanding foreign currency forward exchange contracts and
the gross fair value of the TRS reflected in the Condensed Consolidated Balance Sheet was immaterial.
The following table shows the
effect of the Companys derivative instruments on its Condensed Consolidated Statement of Comprehensive Income and its Condensed Consolidated Statement of Operations for the three and nine months ended March 30, 2018
:
|
|
|
|
|
|
|
|
|
|
|
(Dollars in millions)
Derivatives Not Designated as Hedging Instruments
|
|
Location of Gain/
(Loss) Recognized in
Income on
Derivatives
|
|
Amount of Gain/
(Loss) Recognized in
Income on
Derivatives
|
|
|
For the
Three
Months
|
|
|
For the
Nine
Months
|
|
Foreign currency forward exchange contracts
|
|
Other, net
|
|
$
|
|
|
|
$
|
|
|
Total return swap
|
|
Operating expenses
|
|
$
|
(2
|
)
|
|
$
|
5
|
|
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.
22
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 reflect the Companys own assumptions of market participant valuation (unobservable inputs). A financial instruments categorization within the fair value hierarchy is based upon the lowest level of input
that is significant to the fair value measurement. The three levels of inputs that may be used to measure fair value are:
Level 1 Quoted prices in active markets that are unadjusted and accessible at the measurement date for identical, unrestricted
assets or liabilities;
Level 2 Quoted prices for identical assets and liabilities in markets that are inactive; quoted
prices for similar assets and liabilities in active markets or financial instruments for which significant inputs are observable, either directly or indirectly; or
Level 3 Prices or valuations that require inputs that are both unobservable and significant to the fair value measurement.
The Company considers an active market to be one in which transactions for the asset or liability occur with sufficient frequency
and volume to provide pricing information on an ongoing basis, and views an inactive market as one in which there are few transactions for the asset or liability, the prices are not current, or price quotations vary substantially either over time or
among market makers. Where appropriate the Companys or the counterpartys
non-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 tables present the Companys 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 March 29, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at Reporting Date Using
|
|
(Dollars in millions)
|
|
Quoted Prices
in Active
Markets for
Identical
Instruments
(Level 1)
|
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
|
Total
Balance
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds
|
|
$
|
238
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
238
|
|
Time deposits and certificates of deposit
|
|
|
|
|
|
|
298
|
|
|
|
|
|
|
|
298
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cash equivalents
|
|
|
238
|
|
|
|
298
|
|
|
|
|
|
|
|
536
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted cash and investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
Time deposits and certificates of deposit
|
|
|
|
|
|
|
2
|
|
|
|
|
|
|
|
2
|
|
Derivative Assets
|
|
|
|
|
|
|
2
|
|
|
|
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
239
|
|
|
$
|
302
|
|
|
$
|
|
|
|
$
|
541
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities
|
|
$
|
|
|
|
$
|
22
|
|
|
$
|
|
|
|
$
|
22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
$
|
|
|
|
$
|
22
|
|
|
$
|
|
|
|
$
|
22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at Reporting Date Using
|
|
(Dollars in millions)
|
|
Quoted Prices
in Active
Markets for
Identical
Instruments
(Level 1)
|
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
|
Total
Balance
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
238
|
|
|
$
|
298
|
|
|
$
|
|
|
|
$
|
536
|
|
Other current assets
|
|
|
1
|
|
|
|
4
|
|
|
|
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
239
|
|
|
$
|
302
|
|
|
$
|
|
|
|
$
|
541
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued expenses
|
|
$
|
|
|
|
$
|
22
|
|
|
$
|
|
|
|
$
|
22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
$
|
|
|
|
$
|
22
|
|
|
$
|
|
|
|
$
|
22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following tables present the Companys 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 June 29, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at Reporting Date Using
|
|
(Dollars in millions)
|
|
Quoted Prices
in Active
Markets for
Identical
Instruments
(Level 1)
|
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
|
Total
Balance
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds
|
|
$
|
620
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
620
|
|
Time deposits and certificates of deposit
|
|
|
|
|
|
|
392
|
|
|
|
|
|
|
|
392
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cash equivalents
|
|
|
620
|
|
|
|
392
|
|
|
|
|
|
|
|
1,012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted cash and investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
Time deposits and certificates of deposit
|
|
|
|
|
|
|
3
|
|
|
|
|
|
|
|
3
|
|
Derivative assets
|
|
|
|
|
|
|
10
|
|
|
|
|
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
621
|
|
|
$
|
405
|
|
|
$
|
|
|
|
$
|
1,026
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at Reporting Date Using
|
|
(Dollars in millions)
|
|
Quoted Prices
in Active
Markets for
Identical
Instruments
(Level 1)
|
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
|
Total
Balance
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
620
|
|
|
$
|
392
|
|
|
$
|
|
|
|
$
|
1,012
|
|
Other current assets
|
|
|
1
|
|
|
|
13
|
|
|
|
|
|
|
|
14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
621
|
|
|
$
|
405
|
|
|
$
|
|
|
|
$
|
1,026
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company classifies items in Level 1 if the financial assets consist of securities for which
quoted prices are available in an active market.
24
The Company classifies items in Level 2 if the financial asset or liability is
valued using observable inputs. The Company uses observable inputs including quoted prices in active markets for similar assets or liabilities. Level 2 assets include: agency bonds, corporate bonds, commercial paper, municipal bonds, U.S.
Treasuries, time deposits and certificates of deposit. These debt investments are priced using observable inputs and valuation models which vary by asset class. The Company uses a pricing service to assist in determining the fair value of all of its
cash equivalents and short-term investments. For the cash equivalents and short-term investments in the Companys portfolio, multiple pricing sources are generally available. The pricing service uses inputs from multiple industry standard data
providers or other third party sources and various methodologies, such as weighting and models, to determine the appropriate price at the measurement date. The Company corroborates the prices obtained from the pricing service against other
independent sources and, as of March 29, 2019, has not found it necessary to make any adjustments to the prices obtained. The Companys derivative financial instruments are also classified within Level 2. The Companys derivative
financial instruments consist of foreign currency forward exchange contracts and the TRS. The Company recognizes derivative financial instruments in its condensed consolidated financial statements at fair value. The Company determines the fair value
of these instruments by considering the estimated amount it would pay or receive to terminate these agreements at the reporting date.
As of March 29, 2019 and June 29, 2018, the Company had no Level 3 assets or liabilities measured at fair value
on a recurring basis.
Items Measured at Fair Value on a
Non-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 where the Company does have the ability to exercise significant influence but does not have control. These investments are included in Other assets, net in the
Companys Condensed Consolidated Balance Sheets, and are periodically analyzed to determine whether or not there are indicators of impairment.
Prior to fiscal year 2019, the Companys strategic investments in privately-held companies without readily determinable fair values
were accounted for under the cost method and were recorded at historical cost at the time of investment, with adjustments to the balance only in the event of impairment. Effective June 30, 2018, the Company adopted ASU
2016-01,
Financial Instruments
, which changed the way the Company accounts for equity investments, excluding investments that qualify for the equity method of accounting. The Companys equity investments
in privately-held companies without readily determinable fair values are now measured using the measurement alternative, defined by ASC 321,
Investments Equity Securities
, as cost, less impairments, and adjusted up or down based on
observable price changes in orderly transactions for identical or similar investments of the same issuer. Any adjustments resulting from impairments and/or observable price changes are recorded as Other, net in the Companys Condensed
Consolidated Statements of Operations.
As of March 29, 2019 and June 29, 2018, the carrying value of the Companys
strategic investments were $118 million. For the three and nine months ended March 30, 2018, the Company determined that a certain equity investment accounted for under the cost method was other-than-temporarily impaired and recorded a
charge of $3 million in order to write down the carrying value of the investment to its fair value. For the three and nine months ended March 29, 2019, there were no upward or downward adjustments on equity investments as a result of
adoption of the measurement alternative during the September 2018 quarter.
As of March 29, 2019 and June 29, 2018, the
Company had $52 million and $26 million, respectively, of held for sale land and building (collectively, the properties) included in Other current assets on its Condensed Consolidated Balance Sheets. Of the balance as of
March 29, 2019, $24 million and $28 million are located in Asia and in the Americas, respectively. Depreciation related to the properties ceased as of the date these were determined to be held for sale. During the September 2018
quarter, the Company accepted an offer to sell the property in Asia to a third party and thereafter, recorded an impairment charge of approximately $2 million for the nine months ended March 29, 2019. The impairment charge was recorded in
Restructuring and other, net in the Companys Condensed Consolidated Statement of Operations. No impairment was identified for the three months ended March 29, 2019 and for the three and nine months ended March 30, 2018. The sale of
the properties are expected to be completed by the end of fiscal year 2019, subject to customary closing conditions for both properties and government approval for the sale of the property in Asia.
Other Fair Value Disclosures
The
Companys investment in a debt security, classified
as held-to-maturity, represents
shares
of non-convertible preferred
stock of TMC. This debt security has a maturity date of six years starting from May 31, 2018 and is classified as Investment in debt security on the Companys
Condensed Consolidated Balance Sheets. The debt security is recorded at amortized cost and its fair value approximated the carrying value at June 29, 2018. As of March 29, 2019, the fair value of this investment was $1,322 million
with an unrealized gain of $4 million on the carrying value of $1,318 million. There was no other-than-temporary impairment identified for the three and nine months ended March 29, 2019. The fair value was determined utilizing
Level 2 inputs such as discount rates and yield terms of similar types of securities issued by comparable companies.
25
The Companys debt is carried at amortized cost. The estimated fair value of
the Companys 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 Companys debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 29, 2019
|
|
|
June 29, 2018
|
|
(Dollars in millions)
|
|
Carrying
Amount
|
|
|
Estimated
Fair Value
|
|
|
Carrying
Amount
|
|
|
Estimated
Fair Value
|
|
3.75% Senior Notes due November 2018
|
|
$
|
|
|
|
$
|
|
|
|
$
|
499
|
|
|
$
|
501
|
|
4.25% Senior Notes due March 2022
|
|
|
749
|
|
|
|
755
|
|
|
|
749
|
|
|
|
743
|
|
4.75% Senior Notes due June 2023
|
|
|
951
|
|
|
|
962
|
|
|
|
951
|
|
|
|
942
|
|
4.875% Senior Notes due March 2024
|
|
|
498
|
|
|
|
501
|
|
|
|
497
|
|
|
|
489
|
|
4.75% Senior Notes due January 2025
|
|
|
975
|
|
|
|
949
|
|
|
|
975
|
|
|
|
936
|
|
4.875% Senior Notes due June 2027
|
|
|
695
|
|
|
|
668
|
|
|
|
695
|
|
|
|
650
|
|
5.75% Senior Notes due December 2034
|
|
|
489
|
|
|
|
450
|
|
|
|
489
|
|
|
|
441
|
|
LIBOR based 2019 Revolving Credit Facility due February 2024
|
|
|
200
|
|
|
|
200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
4,557
|
|
|
$
|
4,485
|
|
|
$
|
4,855
|
|
|
$
|
4,702
|
|
Less: debt issuance costs
|
|
|
(35
|
)
|
|
|
|
|
|
|
(36
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt, net of debt issuance costs
|
|
$
|
4,522
|
|
|
$
|
4,485
|
|
|
$
|
4,819
|
|
|
$
|
4,702
|
|
Less: current portion of long-term debt, net of debt issuance costs
|
|
|
|
|
|
|
|
|
|
|
(499
|
)
|
|
|
(501
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt, less current portion
|
|
$
|
4,522
|
|
|
$
|
4,485
|
|
|
$
|
4,320
|
|
|
$
|
4,201
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26
Share Capital
The Companys authorized
share capital is $13,500 and consists of 1,250,000,000 ordinary shares, par value $0.00001, of which 276,834,237 shares were outstanding as of March 29, 2019, and 100,000,000 preferred shares, par value $0.00001, of which none were issued or
outstanding as of March 29, 2019.
Ordinary shares
Holders of ordinary shares are entitled to receive dividends as
and when declared by the Companys 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
All
repurchases are effected as redemptions in accordance with the Companys Articles of Association.
On October 29, 2018, the
Companys Board of Directors authorized the repurchase of an additional $2.3 billion of its outstanding ordinary shares. As of March 29, 2019, $2.5 billion remained available for repurchase under the existing repurchase
authorization limit.
The following table sets forth information with respect to repurchases of the Companys shares during the
nine months ended March 29, 2019:
|
|
|
|
|
|
|
|
|
(In millions)
|
|
Number of
Shares
Repurchased
|
|
|
Dollar Value of Shares
Repurchased
|
|
Repurchases of ordinary shares
|
|
|
13
|
|
|
$
|
613
|
|
Tax withholding related to vesting of equity awards
|
|
|
1
|
|
|
|
30
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
14
|
|
|
$
|
643
|
|
|
|
|
|
|
|
|
|
|
27
The following table provides information about disaggregated revenue by sales channel and geographical region for the Companys
single reportable segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended
|
|
|
For the Nine Months Ended
|
|
(Dollars in millions)
|
|
March 29,
2019
|
|
|
March 30,
2018
|
|
|
March 29,
2019
|
|
|
March 30,
2018
|
|
Revenues by Channel
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OEMs
|
|
$
|
1,568
|
|
|
$
|
1,971
|
|
|
$
|
5,571
|
|
|
$
|
5,801
|
|
Distributors
|
|
|
411
|
|
|
|
477
|
|
|
|
1,388
|
|
|
|
1,406
|
|
Retailers
|
|
|
334
|
|
|
|
355
|
|
|
|
1,060
|
|
|
|
1,142
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,313
|
|
|
$
|
2,803
|
|
|
$
|
8,019
|
|
|
$
|
8,349
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues by Geography
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas
|
|
$
|
796
|
|
|
$
|
912
|
|
|
$
|
2,533
|
|
|
$
|
2,700
|
|
EMEA
|
|
|
448
|
|
|
|
522
|
|
|
|
1,563
|
|
|
|
1,561
|
|
Asia Pacific
|
|
|
1,069
|
|
|
|
1,369
|
|
|
|
3,923
|
|
|
|
4,088
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,313
|
|
|
$
|
2,803
|
|
|
$
|
8,019
|
|
|
$
|
8,349
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Revenue is attributed to countries based on bill from locations.
|
|
11.
|
Share-based Compensation
|
The Company recorded approximately $28 million and $73 million of share-based compensation expense during the three and nine
months ended March 29, 2019, respectively. The Company recorded approximately $26 million and $85 million of share-based compensation expense during the three and nine months ended March 30, 2018, respectively.
Indemnifications of Officers and Directors
On
May 4, 2009, Seagate Technology, an exempted company incorporated with limited liability under the laws of the Cayman Islands (Seagate-Cayman), then the parent company, entered into a new form of indemnification agreement (the
Revised Indemnification Agreement) with its officers and directors of Seagate-Cayman and its subsidiaries (each, an Indemnitee). The Revised Indemnification Agreement provides indemnification in addition to any of
Indemnitees indemnification rights under Seagate-Caymans 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 or in the right of Seagate-Cayman or any of its subsidiaries, arising out of his or her service as a director, officer, employee or agent of
Seagate-Cayman or any of its subsidiaries or of any other entity to which he or she provides services at Seagate-Caymans request. However, an Indemnitee shall not be indemnified under the Revised Indemnification Agreement for (i) any
fraud or dishonesty in the performance of Indemnitees duty to Seagate-Cayman or the applicable subsidiary of Seagate-Cayman or (ii) Indemnitees conscious, intentional or willful failure to act honestly, lawfully and in good faith
with a view to the best interests of Seagate-Cayman or the applicable subsidiary of Seagate-Cayman. In addition, the Revised Indemnification Agreement provides that Seagate-Cayman will advance expenses incurred by an Indemnitee in connection with
enforcement of the Revised Indemnification Agreement or with the investigation, settlement or appeal of any action or proceeding against him or her as to which he or she could be indemnified.
28
On July 3, 2010, pursuant to a corporate reorganization, the common shareholders
of Seagate-Cayman became ordinary shareholders of the Company and Seagate-Cayman became a wholly owned subsidiary of the Company, as described more fully in the Current Report on
Form 8-K filed
by
the Company on July 6, 2010 (the Redomestication). On July 27, 2010, in connection with the Redomestication, the Company, as sole shareholder of Seagate-Cayman, approved a form of deed of indemnity (the Deed of
Indemnity), which provides for the indemnification by Seagate-Cayman of any director, officer, employee or agent of the Company, Seagate-Cayman or any subsidiary of the Company (each, a Deed Indemnitee), in addition to any
indemnification rights of a Deed Indemnitee under the Companys Articles of Association, applicable law or otherwise, with a similar scope to the Revised Indemnification Agreement. Seagate-Cayman entered into Deeds of Indemnity with certain
Deed Indemnitees effective as of July 3, 2010 and continues to enter into Deeds of Indemnity with additional Deed Indemnitees from time to time.
The nature of these indemnification obligations prevents the Company from making a reasonable estimate of the maximum potential amount it
could be required to pay on behalf of its officers and directors. Historically, the Company has not made any significant indemnification payments under such agreements and no amount has been accrued in the Companys 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 Companys condensed consolidated financial statements with respect to these indemnification obligations.
Product Warranty
The Company estimates
probable product warranty costs at the time revenue is recognized. The Company generally warrants its products for a period of 1 to 5 years. The Company uses estimated repair or replacement costs and uses statistical modeling to estimate product
return rates in order to determine its warranty obligation. Changes in the Companys product warranty liability during the three and nine months ended March 29, 2019 and March 30, 2018 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended
|
|
|
For the Nine Months Ended
|
|
(Dollars in millions)
|
|
March 29,
2019
|
|
|
March 30,
2018
|
|
|
March 29,
2019
|
|
|
March 30,
2018
|
|
Balance, beginning of period
|
|
$
|
222
|
|
|
$
|
236
|
|
|
$
|
237
|
|
|
$
|
233
|
|
Warranties issued
|
|
|
24
|
|
|
|
36
|
|
|
|
89
|
|
|
|
111
|
|
Repairs and replacements
|
|
|
(23
|
)
|
|
|
(26
|
)
|
|
|
(75
|
)
|
|
|
(80
|
)
|
Changes in liability for
pre-existing
warranties, including
expirations
|
|
|
(11
|
)
|
|
|
(11
|
)
|
|
|
(39
|
)
|
|
|
(29
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of period
|
|
$
|
212
|
|
|
$
|
235
|
|
|
$
|
212
|
|
|
$
|
235
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29
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 restricted stock units and performance-based share units and shares to be purchased under the Companys Employee Stock
Purchase Plan (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
Companys 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended
|
|
|
For the Nine Months Ended
|
|
(In millions, except per share data)
|
|
March 29,
2019
|
|
|
March 30,
2018
|
|
|
March 29,
2019
|
|
|
March 30,
2018
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
195
|
|
|
$
|
381
|
|
|
$
|
1,029
|
|
|
$
|
721
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of shares used in per share calculations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total shares for purposes of calculating basic net income per share
|
|
|
281
|
|
|
|
286
|
|
|
|
284
|
|
|
|
288
|
|
Weighted-average effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee equity award plans
|
|
|
3
|
|
|
|
5
|
|
|
|
4
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total shares for purpose of calculating diluted net income per share
|
|
|
284
|
|
|
|
291
|
|
|
|
288
|
|
|
|
291
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.69
|
|
|
$
|
1.33
|
|
|
$
|
3.62
|
|
|
$
|
2.50
|
|
Diluted
|
|
$
|
0.69
|
|
|
$
|
1.31
|
|
|
$
|
3.57
|
|
|
$
|
2.48
|
|
The anti-dilutive shares related to employee equity award plans that were excluded from the computation
of diluted net income per share were less than 1 million for the three and nine months ended March 29, 2019, and approximately 1 million for the three and nine months ended March 30, 2018.
14.
|
Legal, Environmental and Other Contingencies
|
The Company assesses the probability of an unfavorable outcome of all its material litigation, claims, or assessments to determine whether
a liability had been incurred and whether it is probable that one or more future events will occur confirming the fact of the loss. In the event that an unfavorable outcome is determined to be probable and the amount of the loss can be reasonably
estimated, the Company establishes an accrual for the litigation, claim or assessment. In addition, in the event an unfavorable outcome is determined to be less than probable, but reasonably possible, the Company will disclose an estimate of the
possible loss or range of such loss; however, when a reasonable estimate cannot be made, the Company will provide disclosure to that effect. Litigation is inherently uncertain and may result in adverse rulings or decisions. Additionally, the Company
may enter into settlements or be subject to judgments that may, individually or in the aggregate, have a material adverse effect on its results of operations. Accordingly, actual results could differ materially.
Intellectual Property Litigation
Convolve,
Inc. (Convolve) and Massachusetts Institute of Technology (MIT) v. Seagate
Technology
LLC, et al.
On July 13, 2000, Convolve and MIT filed suit against Compaq Computer Corporation and Seagate Technology LLC in the U.S. District Court for the Southern District of New York, alleging
infringement of U.S. Patent No. 4,916,635 (the 635 patent) and U.S. Patent No. 5,638,267 (the 267 patent), misappropriation of trade secrets, breach of contract, and other claims. On January 16,
2002, Convolve filed an amended complaint, alleging defendants were infringing U.S. Patent No. 6,314,473 (the 473 patent). The district court ruled in 2010 that the 267 patent was out of the case.
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On August 16, 2011, the district court granted in part and denied in part the
Companys motion for summary judgment. On July 1, 2013, the U.S. Court of Appeals for the Federal Circuit: 1) affirmed the district courts 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 courts summary judgment
of non-infringement with
respect to the 473
patent; and 3) remanded the case for further proceedings on the 473 patent. On July 11, 2014, the district court granted the Companys further summary judgment motion regarding the 473 patent. On February 10, 2016,
the U.S. Court of Appeals for the Federal Circuit: 1) affirmed the district courts summary judgment of no direct infringement by Seagate because Seagates ATA/SCSI disk drives do not meet the user interface limitation of the
asserted claims of the 473 patent; 2) affirmed the district courts summary judgment
of non-infringement by
Compaqs products as to claims 1, 3, and 5 of the 473 patent because
Compaqs F10 BIOS interface does not meet the commands limitation of those claims; 3) vacated the district courts summary judgment
of non-infringement by
Compaqs accused
products as to
claims 7-15 of
the 473 patent; 4) reversed the district courts summary judgment
of non-infringement based
on intervening
rights; and 5) remanded the case to the district court for further proceedings on the 473 patent. In view of the rulings made by the district court and the Court of Appeals and the uncertainty regarding the amount of damages, if any, that
could be awarded Convolve in this matter, the Company does not believe that it is currently possible to determine a reasonable estimate of the possible range of loss related to this matter.
Lambeth Magnetic Structures LLC v. Seagate Technology (US) Holdings, Inc., et al.
On April 29, 2016, Lambeth Magnetic
Structures LLC filed a complaint against Seagate Technology (US) Holdings, Inc. and Seagate Technology LLC in the U.S. District Court for the Western District of Pennsylvania, alleging infringement of U.S. Patent No. 7,128,988, Magnetic
Material Structures, Devices and Methods. The Company believes the claims asserted in the complaint are without merit and intends to vigorously defend this case. The court issued its claim construction ruling on October 18, 2017. No
trial date has been set. While the possible range of loss for this matter remains uncertain, the Company estimates the amount of loss to be immaterial to the financial statements.
Environmental Matters
The Companys
operations are subject to U.S. 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 Companys 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 Companys 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 July 1, 2006. Similar legislation has been or may be enacted in other jurisdictions,
including in the United States, Canada, Mexico, Taiwan, China, Japan and others. The European Union REACH Directive (Registration, Evaluation, Authorization, and Restriction of Chemicals, EC 1907/2006) also restricts substances of very high concern
(SVHCs) 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 Companys business.
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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.
Unconditional Long-term Purchase Obligations
As
of March 29, 2019, the Company had unconditional long-term purchase obligations of approximately $196 million, primarily related to purchase minimum quarterly amounts of inventory components at fixed contractual prices. The Company expects
the commitment to total $2 million, $13 million, $8 million, $50 million, $48 million and $75 million for fiscal years 2020, 2021, 2022, 2024, 2025 and thereafter, respectively.
Unconditional Long-term Capital Expenditures
As of March 29, 2019, the Company had $16 million of unconditional long-term commitment primarily related to purchases of
equipment.
Dividend Declared
On April 30, 2019, the
Companys Board of Directors declared a quarterly cash dividend of $0.63 per share, which will be payable on July 3, 2019 to shareholders of record as of the close of business on June 19, 2019.
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