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____________________________ 

___________________________ 

☒ QUARTERLY REPORT     PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 For the transition period from:                to                

 _______________________________________

(Exact name of registrant as specified in its charter)

 _______________________________________

(Address of principal executive offices)

(Zip Code)

 

(Registrant’s telephone number, including area code)

_______________________________________ 

_______________________________________ 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer			☒			Accelerated filer			☐
Non-accelerated filer			☐			Smaller reporting company			☐
Emerging growth company			☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.									☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of October 23, 2023, 209,183,986 of the registrant’s ordinary shares, par value $0.00001 per share, were issued and outstanding.

(In millions, except per share data)

(Unaudited)

			For the Three Months Ended
			September 29, 2023						September 30, 2022
Revenue			$	1,454					$	2,035
Cost of revenue			1,305						1,553
Product development			171						234
Marketing and administrative			105						129
Amortization of intangibles			—						3
Restructuring and other, net			2						9
Total operating expenses			1,583						1,928
(Loss) income from operations			(129)						107
Interest income			2						1
Interest expense			(84)						(71)
Net gain recognized from termination of interest rate swap			104						—
Net loss recognized from early redemption of debt			(29)						—
Other, net			(11)						(10)
Other expense, net			(18)						(80)
(Loss) income before income taxes			(147)						27
Provision for (benefit from) income taxes			37						(2)
Net (loss) income			$	(184)					$	29
Net (loss) income per share:
Basic			$	(0.88)					$	0.14
Diluted			$	(0.88)					$	0.14
Number of shares used in per share calculations:
Basic			208						208
Diluted			208						210

(Unaudited)

			For the Three Months Ended
			September 29, 2023						September 30, 2022
Net (loss) income			$	(184)					$	29
Other comprehensive income (loss), net of tax:
Change in net unrealized (losses) gains on cash flow hedges:
Net unrealized (losses) gains arising during the period			(22)						32
(Gains) losses reclassified into earnings			(92)						5
Net change			(114)						37
Change in unrealized components of post-retirement plans:
Net unrealized gains arising during the period			—						1
Net change			—						1
Foreign currency translation adjustments			1						(1)
Total other comprehensive (loss) income, net of tax			(113)						37
Comprehensive (loss) income			$	(297)					$	66

(Unaudited)

			For the Three Months Ended
			September 29, 2023						September 30, 2022
OPERATING ACTIVITIES
Net (loss) income			$	(184)					$	29
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Depreciation and amortization			76						135
Share-based compensation			25						29
Deferred income taxes			28						(5)
Net loss on redemption and repurchase of debt			7						—
Other non-cash operating activities, net			(50)						13
Changes in operating assets and liabilities:
Accounts receivable, net			100						434
Inventories			88						(41)
Accounts payable			(70)						(300)
Accrued employee compensation			(12)						(146)
Accrued expenses, income taxes and warranty			54						4
Other assets and liabilities			65						93
Net cash provided by operating activities			127						245
INVESTING ACTIVITIES
Acquisition of property, equipment and leasehold improvements			(70)						(133)
Proceeds from the sale of assets			—						1
Purchases of investments			—						(1)
Net cash used in investing activities			(70)						(133)
FINANCING ACTIVITIES
Redemption and repurchase of debt			(1,288)						—
Dividends to shareholders			(145)						(147)
Repurchases of ordinary shares			—						(408)
Taxes paid related to net share settlement of equity awards			(25)						(39)
Proceeds from issuance of long-term debt			1,500						600
Proceeds from issuance of ordinary shares under employee stock plans			35						29
Other financing activities, net			(126)						(1)
Net cash (used in) provided by financing activities			(49)						34
Effect of foreign currency exchange rate changes on cash, cash equivalents and restricted cash			1						—
Increase in cash, cash equivalents and restricted cash			9						146
Cash, cash equivalents and restricted cash at the beginning of the period			788						617
Cash, cash equivalents and restricted cash at the end of the period			$	797					$	763

For the Three Months Ended September 29, 2023 and September 30, 2022

(Unaudited)

						Number of Ordinary Shares						Par Value of Shares						Additional Paid-in Capital						Accumulated Other Comprehensive (Loss) Income						Accumulated Deficit						Total
Balance at June 30, 2023						207						$	—					$	7,373					$	98					$	(8,670)					$	(1,199)
Net loss																														(184)						(184)
Other comprehensive loss																								(113)												(113)
Issuance of ordinary shares under employee share plans						2												35																		35
Capped calls related to the issuance of convertible notes																		(95)																		(95)
Tax withholding related to vesting of restricted share units						—																								(25)						(25)
Dividends to shareholders ($0.70 per ordinary share)																														(146)						(146)
Share-based compensation																		25																		25
Balance at September 29, 2023						209						$	—					$	7,338					$	(15)					$	(9,025)					$	(1,702)

(Unaudited)

1.Basis of Presentation and Summary of Significant Accounting Policies

Seagate Technology Holdings plc (“STX”) and its subsidiaries (collectively, unless the context otherwise indicates, the “Company”) is a leading provider of data storage technology and infrastructure 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 and offers storage solutions such as a scalable edge-to-cloud mass data platform that includes data transfer shuttles and a storage-as-a-service cloud.

HDDs are devices that store digitally encoded data on rapidly rotating disks with magnetic surfaces. HDDs continue to be the primary medium of mass data storage due to their performance attributes, reliability, high capacities, superior quality and cost effectiveness. Complementing HDD storage architectures, SSDs use NAND flash memory integrated circuit assemblies to store data.

The Company’s HDD products are designed for mass capacity storage and legacy 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 the Company continues to sell to but does not plan to invest in significantly. The Company’s HDD and SSD product portfolio includes Serial Advanced Technology Attachment (“SATA”), Serial Attached SCSI (“SAS”) and Non-Volatile Memory Express (“NVMe”) based designs to support a wide variety of mass capacity and legacy applications.

The Company’s systems portfolio includes storage subsystems for enterprises, cloud service providers (“CSPs”), scale-out storage servers and original equipment manufacturers (“OEMs”). Engineered for modularity, mobility, capacity and performance, these solutions include the Company’s 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.

The Company’s 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 and a storage-as-a-service cloud offering that provides frictionless mass capacity storage at the metro edge.

The unaudited Condensed Consolidated Financial Statements of the Company and the accompanying notes were prepared in accordance with United States (“U.S.”) Generally Accepted Accounting Principles (“GAAP”). The Company’s 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. GAAP requires management to make estimates and assumptions that affect the amounts reported in the Company’s 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 Company’s Consolidated Financial Statements for the fiscal year ended June 30, 2023 are included in its Annual Report on Form 10-K, as filed with the U.S. Securities and Exchange Commission (“SEC”) on August 4, 2023. The Company believes that the disclosures included in these unaudited Condensed Consolidated Financial Statements, when read in conjunction with its Consolidated Financial Statements as of June 30, 2023, and the notes thereto, are adequate to make the information presented not misleading. The results of operations for the three months ended September 29, 2023 are not necessarily indicative of the results to be expected for any subsequent interim period or for the Company’s fiscal year ending June 28, 2024.

The Company operates and reports financial results on a fiscal year of 52 or 53 weeks ending on the Friday closest to June 30. In fiscal years with 53 weeks, the first quarter consists of 14 weeks and the remaining quarters consist of 13 weeks each. Both the three months ended September 29, 2023 and September 30, 2022 consisted of 13 weeks. Fiscal years 2024 and 2023 both comprise 52 weeks and end on June 28, 2024 and June 30, 2023, respectively. The fiscal quarters ended September 29, 2023, June 30, 2023 and September 30, 2022, are also referred to herein as the “September 2023 quarter”, the “June 2023 quarter” and the “September 2022 quarter”, respectively.

Except for the change in the Company’s other long-lived assets policies described below, there have been no material changes to the Company’s 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 Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2023, as filed with the SEC on August 4, 2023.

In accordance with its policy, the Company reviews the estimated useful lives of its fixed assets on an ongoing basis. Effective from the first quarter of fiscal year 2024, the Company changed the useful lives of certain manufacturing equipment from a range of three to seven years to a range of three to ten years based on its review of technology product roadmap. The effect of this change in estimate increased the net income and diluted earnings per share by approximately $10 million and $0.05, respectively, for the three months ended September 29, 2023.

In September 2022, the FASB issued ASU 2022-04 (ASC Subtopic 405-50), Disclosure of Supplier Finance Program Obligations. This ASU requires disclosure of key terms of the outstanding supplier finance programs and a roll forward of the related obligations. The Company adopted this guidance in the quarter ended September 29, 2023. The adoption of this ASU did not have a material impact on the Company’s Condensed Consolidated Financial Statements.

2.Balance Sheet Information

The following table summarizes, by major type, the fair value and amortized cost of the Company’s available-for-sale debt investments as of September 29, 2023 and June 30, 2023:

As of September 29, 2023 and June 30, 2023, the Company’s Other current assets included $2 million in restricted cash equivalents held as collateral at banks for various performance obligations.

As of September 29, 2023 and June 30, 2023, the Company had no 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 impairment related to credit losses for available-for-sale debt securities as of September 29, 2023.

The fair value and amortized cost of the Company’s investments classified as available-for-sale debt securities as of September 29, 2023, by remaining contractual maturity were as follows:

The following table provides a summary of cash, cash equivalents and restricted cash reported within the Company’s Condensed Consolidated Balance Sheets that reconciles to the corresponding amount in the Company’s Condensed Consolidated Statements of Cash Flows:

In connection with the Company’s factoring agreements, from time to time the Company sells trade receivables to a third party for cash proceeds less a discount. During the three months ended September 29, 2023, the Company sold trade receivables without recourse for cash proceeds of $292 million. As of September 29, 2023, the total amount that remained subject to servicing by the Company was $363 million. During the three months ended September 30, 2022, the Company sold trade receivables without recourse for cash proceeds of $200 million. As of September 30, 2022, the total amount that remained subject to servicing by the Company was $237 million. The discounts on receivables sold were not material for the three months ended September 29, 2023 and September 30, 2022, respectively.

The following table provides details of the inventory balance sheets item:

The following table provides details of the other current assets balance sheets item:

The components of property, equipment and leasehold improvements, net, were as follows:

During the September 2023 quarter, the Company recognized a charge of $13 million for the accelerated depreciation of certain fixed assets, which was recorded to Cost of revenue in the Condensed Consolidated Statements of Operations. During the September 2022 quarter, the Company recognized a charge of $22 million for the accelerated depreciation of certain fixed assets, which was recorded to Operating expense in the Condensed Consolidated Statements of Operations.

The following table provides details of the accrued expenses balance sheets item:

The components of AOCI, net of tax, were as follows:

3.Debt

The following table provides details of the Company’s debt as of September 29, 2023 and June 30, 2023:

(Dollars in millions)						September 29, 2023						June 30, 2023
Unsecured Senior Notes(1)
$1,000 issued on May 28, 2014 at 4.75% due January 1, 2025 (the “2025 Notes”), interest payable semi-annually on January 1 and July 1 of each year.						$	479					$	479
$700 issued on May 14, 2015 at 4.875% due June 1, 2027 (the “2027 Notes”), interest payable semi-annually on June 1 and December 1 of each year.						504						504
$500 issued on June 18, 2020 at 4.091% due June 1, 2029 (the “June 2029 Notes”), interest payable semi-annually on June 1 and December 1 of each year.						467						465
$500 issued on December 8, 2020 at 3.125% due July 15, 2029 (the “July 2029 Notes”), interest payable semi-annually on January 15 and July 15 of each year.						163						163
$500 issued on May 30, 2023 at 8.25% due December 15, 2029 (the “December 2029 Notes”), interest payable semi-annually on June 15 and December 15 of each year.						500						500
$500 issued on June 10, 2020 at 4.125% due January 15, 2031 (the “January 2031 Notes”), interest payable semi-annually on January 15 and July 15 of each year.						275						275
$500 issued on December 8, 2020 at 3.375% due July 15, 2031 (the “July 2031 Notes”), interest payable semi-annually on January 15 and July 15 of each year.						72						72
$500 issued on May 30, 2023 at 8.50% due July 15, 2031 (the “8.50% July 2031 Notes”), interest payable semi-annually on January 15 and July 15 of each year.						500						500
$750 issued on November 30, 2022 at 9.625% due December 1, 2032 (the “2032 Notes”), interest payable semi-annually on June 1 and December 1 of each year.						750						750
$500 issued on December 2, 2014 at 5.75% due December 1, 2034 (the “2034 Notes”), interest payable semi-annually on June 1 and December 1 of each year.						489						489
Convertible Senior Notes(1)
$1,500 issued on September 13, 2023 at 3.50% due June 1, 2028 (the “2028 Notes”), interest payable semi-annually on March 1 and September 1 of each year.						1,500						—
Term Loans
$600 borrowed on October 14, 2021 at SOFR plus a variable margin ranging from 1.125% to 2.375%, (the “Term Loan A1”), repayable in quarterly installments beginning on December 31, 2022, with a final maturity date of September 16, 2025.						—						430
$600 borrowed on October 14, 2021 at SOFR plus a variable margin ranging from 1.25% to 2.5%, (the “Term Loan A2”), repayable in quarterly installments beginning on December 31, 2022, with a final maturity date of July 30, 2027.						—						430
$600 borrowed on August 18, 2022 at SOFR plus a variable margin ranging from 1.25% to 2.5%, (the “Term Loan A3”), repayable in quarterly installments beginning on December 31, 2022, with a final maturity date of July 30, 2027.						—						430
						5,699						5,487
Less: unamortized debt issuance costs						(33)						(36)
Debt, net of debt issuance costs						5,666						5,451
Less: current portion of long-term debt						—						(63)
Long-term debt, less current portion						$	5,666					$	5,388

_____________________________

(1) All unsecured senior notes and convertible senior notes are issued by Seagate HDD Cayman (“Seagate HDD”), and the obligations under these notes are fully and unconditionally guaranteed, on a senior unsecured basis, by Seagate Technology Unlimited Company (“STUC”) and STX.

2028 Notes. On September 13, 2023, Seagate HDD, in a private placement, issued $1.5 billion in aggregate principal amount of 3.50% Convertible Senior Notes due 2028 (the “2028 Notes”), which includes $200 million aggregate principal amount pursuant to the over-allotment option of the initial purchasers to purchase additional notes. The 2028 Notes will mature on June 1, 2028, with interest payable semi-annually on March 1 and September 1 of each year, commencing March 1, 2024.

The entire outstanding principal amount of Term Loans A1, A2 and A3 were repaid from the proceeds of the 2028 Notes issuance. The exchange was accounted for as a debt extinguishment and the Company recorded a net loss of $29 million, which was included in the Net loss recognized from early redemption of debt in the Company’s Condensed Consolidated Statements of Operations for the first quarter of fiscal year 2024. In connection with the repayment of Term Loans, the Company terminated its interest rate swap agreements. Refer to “Note 6. Derivative Financial Instruments” for more details.

Prior to March 1, 2028, the 2028 Notes are convertible at the option of the holders only under certain circumstances as set forth in the indenture with respect to the 2028 Notes. On or after March 1, 2028, the 2028 Notes are convertible at any time at the option of the holders until the close of business on the second scheduled trading day immediately preceding the maturity date, unless the 2028 Notes have been previously redeemed or repurchased by Seagate HDD. Upon exchange of the 2028 Notes, Seagate HDD will pay cash up to the aggregate principal amount of 2028 Notes to be exchanged and will pay or cause to be delivered, as the case may be, cash, ordinary shares of the Company or a combination of cash and ordinary shares of the Company, at Seagate HDD’s election, in respect of any remainder of the exchange obligation in excess of such principal amount. The initial exchange rate for the 2028 Notes is 12.1253 ordinary shares per $1,000 principal amount of 2028 Notes.

Seagate HDD may redeem the 2028 Notes at its option, in whole but not in part, if Seagate HDD or the Guarantors have, or on the next interest payment date would, become obligated to pay to the holder of any Note additional amounts as a result of certain tax-related events at a redemption price equal to 100% of the principal amount plus accrued and unpaid interest, including additional interest, if any, to, but excluding, the redemption date; provided that Seagate HDD may only redeem the Notes if: (x) Seagate HDD or the relevant Guarantor cannot avoid these obligations by taking commercially reasonable measures available to Seagate HDD or such Guarantor; and (y) Seagate HDD delivers to the Trustee an opinion of outside legal counsel of recognized standing in the relevant taxing jurisdiction attesting to such tax-related event and obligation to pay additional amounts.

Seagate HDD also may redeem the 2028 Notes at its option on or after September 8, 2026, in whole or in part, if the last reported sale price of ordinary shares of the Company has been at least 130% of the exchange price then in effect for at least 20 trading days (whether or not consecutive), including the trading day immediately preceding the date on which Seagate HDD provides notice of redemption, during any 30 consecutive trading day period ending on, and including, the trading day immediately preceding the date on which Seagate HDD provides notice of redemption at a redemption price equal to 100% of the principal amount of the Notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date. If Seagate HDD redeems less than all the outstanding 2028 Notes, at least $150 million aggregate principal amount of 2028 Notes must be outstanding and not subject to redemption as of the relevant notice of redemption date.

In connection with the 2028 Notes, the Company and Seagate HDD entered into privately negotiated capped call transactions with certain financial institutions. The cap price of the capped call transactions will initially be $107.848 per share, which represents a premium of approximately 70% over the last reported sale price of the ordinary shares of $63.44 per share on the Nasdaq Global Market on September 7, 2023. The cost of the capped call transactions was $95 million, which met certain accounting criteria to be accounted under Additional Paid-in Capital as part of the Shareholders’ Deficit and are not accounted as derivatives in the Company’s Condensed Consolidated Balance Sheets as of September 29, 2023.

On September 27, 2023, Seagate Technology Holdings plc and Seagate HDD entered into an amendment to its credit agreement, dated September 20, 2019 (the “Tenth Amendment”). Under the Tenth Amendment, the maximum permitted total net leverage ratio is 6.75 to 1.00 for the fiscal quarter ending September 29, 2023. For the fiscal quarters ending December 29, 2023 and March 29, 2024, the total net leverage ratio covenant will not apply. For the fiscal quarters ending June 28, 2024 until the end of the covenant relief period, which terminates on June 27, 2025, the maximum permitted total net leverage ratio is 6.75 to 1.00, and applies only to the extent that the aggregate outstanding amount of revolving loans, swing line loans and the aggregate face amount of certain letters of credit exceeds 25% of the then outstanding revolving commitments in effect (the “Testing Condition”) as of the last day of the fiscal quarter. The maximum permitted total leverage ratio for each fiscal quarter ending after June 27, 2025 is 4.00 to 1.00.

The minimum interest coverage ratio is 2.25 to 1.00 for the fiscal quarter ending September 29, 2023. For the fiscal quarters ending December 29, 2023 and March 29, 2024, the minimum interest coverage ratio covenant will not apply. For the fiscal quarters ending June 28, 2024 until June 27, 2025, the minimum interest coverage ratio is 2.25 to 1.00, and applies only to the extent that the Testing Condition is satisfied as of the last day of the fiscal quarter. The minimum interest coverage ratio is 3.25 to 1.00 for each fiscal quarter ending after June 27, 2025.

The Tenth Amendment also removed the minimum liquidity covenant of $700 million. As of September 29, 2023, the Tenth Amendment includes two financial covenants: (1) interest coverage ratio and (2) total net leverage ratio. The Company was in compliance with the covenants as of September 29, 2023.

At September 29, 2023, future principal payments on long-term debt were as follows (in millions):

4.Income Taxes

The Company recorded an income tax provision of $37 million for the three months ended September 29, 2023. The income tax provision included approximately $33 million of net discrete expense, primarily associated with an increase in the Company’s valuation allowance to account for the impacts of new tax guidance which clarifies the treatment of specified research and experimental expenditures issued by the U.S. Treasury Department under Internal Revenue Code Section 174 during the September 2023 quarter, partially offset by excess tax benefits related to share-based compensation expense. The Company will have income taxes payable based on profits generated in various jurisdictions.

During the three months ended September 29, 2023, the Company’s unrecognized tax benefits excluding interest and penalties decreased by approximately $9 million to $107 million, substantially all of which would impact the effective tax rate, if recognized, subject to certain future valuation allowance reversals. The Company is not expecting material changes to its unrecognized tax benefits in the next twelve months beginning September 30, 2023.

The Company’s income tax benefit of $2 million for the three months ended September 30, 2022 included approximately $7 million of net discrete tax benefit, primarily associated with excess tax benefits related to share-based compensation expense.

The Company’s income tax provision recorded for the three months ended September 29, 2023 and September 30, 2022 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 tax benefits related to (i) non-Irish earnings generated in jurisdictions that are subject to tax incentive programs and are considered indefinitely reinvested outside of Ireland and (ii) increase in valuation allowance.

5.Restructuring and Exit Costs

The Company recorded restructuring and other, net of $2 million and $9 million, for the three months ended September 29, 2023 and September 30, 2022, respectively on the Company’s Condensed Consolidated Statements of Operations. The Company’s restructuring plans are comprised primarily of charges related to workforce reduction costs, including severance and other one-time termination benefits, facilities and other exit costs. The Company’s significant restructuring plans are described below.

October 2022 Plan - On October 24, 2022, the Company committed to an October 2022 restructuring plan (the “October 2022 Plan”) to reduce its cost structure to better align the Company’s operational needs to current economic conditions while continuing to support the long-term business strategy. On March 29, 2023, in light of further deteriorating economic conditions, the Company committed to an expansion of the October 2022 Plan to further reduce its global headcount by approximately 480 employees to a total reduction of approximately 3,480 employees. This expanded plan included aligning its business plan to near-term market conditions, along with other cost saving measures. The October 2022 Plan was substantially completed by the end of fiscal year 2023.

April 2023 Plan - On April 20, 2023, the Company committed to an April 2023 restructuring plan (the “April 2023 Plan”) to further reduce its cost structure in response to changes in macroeconomic and business conditions. The April 2023 Plan was intended to align the Company’s operational needs with the near-term demand environment while continuing to support the long-term business strategy. The April 2023 Plan was substantially completed by the end of fiscal year 2023.

The following table summarizes the Company’s restructuring activities under its active restructuring plans:

Of the accrued restructuring balance of $32 million at September 29, 2023, $30 million was included in Accrued expenses and $2 million was included in Other non-current liabilities in the Company’s Condensed Consolidated Balance Sheets. Of the accrued restructuring balance of $119 million at June 30, 2023, $117 million was included in Accrued expenses and $2 million was included in Other non-current liabilities in the Company’s Condensed Consolidated Balance Sheets.

6.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 Company 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 was 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. On September 13, 2023, the Company terminated its then existing interest rate swap agreements relating to Term Loans A1, A2 and A3 and received cash proceeds of $25 million from the counterparty. The cash proceeds are reported within Net cash provided by operating activities in the Company’s Condensed Consolidated Statements of Cash Flows during the three months ended September 29, 2023. The Company discontinued the related hedge accounting prospectively and realized a net gain of $104 million in Net gain recognized from termination of interest rate swap in the Condensed Consolidated Statements of Operations during the three months ended September 29, 2023. Additionally, $6 million of the gains were amortized to Interest expense prior to the termination of interest rate swap in the Company’s Condensed Consolidated Statements of Operations. Refer to “Note 3. Debt” for more details.

As of September 29, 2023, the Company does not have any interest rate swap contracts.

The Company’s 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 on its Condensed Consolidated Balance Sheets at fair value. The changes in the fair value of highly effective designated cash flow hedges are recorded in AOCI 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 $14 million as of September 29, 2023 and the amount of net unrealized gain on cash flow hedges was $12 million as of June 30, 2023. As of September 29, 2023, the amount of existing net losses related to cash flow hedges recorded in AOCI included a net loss of $14 million that is expected to be reclassified to earnings within twelve months.

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 AOCI on the Company’s Condensed Consolidated Balance Sheets are reclassified into earnings and any subsequent changes in the fair value of such derivative instruments are immediately reflected in earnings.

The following tables show the effect of the Company’s derivative instruments on the Condensed Consolidated Statements of Comprehensive Income and the Condensed Consolidated Statements of Operations for the three months ended September 29, 2023:

(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)(1)						Amount of Gain/(Loss) Recognized in Income (Ineffective Portion and Amount Excluded from Effectiveness Testing)
Foreign currency forward exchange contracts						$	(7)								Cost of revenue						$	(1)								Other, net						$	—
Interest rate swap						(15)									Interest expense						11									Net gain recognized from termination of interest rate swap						104

_____________________________

(1)The net gain recognized into earnings as a result of the discontinuance of interest rate swap during the three months ended September 29, 2023.

The following tables show the effect of the Company’s derivative instruments on the Condensed Consolidated Statements of Comprehensive Income and the Condensed Consolidated Statements of Operations for the three months ended September 30, 2022:

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 forecasted expenditures denominated in currencies other than the U.S. dollar. The Company also enters into foreign currency forward contracts with contractual maturities of less than one month, which are designed to mitigate the effect of changes in foreign exchange rates on monetary assets and liabilities. The Company recognizes gains and losses on these contracts, as well as the related costs, in Other, net on its Condensed Consolidated Statements of Operations.

The following tables show the total notional value of the Company’s outstanding foreign currency forward exchange contracts as of September 29, 2023 and June 30, 2023. All of the foreign currency forward exchange contracts mature within 12 months.

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 plan: the Seagate Deferred Compensation Plan (the “SDCP”). In fiscal year 2014, the Company entered into a Total Return Swap (“TRS”) in order to manage the equity market risks associated with the SDCP’s liabilities. The Company pays a floating rate, based on SOFR plus an interest rate spread, on the notional amount of the TRS. The TRS is designed to substantially offset changes in the SDCP’s liabilities due to changes in the value of the investment options made by employees. As of September 29, 2023, the notional investments underlying the TRS amounted to $101 million and the contract term is through January 2024, settled on a monthly basis, limiting counterparty performance risk. The Company did not designate the TRS as a hedge. Rather, the Company records all changes in the fair value of the TRS to earnings to offset the market value changes of the SDCP’s liabilities.

The following tables show the Company’s derivative instruments measured at gross fair value as reflected in the Condensed Consolidated Balance Sheets as of September 29, 2023 and June 30, 2023:

7.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.

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 Company’s own assumptions of market participant valuation (unobservable inputs). A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The three levels of inputs that may be used to measure fair value are:

Level 1 — Quoted prices in active markets that are unadjusted and accessible at the measurement date for identical, unrestricted assets or liabilities;

Level 2 — Quoted prices for identical assets and liabilities in markets that are inactive; quoted prices for similar assets and liabilities in active markets or financial instruments for which significant inputs are observable, either directly or indirectly; or

Level 3 — Prices or valuations that require inputs that are both unobservable and significant to the fair value measurement.

The Company considers an active market to be one in which transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis and views an inactive market as one in which there are few transactions for the asset or liability, the prices are not current, or price quotations vary substantially either over time or among market makers. Where appropriate, the Company’s or the counterparty’s non-performance risk is considered in determining the fair values of liabilities and assets, respectively.

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: