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PART IV

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K



(Mark One)    
ý   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 27, 2014
OR
o   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                                  to                                   
Commission File No. 001-31560

SEAGATE TECHNOLOGY PUBLIC LIMITED COMPANY
(Exact name of registrant as specified in its charter)

Ireland   98-0648577
(State or other jurisdiction of
incorporation or organization)
  (I.R.S. Employer
Identification Number)

38/39 Fitzwilliam Square
Dublin 2, Ireland
(Address of principal executive offices)

Registrant's telephone number, including area code: (353) (1) 234-3136



Securities registered pursuant to Section 12 (b) of the Act:

Title of Each Class   Name of Each Exchange
on Which Registered
Ordinary Shares, par value $0.00001 per share   The NASDAQ Global Select Market

Securities registered pursuant to Section 12(g) of the Act:
None



         Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. YES ý    NO o

         Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934. YES o    NO ý

         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 ý    NO o

         Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 229.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YES ý    NO o

         Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ý

         Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer ý   Accelerated filer o   Non-accelerated filer o
(Do not check if a
smaller reporting company)
  Smaller reporting company o

         Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES o    NO ý

         The aggregate market value of the voting and non-voting ordinary shares held by non-affiliates of the registrant as of December 27, 2013, the last business day of the registrant's most recently completed second fiscal quarter, was approximately $18.3 billion based upon the closing price reported for such date by the NASDAQ.

         The number of outstanding ordinary shares of the registrant as of July 25, 2014 was 326,812,299.

DOCUMENTS INCORPORATED BY REFERENCE

         Portions of the definitive proxy statement to be filed with the Securities and Exchange Commission pursuant to Regulation 14A relating to the registrant's Annual General Meeting of Shareholders, to be held on October 22, 2014, will be incorporated by reference in this Form 10-K in response to Items 10, 11, 12, 13 and 14 of Part III. The definitive proxy statement will be filed with the SEC no later than 120 days after the registrant's fiscal year ended June 27, 2014.


Table of Contents

SEAGATE TECHNOLOGY PLC


TABLE OF CONTENTS

Item
   
  Page No.  

 

PART I

       


1.


 


Business


 

 


4

 


1A.


 


Risk Factors


 

 


17

 


1B.


 


Unresolved Staff Comments


 

 


36

 


2.


 


Properties


 

 


37

 


3.


 


Legal Proceedings


 

 


37

 


4.


 


Mine Safety Disclosures


 

 


37

 



 


PART II


 

 


 

 


5.


 


Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities


 

 


38

 


6.


 


Selected Financial Data


 

 


41

 


7.


 


Management's Discussion and Analysis of Financial Condition and Results of Operations


 

 


43

 


7A.


 


Quantitative and Qualitative Disclosures About Market Risk


 

 


60

 


8.


 


Financial Statements and Supplementary Data


 

 


62

 


9.


 


Changes in and Disagreements with Accountants on Accounting and Financial Disclosure


 

 


116

 


9A.


 


Controls and Procedures


 

 


116

 


9B.


 


Other Information


 

 


116

 



 


PART III


 

 


 

 


10.


 


Directors, Executive Officers and Corporate Governance


 

 


117

 


11.


 


Executive Compensation


 

 


117

 


12.


 


Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters


 

 


117

 


13.


 


Certain Relationships and Related Transactions, and Director Independence


 

 


117

 


14.


 


Principal Accountant Fees and Services


 

 


117

 



 


PART IV


 

 


 

 


15.


 


Exhibits and Financial Statement Schedules


 

 


118

 



 


SIGNATURES


 

 


119

 



 


EXHIBIT INDEX


 

 


121

 

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PRESENTATION OF FINANCIAL AND OTHER INFORMATION

        In this Annual Report on Form 10-K (the "Form 10-K"), unless the context indicates otherwise, as used herein, the terms "we," "us," "Seagate," the "Company" and "our" refer to Seagate Technology public limited company ("plc"), an Irish public limited company, and its subsidiaries. References to "$" are to United States dollars.

        We have compiled the market size information in this Form 10-K using statistics and other information obtained from several third-party sources.

        Various amounts and percentages used in this Form 10-K have been rounded and, accordingly, they may not total 100%.

        We own or otherwise have rights to the trademarks and trade names, including those mentioned in this Form 10-K, used in conjunction with the marketing and sale of our products.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

        Some of the statements and assumptions included in this Form 10-K are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 or Section 21E of the Securities Exchange Act of 1934, each as amended, including, in particular, statements about our plans, strategies and prospects and estimates of industry growth for the fiscal year ending July 3, 2015 and beyond contained in "Item 1. Business," "Item 1A. Risk Factors," "Item 3. Legal Proceedings," and "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations." These statements identify prospective information and include words such as "expects," "plans," "anticipates," "believes," "estimates," "predicts," "projects" and similar expressions. These forward-looking statements are based on information available to us as of the date of this report and are based on management's current views and assumptions. These forward-looking statements are conditioned upon and also involve a number of known and unknown risks, uncertainties and other factors that could cause actual results, performance or events to differ materially from those anticipated by such statements. Such risks, uncertainties and other factors may be beyond our control and may pose a risk to our operating and financial condition. Such risks and uncertainties include, but are not limited to;

    the uncertainty in global economic conditions as consumers and businesses may defer purchases in response to tighter credit and financial news;

    the impact of the variable demand and adverse pricing environment for disk drives, particularly in view of current business and economic conditions;

    dependence on our ability to successfully qualify, manufacture and sell our disk drive products in increasing volumes on a cost-effective basis and with acceptable quality, particularly new disk drive products with lower cost structures;

    the impact of competitive product announcements; possible excess industry supply with respect to particular disk drive products; and

    our ability to achieve projected cost savings in connection with restructuring plans.

        Additional risks and uncertainties are set forth and are discussed in more detail in "Item 1A. Risk Factors" of this Form 10-K. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those described in this Annual Report on Form 10-K. These forward-looking statements should not be relied upon as representing our views as of any subsequent date and we undertake no obligation to update forward-looking statements to reflect events or circumstances after the date they were made.

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PART I

ITEM 1.    BUSINESS

        We are a leading provider of electronic data storage solutions. Our principal products are hard disk drives, commonly referred to as disk drives, hard drives or HDDs. 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. In addition to HDDs, we produce a broad range of electronic data storage products including solid state hybrid drives ("SSHD") and solid state drives ("SSD").

        Our products are designed for enterprise servers and storage systems in mission critical and nearline applications; client compute applications, where our products are designed primarily for desktop and mobile computing; and client non-compute applications, where our products are designed for a wide variety of end user devices such as digital video recorders ("DVRs"), personal data backup systems, portable external storage systems and digital media systems.

        We continue to make strategic investments in order to expand our storage solutions, enter new market adjacencies, and expand our technical expertise. As a result of recent acquisitions, our product and solution portfolio for the enterprise data storage industry includes storage enclosures, integrated application platforms and high performance computing ("HPC") data storage solutions. Our storage subsystems support a range of high-speed interconnect technologies to meet demanding cost and performance specifications. Our modular subsystem architecture allows us to support many segments within the networked storage market by enabling different specifications of storage subsystem designs to be created from a standard set of interlocking technology modules.

        In addition to our data storage products and subsystems, we provide data storage services for small to medium-sized businesses, including online backup, data protection and recovery solutions.

Industry Overview

    Electronic Data Storage Industry

        The electronic data storage industry is comprised of companies that manufacture components or subcomponents designed for electronic data storage devices and companies that provide storage solutions, software and services for enterprise cloud, big data and computing platforms.

    Markets

        The principal markets served by the electronic data storage industry are:

        Enterprise Storage.    We define enterprise storage as those solutions which are designed for mission critical and nearline applications.

        Mission critical applications are defined as those that are vital to the operation of large-scale enterprise work loads, requiring high performance and high reliability storage solutions. We expect the market for mission critical enterprise storage solutions to continue to be driven by enterprises utilizing dedicated storage area networks in an effort to reduce network complexity and increase energy savings. We believe that this will continue to drive demand for more energy efficient, smaller form factor solutions. These solutions are comprised principally of high performance enterprise class disk drives with sophisticated firmware and communications technologies.

        Nearline applications are defined as those which require high capacity and energy efficient storage solutions. We expect such applications, which include storage for cloud computing, content delivery and backup services, will continue to grow and drive demand for solutions designed with these attributes. With the increased requirements for storage driven by the creation and consumption of media-rich digital

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content, we expect the increased petabyte demand will require further build-out of datacenters by cloud service providers and other enterprises which utilize high capacity nearline devices.

        Client Compute.    We define client compute applications as solutions designed for desktop and mobile compute applications. We believe that the demand resulting from growing economies of certain countries and the continued proliferation of digital content will continue to drive demand for the client compute market. As the storage of digital content in the cloud becomes more prominent, some client compute applications require less built-in storage, and therefore alternative storage solutions are becoming more prevalent within the client compute market.

        Client Non-Compute.    We define client non-compute applications as solutions designed for consumer electronic devices and disk drives used for external storage and network-attached storage ("NAS"). Disk drives designed for consumer electronic devices are primarily used in applications such as DVRs and surveillance systems that require a higher capacity, low cost-per-gigabyte storage solution. Disk drives for external and NAS devices are designed for purposes such as personal data backup and portable external storage, and to augment storage capacity in the consumer's current desktop, notebook, tablet or DVR disk drive capacities. Client non-compute applications also include devices designed to display digital media in the home theater. We believe the proliferation and personal creation of media-rich digital content will continue to create increasing consumer demand for higher capacity storage solutions.

        Participants in the electronic data storage industry include:

        Major subcomponent manufacturers.    Companies that manufacture components or subcomponents used in electronic data storage devices or solutions include companies that supply spindle motors, heads and media, application specific integrated circuits ("ASICs") and glass substrates.

        Hardware storage solutions manufacturers.    Companies that transform components into storage products include disk drive manufacturers and semiconductor storage manufacturers which include integrating flash memory into storage products such as SSDs.

        System integrators.    Companies that bundle and package storage solutions into client compute, client non-compute or enterprise applications as well as enterprise storage solutions. Distributors that integrate storage hardware and software into end-user applications are also included in this category.

        Storage services.    Companies that provide services and solutions related to the backup, archiving, recovery and discovery of electronic data.

    Demand for Electronic Data Storage

        The continued advancement of cloud, mobile and open source computing are driving the growth of digital content. Factors contributing to this growth are the increased:

    creation and sharing of all types of media-rich digital content, such as high-resolution photos, high definition video and movies, and music by consumers and large amounts of electronic data by enterprises;

    aggregation and distribution of digital content through services and other offerings such as Amazon, Facebook, GoPro, Instagram, iTunes, LinkedIn, Netflix, Pandora and YouTube;

    consumption of digital content through smart phones, tablets, DVRs, and gaming consoles; and

    protection of digital content through storage on backup devices and externally provided storage services.

        As a result of these factors, the nature and amount of content being created requires increasingly higher capacity storage in order to store, manage, distribute, utilize and backup such content. This in turn has resulted in the rapid growth in demand for electronic data storage solutions which we believe will continue to grow in developed countries as well as in emerging economies.

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        The amounts of data created as well as where and how data is stored continues to evolve with the proliferation of mobile devices, the growth of cloud computing, and the evolving Internet of Things. In addition, the economics of storage infrastructure is also evolving with the utilization of public and private hyper-scale storage and open-source solutions reducing the total cost of ownership of storage while increasing the speed and efficiency with which customers can leverage massive computing and storage power. Accordingly, we expect these trends will continue to create significant demand for electronic data storage solutions.

    Demand Trends for Disk Drives

        We believe that continued growth in digital content requires increasingly higher storage capacity in order to store, aggregate, host, distribute, manage, backup and use such content. We also believe that as architectures evolve to serve the growing commercial and consumer user base throughout the world, the manner which hard drives are delivered to market and utilized by our customers will evolve as well.

        We believe that in the foreseeable future the traditional enterprise and client compute markets that require high capacity storage solutions, as well as the data intensive client non-compute markets, will continue to be best served by hard disk drives due to the industry's ability to deliver cost effective, reliable and energy efficient mass storage devices. Furthermore, the increased use of client non-compute devices that consume media-rich digital content streamed from the cloud increases the demand for high capacity disk drives in nearline applications.

    Industry Supply Balance

        From time to time the industry has experienced periods of imbalance between supply and demand. To the extent that the disk drive industry builds capacity based on expectations of demand that do not materialize, price erosion may become more pronounced. Conversely, during periods where demand exceeds supply, price erosion is generally muted.

        In early October 2011, floodwaters north of Bangkok, Thailand inundated many manufacturing industrial parks that contained a number of the factories supporting the HDD industry's supply chain. The HDD industry had concentrated a large portion of its supply chain participants within these industrial parks in an effort to reduce cost and improve logistics. As a result, the inundation of floodwaters into these industrial parks had caused the closure or suspension of production by a number of participants within the HDD supply chain.

        During the supply chain disruption in fiscal year 2012, we believe demand exceeded supply due to the impact from the flooding in Thailand, resulting in an increase in the average selling price ("ASP").

        The industry's ability to manufacture and ship drives had substantially recovered as of the end of fiscal year 2012. In fiscal years 2013 and 2014, we believe the HDD industry's capacity to manufacture HDDs exceeded demand. However, following the impact of the flooding in Thailand and further industry consolidation in fiscal year 2012, the HDD industry has maintained improved pricing discipline resulting in benign price erosion in fiscal years 2013 and 2014.

Our Business

Disk Drive Technology

        The design and manufacturing of disk drives depends on highly advanced technology and manufacturing techniques and therefore requires high levels of research and development spending and capital equipment investments. Manufacturing our disk drives is a complex process that begins with the production of individual components and ends with a fully assembled disk drive. We design, fabricate and assemble a number of the most important components found in our disk drives, including read/write heads and recording media. Our design and manufacturing operations are based on technology platforms that are used to produce various disk drive products that serve multiple data storage applications and markets.

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Our core technology platforms are focused around the areal density of media and read/write head technologies. Using an integrated platform design and manufacturing leverage approach allows us to deliver a portfolio of disk drive products to service a wide range of electronic data storage applications and a wide range of industries.

        Disk drives that we manufacture are commonly differentiated by the following key characteristics:

    storage capacity, commonly expressed in gigabytes (GB) or terabytes (TB), which is the amount of data that can be stored on the disk drive;

    spindle rotation speed, commonly expressed in revolutions per minute (RPM), which has an effect on speed of access to data;

    interface transfer rate, commonly expressed in megabytes per second, which is the rate at which data moves between the disk drive and the computer controller;

    average seek time, commonly expressed in milliseconds, which is the time needed to position the heads over a selected track on the disk surface;

    data transfer rate, commonly expressed in megabytes per second, which is the rate at which data is transferred to and from the disk drive;

    input/output operations per second (IOPS), commonly expressed in megabytes per second, which is the maximum number of reads and writes to a storage location;

    product quality and reliability, commonly expressed in annualized return rates; and

    energy efficiency, commonly measured by the power output necessary to operate the disk drive.

        Areal density is a measure of storage capacity per square inch on the recording surface of a disk. The storage capacity of a disk drive is determined by the number of disks it contains as well as the areal density capability of these disks. We have been pursuing, and will continue to pursue, a number of technologies to increase areal densities across the entire range of our products for expanding disk drive capacities and reducing the number of disks and heads per drive to further reduce product costs.

Manufacturing

        Vertically integrated hard drive manufacturers design and produce their own read/write heads and recording media, which are critical technologies for disk drives. This integrated approach enables manufacturers to lower costs and to improve the functionality of components so that they work together efficiently.

        We believe that because of our vertical design and manufacturing strategy, we are well suited to meet the challenges posed by the close interdependence of components for disk drives. Our manufacturing efficiency and flexibility are critical elements of our integrated business strategy. We continuously seek to improve our manufacturing efficiency and cost by:

    employing manufacturing automation to enhance our efficiency;

    improving product quality and reliability and reducing costs;

    integrating our supply chain with suppliers and customers to enhance our demand visibility and reduce our working capital requirements;

    coordinating between our manufacturing group and our research and development organization to rapidly achieve volume manufacturing; and

    leveraging the facilities we operate and the personnel we employ.

        A vertically integrated model, however, tends to have less flexibility when demand moderates as it exposes us to higher unit costs as capacity utilization is not optimized.

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        Due to the significant challenges posed by the need to continually innovate and improve manufacturing efficiency and the continued demands on capital and research and development investments required to do so, the disk drive industry has undergone significant consolidation as disk drive manufacturers and component manufacturers merged with other companies or exited the industry.

Components and Raw Materials

        Disk drives incorporate certain components, including a head disk assembly and a printed circuit board mounted to the head disk assembly, which are sealed inside a rigid base and top cover containing the recording components in a contamination controlled environment. We maintain a highly integrated approach to our business by designing and manufacturing a significant portion of the components we view as critical to our products, such as recording heads and media.

        Read/Write Heads.    The function of the read/write head is to scan across the disk as it spins, magnetically recording or reading information. The tolerances of recording heads are extremely demanding and require state-of-the-art equipment and processes. Our read/write heads are manufactured with thin-film and photolithographic processes similar to those used to produce semiconductor integrated circuits, though challenges in magnetic film properties and topographical structures are unique to the disk drive industry. We perform all primary stages of design and manufacture of read/write heads at our facilities. We use a combination of internally manufactured and externally sourced read/write heads, the mix of which varies based on product mix, technology and our internal capacity levels.

        Media.    Information is written to the media, or disk, as it rotates at very high speeds past the read/write head. The media is made from non-magnetic material, usually aluminum alloy or glass, and is coated with a thin layer of magnetic material. We use a combination of internally manufactured and externally sourced finished media and aluminum substrates, the mix of which varies based on product mix, technology and our internal capacity levels. We purchase all of our glass substrates from third parties, which we use in the disk drives we make for mobile products.

        Printed Circuit Board Assemblies.    The printed circuit board assemblies (PCBAs) are comprised of standard and custom ASICs and ancillary electronic control chips. The ASICs control the movement of data to and from the read/write heads and through the internal controller and interface, which communicates with the host computer. The ASICs and control chips form electronic circuitry that delivers instructions to a head positioning mechanism called an actuator to guide the heads to the selected track of a disk where the data is recorded or retrieved. Disk drive manufacturers use one or more industry standard interfaces such as serial advanced technology architecture (SATA); small computer system interface (SCSI); serial attached SCSI (SAS); or Fibre Channel (FC) to communicate to the host systems. We outsource to third parties the manufacture and assembly of the PCBAs used in our disk drives. We do not manufacture any ASICs, but we participate in their proprietary design.

        Head Disk Assembly.    The head disk assembly consists of one or more disks attached to a spindle assembly powered by a spindle motor that rotates the disks at a high constant speed around a hub. Read/write heads, mounted on an arm assembly, similar in concept to that of a record player, fly extremely close to each disk surface and record data on and retrieve it from concentric tracks in the magnetic layers of the rotating disks. The read/write heads are mounted vertically on an E-shaped assembly (E-block) that is actuated by a voice-coil motor to allow the heads to move from track to track. The E-block and the recording media are mounted inside the head disk assembly. We purchase spindle motors from outside vendors and from time to time participate in the design of the motors that go into our products. We use a combination of internally manufactured and externally sourced head disk assemblies.

        Disk Drive Assembly.    Following the completion of the head disk assembly, it is mated to the PCBA, and the completed unit goes through extensive defect mapping and testing prior to packaging and shipment. Disk drive assembly and test operations occur primarily at facilities located in China and Thailand. We perform subassembly and component manufacturing operations at our facilities in China,

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Malaysia, Northern Ireland, Singapore, Thailand and in the United States in Minnesota. In addition, third parties manufacture and assemble components and disk drive assemblies for us in various countries worldwide.

        Suppliers of Components and Industry Constraints.    There are a limited number of independent suppliers of components, such as recording heads and media, available to disk drive manufacturers. Vertically integrated disk drive manufacturers, who manufacture their own components, are less dependent on external component suppliers than less vertically integrated disk drive manufacturers.

        Commodity and Other Manufacturing Costs.    The production of disk drives requires rare earth elements, precious metals, scarce alloys and industrial commodities, which are subject to fluctuations in prices and the supply of which has at times been constrained. In addition to increased costs of components and commodities, volatility in fuel costs may also increase our costs related to commodities, manufacturing and freight. As a result, we may increase our use of ocean shipments to help offset any increase in freight costs.

Products

        We offer a broad range of storage solutions, for the enterprise, datacenter, client compute and client non-compute applications. We offer more than one product within each product category and differentiate products on the basis of price, performance, form factor, capacity, interface, power consumption efficiency, security features like full disk encryption and instant encryption key replacement through our Instant Erase technology, and other customer integration requirements. Our industry is characterized by continuous and significant advances in technology which contribute to rapid product life cycles. We list our main current product offerings below.

    Enterprise Storage

        Enterprise Performance Family.    Our 10,000 and 15,000 RPM Enterprise Performance Family disk drives feature increased throughput and improved energy efficiency, targeted at high random performance server application needs. Performance 10,000 RPM HDDs ship in storage capacities ranging from 300GB to 900GB, and our 15,000 RPM HDDs ship in storage capacities ranging from 146GB to 600GB.

        Enterprise Capacity HDD Family.    Our Enterprise Capacity disk drives ship in a 2.5-inch and 3.5-inch form factor and in storage capacities of up to 6TB that clock in at 7,200 RPM speeds. These products are designed for bulk data storage and server environments that require high capacity, enterprise reliability, energy efficiency and integrated security, SATA and SAS interfaces.

        Enterprise Value HDD Family.    Providing up to 3TB of SATA-based high capacity, 3.5-inch energy-efficient enterprise storage, the Enterprise Value hard disk drive offers low-cost bulk storage designed for vast amounts of unstructured data in the cloud. It features low power for energy efficient operations and ensures reliable operations in 24x7 multi-drive replicated environments.

        Seagate Terascale HDD Family.    Available in capacities up to 4TB in a 3.5-inch enterprise-class SATA hard drive, the Terascale HDD is designed to provide data centers with the storage scalability they need to meet demands in low workload, 24x7 replicated environments.

        Seagate 1200 SSD.    Available in capacities up to 800GB, the 1200 SSD features 12GB per second SAS, and delivers the speed and consistency needed for demanding enterprise storage and server applications.

    Client Compute

        Laptop and Mobile HDDs and SSHDs.    Our family of laptop drives ship in a variety of form factors (5mm to 9.5mm drive height), capacities (250GB to 2TB) and technologies (HDD and SSHD) to support

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mobile needs. Used in applications ranging from traditional laptops to tablets, our drives are built to address a range of performance needs and sizes for affordable, high capacity storage.

        Spinpoint SATA Mobile Family.    Our Spinpoint M8 2.5-inch 5,400 RPM mobile computing disk drives come in storage capacities of up to 2TB and are marketed and sold under the Samsung Spinpoint brand name.

        Desktop HDD and SSHDs.    Our 3.5-inch family of desktop drives ship in both traditional HDD and SSHD configurations and offer up to 4TB of capacity. Desktop drives are designed for applications such as personal computers, workstations and personal external storage devices.

    Client Non-Compute

        Video 3.5 and Video 2.5 HDDs.    We sell our 3.5-inch and 2.5-inch Video HDDs for use in video applications like DVR's and media centers. These disk drives are optimized for video streaming in always-on applications with capacities up to 4TB to support leading-edge digital entertainment.

        SV35 and Surveillance HDDs.    Our surveillance drives are built to support the high-write workload of an always-on, always-recording video surveillance system. These surveillance optimized drives are built to support the growing needs of the surveillance market with support for multiple HD streams and capacities up to 4TB.

        NAS HDDs.    Our NAS drives are built to support the performance and reliability demanded by NAS systems, and include NASWorks™ with custom-built error recovery controls, power settings, and vibration tolerance.

        We ship external backup storage solutions under our Backup Plus and Expansion product lines, as well as under the Samsung and LaCie brand names. These product lines utilize our 3.5-inch and 2.5-inch disk drives, which are available in capacities up to 5TB and 2TB, respectively. In addition, we ship the Wireless Plus wireless drive for use with secondary mobile devices utilizing 2.5-inch 500GB, 1TB and 2TB drives as well as Samsung Wireless utilizing a 2.5-inch 1.5TB drive. We also ship network attached storage (NAS) solutions under our Central, NAS, NAS Pro and Rackmount NAS product lines. These product lines utilize our 3.5-inch disk drives; our Central products are available in capacities up to 4TB, and our NAS products are available in capacities up to 40TB.

Customers

        We sell our products to major OEMs, distributors and retailers.

        The following table summarizes our revenue by channel and by geography:

 
  Fiscal Years Ended  
 
  June 27,
2014
  June 28,
2013
  June 29,
2012
 

Revenues by Channel (%)

                   

OEM

    68 %   68 %   72 %

Distributors

    20 %   21 %   21 %

Retail

    12 %   11 %   7 %

Revenues by Geography (%)(1)

                   

Americas

    27 %   27 %   26 %

EMEA

    19 %   19 %   19 %

Asia Pacific

    54 %   54 %   55 %

(1)
Revenue is attributed to countries based on the shipping location.

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        OEM customers typically enter into master purchase agreements with us. These agreements provide for pricing, volume discounts, order lead times, product support obligations and other terms and conditions including sales programs offered to promote selected products. Deliveries are scheduled only after receipt of purchase orders. In addition, with limited lead-time, customers may defer most purchase orders without significant penalty. Anticipated orders from many of our customers have in the past failed to materialize or OEM delivery schedules have been deferred or altered as a result of changes in their business needs.

        Our distributors generally enter into non-exclusive agreements for the resale of our products. They typically furnish us with a non-binding indication of their near-term requirements and product deliveries are generally scheduled accordingly. The agreements and related sales programs typically provide the distributors with limited right of return and price protection rights. In addition, we offer sales programs to distributors on a quarterly and periodic basis to promote the sale of selected products in the sales channel.

        Our retail channel consists of our branded storage products sold to retailers either by us directly or by our distributors. Retail sales made by us or our distributors typically require greater marketing support, sales incentives and price protection periods.

        In fiscal years 2014, 2013 and 2012, Dell Inc. accounted for approximately 13%, 13% and 15% of consolidated revenue, respectively, while Hewlett-Packard Company accounted for approximately 13%, 10% and 14% of consolidated revenue, respectively. See "Item 1A. Risk Factors-Risks Related to Our Business-We may be adversely affected by the loss of, or reduced, delayed or canceled purchases by, one or more of our larger customers."

Competition

        We compete primarily with manufacturers of hard drives used in the enterprise, client compute and client non-compute applications, but have in the past few years also competed with manufacturers of solid-state drives. The markets that we compete in are intensely competitive. Disk drive manufacturers not only compete for a limited number of major disk drive customers but also compete with other companies in the electronic data storage industry that provide alternative storage solutions, such as flash memory and SSDs. Some of the principal factors used by customers to differentiate among electronic data storage solutions manufacturers are storage capacity, product performance, product quality and reliability, price per unit and price per gigabyte, time-to-market and time-to-volume leadership, storage/retrieval access times, data transfer rates, form factor, product warranty and support capabilities, supply continuity and flexibility, power consumption, total cost of ownership, and brand. While different markets and customers place varying levels of emphasis on these factors, we believe that our products are competitive with respect to each of these factors in the markets that we currently address.

        Principal Disk Drive Competitors.    Following further industry consolidation during fiscal year 2012, three disk drive companies remain:

    Seagate, selling the Seagate and Samsung brands;

    Western Digital Corporation, operating the Western Digital and Hitachi Global Storage Technologies subsidiaries; and

    Toshiba Corporation

        Other Competitors.    We also are experiencing competition from companies that provide alternative storage technologies such as flash memory and SSDs used in mobile applications such as tablets, notebooks and lower capacity hand held devices in addition to SSDs used in enterprise applications for rapid processing and high volume transactions. Additionally, we may in the future face indirect competition from customers who from time to time evaluate whether to offer electronic data storage products that may compete with our products.

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        Price Erosion.    Historically, our industry has been characterized by price declines for disk drive products with comparable capacity, performance and feature sets ("like-for-like products"). Price declines for like-for-like products ("price erosion") have been more pronounced during periods of:

    economic contraction in which competitors may use discounted pricing to attempt to maintain or gain market share;

    few new product introductions when competitors have comparable or alternative product offerings; and

    industry supply exceeding demand.

        In fiscal years 2013 and 2014, we believe the HDD industry's capacity to manufacture HDDs exceeded demand. However, following industry consolidation during fiscal year 2012, the HDD industry has maintained improved pricing discipline resulting in benign price erosion in fiscal years 2013 and 2014.

        Disk drive manufacturers typically attempt to offset price erosion with an improved mix of disk drive products characterized by higher capacity, better performance and additional feature sets and/or product cost reductions.

        Product Life Cycles and Changing Technology.    Success in our industry has been dependent to a large extent on the ability to balance the introduction and transition of new products with time-to-volume, performance, capacity and quality metrics at a competitive price, level of service and support that our customers expect. Generally those disk drive manufacturers that are able to introduce new products first benefit from improved product mix, favorable profit margins and less pricing pressure until comparable products are introduced. Changing technology also necessitates on-going investments in research and development, which may be difficult to recover due to rapid product life cycles and economic declines. Further, there is a continued need to successfully execute product transitions and new product introductions, as factors such as quality, reliability and manufacturing yields become of increasing competitive importance.

Seasonality

        The disk drive industry traditionally experiences seasonal variability in demand with higher levels of demand in the second half of the calendar year. This seasonality is driven by consumer spending in the back-to-school season from late summer to fall and the traditional holiday shopping season from fall to winter.

Research and Development

        We are committed to developing new component technologies, products and alternative storage technologies. Our research and development focus is designed to bring new products to market in high volume, with quality attributes that our customers expect, before our competitors. Part of our product development strategy is to leverage a design platform and/or subsystem within product families to serve different market needs. This platform strategy allows for more efficient resource utilization, leverages best design practices, reduces exposure to changes in demand, and allows for achievement of lower costs through purchasing economies. Our advanced technology integration effort focuses disk drive and component research on recording subsystems, including read/write heads and recording media, market-specific product technology and technology focused towards new business opportunities. The primary purpose of our advanced technology integration effort is to ensure timely availability of mature component technologies to our product development teams as well as allowing us to leverage and coordinate those technologies in the design centers across our products in order to take advantage of opportunities in the marketplace. During fiscal years 2014, 2013 and 2012, we had product development expenses of approximately $1,226 million, $1,133 million and $1,006 million, respectively, which represented 9%, 8% and 7% of our consolidated revenue, respectively.

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Patents and Licenses

        As of June 27, 2014, we had 4,962 U.S. patents and 1,204 patents issued in various foreign jurisdictions as well as 1,236 U.S. and 1,112 foreign patent applications pending. The number of patents and patent applications will vary at any given time as part of our ongoing patent portfolio management activity. Due to the rapid technological change that characterizes the electronic data storage industry, we believe that, in addition to patent protection, the improvement of existing products, reliance upon trade secrets, protection of unpatented proprietary know-how and development of new products are also important to our business in establishing and maintaining a competitive advantage. Accordingly, we intend to continue our efforts to broadly protect our intellectual property, including obtaining patents, where available, in connection with our research and development program.

        We have patent licenses with a number of companies. Additionally, as part of our normal intellectual property practices, we may be engaged in negotiations with other major electronic data storage companies and component manufacturers with respect to patent licenses.

        The electronic data storage industry is characterized by significant litigation relating to patent and other intellectual property rights. Because of rapid technological development in the electronic data storage industry, some of our products have been, and in the future could be, alleged to infringe existing patents of third parties. From time to time, we receive claims that our products infringe patents of third parties. Although we have been able to resolve some of those claims or potential claims by obtaining licenses or rights under the patents in question without a material adverse affect on us, other claims have resulted in adverse decisions or settlements. In addition, other claims are pending, which if resolved unfavorably to us could have a material adverse effect on our business and results of operations. For more information on these claims, see "Item 8. Financial Statements and Supplementary Data-Note 14. Legal, Environmental and Other Contingencies." The costs of engaging in intellectual property litigation in the past have been, and in the future may be, substantial, irrespective of the merits of the claim or the outcome.

Backlog

        In view of industry practice, whereby customers may cancel or defer orders with little or no penalty, we believe backlog in the disk drive industry is of limited indicative value in estimating future performance and results.

Environmental Matters

        Our operations are subject to U.S. and foreign laws and regulations relating to the protection of the environment, including those governing discharges of pollutants into the air and water, the management and disposal of hazardous substances and wastes and the cleanup of contaminated sites. Some of our operations require environmental permits and controls to prevent and reduce air and water pollution, and these permits are subject to modification, renewal and revocation by issuing authorities.

        We have established environmental management systems and continually update environmental policies and standard operating procedures for our operations worldwide. We believe that our operations are in material compliance with applicable environmental laws, regulations and permits. We budget for operating and capital costs on an ongoing basis to comply with environmental laws. If additional or more stringent requirements are imposed on us in the future, we could incur additional operating costs and capital expenditures.

        Some environmental laws, such as the Comprehensive Environmental Response Compensation and Liability Act of 1980 (as amended, the "Superfund" law) and its state equivalents, can impose liability for the cost of cleanup of contaminated sites upon any of the current or former site owners or operators or upon parties who sent waste to these sites, regardless of whether the owner or operator owned the site at the time of the release of hazardous substances or the lawfulness of the original disposal activity. We have

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been identified as a potentially responsible party at several sites. At each of these sites, we have an assigned portion of the financial liability based on the type and amount of hazardous substances disposed of by each party at the site and the number of financially viable parties. We have fulfilled our responsibilities at some of these sites and remain involved in only a few at this time.

        While our ultimate costs in connection with these sites is difficult to predict with complete accuracy, based on current estimates of cleanup costs and our expected allocation of these costs, we do not expect costs in connection with these sites to be material.

        We may be subject to various state, federal and international laws and regulations governing the environment, including those restricting the presence of certain substances in electronic products. For example, the European Union ("EU") enacted the Restriction of the Use of Certain Hazardous Substances in Electrical and Electronic Equipment, which prohibits the use of certain substances, including lead, in certain products, including disk drives, 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 we or our suppliers fail to comply with the substance restrictions, recycle requirements or other environmental requirements as they are enacted worldwide, it could have a materially adverse effect on our business.

Employees

        At June 27, 2014, we employed approximately 52,100 employees and temporary employees worldwide, of which approximately 41,400 employees were located in our Asian operations. We believe that our future success will depend in part on our ability to attract and retain qualified employees at all levels. We believe that our employee relations are good.

Financial Information

        Financial information for our reportable business segment and about geographic areas is set forth in "Item 8. Financial Statements and Supplementary Data-Note 13. Business Segment and Geographic Information."

Corporate Information

        On July 3, 2010, we consummated a reorganization pursuant to which Seagate Technology public limited company, a public limited company organized under the laws of Ireland, became the publicly traded parent of the Seagate corporate family. Prior to the reorganization our publicly traded parent was Seagate Technology, an exempted company incorporated with limited liability under the laws of the Cayman Islands.

Available Information

        Availability of Reports.    We are a reporting company under the Securities Exchange Act of 1934, as amended (the "1934 Exchange Act"), and we file reports, proxy statements and other information with the U.S. Securities and Exchange Commission (the "SEC"). The public may read and copy any of our filings at the SEC's Public Reference Room at 100 F Street, NE, Washington, DC 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. Because we make filings to the SEC electronically, the public may access this information at the SEC's website: www.sec.gov. This site contains reports, proxies and information statements and other information regarding issuers that file electronically with the SEC.

        Web Site Access.    Our website is www.seagate.com. We make available, free of charge at the "Investors" section of our website, Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q,

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Current Reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the 1934 Exchange Act as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. Reports of beneficial ownership filed pursuant to Section 16(a) of the 1934 Exchange Act are also available on our web site. Information in, or that can be accessed through, our web site is not incorporated into this Form 10-K.

Executive Officers

        The following sets forth the name, age and position of each of the persons who were serving as executive officers as of August 7, 2014. There are no family relationships among any of our executive officers.

Name
  Age   Positions

Stephen J. Luczo

    57   Chairman and Chief Executive Officer

Jamie Lerner

    44   President, Cloud Systems and Solutions,

William D. Mosley

    47   President, Operations and Technology

Albert A. "Rocky" Pimentel

    59   President, Global Markets and Customers

Patrick J. O'Malley

    52   Executive Vice President, Chief Financial Officer

Kenneth M. Massaroni

    53   Executive Vice President, General Counsel and Chief Administrative Officer

D. Kurt Richarz

    53   Executive Vice President, Sales

Mark Re

    54   Senior Vice President, Chief Technology Officer

Douglas DeHaan

    56   General Manager, Samsung HDD Brand of Products

David H. Morton Jr. 

    42   Senior Vice President, Finance, Treasurer and Principal Accounting Officer

        Stephen J. Luczo. Mr. Luczo, 57, has served as our CEO since January 2009 and as Chairman of the Board since 2002. Mr. Luczo joined Seagate in October 1993 as Senior Vice President of Corporate Development. In September 1997, he was promoted to President and Chief Operating Officer of Seagate Technology (Seagate Technology plc's predecessor) and, in July 1998, he was promoted to CEO at which time he joined the Board as a director of Seagate Technology. Mr. Luczo resigned as CEO effective as of July 2004, but remained as Chairman of the Board. He served as non-employee Chairman from October 2006 to January 2009. From October 2006 until he rejoined us in January 2009, Mr. Luczo was a private investor. Mr. Luczo also served as our President from January 2009 until October 2013. Prior to joining Seagate in 1993, Mr. Luczo was Senior Managing Director of the Global Technology Group of Bear, Stearns & Co. Inc., an investment banking firm, from February 1992 to October 1993. Mr. Luczo served on the board of directors of Microsoft Corporation from May 2012 to March 2014.

        Jamie Lerner. Mr. Lerner, 44, has served as our President of Cloud Systems and Solutions since March 2014. Prior to that, Mr. Lerner served as Senior Vice President and General Manager of the Cloud and Systems Management Technology Group at Cisco Systems, Inc. ("Cisco") from November 2012 until February 2014. Mr. Lerner also previously served as Vice President and General Manager of Cisco's Network Management Technology Group between October 2011 and November 2012 and as the Vice President and General Manager of the Service Provider Management Applications Business Unit at Cisco between November 2009 and October 2011. Prior to joining Cisco, Mr. Lerner served as the founder, President, and CEO of CITTIO Inc., an enterprise software company, from 2002 through 2009.

        William D. Mosley. Mr. Mosley, 47, has served as our President, Operations and Technology since October 2013 and as Executive Vice President, Operations from March 2011 until October 2013. Prior to that, he served as Executive Vice President, Sales and Marketing from September 2009 through March 2011; Executive Vice President, Sales, Marketing and Product Line Management from February 2009 to September 2009; Senior Vice President, Global Disk Storage Operations from 2007 to 2009; and Vice President, Research and Development, Engineering from 2002 to 2007.

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        Albert A. "Rocky" Pimentel. Mr. Pimentel, 59, has served as our President of Global Markets and Customers since October 2013 and as Executive Vice President, Chief Sales and Marketing Officer from April 2011 until October 2013. Prior to that, Mr. Pimentel served as a director of Seagate from 2009 until his resignation from the Board of Directors in April 2011. Mr. Pimentel served as Chief Operating Officer and Chief Financial Officer ("CFO") at McAfee, Inc., from 2008 until he retired in August 2010. He served as the Executive Vice President and CFO of Glu Mobile from 2004 to 2008. Prior to joining Glu Mobile, Mr. Pimentel served as Executive Vice President and CFO at Zone Labs from 2003 to 2004, which was acquired by Check Point Software in 2004.

        Patrick J. O'Malley. Mr. O'Malley, 52, has served as our Executive Vice President and Chief Financial Officer since August 2008. Previously, he served as our Senior Vice President, Finance from 2005 to August 2008. Prior to that, he was our Senior Vice President, Consumer Electronics from 2004 to 2005. Mr. O'Malley was appointed to the board of directors of E2open, Inc. in January 2012.

        Kenneth M. Massaroni. Mr. Massaroni, 53, was appointed our Executive Vice President, General Counsel and Chief Administrative Officer in July 2011. Prior to that, he served as our Senior Vice President, General Counsel and Corporate Secretary from April 2008 through July 2011; Vice President and Acting General Counsel from December 2007 to April 2008; and Vice President of Intellectual Property from 2006 to December 2007. Prior to joining Seagate in 2006, Mr. Massaroni was Vice President of Law, Deputy General Counsel and Assistant Secretary at Scientific-Atlanta Inc. from 1997 to 2006.

        D. Kurt Richarz. Mr. Richarz, 53, has served as our Executive Vice President, Sales and Marketing since March 2011. Prior to that, he served as our Executive Vice President, Sales from May 2008 through March 2011; Executive Vice President, Sales and Customer Service Operations from May 2006 to May 2008; Senior Vice President of Global OEM Sales from 2007 to 2008, and Vice President of Global OEM Sales from 2006 to 2007. Mr. Richarz served as Vice President, Global OEM Account Sales and Senior Vice President of Worldwide Sales at Maxtor Corporation, from 2002 until we acquired Maxtor Corporation in 2006.

        Mark Re. Mr. Re, 54, has served as our Senior Vice President, Research and Development since July 2013. Prior to that, he served as our Vice President, Research, from August 2003 to August 2006. Mr. Re currently serves on the Scientific Advisory Board for the Data Storage Institute, as well as on the Pittsburgh Technology Council and the Advanced Storage Technology Consortium.

        Douglas DeHaan. Mr. DeHaan, 56, has been our General Manager, Samsung HDD Products since September 2012. Prior to that, he served as our Senior Vice President, Operations and Materials, from February 2009 until September 2012; Senior Vice President of Quality from 2008 to 2009; and Senior Vice President of Product and Process Development, Core Products, from 2003 to 2008.

        David H. Morton Jr. Mr. Morton, 42, has served as our Senior Vice President, Finance, Treasurer and Principal Accounting Officer since April 2014 and our Vice President, Finance, Treasurer and Principal Accounting Officer from October 2009 to April 2014; Vice President of Finance, Sales and Marketing from March 2009 to October 2009; Vice President of Sales Operations from July 2007 to March 2009; Vice President of Finance, Storage Markets from October 2006 to July 2007; Executive Director of Consumer Electronics Finance from October 2005 to October 2006; and Executive Director of Corporate FP&A from June 2004 to October 2005.

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ITEM 1A.    RISK FACTORS

Risks Related to our Business

Changes in the macroeconomic environment have negatively impacted, and may continue to, negatively impact our results of operations.

        Due to the continuing uncertainty about current macroeconomic conditions affecting consumer and enterprise spending, we believe our customers may postpone spending in response to tighter credit, unemployment, negative financial news and/or declines in income or asset values, which could have a material adverse effect on the demand for our products. Continuing high unemployment rates, low levels of consumer liquidity, risk of default on sovereign debt and volatility in credit and equity markets have weakened consumer confidence and decreased consumer and enterprise spending in many regions around the world. Other factors that could influence demand include conditions in the residential real estate and mortgage markets, labor and healthcare costs, access to credit, consumer confidence and other macroeconomic factors affecting consumer spending behavior. These and other economic factors could have a material adverse effect on demand for our products and on our financial condition and operating results.

Our industries are highly competitive and our failure to anticipate and respond to technological and market developments could harm our ability to compete.

        We operate in markets that are highly competitive and subject to rapid change and that are significantly affected by new product introductions, substantial price erosion and lower prices as part of a strategy to gain or retain market share and customers. Should these practices continue, we may need to continually reduce our prices for existing products to retain our market share, which could adversely affect our results of operations.

        Our ability to offset the effect of price erosion through new product introductions at higher average prices is diminished to the extent competitors introduce products into particular markets ahead of our similar, competing products. Our ability to offset the effect of price erosion is also diminished during times when supply exceeds demand for a particular product.

        Market share for our products can be negatively affected by our customers' diversifying their sources of supply as our competitors enter the market for particular products, as well as by our ability to ramp volume production of new product offerings. When our competitors successfully introduce product offerings that are competitive with our recently introduced products, our customers may quickly diversify their sources of supply. Any significant decline in our market share in any of our principal market applications would adversely affect our results of operations.

        Our principal sources of competition include:

    disk drive manufacturers, such as Western Digital Corporation and Toshiba;

    companies providing storage subsystems and components to OEMs;

    electronic manufacturing services ("EMS") companies acquiring the necessary skills and intellectual property to enter the enterprise data storage marketplace;

    other high performance computing ("HPC") data storage providers;

    collaborations between in-house development teams of existing and potential customers and a combination of EMS, contract electronic manufacturing ("CEM") or emerging technology companies.

        We also experience competition from other companies that produce alternative storage technologies like flash memory, where increasing capacity, decreasing cost, energy efficiency and improvements in

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performance ruggedness have resulted in competition with our lower capacity, smaller form factor disk drives. While this competition has traditionally been in the markets for handheld consumer electronics applications, these competitors have announced solid state drives (SSDs) for tablet, notebook and enterprise compute applications. Certain customers for both notebook and enterprise compute applications are adopting SSDs as alternatives to hard drives in certain applications. Further adoption of these alternative storage technologies may impact the competitiveness of our product portfolio and reduce our market share and adversely affect our results of operation.

        The markets for our data storage system products are also characterized by technological change driven in part by the adoption of new industry standards. These standards provide mechanisms to ensure technology component interoperability can occur and may reduce our capability for differentiation or innovation and our affected products would revert to commodity status. This could lower the barriers to entry to our market away from our specialist research and development skills and enable entry for the general-purpose design skills found in some large EMS and CEM companies. Commodity markets are driven by extremely low margins and very aggressive competitive pricing. If our market becomes more commoditized and we fail to deliver innovative value-added alternatives to our customers, we will have difficulty competing against the larger EMS and CEM companies. If we are unable to compete successfully against our current and future competitors, we could experience profit margin reductions or loss of market share, which could significantly harm our financial condition.

Our quarterly results of operations fluctuate, sometimes significantly, from period to period, and may cause our share price to decline.

        In the past, our quarterly revenue and results of operations have fluctuated, sometimes significantly, from period to period. These fluctuations, which we expect to continue, may be occasioned by a variety of factors, including:

    current uncertainty in global economic conditions may pose a risk to the overall economy;

    adverse changes in the level of economic activity in the major regions in which we do business;

    competitive pressures resulting in lower selling prices by our competitors targeted to encourage shifting of customer demand;

    delays or problems in our introduction of new products, particularly new disk drives with lower cost structures, the inability to achieve high production yields or delays in customer qualification or initial product quality issues;

    changes in purchasing patterns by our distributor customers;

    application of new or revised industry standards;

    disruptions in our supply chain;

    increased costs or adverse changes in availability of supplies of raw materials or components;

    the impact of corporate restructuring activities that we have and may continue to engage in;

    changes in the demand for the computer systems and data storage products that contain our products due to seasonality, economic conditions and other factors;

    changes in purchases from period to period by our primary customers;

    shifting trends in customer demand which, when combined with overproduction of particular products, particularly when the industry is served by multiple suppliers, results in unfavorable supply/demand imbalances;

    our high proportion of fixed costs, including research and development expenses;

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    any impairments in goodwill or other long-lived assets;

    announcements of new products, services or technological innovations by us or our competitors; and

    adverse changes in the performance of our products.

        As a result, we believe that quarter-to-quarter comparisons of our revenue and results of operations may not be meaningful, and that these comparisons may not be an accurate indicator of our future performance. Our results of operations in one or more future quarters may fail to meet the expectations of investment research analysts or investors, which could cause an immediate and significant decline in the trading price of our ordinary shares.

If we fail to predict demand accurately for our products in any quarter, we may not be able to recapture the cost of our investments.

        Our industry operates primarily on quarterly purchasing cycles, with much of the order flow in any given quarter typically coming at the end of that quarter. Our manufacturing process requires us to make significant product-specific investments in inventory in each quarter for that quarter's production. Since we typically receive the bulk of our orders late in a quarter after we have made our investments, there is a risk that our orders will not be sufficient to allow us to recapture the costs of our investment before the products resulting from that investment have become obsolete. We cannot assure you that we will be able to accurately predict demand in the future.

        Our revenues in any quarter are substantially dependent upon customer orders in that quarter. We attempt to project future orders based in part on estimates from our major customers. Our customers' estimated requirements are not always accurate and we therefore cannot predict our quarterly revenues with any degree of certainty. In addition, we derive a portion of our revenues in each quarter from a number of relatively large orders. If one or more of our major customers decide to defer a purchase order or delays product acceptance in any given quarter, this is likely to result in reduced total revenues for that quarter.

        The difficulty in forecasting demand also increases the difficulty in anticipating our inventory requirements, which may cause us to over-produce finished goods, resulting in inventory write-offs, or under-produce finished goods, adversely affecting our ability to meet customer requirements and our market share. Additionally, the risk of inventory write-offs could increase if we were to continue to hold higher inventory levels. We cannot be certain that we will be able to recover the costs associated with increased inventory.

        Other factors that may negatively impact our ability to recapture the cost of investments in any given quarter include:

    the impact of variable demand and an aggressive pricing environment for disk drives;

    the impact of competitive product announcements and possible excess industry supply both with respect to particular disk drive products and with respect to competing alternative storage technology solutions such as SSDs in tablet, notebook and enterprise compute applications;

    our inability to reduce our fixed costs to match sales in any quarter because of our vertical manufacturing strategy, which means that we make more capital investments than we would if we were not vertically integrated;

    dependence on our ability to successfully qualify, manufacture and sell in increasing volumes on a cost-effective basis and with acceptable quality our disk drive products, particularly the new disk drive products with lower cost structures;

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    uncertainty in the amount of purchases from our distributor customers who from time to time constitute a large portion of our total sales;

    our product mix and the related margins of the various products;

    accelerated reduction in the price of our disk drives due to technological advances and/or an oversupply of disk drives in the market and shifting trends in demand which can create supply and demand imbalances;

    manufacturing delays or interruptions, particularly at our manufacturing facilities in China, Malaysia, Northern Ireland, Singapore, Thailand, the United Kingdom, or the United States;

    limited access to components that we obtain from a single or a limited number of suppliers;

    the impact of changes in foreign currency exchange rates on the cost of producing our products and the effective price of our products to foreign consumers; and

    operational issues arising out of the increasingly automated nature of our manufacturing processes.

        In addition, the demand for client non-compute products can be even more volatile and unpredictable than the demand for client compute products. In some cases, our products manufactured for client non-compute applications are uniquely configured for a single customer's application, which creates a risk of unwanted and unsellable inventory if the anticipated volumes are not realized. This potential for unpredictable volatility is increased by the possibility of competing alternative storage technologies like flash memory meeting the customers' cost and capacity metrics, resulting in a rapid shift in demand from our products and disk drive technology, generally, to alternative storage technologies. Unpredictable fluctuations in demand for our products or rapid shifts in demand from our products to alternative storage technologies in new client non-compute applications could materially adversely impact our future results of operations.

Market acceptance of new product introductions cannot be accurately predicted, and our results of operations will suffer if there is less demand for our new products than is anticipated.

        The markets for our products are characterized by rapid technological change, frequent new product introductions and technology enhancements, uncertain product life cycles and changes in customer demand. The success of our new product introductions is dependent on a number of factors, including market acceptance, our ability to manage the risks associated with product transitions, the effective management of inventory levels in line with anticipated product demand and the risk that our new products will have quality problems or other defects in the early stages of introduction that were not anticipated in the design of those products. Accordingly, we cannot accurately determine the ultimate effect that our new products will have on our results of operations.

        Historically, our results of operations have substantially depended upon our ability to be among the first-to-maturity with new product offerings. Our market share and results of operations in the future may be adversely affected if we fail to:

    consistently maintain our time-to-maturity performance with our new products;

    produce these products in sufficient volume;

    qualify these products with key customers on a timely basis by meeting our customers' performance and quality specifications; or

    achieve acceptable manufacturing yields, quality and costs with these products.

        In addition, the success of our new product introductions is dependent upon our ability to qualify as a primary source of supply with our OEM customers. In order for our products to be considered by our customers for qualification, we must be among the leaders in time-to-market with those new products.

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Once a product is accepted, any failure or delay in the qualification process or a requirement that we requalify can result in our losing sales to that customer until new products are introduced. The limited number of high-volume OEMs magnifies the effect of missing a product qualification opportunity. These risks are further magnified because we expect competitive pressures to result in declining sales, eroding prices, and declining gross margins on our current generation products. If the delivery of our products is delayed, our OEM customers may use our competitors' products to meet their production requirements. We cannot assure that we will be among the leaders in time-to-market with new products or that we will be able to successfully qualify new products with our customers in the future.

        We face the related risk that consumers and businesses may wait to make their purchases if they want to buy a new product that has been shipped or announced but not yet released. If this were to occur, we may be unable to sell our existing inventory of products that may be less efficient and cost effective compared to new products. As a result, even if we are among the first-to-maturity with a given product, subsequent introductions or announcements by our competitors of new products could cause us to lose revenue and not achieve a positive return on our investment in existing products and inventory.

        If we cannot successfully deliver competitive products, our future results of operations may be adversely affected.

If we experience shortages or delays in the receipt of, or cost increases in, critical components, equipment or raw materials necessary to manufacture our products, we may suffer lower operating margins, production delays and other material adverse effects.

        The cost, quality and supply of components, subassemblies, certain equipment and raw materials used to manufacture our products and key components like recording media and heads are critical to our success. The equipment we use to manufacture our products and components is frequently custom made and comes from a few suppliers and the lead times required to obtain manufacturing equipment can be significant. Particularly important for our products include read/write heads, aluminum or glass substrates for recording media, ASICs, spindle motors, printed circuit boards, and suspension assemblies.

        We rely on sole suppliers or a limited number of suppliers for some of these components that we do not manufacture, including aluminum and glass substrates, read/write heads, ASICs, spindle motors, printed circuit boards, and suspension assemblies. Many of such component suppliers are geographically concentrated, in particular, in Thailand, which makes our supply chain more vulnerable to regional disruptions such as the severe flooding in Thailand in October 2011, which had a material impact on the production and availability of many components. If our vendors for these components are unable to meet our cost, quality, and supply requirements, we could experience a shortage in supply or an increase in production costs, which would adversely affect our results of operations.

        Certain rare earth elements are critical in the manufacture of our products. We purchase components that contain rare earth elements from a number of countries, including the People's Republic of China. We cannot predict whether any nation will impose regulations, quotas or embargoes upon the rare earth elements incorporated into our products that would restrict the worldwide supply of such metals or increase their cost. We have experienced increased costs and production delays when we were unable to obtain the necessary equipment or sufficient quantities of some components, and/or have been forced to pay higher prices or make volume purchase commitments or advance deposits for some components, equipment or raw materials that were in short supply in the industry in general. If any major supplier were to restrict the supply available to us or increase the cost of the rare earth elements used in our products, we could experience a shortage in supply or an increase in production costs, which would adversely affect our results of operations.

        Consolidation among component manufacturers has resulted and may continue to result in some component manufacturers exiting the industry or not making sufficient investments in research to develop new components.

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        If there is a shortage of, or delay in supplying us with, critical components, equipment or raw materials, then:

    it is likely that our suppliers would raise their prices and, if we could not pass these price increases to our customers, our operating margin would decline;

    we might have to reengineer some products, which would likely cause production and shipment delays, make the reengineered products more costly and provide us with a lower rate of return on these products;

    we would likely have to allocate the components we receive to certain of our products and ship less of others, which could reduce our revenues and could cause us to lose sales to customers who could purchase more of their required products from manufacturers that either did not experience these shortages or delays or that made different allocations; and

    we might be late in shipping products, causing potential customers to make purchases from our competitors, thus causing our revenue and operating margin to decline.

        We cannot assure you that we will be able to obtain critical components in a timely and economic manner.

        We often aim to lead the market in new technology deployments and leverage unique and customized technology from single source suppliers who are early adopters in the emerging market. Our options in supplier selection in these cases are limited and the supplier based technology may consequently be single sourced until wider adoption of the technology occurs and any necessary licenses become available. In such cases any technical issues in the supplier's technology may cause us to delay shipments of our new technology deployments and therefore harm our financial position.

Changes in demand for computer systems and storage subsystems may in the future cause a decline in demand for our products.

        Our products are components in computers, data storage systems, and consumer electronics devices. The demand for these products has been volatile. Unexpected slowdowns in demand for computer systems, storage subsystems or consumer electronics devices generally cause sharp declines in demand for our products. Declines in consumer spending could have a material adverse effect on demand for our products and services and on our financial condition and results of operations.

        Causes of declines in demand for our products in the past have included weakness in macroeconomic environments, announcements or introductions of major new operating systems or semiconductor improvements or changes in consumer preferences, such as the shift to mobile devices. We believe these announcements and introductions have from time to time caused consumers to defer their purchases and made inventory obsolete. Whenever an oversupply of our products causes participants in our industry to have higher than anticipated inventory levels, we experience even more intense price competition from other manufacturers than usual.

We are dependent on sales to distributors and retailers, which may increase price erosion and the volatility of our sales.

        A substantial portion of our sales has been to distributors of disk drive products. Certain of our distributors may also market other products that compete with our products. Product qualification programs in this distribution channel are limited, which increases the number of competing products that are available to satisfy demand, particularly in times of lengthening product cycles. As a result, purchasing decisions in this channel are based largely on price, terms and product availability. Sales volumes through this channel are also less predictable and subject to greater volatility than sales to our OEM customers. In addition, deterioration in business and economic conditions could exacerbate price erosion and volatility as

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distributors lower prices to compensate for lower demand and higher inventory levels. Our distributors' ability to access credit for purposes of funding their operations may also affect purchases of our products by these customers.

        If distributors reduce their purchases of our products or prices decline significantly in the distribution channel or if distributors experience financial difficulties or terminate their relationships with us, our revenues and results of operations would be adversely affected.

        We believe that industry demand for storage products in the long-term is increasing due to the proliferation of media-rich digital content in consumer applications and is fueling increased consumer demand for storage. This has led to the expansion of our branded solutions such as external storage products to provide additional storage capacity and to secure data in case of disaster or system failure, or to provide independent storage solutions for multiple users in home or small business environments. Consumer spending on retail sales of our branded solutions has deteriorated in some markets and may continue to do so if poor global economic conditions continue and higher levels of unemployment persist. This could have a material adverse effect on demand for our products and services and on our financial condition and results of operations.

        In addition, such retail sales of our branded solutions traditionally experience seasonal variability in demand with higher levels of demand in the first half of our fiscal year driven by consumer spending in the back-to-school season from late summer to fall and the traditional holiday shopping season from fall to winter. Additionally, our ability to reach such consumers depends on our maintaining effective working relationships with major retailers and distributors. Failure to anticipate consumer demand for our branded solutions as well as an inability to maintain effective working relationships with retail and online distributors may adversely impact our future results of operations.

We may be adversely affected by the loss of, or reduced, delayed or canceled purchases by, one or more of our larger customers.

        Some of our key customers account for a large portion of our disk drive revenue. While we have longstanding relationships with many of our customers, if any of our key customers were to significantly reduce their purchases from us, our results of operations would be adversely affected. While sales to major customers may vary from period to period, a major customer that permanently discontinues or significantly reduces its relationship with us could be difficult to replace. In line with industry practice, new customers usually require that we pass a lengthy and rigorous qualification process at the customer's cost. Accordingly, it may be difficult or costly for us to attract new major customers. Additionally, mergers, acquisitions, consolidations or other significant transactions involving our customers generally entail risks to our business. If a significant transaction involving any of our key customers results in the loss of or reduction in purchases by these key customers, it could have a materially adverse effect on our business, results of operations, financial condition and prospects.

We have a long and unpredictable sales cycle for enterprise data storage solutions.

        Our enterprise data storage solutions are technically complex and we typically supply them in high quantities to a small number of customers. Many of our products are also tailored to meet the specific requirements of individual customers, and are often integrated by our customers into the systems and products that they sell. Factors that affect the length of our sales cycle include:

    the time required for testing and evaluating our products before they are deployed;

    the size of the deployment; and

    the degree of system configuration necessary to deploy our products.

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        As a result, our sales cycle for enterprise data storage solutions is often in excess of one year, and the length of our sales cycle is frequently unpredictable. In addition, the emerging and evolving nature of the market for the products that we sell may lead prospective customers to postpone their purchasing decisions. We invest resources and incur costs during this cycle that may not be recovered if we do not successfully conclude sales. These factors lead to difficulty in matching revenues with expenses, and to increased expenditures which together may adversely impact our results of operations.

If we do not control our operating expenses, we will not be able to compete effectively in our industry.

        We continually seek to make our cost structure and business processes more efficient. We are focused on increasing workforce flexibility and scalability, and improving overall competitiveness by leveraging our global capabilities, as well as external talent and skills, worldwide. Our strategy involves, to a substantial degree, increasing revenue and product volume while at the same time controlling operating expenses. If we do not control our operating expenses, our ability to compete in the marketplace may be impaired. In the past, activities to reduce operating costs have included closures and transfers of facilities, significant personnel reductions and efforts to increase automation. The reduction of personnel and closure of facilities may adversely affect our ability to manufacture our products in required volumes to meet customer demand and may result in other disruptions that affect our products and customer service. Our efforts to make our operations more efficient may result in restructuring and other charges.

Increases in the areal density of disk drives may outpace customers' demand for storage capacity.

        The rate of increase in areal density, or storage capacity per square inch on a disk, may be greater than the increase in our customers' demand for aggregate storage capacity, particularly in certain market applications like client compute. As a result, our customers' storage capacity needs may be satisfied with lower priced, low capacity disk drives. These factors could decrease our sales, especially when combined with continued price erosion, which could adversely affect our results of operations.

If we do not develop products in time to keep pace with technological changes, our results of operations will be adversely affected.

        Our customers have demanded new generations of disk drive products as advances in computer hardware and software have created the need for improved storage products, with features such as increased storage capacity, improved performance and reliability and lower cost. We, and our competitors, have developed improved products, and we will need to continue to do so in the future. Such product development requires significant investments in research and development. We cannot assure you that we will be able to successfully complete the design or introduction of new products in a timely manner, that we will be able to manufacture new products in sufficient volumes with acceptable manufacturing yields, that we will be able to successfully market these new products or that these products will perform to specifications on a long-term basis. In addition, the impact of slowing areal density growth may adversely impact our ability to be successful.

        When we develop new products with higher capacity and more advanced technology, our results of operations may decline because the increased difficulty and complexity associated with producing these products increases the likelihood of reliability, quality or operability problems. If our products suffer increases in failures, are of low quality or are not reliable, customers may reduce their purchases of our products and our manufacturing rework and scrap costs and service and warranty costs may increase. In addition, a decline in the reliability of our products may make us less competitive as compared with other disk drive manufacturers or competing technologies.

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Due to the complexity of our products, some defects may only become detectable after deployment.

        Our products are highly complex and are designed to operate in and form part of larger complex networks and storage systems. Defects in our products, or in the networks and systems of which they form a part, directly or indirectly, have resulted in and may in the future result in:

    increased costs and product delays until complex solution level interoperability issues are resolved;

    costs associated with the remediation of any problems attributable to our products;

    loss of or delays in revenues;

    loss of customers;

    failure to achieve market acceptance and loss of market share;

    increased service and warranty costs; and

    increased insurance costs.

        Defects in our products could also result in legal actions by our customers for property damage, injury or death. Product liability claims could exceed the level of insurance coverage that we have obtained to cover defects in our products. Any significant uninsured claims could significantly harm our financial condition.

Our substantial leverage may place us at a competitive disadvantage in our industry.

        We are leveraged and have significant debt service obligations. Our significant debt and debt service requirements could adversely affect our ability to operate our business and may limit our ability to take advantage of potential business opportunities. For example, our high level of debt presents the following risks:

    we are required to use a substantial portion of our cash flow from operations to pay principal and interest on our debt, thereby reducing the availability of our cash flow to fund working capital, capital expenditures, product development efforts, strategic acquisitions, investments and alliances, and other general corporate requirements;

    our substantial leverage increases our vulnerability to economic downturns and adverse competitive and industry conditions and could place us at a competitive disadvantage compared to those of our competitors that are less leveraged;

    our debt service obligations could limit our flexibility in planning for, or reacting to, changes in our business and our industry and could limit our ability to pursue other business opportunities, borrow more money for operations or capital in the future and implement our business strategies;

    our level of debt may restrict us from raising additional financing on satisfactory terms to fund working capital, capital expenditures, product development efforts, strategic acquisitions, investments and alliances, and other general corporate requirements; and

    covenants in our debt instruments limit our ability to pay future dividends or make other restricted payments and investments.

        In the event that we need to refinance all or a portion of our outstanding debt as it matures, we may not be able to obtain terms as favorable as the terms of our existing debt or refinance our existing debt at all. If prevailing interest rates or other factors existing at the time of refinancing result in higher interest rates upon refinancing, then the interest expense relating to the refinanced debt would increase. Furthermore, if any rating agency changes our credit rating or outlook, our debt and equity securities could be negatively affected, which could adversely affect our ability to refinance existing debt or raise additional capital.

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Servicing our debt requires a significant amount of cash and our ability to generate cash may be affected by factors beyond our control.

        Our business may not generate cash flow in an amount sufficient to enable us to pay the principal of, or interest on, our indebtedness or to fund our other liquidity needs, including working capital, capital expenditures, product development efforts, strategic acquisitions, investments and alliances and other general corporate requirements.

        Our ability to generate cash is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control. We cannot assure you that:

    our business will generate sufficient cash flow from operations;

    we will continue to realize the cost savings, revenue growth and operating improvements that result from the execution of our long-term strategic plan; or

    future sources of funding will be available to us in amounts sufficient to enable us to fund our liquidity needs.

        If we cannot fund our liquidity needs, we will have to take actions such as reducing or delaying capital expenditures, product development efforts, strategic acquisitions, investments and alliances, and other general corporate requirements. We cannot assure you that any of these remedies could, if necessary, be effected on commercially reasonable terms, or at all, or that they would permit us to meet our scheduled debt service obligations. In addition if we incur additional debt, the risks associated with our substantial leverage, including the risk that we will be unable to service our debt or generate enough cash flow to fund our liquidity needs, could intensify.

Our failure to pay quarterly dividends to our shareholders could cause the market price of our ordinary shares to decline significantly.

        Our ability to pay quarterly dividends will be subject to, among other things, our financial position and results of operations, available cash and cash flow, capital requirements, and other factors. Any reduction or discontinuation of quarterly dividends could cause the market price of our ordinary shares to decline significantly. Moreover, in the event our payment of quarterly dividends is reduced or discontinued, our failure or inability to resume paying dividends at historical levels could result in a persistently low market valuation of our ordinary shares.

If revenues fall or customer demand decreases significantly, we may not meet all of our purchase commitments to certain suppliers.

        From time to time, we enter into long-term, non-cancelable purchase commitments or make large up-front investments with certain suppliers in order to secure certain components or technologies for the production of our products or to supplement our internal manufacturing capacity for certain components. If our actual revenues in the future are lower than our projections or if customer demand decreases significantly below our projections, we may not meet all of our purchase commitments with these suppliers. As a result, it is possible that our revenues will not be sufficient to recoup our up-front investments, in which case we will have to shift output from our internal manufacturing facilities to these suppliers or make penalty-type payments under these contracts.

We may not be able to identify suitable strategic alliances, acquisitions, joint ventures or investment opportunities, or successfully acquire and integrate companies that provide complementary products or technologies.

        Our growth strategy involves pursuing strategic alliances with, making acquisitions of, forming joint ventures with or making investments in other companies that are complementary to our business. There is substantial competition for attractive strategic alliance, acquisition, joint venture and investment

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candidates. Accordingly, we may not be able to identify suitable strategic alliances, acquisition, joint venture, or investment candidates. Even if we can identify them, we cannot assure you that we will be able to partner with, acquire or invest in suitable candidates, or integrate acquired technologies or operations successfully into our existing technologies and operations. Moreover, our ability to finance potential strategic alliances, acquisitions, joint ventures or investments will be limited by our high degree of leverage, the covenants contained in the instruments that govern our outstanding indebtedness, and any agreements governing any other debt we may incur.

        If we are successful in forming strategic alliances or acquiring, forming joint ventures or making investments in other companies, any of these transactions may have an adverse effect on our results of operations, particularly while the operations of an acquired business are being integrated. It is also likely that integration of acquired companies would lead to the loss of key employees from those companies or the loss of customers of those companies. In addition, the integration of any acquired companies would require substantial attention from our senior management, which may limit the amount of time available to be devoted to our day-to-day operations or to the execution of our strategy. Growth by strategic alliance, acquisition, joint venture or investment involves an even higher degree of risk to the extent we combine new product offerings and enter new markets in which we have limited experience, and no assurance can be given that acquisitions of entities with new or alternative business models will be successfully integrated or achieve their stated objectives.

        Furthermore, the expansion of our business involves the risk that we might not manage our growth effectively, that we would incur additional debt to finance these acquisitions or investments, that we may have impairment of goodwill or acquired intangible assets associated with these acquisitions and that we would incur substantial charges relating to the write-off of in-process research and development, similar to that which we incurred in connection with several of our prior acquisitions. Each of these items could have a material adverse effect on our financial condition and results of operations.

        In addition, we could issue additional ordinary shares in connection with future strategic alliances, acquisitions, joint ventures or investments. Issuing shares in connection with such transactions would have the effect of diluting your ownership percentage of the ordinary shares and could cause the price of our ordinary shares to decline.

We may not be successful in our efforts to grow our cloud systems and solutions business.

        We have made and are continuing to make investments to expand and develop our cloud systems and solutions business, including our recent acquisition of Xyratex Ltd ("Xyratex"), a data storage technology company. Our cloud systems and solutions business is subject to the following risks:

    the cloud systems and solutions market may develop more slowly than we expect;

    we may not be able to offer compelling solutions to enterprises and consumers;

    our cloud systems and solutions business generally has a long and unpredictable sales cycle, and growth in this business is likely to depend on relatively large customer orders, which may increase the variability of our results of operations and the difficulty of matching revenues with expenses.

        Our results of operations and share price may be adversely affected if we are not successful in our efforts to grow our cloud computing business as anticipated. In addition, our growth in this sector may bring us into closer competition with some of our customers or potential customers, which may decrease their willingness to do business with us.

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We are at times subject to intellectual property legal proceedings and claims which could cause us to incur significant additional costs or prevent us from selling our products, and which could adversely affect our results of operations and financial condition.

        We are subject from time-to-time to legal proceedings and claims, including claims of alleged infringement of the patents, trademarks and other intellectual property rights of third parties by us, or our customers, in connection with their use of our products. Intellectual property litigation can be expensive and time-consuming, regardless of the merits of any claim, and could divert our management's attention from operating our business. In addition, intellectual property lawsuits are subject to inherent uncertainties due to the complexity of the technical issues involved, which may cause actual results to differ materially from our expectations. Patent litigation has increased due to the current uncertainty of the law and the increasing competition and overlap of product functionality in the field. Some of the actions that we face from time-to-time seek injunctions against the sale of our products and/or substantial monetary damages, which if granted or awarded, could materially harm our business, financial condition and operating results.

        We cannot be certain that our products do not and will not infringe issued patents or other intellectual property rights of others. We may not be aware of currently filed patent applications that relate to our products or technology. If patents are later issued on these applications, we may be liable for infringement. If our products were found to infringe the intellectual property rights of others, we could be required to pay substantial damages, cease the manufacture, use and sale of infringing products in one or more geographic locations, expend significant resources to develop non-infringing technology, discontinue the use of specific processes or obtain licenses to the technology infringed. We might not be able to obtain the necessary licenses on acceptable terms, or at all, or be able to reengineer our products successfully to avoid infringement. Any of the foregoing could cause us to incur significant costs and prevent us from selling our products, which could adversely affect our results of operations and financial condition. See "Item 8. Financial Statements and Supplementary Data-Note 14. Legal, Environmental and Other Contingencies" contained in this report for a description of pending intellectual property proceedings.

We may be unable to protect our intellectual property rights, which could adversely affect our business, financial condition and results of operations.

        We rely on a combination of patent, trademark, copyright and trade secret laws, confidentiality procedures and licensing arrangements to protect our IP rights. In the past, we have been involved in significant and expensive disputes regarding our IP rights and those of others, including claims that we may be infringing patents, trademarks and other IP rights of third-parties. We expect that we will be involved in similar disputes in the future.

        There can be no assurance that:

    any of our existing patents will continue to be held valid, if challenged;

    patents will be issued for any of our pending applications;

    any claims allowed from existing or pending patents will have sufficient scope or strength to protect us; or

    our patents will be issued in the primary countries where our products are sold in order to protect our rights and potential commercial advantage.

        In addition, our competitors may be able to design their products around our patents and other proprietary rights. Enforcement of our rights often requires litigation. If we bring a patent infringement action and are not successful, our competitors would be able to use similar technology to compete with us. Moreover, the defendant in such an action may successfully countersue us for infringement of their patents or assert a counterclaim that our patents are invalid or unenforceable.

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        Furthermore, we have significant operations and sales in foreign countries where intellectual property laws and enforcement policies are often less developed, less stringent or more difficult to enforce than in the United States.

We are heavily dependent on our proprietary technology and our competitors may gain access to this technology.

        We depend heavily on our proprietary technology and rely on a combination of patent, copyright and trade secret laws to protect our intellectual property and expertise. We also attempt to protect our trade secrets and other proprietary information through confidentiality agreements with our customers, suppliers and employees and through other security measures. Despite these efforts, we cannot give assurances that others will not gain access to our trade secrets or that we can fully protect our intellectual property. In addition, effective trade secret protection may be unavailable or limited in certain countries in which we operate. Nor can we guarantee that our competitors will not independently develop comparable technologies. We cannot rely on our patents to provide us with any significant competitive advantage. Failure to protect our proprietary rights could significantly harm our financial condition.

We could suffer a loss of revenue and increased costs, exposure to significant liability, reputational harm, and other serious negative consequences if we sustain cyber-attacks or other data security breaches that disrupt our operations or result in the dissemination of proprietary or confidential information about us or our customers or other third-parties.

        Our operations are dependent upon our ability to protect our computer equipment and the electronic data stored in our databases from damage by, among other things, earthquake, fire, natural disasters, accidents, power disruptions, telecommunications failures, acts of terrorism or war, employee misconduct, physical or electronic break-ins, cyber-attacks, or similar events or disruptions. We manage and store various proprietary information and sensitive or confidential data relating to our operations. In addition, our outsourcing services and cloud computing businesses routinely process, store, and transmit large amounts of data for our customers and vendors, including sensitive and personally identifiable information. As our operations become more automated and increasingly interdependent, our exposure to the risks posed by these types of events will increase. We have been, and will likely continue to be, subject to computer viruses or other malicious codes, cyber-attacks, or other computer-related attempts to breach the information technology systems we use for these purposes. We may also be subject to information technology system failures and network disruptions due to these factors. Experienced computer programmers and hackers may be able to penetrate our network security and misappropriate or compromise our confidential information or that of third-parties, create system disruptions, or cause shutdowns. Computer programmers and hackers also may be able to develop and deploy viruses, worms, and other malicious software programs that attack our products or otherwise exploit any security vulnerabilities of our products. In addition, sophisticated hardware and operating system software and applications that we produce or procure from third-parties may contain defects in design or manufacture, including "bugs" and other problems that could unexpectedly interfere with the operation of the system.

        The costs to us to eliminate or address the foregoing security problems and security vulnerabilities before or after a cyber-incident could be significant. System redundancy may be ineffective or inadequate, and our disaster recovery planning may not be sufficient for all eventualities. Our remediation efforts may not be successful and could result in interruptions, delays, or cessation of service, and loss of existing or potential customers that may impede our sales, manufacturing, distribution, or other critical functions. We could lose existing or potential customers for outsourcing services or other information technology solutions in connection with any actual or perceived security vulnerabilities in our products. In addition, breaches of our security measures and the unapproved dissemination of proprietary information or sensitive or confidential data about us or our customers or other third-parties, could expose us, our vendors and customers, or other third-parties affected to a risk of loss or misuse of this information, result in litigation and potential liability for us, damage our brand and reputation, or otherwise harm our

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business. In addition, we rely in certain limited capacities on third-party data management providers whose possible security problems and security vulnerabilities may have similar effects on us.

        We are subject to laws, rules, and regulations in the U.S. and other countries relating to the collection, use, and security of user data. In many cases, these laws apply not only to third-party transactions, but also to transfers of information between us and our subsidiaries, and among us, our subsidiaries and other parties with which we have commercial relations. Our ability to execute transactions and to possess and use personal information and data in conducting our business subjects us to legislative and regulatory burdens that may require us to notify vendors, customers or employees of a data security breach. We have incurred, and will continue to incur, significant expenses to comply with mandatory privacy and security standards and protocols imposed by law, regulation, industry standards, or contractual obligations. These laws, protocols and standards continue to develop and may be inconsistent from jurisdiction to jurisdiction. Complying with emerging and changing international requirements may cause us to incur substantial costs or require us to change our business practices. If we fail to comply with applicable federal, state or international privacy-related or data protection laws we may be subject to proceedings by governmental entities and incur penalties or significant legal liability.

Our international operations subject us to risks related to disruptions in foreign markets, currency exchange fluctuations, longer payment cycles, seasonality, limitations imposed by a variety of legal and regulatory regimes, potential adverse tax consequences, increased costs, our customers' credit and access to capital, health-related risks, and access to personnel.

        We have significant operations in foreign countries, including manufacturing facilities, sales personnel and customer support operations. We have manufacturing facilities in China, Malaysia, Northern Ireland, Singapore and Thailand, in addition to those in the United States. A substantial portion of our client compute disk drive assembly occurs in our facility in China.

        Our international operations are subject to economic risks inherent in doing business in foreign countries, including the following:

    Disruptions in Foreign Markets.  Disruptions in financial markets and the deterioration of the underlying economic conditions in the past in some countries, including those in Asia, have had an impact on our sales to customers located in, or whose end-user customers are located in, these countries.

    Fluctuations in Currency Exchange Rates.  Prices for our products are denominated predominately in U.S. dollars, even when sold to customers that are located outside the United States. Currency instability in Asia and other geographic markets may make our products more expensive than products sold by other manufacturers that are priced in the local currency. Moreover, many of the costs associated with our operations located outside the United States are denominated in local currencies. As a consequence, the increased strength of local currencies against the U.S. dollar in countries where we have foreign operations would result in higher effective operating costs and, potentially, reduced earnings. From time to time, fluctuations in foreign exchange rates have negatively affected our operations and profitability and there can be no assurance that these fluctuations will not adversely affect our operations and profitability in the future. We may attempt to manage the impact of foreign currency exchange rate changes by, among other things, entering into foreign currency forward exchange contracts. However, these contracts may not cover our full exposure and subject us to certain counterparty credit risks. See "Item 7A.Quantitative and Qualitative Disclosures About Market Risk-Foreign Currency Exchange Risk" of this report for additional information about our foreign currency exchange risk.

    Longer Payment Cycles.  Our customers outside of the United States are often allowed longer time periods for payment than our U.S. customers. This increases the risk of nonpayment due to the

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      possibility that the financial condition of particular customers may worsen during the course of the payment period.

    Seasonality.  Seasonal reductions in the business activities of our customers during the summer months, particularly in Europe, typically result in lower earnings during those periods.

    Legal and Regulatory Limitations.  Our international operations are affected by limitations on imports, tariffs, duties, currency exchange control regulations, price controls, export control laws, including the trade and economic sanctions administered by the Office of Foreign Assets Control, and other restraints on trade. In addition, the governments of many countries, including China, Malaysia, Northern Ireland, Singapore and Thailand, in which we have significant operating assets, have exercised and continue to exercise significant influence over many aspects of their domestic economies and international trade. Although we have implemented policies and procedures designed to ensure compliance, there can be no assurance that our employees, contractors, or agents will not violate these or other applicable laws and regulations to which we may be subject. Violations of these laws and regulations could lead to significant penalties, including restraints on our export or import privileges, monetary fines, criminal proceedings and regulatory or other actions that could materially adversely affect our results of operations.

    Potential Adverse Tax Consequences.  Our international operations create a risk of potential adverse tax consequences, including imposition of withholding or other taxes on payments by our subsidiaries. In addition, our taxable income in any jurisdiction is dependent upon acceptance of our operational practices and intercompany transfer pricing by local tax authorities as being on an arm's length basis. Due to inconsistencies in application of the arm's length standard among taxing authorities, as well as a lack of adequate treaty-based protection, transfer pricing challenges by tax authorities could, if successful, substantially increase our income tax expense. We are subject to tax audits around the world, and are under audit in various jurisdictions, and such jurisdictions may assess additional income tax against us. Although we believe our tax positions are reasonable, the final determination of tax audits could be materially different from our recorded income tax provisions and accruals. The ultimate results of an audit could have a material adverse effect on our operating results or cash flows in the period or periods for which that determination is made and could result in increases to our overall tax expense in subsequent periods.

    Increased Costs.  The shipping and transportation costs associated with our international operations are typically higher than those associated with our U.S. operations, resulting in decreased operating margins in some foreign countries.

    Credit and Access to Capital Risks.  Our international customers could have reduced access to working capital due to higher interest rates, reduced bank lending resulting from contractions in the money supply or the deterioration in the customer's or its bank's financial condition, or the inability to access other financing.

    Global Health Outbreaks.  The occurrence of a pandemic disease may adversely impact our operations, and some of our key customers. Such diseases could also potentially disrupt the timeliness and reliability of the distribution network we rely on.

    Access to Personnel.  There is substantial competition for qualified and capable personnel in certain jurisdictions in which we operate, including China, which may make it difficult for us to recruit and retain qualified employees in sufficient numbers. Increased difficulty in recruiting or retaining sufficient and adequate personnel in our international operations may lead to increased manufacturing and employment compensation costs, which could adversely affect our results of operations.

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Our international operations subject us to risks related to economic conditions, political unrest and terrorism.

        We have manufacturing facilities in parts of the world that periodically experience political unrest. This could disrupt our ability to manufacture important components as well as cause interruptions and/or delays in our ability to ship components to other locations for continued manufacture and assembly. Any such delays or interruptions could result in delays in our ability to fill orders and have an adverse effect on our results of operations and financial condition. U.S. and international responses to the ongoing hostilities in various regions and the risk of terrorist attacks or hostilities elsewhere in the world could exacerbate these risks.

        Macroeconomic developments like the debt crisis in certain countries in the European Union and slowing economies in parts of Asia and South America could negatively affect our business, operating results or financial condition which, in turn, could adversely affect our stock price. A general weakening of, and related declining corporate confidence in, the global economy or the curtailment in government or corporate spending could cause current or potential customers to reduce their information technology (IT) budgets or be unable to fund hardware systems, which could cause customers to delay, decrease or cancel purchases of our products or cause customers not to pay us or to delay paying us for previously purchased products and services.

        In addition, political unrest in regions like the Middle East, terrorist attacks around the globe and the potential for other hostilities in various parts of the world, potential public health crises and natural disasters continue to contribute to a climate of economic and political uncertainty that could adversely affect our results of operations and financial condition, including our revenue growth and profitability. These factors generally have the strongest effect on our sales.

The loss of key executive officers and employees could negatively impact our business prospects.

        Our future performance depends to a significant degree upon the continued service of key members of management as well as marketing, sales and product development personnel. The loss of one or more of our key personnel may have a material adverse effect on our business, results of operations and financial condition. We believe our future success will also depend in large part upon our ability to attract, retain and further motivate highly skilled management, marketing, sales and product development personnel. We have experienced intense competition for personnel, and we cannot assure you that we will be able to retain our key employees or that we will be successful in attracting, assimilating and retaining personnel in the future.

Significant fluctuations in the market price of our ordinary shares could result in securities class action claims against us.

        Significant price and value fluctuations have occurred with respect to the publicly traded securities of technology companies. The price of our ordinary shares is likely to be volatile in the future. In the past, following periods of decline in the market price of a company's securities, class action lawsuits have often been pursued against that company. If similar litigation were pursued against us, it could result in substantial costs and a diversion of management's attention and resources, which could materially adversely affect our results of operations, financial condition and liquidity.

Deterioration in global credit and financial market conditions could negatively impact the value of our current portfolio of cash equivalents or short-term investments and our ability to meet our financing objectives.

        Our cash and cash equivalents are maintained in highly liquid investments with remaining maturities of 90 days or less at the time of purchase. Our short-term investments consist primarily of readily marketable debt securities with remaining maturities of more than 90 days at the time of purchase. Our investment policy has as its principal objectives the preservation of principal and maintenance of liquidity.

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We mitigate default risk by investing in high-quality investment grade securities, limiting the time to maturity and by monitoring the counter-parties and underlying obligors closely.

        While as of the date of this filing, we are not aware of any material downgrades, losses, or other significant deterioration in the fair value of our cash equivalents or short-term investments, no assurance can be given that future deterioration in conditions of the global credit and financial markets would not negatively impact our current portfolio of cash equivalents or short-term investments or our ability to meet our financing objectives.

Failure to comply with applicable environmental laws and regulations could have a material adverse effect on our business, results of operations and financial condition.

        The sale and manufacturing of products in certain states and countries may subject us and our suppliers to state, federal and international laws and regulations governing protection of the environment, including those governing discharges of pollutants into the air and water, the management and disposal of hazardous substances and wastes, the cleanup of contaminated sites, restrictions on the presence of certain substances in electronic products and the responsibility for environmentally safe disposal or recycling. We endeavor to ensure that we and our suppliers comply with all applicable environmental laws and regulations, however, compliance may increase our operating costs and otherwise impact future financial results. If additional or more stringent requirements are imposed on us in the future, we could incur additional operating costs and capital expenditures. If we fail to comply with applicable environmental laws, regulations, initiatives, or standards of conduct, our customers may refuse to purchase our products and we could be subject to fines, penalties and possible prohibition of sales of our products into one or more states or countries, liability to our customers and damage to our reputation, which could result in a material adverse effect on the financial condition or results of operations.

New conflict minerals regulations may cause us to incur additional expenses and could limit the supply and increase the cost of certain metals used in manufacturing our products.

        In August 2012, the SEC adopted new rules establishing additional disclosure and reporting requirements regarding the use of specified minerals, or conflict minerals, that are necessary to the functionality or production of products manufactured or contracted to be manufactured. These new rules will require us to determine, disclose and report whether or not such conflict minerals originate from the Democratic Republic of the Congo or an adjoining country, the first such report of which was filed on May 30, 2014. These new rules could affect our ability to source certain materials used in our products at competitive prices and could impact the availability of certain minerals used in the manufacture of our products, including gold, tantalum, tin and tungsten. As there may be only a limited number of suppliers of "conflict free" minerals, we cannot be sure that we will be able to obtain necessary conflict free minerals in sufficient quantities or at competitive prices. Our customers, including our OEM customers, may require that our products be free of conflict minerals, and our revenues and margins may be harmed if we are unable to procure conflict free minerals at a reasonable price, or at all, or are unable to pass through any increased costs associated with meeting these demands. Additionally, we may face reputational challenges with our customers and other stakeholders if we are unable to sufficiently verify the origins of all minerals used in our products through the due diligence procedures that we implement. We may also face challenges with government regulators and our customers and suppliers if we are unable to sufficiently verify that the metals used in our products are conflict free. We expect that there may be material costs associated with complying with the disclosure requirements, such as costs related to determining the source of certain minerals used in our products, as well as costs related to possible changes to products, processes, or sources of supply as a consequence of such verification and disclosure requirements.

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Because we experience seasonality in the sales of our products, our results of operations will generally be adversely impacted during the second half of our fiscal year.

        Sales of computer systems, storage subsystems and consumer electronics tend to be seasonal, and therefore we expect to continue to experience seasonality in our business as we respond to variations in our customers' demand for our products. In particular, we anticipate that sales of our products will continue to be lower during the second half of our fiscal year. In the client compute and client non-compute market applications of our disk drive business, this seasonality is partially attributable to the historical trend in our results derived from our customers' increased sales of desktop computers, notebook computers, and consumer electronics during the back-to-school and winter holiday season. In the enterprise market our sales are seasonal because of the capital budgeting and purchasing cycles of our end users. Since our working capital needs peak during periods in which we are increasing production in anticipation of orders that have not yet been received, our results of operations will fluctuate seasonally even if the forecasted demand for our products proves accurate. Furthermore, it is difficult for us to evaluate the degree to which this seasonality may affect our business in future periods because of the rate and unpredictability of product transitions and new product introductions, particularly in the client non-compute market, as well as macroeconomic conditions.

The price of our ordinary shares may be volatile and could decline significantly.

        The stock market, in general, and the market for technology stocks in particular, has recently experienced volatility that has often been unrelated to the operating performance of companies. If these market or industry-based fluctuations continue, the trading price of our ordinary shares could decline significantly independent of our actual operating performance, and you could lose all or a substantial part of your investment. The market price of our ordinary shares could fluctuate significantly in response to several factors, including among others:

    general uncertainty in stock market conditions occasioned by global economic conditions, negative financial news and the continued instability of several large financial institutions;

    actual or anticipated variations in our results of operations;

    announcements of innovations, new products or significant price reductions by us or our competitors, including those competitors who offer alternative storage technology solutions;

    our failure to meet the performance estimates of investment research analysts;

    the timing of announcements by us or our competitors of significant contracts or acquisitions;

    general stock market conditions;

    the occurrence of major catastrophic events;

    changes in financial estimates by investment research analysts;

    changes in the credit ratings of our indebtedness by rating agencies; and

    the sale of our ordinary shares held by certain equity investors or members of management.

Political events, war, terrorism, natural disasters, public health issues and other circumstances could materially adversely affect our results of operations and financial condition.

        War, terrorism, geopolitical uncertainties, natural disasters, public health issues, and other business interruptions have caused and could cause damage or disruption to international commerce and the global economy, and thus could have a strong negative effect on our business, our suppliers, logistics providers, manufacturing vendors and customers. Our business operations are subject to interruption by natural disasters such as floods and earthquakes, fire, power shortages, terrorist attacks, other hostile acts, labor

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disputes, public health issues, and other events beyond our control. Such events could decrease demand for our products, make it difficult or impossible for us to make and deliver products to our customers, or to receive components from our suppliers, and create delays and inefficiencies in our supply chain. In the event of a natural disaster, losses and significant recovery time could be required to resume operations and our financial condition and operating results could be materially adversely affected. Should major public health issues, including pandemics, arise, we could be negatively affected by stringent employee travel restrictions, additional limitations in freight services, governmental actions limiting the movement of products between regions, delays in production ramps of new products, and disruptions in our operations and some of our key customers.

If we do not realize the expected benefits of our strategic alignment with Samsung, our business and financial condition may be materially impaired.

        We may not achieve the desired benefits from our strategic alignment with Samsung. Even if we are able to successfully integrate the business that we acquired from Samsung into our business, we may not be able to realize the cost savings, synergies and growth that we anticipate from this transaction in the timeframe we currently expect, and the costs of achieving these benefits may be higher than we currently expect, because of a number of risks, including but not limited to:

    The possibility that the transaction may not further our business strategy as we expected;

    Our operating results or financial condition may be adversely impacted by liabilities that we assume in the transaction; and

    The risk of intellectual property disputes with respect to the acquired assets.

        In addition, the Chinese Ministry of Commerce conditioned its approval of the Samsung acquisition on our compliance with several on-going requirements, including: adopting measures to keep the Samsung HDD brand as a separate competitor to the Seagate HDD brand, expanding the Samsung HDD production capacity within six months of the decision, and investing at least $800 million per year for three years in R&D in our combined Samsung and Seagate HDD businesses. Compliance with these obligations may involve significant costs or require changes in business practices that result in reduced revenue. Noncompliance could result in extending the time under which we would be compelled to operate under these conditions.

        As a result of these risks, the transaction may not contribute to our earnings as we expected, we may not achieve expected cost synergies when expected, or at all, and we may not achieve the other anticipated strategic and financial benefits of this transaction.

Our ability to use our net operating loss and tax credit carryforwards might be limited.

        At June 27, 2014, the use of approximately $376 million and $90 million of our U.S. net operating loss and tax credit carryforwards, respectively, is subject to an aggregate annual limitation of $46 million pursuant to U.S. tax law. To the extent these net operating loss and tax credit carryforwards are available, we intend to use them to reduce the corporate income tax liability associated with our operations in the U.S. Section 382 of the U.S. Internal Revenue Code generally imposes an annual limitation on the amount of net operating loss or tax credit carryforwards that might be used to offset taxable income when a corporation has undergone significant changes in ownership. As a result, future changes in ownership, such as changes in ownership resulting from future repurchases of our ordinary shares, could put limitations on the availability of our net operating loss or tax credit carryforwards. If certain ownership changes occur in the foreseeable future, there may be an additional annual limitation on our ability to use our total U.S. federal and state net operating loss and credit carryforwards of $2.9 billion, $1.8 billion, and $429 million, respectively. If these ownership changes were to occur, we estimate a one-time charge for additional U.S. income tax expense of approximately $400 million to $500 million may be recorded in the period such

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change occurs. This additional income tax expense results from a decrease in our net U.S. deferred tax assets recorded through a combination of the write off of deferred tax assets and associated changes to our valuation allowance. We also estimate that the ensuing additional annual limitation on our ability to use tax attribute carryovers may result in increased U.S. income tax expense associated with such change of approximately $70 million to $85 million each year.

ITEM 1B.    UNRESOLVED STAFF COMMENTS

        None.

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ITEM 2.    PROPERTIES

        Our company headquarters are located in Ireland, while our U.S. executive offices are located in Cupertino, California. Our principal manufacturing facilities are located in China, Malaysia, Northern Ireland, Singapore, Thailand and Minnesota. Our principal product development facilities are located in California, Colorado, Minnesota, Singapore and South Korea. Our leased facilities are occupied under leases that expire at various times through 2082.

        Our material manufacturing, product development and marketing and administrative facilities at June 27, 2014 are as follows:

Location
  Building(s)
Owned or Leased
  Approximate
Square Footage
  Primary Use

United States

             

California

  Owned/Leased     1,051,000   Product development and marketing and administrative

Colorado

  Owned     528,000   Product development

Minnesota

  Owned/Leased     1,085,000   Manufacture of recording heads and product development

Europe

             

Northern Ireland

             

Springtown

  Owned     479,000   Manufacture of recording heads

Asia

             

China

             

Suzhou

  Owned/Leased(1)     1,103,000   Manufacture of drives

Wuxi

  Leased     718,000   Manufacture of drives and drive subassemblies

Malaysia

             

Johor

  Owned(1)     631,000   Manufacture of substrates

Penang

  Owned(1)     402,000   Manufacture of drive subassemblies

Seremban

  Owned/Leased(1)     386,000   Manufacture of test equipment and systems

Singapore

             

Woodlands

  Owned(1)     1,404,000   Manufacture of media

Science Park

  Leased     110,000   Product development

Thailand

             

Korat

  Owned     1,723,000   Manufacture of drives and drive subassemblies

Teparuk

  Owned     362,000   Manufacture of drive subassemblies

Korea

             

Suwon

  Owned     220,000   Product development

(1)
Land leases for these facilities expire at varying dates through 2067.

        As of June 27, 2014, we owned or leased a total of approximately 12.2 million square feet of space worldwide. We occupied approximately 7.5 million square feet for the purpose of manufacturing, 1.9 million square feet for product development, 2.1 million square feet for marketing and administrative purposes. Included in the 12.2 million square feet of owned or leased space is a total of 0.7 million square feet that is currently unoccupied, primarily as a result of site closures at our facilities in Longmont, Colorado. We believe that our existing properties are in good operating condition and are suitable and adequate for the operations for which they are used. As of June 27, 2014, all of our material manufacturing facilities are operating at normal utilization levels and none of our manufacturing facilities are experiencing significant underutilization.

ITEM 3.    LEGAL PROCEEDINGS

        See "Item 8. Financial Statements and Supplementary Data—Note 14. Legal, Environmental and Other Contingencies."

ITEM 4.    MINE SAFETY DISCLOSURES

        Not applicable.

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PART II

ITEM 5.    MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Market Information

        Our shares trade on the NASDAQ Global Select Market under the symbol "STX." The high and low sales prices of our shares, as reported by the NASDAQ Global Select Market, are set forth below for the periods indicated.

 
  Price Range  
Fiscal Quarter
  High   Low  

Quarter ended September 28, 2012

  $ 35.71   $ 23.86  

Quarter ended December 28, 2012

  $ 31.49   $ 24.90  

Quarter ended March 29, 2013

  $ 37.94   $ 29.80  

Quarter ended June 28, 2013

  $ 45.50   $ 33.22  

Quarter ended September 27, 2013

  $ 47.82   $ 37.17  

Quarter ended December 27, 2013

  $ 56.64   $ 42.73  

Quarter ended March 28, 2014

  $ 62.76   $ 48.21  

Quarter ended June 27, 2014

  $ 58.35   $ 48.49  

        As of August 1, 2014 there were approximately 997 holders of record of our ordinary shares. We did not sell any of our equity securities during fiscal year 2014 that were not registered under the Securities Act of 1933, as amended.

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Performance Graph

        The performance graph below shows the cumulative total shareholder return on our ordinary shares for the period from July 3, 2009 to June 27, 2014. This is compared with the cumulative total return of the Dow Jones US Computer Hardware Index and the Standard & Poor's 500 Stock Index over the same period. The graph assumes that on July 3, 2009, $100 was invested in our ordinary shares and $100 was invested in each of the other two indices, with dividends reinvested on the date of payment without payment of any commissions. Dollar amounts in the graph are rounded to the nearest whole dollar. The performance shown in the graph represents past performance and should not be considered an indication of future performance.

GRAPHIC

 
  7/3/2009   7/2/2010   7/1/2011   6/29/2012   6/28/2013   6/27/2014  

Seagate Technology plc

    100.00     70.48     88.51     139.96     264.96     354.43  

S&P 500

    100.00     114.07     149.45     151.96     179.19     218.75  

Dow Jones US Computer Hardware

    100.00     142.12     181.79     238.67     187.02     282.71  

*
$100 invested on 7/3/09 in stock and in indices, including reinvestment of dividends.


Copyright© 2014 Bloomberg Finance L.P. All rights reserved.

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Dividends

        Our ability to pay dividends in the future will be subject to, among other things, general business conditions within the disk drive industry, our financial results, the impact of paying dividends on our credit ratings and legal and contractual restrictions on the payment of dividends by our subsidiaries to us or by us to our ordinary shareholders, including restrictions imposed by covenants on our debt instruments.

        The following were dividends paid in the last two fiscal years:

Record Date   Paid Date   Dividend
per Share
 

August 5, 2012

  August 26, 2012   $ 0.32  
November 14, 2012   November 29, 2012   $ 0.32  
December 14, 2012   December 28, 2012   $ 0.38  

May 15, 2013

  May 29, 2013   $ 0.38  

August 7, 2013

  August 21, 2013   $ 0.38  
November 12, 2013   November 26, 2013   $ 0.43  
February 10, 2014   February 24, 2014   $ 0.43  

May 14, 2014

  May 28, 2014   $ 0.43  

        From the closing of our initial public offering in December 2002 through 2014, we have paid dividends, pursuant to our dividend policy then in effect, totaling approximately $2.5 billion in the aggregate.

Repurchases of Our Equity Securities

        All repurchases are effected as redemptions in accordance with the Company's Articles of Association. There is no expiration date on this authorization.

        On July 24, 2013, the Board of Directors authorized the Company to repurchase $2.5 billion of its outstanding ordinary shares. As of June 27, 2014, $1.5 billion remained available for repurchase under the existing repurchase authorization limit.

        The following table sets forth information with respect to all repurchases of our shares made during the fiscal year ended June 27, 2014:

Period   Total
Number of
Shares
Purchased
  Average Price
Paid per
Share
  Total Number of
Shares
Purchased
as Part of
Publicly
Announced Plans
or Programs
  Approximate
Dollar Value of
Shares
Purchased
Under
the Plans or
Programs
  Approximate
Dollar Value of
Shares that May
Yet Be
Purchased Under
the Plans or
Programs
 
(In millions, except average price paid per share)
   
   
   
   
   
 

1st Quarter through 3rd Quarter of Fiscal Year 2014

    40.5   $ 46.57     40.5   $ 1,886   $ 1,517  

March 29, 2014 through April 25, 2014

                    1,517  

April 26, 2014 through May 23, 2014

    0.5     49.60     0.5     26     1,491  

May 24, 2014 through June 27, 2014

                    1,491  
                       

Through 4th Quarter of Fiscal Year 2014

    41.0   $ 46.63     41.0   $ 1,912   $ 1,491  
                       
                       

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ITEM 6.    SELECTED FINANCIAL DATA

        The following selected consolidated financial data set forth below is not necessarily indicative of results of future operations, and should be read in conjunction with "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" and the Consolidated Financial Statements and related notes thereto included in "Item 8. Financial Statements and Supplementary Data" of this Annual Report on Form 10-K, which are incorporated herein by reference, to fully understand factors that may affect the comparability of the information presented below.

        The Consolidated Statements of Operations data for the fiscal years ended June 27, 2014, June 28, 2013 and June 29, 2012, and the Consolidated Balance Sheet data as of June 27, 2014 and June 28, 2013, are derived from our audited Consolidated Financial Statements appearing elsewhere in this Annual Report on Form 10-K. The Consolidated Statements of Operations data for the fiscal years ended July 1, 2011 and July 2, 2010, and the Consolidated Balance Sheet data at June 29, 2012, July 1, 2011 and July 2, 2010, are derived from our audited Consolidated Financial Statements that are not included in this Annual Report on Form 10-K.

 
  Fiscal Years Ended  
(Dollars in millions, except per share data)
  June 27,
2014
  June 28,
2013
  June 29,
2012
  July 1,
2011
  July 2,
2010
 

Revenue

  $ 13,724   $ 14,351   $ 14,939   $ 10,971   $ 11,395  

Gross margin

    3,846     3,940     4,684     2,146     3,204  

Income from operations

    1,776     2,091     3,108     806     1,740  

Net income

    1,570     1,838     2,862     511     1,609  

Total assets

    9,492     9,243     10,106     9,225     8,247  

Total debt

    3,920     2,777     2,863     3,512     2,502  

Equity

  $ 2,832   $ 3,506   $ 3,497   $ 2,463   $ 2,724  

Net income per share:

   
 
   
 
   
 
   
 
   
 
 

Basic

  $ 4.66   $ 4.97   $ 6.72   $ 1.13   $ 3.28  

Diluted

    4.52     4.81     6.49     1.09     3.14  

Number of shares used in per share computations:

   
 
   
 
   
 
   
 
   
 
 

Basic

    337     370     426     451     491  

Diluted

    347     382     441     467     514  

Cash dividends declared per share

 
$

1.67
 
$

1.40
 
$

0.86
 
$

0.18
 
$

 

Supplementary Financial Data (Unaudited)

    Quarterly Data

        The Company operated and reported financial results based on 13-week quarters in fiscal years 2014 and 2013, which ended on the Friday closest to September 30, December 31, March 31, and June 30.

 
  Fiscal Year 2014 Quarters Ended  
(In millions, except per share data)
  June 27,
2014
  March 28,
2014
  December 27,
2013
  September 27,
2013
 

Revenue

  $ 3,301   $ 3,406   $ 3,528   $ 3,489  

Gross margin

    925     959     987     975  

Income from operations

    410     444     444     478  

Net income

    320     395     428     427  

Net income per share:

                         

Basic

  $ 0.98   $ 1.21   $ 1.27   $ 1.20  

Diluted

    0.95     1.17     1.24     1.16  

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  Fiscal Year 2013 Quarters Ended  
(In millions, except per share data)
  June 28,
2013
  March 29,
2013
  December 28,
2012
  September 28,
2012
 

Revenue

  $ 3,425   $ 3,526   $ 3,668   $ 3,732  

Gross margin

    939     948     992     1,061  

Income from operations

    448     465     555     624  

Net income

    348     416     492     582  

Net income per share:

                         

Basic

  $ 0.97   $ 1.16   $ 1.33   $ 1.48  

Diluted

    0.94     1.13     1.30     1.42  

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ITEM 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

        The following is a discussion of the Company's financial condition, changes in financial condition and results of operations for the fiscal years ended June 27, 2014, June 28, 2013, and June 29, 2012.

        You should read this discussion in conjunction with "Item 6. Selected Financial Data" and "Item 8. Financial Statements and Supplementary Data" included elsewhere in this Annual Report on Form 10-K. Except as noted, references to any fiscal year mean the twelve-month period ending on the Friday closest to June 30 of that year.

        Some of the statements and assumptions included in this Annual Report on Form 10-K are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 or Section 21E of the Securities Exchange Act of 1934, each as amended, including, in particular, statements about our plans, strategies and prospects and estimates of industry growth for the fiscal year ending July 3, 2015 and beyond. These statements identify prospective information and may include words such as "expects," "plans," "anticipates," "believes," "estimates," "predicts," "projects" and similar expressions. These forward-looking statements are based on information available to us as of the date of this Annual Report on Form 10-K and management's current views and assumptions. These forward-looking statements are conditioned upon and also involve a number of known and unknown risks, uncertainties and other factors that could cause actual results, performance or events to differ materially from those anticipated by these forward-looking statements. Such risks, uncertainties and other factors may be beyond our control and may pose a risk to our operating and financial condition. Such risks and uncertainties include, but are not limited to: uncertainty in global economic conditions, as consumers and businesses may defer purchases in response to tighter credit and financial news; the impact of variable demand and the adverse pricing environment for disk drives, particularly in view of current business and economic conditions; our ability to successfully qualify, manufacture and sell our disk drive products in increasing volumes on a cost-effective basis and with acceptable quality, particularly new disk drive products with lower cost structures; the impact of competing product announcements; possible excess industry supply with respect to particular disk drive products and our ability to achieve projected cost savings in connection with restructuring plans. Information concerning risks, uncertainties and other factors that could cause results to differ materially from those projected in such forward-looking statements is also set forth in "Item 1A.Risk Factors" of this Annual Report on Form 10-K, which we encourage you to carefully read. These forward-looking statements should not be relied upon as representing our views as of any subsequent date and we undertake no obligation to update forward-looking statements to reflect events or circumstances after the date they were made. The following is a discussion of the financial condition and results of operations for the fiscal years ended June 27, 2014, June 28, 2013, and June 29, 2012.

        Our Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is provided in addition to the accompanying consolidated financial statements and notes to assist readers in understanding our results of operations, financial condition, and cash flows. MD&A is organized as follows:

    Our Company.  Discussion of our business.

    Business Overview.  Discussion of industry trends and their impact on our business.

    Fiscal Year 2014 Summary.  Overview of financial and other highlights affecting us for fiscal year 2014.

    Results of Operations.  Analysis of our financial results comparing fiscal year 2014 to 2013 and comparing fiscal years 2013 to 2012.

    Liquidity and Capital Resources.  An analysis of changes in our balance sheets and cash flows, and discussion of our financial condition including the credit quality of our investment portfolio and potential sources of liquidity.

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    Contractual Obligations and Off-Balance-Sheet Arrangements.  Overview of contractual obligations and contingent liabilities and commitments outstanding as of June 27, 2014 and an explanation of off-balance-sheet arrangements.

    Critical Accounting Estimates.  Accounting estimates that we believe are important to understanding the assumptions and judgments incorporated in our reported financial results.

Our Company

        We are a leading provider of electronic data storage solutions. Our principal products are hard disk drives, commonly referred to as disk drives, hard drives or HDDs. 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. In addition to HDDs, we produce a broad range of electronic data storage products including solid state hybrid drives ("SSHD") and solid state drives ("SSD").

        Our products are designed for enterprise servers, and storage systems in mission critical and nearline applications; client compute applications, where our products are designed primarily for desktop and mobile computing; and client non-compute applications, where our products are designed for a wide variety of end user devices such as digital video recorders ("DVRs"), personal data backup systems, portable external storage systems and digital media systems.

        We continue to make strategic investments in order to expand our storage solutions, enter new market adjacencies, and expand our technical expertise. As a result of recent acquisitions, our product and solution portfolio for the enterprise data storage industry includes storage enclosures, integrated application platforms and high performance computing ("HPC") data storage solutions. Our storage subsystems support a range of high-speed interconnect technologies to meet demanding cost and performance specifications. Our modular subsystem architecture allows us to support many segments within the networked storage market by enabling different specifications of storage subsystem designs to be created from a standard set of interlocking technology modules.

        In addition to our data storage products and subsystems, we provide data storage services for small to medium-sized businesses, including online backup, data protection and recovery solutions.

Business Overview

        Our industry is characterized by several trends and factors that have a material impact on our strategic planning, financial condition and results of operations.

    Industry Supply Balance

        From time to time the industry has experienced periods of imbalance between supply and demand. To the extent that the disk drive industry builds capacity based on expectations of demand that do not materialize, price erosion may become more pronounced. Conversely, during periods where demand exceeds supply, price erosion is generally muted.

        In early October 2011, floodwaters north of Bangkok, Thailand inundated many manufacturing industrial parks that contained a number of the factories supporting the HDD industry's supply chain. The HDD industry had concentrated a large portion of its supply chain participants within these industrial parks in an effort to reduce cost and improve logistics. As a result, the inundation of floodwaters into these industrial parks had caused the closure or suspension of production by a number of participants within the HDD supply chain.

        During the supply chain disruption in fiscal year 2012, we believe demand exceeded supply due to the impact from the flooding in Thailand, resulting in an increase in the average selling price ("ASP").

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        The industry's ability to manufacture and ship drives had substantially recovered as of the end of fiscal year 2012. In fiscal years 2013 and 2014, we believe the HDD industry's capacity to manufacture HDDs exceeded demand. However, following the impact of the flooding in Thailand and further industry consolidation in fiscal year 2012, the HDD industry has maintained improved pricing discipline resulting in benign price erosion in fiscal years 2013 and 2014.

    Demand Trends for Disk Drives

        We believe that continued growth in digital content requires increasingly higher storage capacity in order to store, aggregate, host, distribute, manage, backup and use such content. We also believe that as architectures evolve to serve the growing commercial and consumer user base throughout the world, the manner which hard drives are delivered to market and utilized by our customers will evolve as well.

        We believe that in the foreseeable future the traditional enterprise and client compute markets that require high capacity storage solutions, as well as the data intensive client non-compute markets, will continue to be best served by hard disk drives due to the industry's ability to deliver cost effective, reliable and energy efficient mass storage devices. Furthermore, the increased use of client non-compute devices that consume media-rich digital content streamed from the cloud increases the demand for high capacity disk drives in nearline applications.

        Price Erosion.    Historically, our industry has been characterized by price declines for disk drive products with comparable capacity, performance and feature sets ("like-for-like products").

        Disk drive manufacturers typically attempt to offset price erosion with an improved mix of disk drive products characterized by higher capacity, better performance and additional feature sets and/or product cost reductions.

Seasonality

        The disk drive industry traditionally experiences seasonal variability in demand with higher levels of demand in the second half of the calendar year. This seasonality is driven by consumer spending in the back-to-school season from late summer to fall and the traditional holiday shopping season from fall to winter. In addition, corporate demand is typically higher during the second half of the calendar year.

Fiscal Year 2014 Summary

        During the fiscal year 2014, we shipped 220 million units totaling 202 exabytes, generating revenue of $13.7 billion and gross margins of 28% of revenue. Our operating cash flow was $2.6 billion. We issued $1 billion of 4.75% Senior Notes due 2025 and $800 million of 3.75% Senior Notes due 2018 during the June 2014 and December 2013 quarters, respectively. We repurchased approximately 41 million of our ordinary shares during the year for approximately $1.9 billion, paid dividends of $0.6 billion, paid $0.7 billion for the early redemption and repurchase of debt with a principal value of $0.7 billion. Additionally, we acquired all of the outstanding shares of Xyratex Ltd ("Xyratex"), a leading provider of data storage technology, for approximately $0.4 billion. During the June 2014 quarter, we entered into an agreement to acquire LSI's Accelerated Solutions Division and Flash Components Division from Avago for approximately $0.5 billion. The LSI acquisition is expected to close in the first quarter of the fiscal year 2015.

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Results of Operations

        We list in the table below summarized information from our consolidated statements of operations by dollars and as a percentage of revenue:

 
  Fiscal Years Ended  
(Dollars in millions)
  June 27,
2014
  June 28,
2013
  June 29,
2012
 

Revenue

  $ 13,724   $ 14,351   $ 14,939  

Cost of revenue

    9,878     10,411     10,255  
               

Gross margin

    3,846     3,940     4,684  

Product development

    1,226     1,133     1,006  

Marketing and administrative

    722     635     528  

Amortization of intangibles

    98     79     38  

Restructuring and other, net

    24     2     4  
               

Income from operations

    1,776     2,091     3,108  

Other expense, net

    (220 )   (260 )   (226 )
               

Income before income taxes

    1,556     1,831     2,882  

(Benefit from) provision for income taxes

    (14 )   (7 )   20  
               

Net income

  $ 1,570   $ 1,838   $ 2,862  
               
               

 

 
  Fiscal Years Ended  
(as a percentage of Revenue)
  June 27,
2014
  June 28,
2013
  June 29,
2012
 

Revenue

    100 %   100 %   100 %

Cost of revenue

    72     73     69  
               

Gross margin

    28     27     31  

Product development

    9     8     7  

Marketing and administrative

    5     4     4  

Amortization of intangibles

    1     1      

Restructuring and other, net

             
               

Income from operations

    13     14     21  

Other expense, net

    (2 )   (2 )   (2 )
               

Income before income taxes

    11     12     19  

(Benefit from) provision for income taxes

             
               

Net income

    11 %   12 %   19 %
               
               

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        The following table summarizes information regarding revenue, volume shipments, exabytes, average selling prices (ASPs) and revenues by channel and geography:

 
  Fiscal Years Ended  
(In millions, except percentages, exabytes and ASPs)
  June 27,
2014
  June 28,
2013
  June 29,
2012
 

Net Revenue

  $ 13,724   $ 14,351   $ 14,939  

Unit Shipments:

                   

Enterprise

    31     30     29  

Client Compute

    144     151     156  

Client Non-Compute

    45     45     39  
               

Total Units Shipped

    220     226     224  

ASP (per unit)

  $ 61   $ 63   $ 66  

Exabytes Shipped

    202     185     150  

Revenues by Channel (%)

                   

OEM

    68 %   68 %   72 %

Distributors

    20 %   21 %   21 %

Retail

    12 %   11 %   7 %

Revenues by Geography (%)

                   

Americas

    27 %   27 %   26 %

EMEA

    19 %   19 %   19 %

Asia Pacific

    54 %   54 %   55 %

Fiscal Year 2014 Compared to Fiscal Year 2013

    Revenue

 
  Fiscal Years Ended  
(Dollars in millions)
  June 27,
2014
  June 28,
2013
  Change   %
Change
 

Revenue

  $ 13,724   $ 14,351   $ (627 )   (4 )%

        Revenue in fiscal year 2014 decreased approximately 4%, or $0.6 billion, from fiscal year 2013 as a result of a 3% decrease in units shipped and a $2 decrease in the ASP due to price erosion, partially offset by a more favorable product mix.

    Gross Margin

 
  Fiscal Years Ended  
(Dollars in millions)
  June 27,
2014
  June 28,
2013
  Change   %
Change
 

Cost of revenue

  $ 9,878   $ 10,411   $ (533 )   (5 )%

Gross margin

  $ 3,846   $ 3,940   $ (94 )   (2 )%

Gross margin percentage

    28 %   27 %            

        For fiscal year 2014, gross margin as a percentage of revenue increased to 28% from 27% in the prior fiscal year, as a result of improved product mix and cost savings due to increases in operational efficiencies, offset by modest price erosion.

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    Operating Expenses

 
  Fiscal Years Ended  
(Dollars in millions)
  June 27,
2014
  June 28,
2013
  Change   %
Change
 

Product development

  $ 1,226   $ 1,133   $ 93     8 %

Marketing and administrative

    722     635     87     14 %

Amortization of intangibles

    98     79     19     24 %

Restructuring and other, net

    24     2     22     1,100 %
                     

Operating expenses

  $ 2,070   $ 1,849   $ 221        
                     
                     

        Product Development Expense.    Product development expenses for fiscal year 2014 increased from fiscal year 2013 due to increased investments in HDD and alternative storage technologies of approximately $35 million and headcount related costs of approximately $36 million, net of a decrease in variable performance based compensation expenses of $26 million. In addition, the consolidation of Xyratex, acquired on March 31, 2014 contributed approximately $23 million to Product development expense.

        Marketing and Administrative Expense.    Marketing and administrative expenses for fiscal year 2014 increased from fiscal year 2013 due to a $40 million increase in headcount related expenses due to annual focal increases and increased investments in certain strategic initiatives as well as enhancement of core businesses of $25 million. In addition, the consolidation of Xyratex contributed approximately $15 million to Marketing and administrative expense.

        Amortization of Intangibles.    Amortization of intangibles for fiscal year 2014 increased from fiscal year 2013 due to the commencement of amortization of certain in-process research and development assets acquired from Samsung's HDD business in December of 2011 and LaCie in August of 2012.

        Restructuring and Other, net.    Restructuring and other, net for fiscal years 2014 increased from fiscal year 2013 primarily due to a restructuring charge recorded during the December 2013 quarter associated with a reduction in work force.

    Other Expense, net

 
  Fiscal Years Ended  
(Dollars in millions)
  June 27,
2014
  June 28,
2013
  Change   %
Change
 

Other expense, net

  $ (220 ) $ (260 ) $ 40     (15 )%

        Other expense, net.    Other expense, net for fiscal year 2014 decreased by $40 million from fiscal year 2013 due to a $60 million decrease in losses from the early redemption and repurchase of debt and a decrease of $18 million in interest expense due to a reduction in the average interest rate on our outstanding debt. These decreases were partially offset by insurance proceeds of $25 million received during fiscal year 2013 for equipment damaged during the severe flooding in Thailand in October of 2011 and $17 million lower gains on sales of our available for sale securities and strategic investments.

    Income Taxes

 
  Fiscal Years Ended  
(Dollars in millions)
  June 27,
2014
  June 28,
2013
  Change   %
Change
 

(Benefit from) provision for income taxes

  $ (14 ) $ (7 ) $ (7 )   100 %

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        We recorded an income tax benefit of $14 million for fiscal year 2014 compared to an income tax benefit of $7 million for fiscal year 2013. Our fiscal year 2014 benefit from income taxes included $58 million of income tax benefits related to the reversal of a portion of the valuation allowances recorded in prior periods and a net decrease in tax reserves related to audit settlements offset by tax reserves on non-U.S. tax positions taken in prior fiscal years. Our fiscal year 2013 benefit for income taxes included $52 million of income tax benefit from the reversal of a portion of the U.S. valuation allowance recorded in prior periods.

        Our Irish tax resident parent holding company owns various U.S. and non-U.S. subsidiaries that operate in multiple non-Irish tax jurisdictions. Our worldwide operating income is either subject to varying rates of tax or is exempt from tax due to tax holidays or tax incentive programs we operate under in Malaysia, Singapore and Thailand. These tax holidays or incentives are scheduled to expire in whole or in part at various dates through 2020.

        Our income tax benefit recorded for fiscal year 2014 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 holidays or tax incentive programs and are considered indefinitely reinvested outside of Ireland and (ii) a decrease in valuation allowance for certain deferred tax assets. The acquisition of Xyratex is not expected to have a material impact on our effective tax rate in future periods. Fiscal year 2014 included a valuation allowance release associated with post-acquisitions restructuring. Our income tax benefit recorded for fiscal year 2013 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 holidays or tax incentive programs and are considered indefinitely reinvested outside of Ireland, and (ii) a decrease in valuation allowance for certain U.S. deferred tax assets. The acquisition of a majority interest in the outstanding shares of LaCie did not have a material impact on our effective tax rate in fiscal year 2013.

        Based on our non-U.S. ownership structure and subject to (i) potential future increases in our valuation allowance for deferred tax assets; and (ii) a future change in our intention to indefinitely reinvest earnings from our subsidiaries outside of Ireland, we anticipate that our effective tax rate in future periods will generally be less than the Irish statutory rate.

        At June 27, 2014, our deferred tax asset valuation allowance was approximately $888 million.

        At June 27, 2014, we had net deferred tax assets of $615 million. The realization of these deferred tax assets is primarily dependent on our ability to generate sufficient U.S. and certain non-U.S. taxable income in future periods. Although realization is not assured, we believe that it is more likely than not that these deferred tax assets will be realized. The amount of deferred tax assets considered realizable, however, may increase or decrease in subsequent periods when we re-evaluate the underlying basis for our estimates of future U.S. and certain non-U.S. taxable income.

        As of June 27, 2014, the use of approximately $376 million and $90 million of our total U.S. net operating loss and tax credit carry forwards, respectively, is subject to an aggregate annual limitation of $46 million pursuant to U.S. tax law. If certain ownership changes occur in the foreseeable future, there may be an additional annual limitation on our ability to use our total U.S. federal and state net operating loss and credit carryforwards of $2.9 billion, $1.8 billion and $429 million, respectively. It is reasonably possible that such a change could occur. If these ownership changes were to occur, we estimate a one-time charge for additional U.S. income tax expense of approximately $400 million to $500 million may be recorded in the period such change occurs. This additional income tax expense results from a decrease in our net U.S. deferred tax assets recorded through a combination of the write off of deferred tax assets and associated changes to our valuation allowance. We also estimate that the ensuing additional annual limitation on our ability to use our tax attribute carryovers may result in increased U.S. income tax expense associated with such change of approximately $70 million to $85 million each year.

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        As of June 27, 2014 and June 28, 2013, we had approximately $115 million and $157 million, respectively, of unrecognized tax benefits excluding interest and penalties. The unrecognized tax benefits that, if recognized, would impact the effective tax rate is $115 million and $157 million as of June 27, 2014 and June 28, 2013, respectively, subject to certain future valuation allowance reversals.

        It is our policy to include interest and penalties related to unrecognized tax benefits in the provision for taxes on the Consolidated Statements of Operations. During fiscal year 2014, we recognized a net tax expense for interest and penalties of $8 million as compared to a net tax expense for interest and penalties of $2 million during each fiscal year 2013 and fiscal year 2012. As of June 27, 2014, we had $27 million of accrued interest and penalties related to unrecognized tax benefits compared to $19 million in fiscal year 2013.

        During the fiscal year ended June 27, 2014, our unrecognized tax benefits excluding interest and penalties decreased by approximately $42 million primarily due to (i) net decreases in prior years unrecognized tax benefits of $54 million, (ii) increases in current year unrecognized tax benefits of $13 million, (iii) decreases associated with the expiration of certain statutes of limitation of $3 million, (iv) increases from other activity, including non-U.S. exchange gains, of $2 million.

        During the 12 months beginning June 28, 2014, we expect that our unrecognized tax benefits could be reduced anywhere from $3 million to $50 million as a result of audit settlements and the expiration of certain statutes of limitation.

        We are subject to taxation in many jurisdictions globally and are required to file U.S. federal, U.S. state, and non-U.S income tax returns. In June, 2014, we received the Revenue Agent's Report and Notices of Proposed Adjustments for our U.S. federal income tax returns for fiscal years 2008, 2009 and 2010. Our China subsidiaries are under examination by the Chinese tax administration for years 2004 through 2012. These examinations may result in proposed adjustments to our income taxes as filed during these periods. We believe that we have adequately provided for these matters, but there is a reasonable possibility that an adverse outcome of these examinations could have a material effect on our financial results. In this case, we would consider pursuing all possible remedies available to us, including appeals, judicial review and competent authority.

        We are no longer subject to tax examination of U.S. federal income tax returns for years prior to fiscal year 2008. With respect to U.S. state and non-U.S. income tax returns, we are generally no longer subject to tax examination for years ending prior to fiscal year 2004. We believe we have provided adequately for all reasonable outcomes.

Fiscal Year 2013 Compared to Fiscal Year 2012

    Revenue

 
  Fiscal Years Ended  
(Dollars in millions)
  June 28,
2013
  June 29,
2012
  Change   %
Change
 

Revenue

  $ 14,351   $ 14,939   $ (588 )   (4 )%

        Revenue in fiscal year 2013 decreased approximately 4%, or $0.6 billion, from fiscal year 2012 due to a decrease in the average selling price per unit. The decrease in the average selling price to $63 per unit during fiscal year 2013, as compared to $66 per unit in the prior year, was primarily due to supply constraints beginning in the second quarter of fiscal year 2012 as a result of the severe flooding in Thailand, partially offset by a favorable product mix and slightly higher volumes in fiscal year 2013, which included a full period of Samsung labeled HDD products.

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    Gross Margin

 
  Fiscal Years Ended  
(Dollars in millions)
  June 28,
2013
  June 29,
2012
  Change   %
Change
 

Cost of revenue

  $ 10,411   $ 10,255   $ 156     2 %

Gross margin

  $ 3,940   $ 4,684   $ (744 )   (16 )%

Gross margin percentage

    27 %   31 %            

        For fiscal year 2013, gross margin as a percentage of revenue decreased to 27% from 31% in the prior fiscal year, as a result of higher ASPs during fiscal year 2012. Our ASPs during fiscal year 2012 were increased due to the limited industry supply of hard drives as a result of the severe flooding in Thailand.

    Operating Expenses

 
  Fiscal Years Ended  
(Dollars in millions)
  June 28,
2013
  June 29,
2012
  Change   %
Change
 

Product development

  $ 1,133   $ 1,006   $ 127     13 %

Marketing and administrative

    635     528     107     20 %

Amortization of intangibles

    79     38     41     108 %

Restructuring and other, net

    2     4     (2 )   (50 )%
                     

Operating expenses

  $ 1,849   $ 1,576   $ 273        
                     
                     

        Product Development Expense.    Product development expenses for fiscal year 2013 increased from fiscal year 2012, primarily due to increased investments in HDD and alternative storage technologies of approximately $84 million, and headcount related costs of approximately $41 million, net of a decrease in variable performance based compensation of approximately $7 million.

        Marketing and Administrative Expense.    Marketing and administrative expenses for fiscal year 2013 increased from fiscal year 2012 primarily due to further investments in certain strategic initiatives as well as enhancement of our core business operations. This, along with our annual focal increases, resulted in additional headcount related costs of $64 million, net of a reduction in variable performance based compensation of $7 million. In addition, the consolidation of LaCie in fiscal year 2013 contributed approximately $32 million to Marketing and administrative expense.

        Amortization of Intangibles.    Amortization of intangibles for fiscal year 2013 increased as a result of the acquisition of Samsung's HDD business in December of 2011, and LaCie in August of 2012.

        Restructuring and Other, net.    Restructuring and other, net for fiscal years 2013 and 2012, was not material and primarily related to previously announced restructuring plans.

    Other Expense, net

 
  Fiscal Years Ended  
(Dollars in millions)
  June 28,
2013
  June 29,
2012
  Change   %
Change
 

Other expense, net

  $ (260 ) $ (226 ) $ (34 )   15 %

        Other expense, net for fiscal year 2013 compared to fiscal year 2012 increased due to a loss of $141 million on the early redemption and repurchase of debt. These losses were partially offset by gains recorded for sales of our available for sale securities and strategic investments of $61 million, insurance proceeds of $25 million for equipment damaged during the severe flooding in Thailand in October of 2011,

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and a decrease in interest expense of $27 million due to a reduction in our average interest rate and total debt levels.

    Income Taxes

 
  Fiscal Years Ended  
(Dollars in millions)
  June 28,
2013
  June 29,
2012
  Change   %
Change
 

(Benefit from) provision for income taxes

  $ (7 ) $ 20   $ (27 )   (135 )%

        We recorded an income tax benefit of $7 million for fiscal year 2013 compared to an income tax provision of $20 million for fiscal year 2012. Our fiscal year 2013 benefit for income taxes included $52 million of income tax benefit from the reversal of a portion of the U.S. valuation allowance recorded in prior periods. Our fiscal year 2012 provision for income taxes included $35 million of income tax benefit from the reversal of a portion of the U.S. valuation allowance recorded in prior periods.

        Our income tax benefit recorded for fiscal year 2013 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 holidays or tax incentive programs and are considered indefinitely reinvested outside of Ireland, and (ii) a decrease in valuation allowance for certain U.S. deferred tax assets. The acquisition of a majority interest in the outstanding shares of LaCie did not have a material impact on our effective tax rate in fiscal year 2013. Our income tax provision recorded for fiscal year 2012 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 holidays or tax incentive programs and are considered indefinitely reinvested outside of Ireland, and (ii) a decrease in valuation allowance for certain U.S. deferred tax assets. The acquisition of Samsung's HDD business did not have a significant impact on our effective tax rate in fiscal year 2012.

Liquidity and Capital Resources

        The following sections discuss our principal liquidity requirements, as well as our sources and uses of cash and our liquidity and capital resources. Our cash and cash equivalents are maintained in investments with remaining maturities of 90 days or less at the time of purchase. Our short-term investments consist primarily of readily marketable securities with remaining maturities of more than 90 days at the time of purchase. The principal objectives of our investment policy are the preservation of principal and maintenance of liquidity. We intend to maintain a highly liquid portfolio by investing only in those marketable securities that we believe have active secondary or resale markets. We believe our cash equivalents and short-term investments are liquid and accessible. We operate in some countries that have restrictive regulations over the movement of cash and/or foreign exchange across their borders. However, these restrictions have not impeded our ability to conduct our business, nor do we expect them to in the next 12 months. We are not aware of any downgrades, losses or other significant deterioration in the fair value of our cash equivalents or short-term investments and accordingly, we do not believe the fair value of our short-term investments has significantly changed from the values reported as of June 27, 2014.

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    Cash and cash equivalents, short-term investments, and restricted cash and investments

 
  As of  
(Dollars in millions)
  June 27,
2014
  June 28,
2013
  Change  

Cash and cash equivalents

  $ 2,634   $ 1,708   $ 926  

Short-term investments

    20     480     (460 )

Restricted cash and investments

    4     101     (97 )
               

Total

  $ 2,658   $ 2,289   $ 369  
               
               

        Our cash and cash equivalents, short-term investments and restricted cash and investments increased from June 28, 2013 as a result of net cash provided by operating activities and the proceeds from the issuance of $800 million of our 3.75% Senior Notes due 2018 and $1 billion of our 4.75% Senior Notes due 2025. These cash inflows were partially offset by repurchases of our ordinary shares, redemption and repurchase of certain of our long-term debt, capital expenditures, dividends paid to our shareholders and the acquisition of Xyratex.

        The following table summarizes results from the statement of cash flows for the periods indicated:

 
  Fiscal Years Ended  
(Dollars in millions)
  June 27,
2014
  June 28,
2013
  June 29,
2012
 

Net cash flow provided by (used in):

                   

Operating activities

  $ 2,558   $ 3,047   $ 3,262  

Investing activities

    (322 )   (825 )   (1,114 )

Financing activities

    (1,311 )   (2,222 )   (3,118 )

Effect of foreign currency exchange rates

    1     1      
               

Net increase (decrease) in cash and cash equivalents

  $ 926   $ 1   $ (970 )
               
               

    Cash Provided by Operating Activities

        Cash provided by operating activities for fiscal year 2014 was approximately $2.6 billion and includes the effects of net income adjusted for non-cash items including depreciation, amortization, stock-based compensation, and:

    a decrease of $217 million in vendor non-trade receivables primarily related to a change in the contractual relationship with some of our contract manufacturers which reduced the volume of components we sold to them;

    a decrease of $190 million in accounts payable due to a change in the contractual relationship with some of our contract manufacturers which resulted in a reduction in direct materials purchased and subsequently sold to our contract manufacturers; and

    a decrease of $104 million in restricted cash and investments primarily due to the restricted cash and investments held in a rabbi trust being replaced with a standby letter of credit.

        Cash provided by operating activities for fiscal year 2013 was approximately $3.0 billion and includes the effects of net income adjusted for non-cash items including depreciation, amortization, stock-based compensation, and:

    a decrease of $661 million in accounts receivable, net, primarily due to a decrease in revenue in the fourth quarter of fiscal year 2013 compared to the prior year period;

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    a decrease of $538 million in accounts payable, primarily due to a reduction in direct materials purchases due to a decrease in build volume in the fourth quarter of fiscal year 2013 compared to the prior year period;

    a decrease of $272 million in vendor non-trade receivables primarily due to a decrease in build volumes in the fourth quarter of fiscal year 2013 compared to the prior year period;

    a decrease of $170 million in accrued expenses, income taxes and warranty, primarily due to decreases in costs related to sales activities resulting from lower sales volumes; and

    a decrease of $102 million in inventory, due to lower volumes in the fourth quarter of fiscal year 2013 compared to the prior year period.

        Cash provided by operating activities for fiscal year 2012 was approximately $3.3 billion and includes the effects of net income adjusted for non-cash items including depreciation, amortization, stock-based compensation, impairment of long-lived assets, and:

    an increase of $824 million in accounts receivable, net, due to an increase in revenues;

    an increase of $157 million in accounts payable due to higher direct material purchases related to an increase in volume, partially offset by a change in supplier payment terms; and

    an increase of $145 million in accrued employee compensation reflecting an increase in variable performance-based compensation.

    Cash Used in Investing Activities

        In fiscal year 2014, we used $0.3 billion for net cash investing activities, which was primarily due to payments for property, equipment and leasehold improvements of approximately $559 million and the acquisition of Xyratex, of $285 million, partially offset by $508 million of proceeds from sales of short-term investments.

        In fiscal year 2013, we used $0.8 billion for net cash investing activities, which was primarily due to payments for property, equipment and leasehold improvements.

        In fiscal year 2012, we used $1.1 billion for net cash investing activities, which was primarily due to payments for property, equipment and leasehold improvements of approximately $0.6 billion and net payments for the acquisition of Samsung's HDD business of $0.6 billion.

    Cash Used in Financing Activities

        Net cash used in financing activities of $1.3 billion for fiscal year 2014 was primarily attributable to $1.9 billion paid to repurchase 41 million of our ordinary shares, $0.7 billion for the repurchase and redemption of long term debt and $0.6 billion in dividends paid to our shareholders. This use of cash was partially offset by $1.8 billion from aggregate cash generated from the issuance of our 3.75% Senior Notes due in 2018 and 4.75% Senior Notes due in 2025.

        Net cash used in financing activities of $2.2 billion for fiscal year 2013 was attributable to $1.7 billion paid to repurchase 54 million of our ordinary shares, $1.2 billion for the repurchase and redemption of long term debt and $0.5 billion in dividends paid to our shareholders. This use of cash was partially offset by the proceeds from the issuance of $1 billion of our 4.75% notes due 2023 and $0.3 billion in proceeds from the issuance of ordinary shares under employee stock plans.

        Net cash provided by financing activities of $3.1 billion for fiscal year 2012 was attributable to $2.4 billion paid to repurchase 101 million of our ordinary shares, $0.7 billion in long term debt repayments and $0.4 billion in dividends paid to our shareholders. This use of cash was partially offset by $0.3 billion in proceeds from the exercise of stock options and employee stock purchases.

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    Liquidity Sources

        Our primary sources of liquidity as of June 27, 2014, consisted of: (1) approximately $2.7 billion in cash and cash equivalents, and short-term investments, (2) cash we expect to generate from operations and (3) a $500 million revolving credit facility with an interest rate of LIBOR plus a variable margin to be determined based on the corporate credit rating of the Company at the time a loan is made.

        As of June 27, 2014, no borrowings have been drawn under the revolving credit facility or had been utilized for letters of credit. The line of credit is available for borrowings, subject to compliance with financial covenants and other customary conditions to borrowing.

        The credit agreement that governs our revolving credit facility, as amended, contains certain covenants that we must satisfy in order to remain in compliance with the credit agreement, as amended. The agreement includes three financial covenants: (1) minimum cash, cash equivalents and marketable securities; (2) a fixed charge coverage ratio; and (3) a net leverage ratio. As of June 27, 2014, we were in compliance with all of the covenants under our Revolving Credit Facility and debt agreements.

        As of June 27, 2014, cash and cash equivalents held by non-Irish subsidiaries was $2.6 billion. This amount is potentially subject to taxation in Ireland upon repatriation by means of a dividend into our Irish parent. However, it is our intent to indefinitely reinvest earnings of non-Irish subsidiaries outside of Ireland and our current plans do not demonstrate a need to repatriate such earnings by means of a taxable Irish dividend. Should funds be needed in the Irish parent company and should we be unable to fund parent company activities through means other than a taxable Irish dividend, we would be required to accrue and pay Irish taxes on such dividend.

        We believe that our sources of cash will be sufficient to fund our operations and meet our cash requirements for at least the next 12 months.

    Cash Requirements and Commitments

        Our liquidity requirements are primarily to meet our working capital, research and development and capital expenditure needs, to fund scheduled payments of principal and interest on our indebtedness, and to fund our dividend. Our ability to fund these requirements will depend on our future cash flows, which are determined by future operating performance, and therefore, subject to prevailing global macroeconomic conditions and financial, business and other factors, some of which are beyond our control.

        On July 17, 2014, our Board of Directors approved a quarterly cash dividend of $0.43 per share, which will be payable on August 22, 2014 to shareholders of record as of the close of business on August 8, 2014.

        As of June 27, 2014, we were in compliance with all of the covenants under our debt agreements. Based on our current outlook, we expect to be in compliance with the covenants of our debt agreements over the next 12 months.

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        The carrying value of our long-term debt as of June 27, 2014 and June 28, 2013 was $3.9 billion and $2.8 billion, respectively. The table below presents the principal amounts of our outstanding long-term debt:

 
  As of  
(Dollars in millions)
  June 27,
2014
  June 28,
2013
  Change  

6.8% Senior Notes due October 2016

  $ 335   $ 335   $  

3.75% Senior Notes due November 2018

    800         800  

7.75% Senior Notes due December 2018

        238     (238 )

6.875% Senior Notes due May 2020

    534     600     (66 )

7.00% Senior Notes due November 2021

    251     600     (349 )

4.75% Senior Notes due June 2023

    1,000     1,000      

4.75% Senior Notes due January 2025

    1,000         1,000  

Other

        4     (4 )
               

Total

  $ 3,920   $ 2,777   $ 1,143  
               
               

        During fiscal year 2014, we repurchased approximately 41 million of our ordinary shares. See "Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities-Repurchases of Our Equity Securities."

        On May 29, 2014, we entered into a definitive asset purchase agreement under which we will acquire the assets of LSI's Accelerated Solutions Division ("ASD") and Flash Components Division ("FCD") from Avago for $450 million in cash. The transaction is expected to close in the first quarter of fiscal year 2015, subject to the satisfaction of customary closing conditions and the receipt of certain regulatory approvals, including those required by the Hart-Scott-Rodino Antitrust Improvements Act.

        For fiscal year 2015, we expect capital expenditures to be at or below our long-term targeted range of 6-8% of revenue. We require substantial amounts of cash to fund scheduled payments of principal and interest on our indebtedness, future capital expenditures and any increased working capital requirements. We will continue to evaluate and manage the retirement and replacement of existing debt and associated obligations, including evaluating the issuance of new debt securities, exchanging existing debt securities for other debt securities and retiring debt pursuant to privately negotiated transactions, open market purchases or otherwise. In addition, we may selectively pursue strategic alliances, acquisitions and investments, which may require additional capital.

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Contractual Obligations and Commitments

        Our contractual cash obligations and commitments as of June 27, 2014, have been summarized in the table below:

 
   
  Fiscal Year(s)  
(Dollars in millions)
  Total   2015   2016-
2017
  2018-
2019
  Thereafter  

Contractual Cash Obligations:

                               

Long-term debt

  $ 3,920   $   $ 335   $ 800   $ 2,785  

Interest payments on debt

    1,482     216     360     344     562  

Capital expenditures

    189     109     80          

Operating leases(1)

    200     42     52     37     69  

Purchase obligations(2)

    772     772              
                       

Subtotal

    6,563     1,139     827     1,181     3,416  

Commitments:

                               

Letters of credit or bank guarantees

    104     104              
                       

Total

  $ 6,667   $ 1,243   $ 827   $ 1,181   $ 3,416  
                       
                       

(1)
Includes total future minimum rent expense under non-cancelable leases for both occupied and vacated facilities (rent expense is shown net of sublease income).

(2)
Purchase obligations are defined as contractual obligations for the purchase of goods or services, which are enforceable and legally binding on us, and that specify all significant terms.

        As of June 27, 2014, we had a liability for unrecognized tax benefits and an accrual for the payment of related interest totaling $90 million, none of which is expected to be settled within one year. Outside of one year, we are unable to make a reasonably reliable estimate of when cash settlement with a taxing authority will occur.

        On May 29, 2014, we entered into a definitive asset purchase agreement under which we will acquire the assets of LSI's Accelerated Solutions Division ("ASD") and Flash Components Division ("FCD") from Avago for $450 million in cash. The transaction is expected to close in the first quarter of fiscal year 2015, subject to the satisfaction of customary closing conditions and the receipt of certain regulatory approvals, including those required by the Hart-Scott-Rodino Antitrust Improvements Act.

Off-Balance Sheet Arrangements

        As of June 27, 2014, we did not have any material off-balance sheet arrangements (as defined in Item 303(a)(4)(ii) of Regulation S-K).

Critical Accounting Policies

        The methods, estimates and judgments we use in applying our most critical accounting policies have a significant impact on the results we report in our consolidated financial statements. The SEC has defined the most critical accounting policies as the ones that are most important to the portrayal of our financial condition and operating results, and require us to make our most difficult and subjective judgments, often as a result of the need to make estimates of matters that are highly uncertain at the time of estimation. Based on this definition, our most critical policies include: establishment of sales program accruals, establishment of warranty accruals, accounting for income taxes, and the accounting for goodwill and other long-lived assets. Below, we discuss these policies further, as well as the estimates and judgments involved. We also have other accounting policies and accounting estimates relating to uncollectible customer accounts, valuation of inventory, valuation of share-based payments and restructuring. We believe that these other accounting policies and accounting estimates either do not generally require us to make

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estimates and judgments that are as difficult or as subjective, or it is less likely that they would have a material impact on our reported results of operations for a given period.

        Establishment of Sales Program Accruals.    We establish certain distributor and OEM sales programs aimed at increasing customer demand. For OEM sales, rebates are typically based on an OEM customer's volume of purchases or other agreed upon rebate programs. For the distribution channel, these programs typically involve rebates related to a distributor's level of sales, order size, advertising or point of sale activity and price protection adjustments. We provide for these obligations at the time that revenue is recorded based on estimated requirements. We estimate these contra-revenue rebates and adjustments based on various factors, including price reductions during the period reported, estimated future price erosion, customer orders, distributor sell-through and inventory levels, program participation, customer claim submittals and sales returns. Our estimates reflect contractual arrangements but also our judgment relating to variables such as customer claim rates and attainment of program goals, and inventory and sell-through levels reported by our distribution customers. Currently, our distributors' inventories are within the historical range.

        While we believe we have sufficient experience and knowledge of the market and customer buying patterns to reasonably estimate such rebates and adjustments, actual market conditions or customer behavior could differ from our expectations. As a result, actual payments under these programs, which may spread over several months after the related sale, may vary from the amount accrued. Accordingly, revenues and margins in the period in which the adjustment occurs may be affected.

        Significant actual variations in any of the factors upon which we base our contra-revenue estimates could have a material effect on our operating results. In fiscal year 2014, sales programs were approximately 8% of gross revenue. For fiscal years 2013 and 2012, total sales programs ranged from 2% to 10% of gross revenues. Adjustments to revenues due to under or over accruals for sales programs related to revenues reported in prior quarterly periods averaged 0.3% of quarterly gross revenue for fiscal years 2012 through 2013, and were approximately 0.5% of gross revenue in fiscal year 2014. Any future shifts in the industry supply-demand balance as well as other factors may result in a more competitive pricing environment and may cause sales programs as a percentage of gross revenue to increase from the current or historical levels. If such rebates and incentives trend upwards, revenues and margins will be reduced.

        Establishment of Warranty Accruals.    We estimate probable product warranty costs at the time revenue is recognized. We generally warrant our products for a period of 1 to 5 years. Our warranty provision considers estimated product failure rates and trends (including the timing of product returns during the warranty periods), and estimated repair or replacement costs related to product quality issues, if any. We also exercise judgment in estimating our ability to sell certain repaired disk drives. Should actual experience in any future period differ significantly from our estimates, our future results of operations could be materially affected. Our judgment is subject to a greater degree of subjectivity with respect to newly introduced products because of limited experience with those products upon which to base our warranty estimates.

        The actual results with regard to warranty expenditures could have an adverse or favorable effect on our results of operations if the actual rate of unit failure, the cost to repair a unit, or the actual cost required to satisfy customer claims differs from those estimates we used in determining the warranty accrual. Since we typically outsource our warranty repairs, our repair cost is subject to periodic negotiations with vendors and may vary from our estimates. We also exercise judgment in estimating our ability to sell certain repaired disk drives. To the extent such sales fall below our forecast, warranty cost will be adversely impacted.

        We review our warranty accrual quarterly for products shipped in prior periods and which are still under warranty. Any changes in the estimates underlying the accrual may result in adjustments that impact the current period gross margins and income. In fiscal years 2014, 2013 and 2012 net changes in estimates of prior warranty accruals as a percentage of revenue were immaterial. Our total warranty cost was 1.3%,

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1.6% and 1.5% of revenue during fiscal years 2014, 2013 and 2012, respectively, while warranty cost related to new shipments (exclusive of the impact of re-estimates of pre-existing liabilities) were 1.3%, 1.3% and 1.1% respectively, for the same periods. Changes in anticipated failure rates of specific products and significant changes in repair or replacement costs have historically been the major reasons for significant changes in prior estimates. Any future changes in failure rates of certain products, as well as changes in repair costs or the cost of replacement parts, may result in increased or decreased warranty accruals.

        Accounting for Income Taxes.    We account for income taxes pursuant to Accounting Standards Codification (ASC) Topic 740 (ASC 740), Income Taxes. In applying, ASC 740, we make certain estimates and judgments in determining income tax expense for financial statement purposes. These estimates and judgments occur in the calculation of tax credits, recognition of income and deductions and calculation of specific tax assets and liabilities, which arise from differences in the timing of recognition of revenue and expense for tax and financial statement purposes, as well as tax liabilities associated with uncertain tax positions. The calculation of tax liabilities involves uncertainties in the application of complex tax rules and the potential for future adjustment of our uncertain tax positions by the Internal Revenue Service or other tax jurisdictions. If estimates of these tax liabilities are greater or less than actual results, an additional tax benefit or provision will result. The deferred tax assets we record each period depend primarily on our ability to generate future taxable income in the United States and certain non-U.S. jurisdictions. Each period, we evaluate the need for a valuation allowance for our deferred tax assets and, if necessary, we adjust the valuation allowance so that net deferred tax assets are recorded only to the extent we conclude it is more likely than not that these deferred tax assets will be realized. If our outlook for future taxable income changes significantly, our assessment of the need for a valuation allowance may also change.

        Assessing Goodwill and Other Long-lived Assets for Impairment.    We account for goodwill in accordance with ASC Topic 350, Intangibles—Goodwill and Other. As permitted by ASC 350, we perform a qualitative assessment at the end of each reporting period to determine if any events or circumstances exist, such as an adverse change in business climate or a decline in the overall industry that would indicate that it would more likely than not reduce the fair value of a reporting unit below its carrying amount. Based on the qualitative assessment, if it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then the Company is not required to perform the two-step goodwill impairment test.

        In accordance with ASC 360-05-4, Impairment or Disposal of Long-lived Assets, we test other long-lived assets, including property, equipment and leasehold improvements and other intangible assets subject to amortization, for recoverability whenever events or changes in circumstances indicate that the carrying values of those assets may not be recoverable. We assess the recoverability of an asset group by determining if the carrying value of the asset group exceeds the sum of the projected undiscounted cash flows expected to result from the use and eventual disposition of the assets over the remaining economic life of the primary asset in the asset group. If the recoverability test indicates that the carrying value of the asset group is not recoverable, we will estimate the fair value of the asset group using the same approaches indicated above for ASC 360 step two and compare it to its carrying value. The excess of the carrying value over the fair value is allocated pro rata to derive the adjusted carrying value of each asset in the asset group. The adjusted carrying value of each asset in the asset group is not reduced below its fair value.

Recent Accounting Pronouncements

        See "Item 8. Financial Statements and Supplementary Data-Note 1. Basis of Presentation and Summary of Significant Accounting Policies" for information regarding the effect of new accounting pronouncements on our financial statements.

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ITEM 7A.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

        We have exposure to market risks due to the volatility of interest rates, foreign currency exchange rates, equity and bond markets. A portion of these risks are hedged, but fluctuations could impact our results of operations, financial position and cash flows. Additionally, we have exposure to downgrades in the credit ratings of our counterparties as well as exposure related to our credit rating changes.

        Interest Rate Risk.    Our exposure to market risk for changes in interest rates relates primarily to our investment portfolio. As of June 27, 2014, the Company had no 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 27, 2014. We currently do not use derivative financial instruments in our investment portfolio.

        We have fixed rate debt obligations. We enter into debt obligations for general corporate purposes including capital expenditures and working capital needs. We currently do not use interest rate derivatives to hedge interest rate exposure on our outstanding debt.

        The table below presents principal amounts and related weighted average interest rates by year of maturity for our investment portfolio and debt obligations as of June 27, 2014. All short-term investments mature in four years or less.


Fiscal Years Ended

(Dollars in millions, except percentages)
  2015   2016   2017   2018   2019   Thereafter   Total   Fair Value
at
June 27, 2014
 

Assets

                                                 

Cash equivalents:

                                                 

Fixed rate

  $ 2,309   $   $   $   $   $   $ 2,309   $ 2,309  

Average interest rate

    0.27 %                                 0.27 %      

Short-term investments:

                                                 

Fixed rate

  $ 19   $   $ 1   $   $   $   $ 20   $ 20  

Average interest rate

    0.18 %         4.47 %                     0.40 %      
                                   

Total fixed income

  $ 2,328   $   $ 1   $   $   $   $ 2,329   $ 2,329  

Average interest rate

    0.27 %         4.47 %                     0.27 %      

Debt

                                                 

Fixed rate

  $   $   $ 335   $   $ 800   $ 2,785   $ 3,920   $ 4,060  

Average interest rate

                6.80 %         3.75 %   5.36 %   5.15 %      

        Foreign Currency Exchange Risk.    We may enter into foreign currency forward exchange contracts to manage exposure related to certain foreign currency commitments and anticipated foreign currency denominated expenditures. Our policy prohibits us from entering into derivative financial instruments for speculative or trading purposes. During fiscal years 2014 and 2013, we did not enter into any hedges of net investments in foreign operations.

        We also hedge a portion of our foreign currency denominated balance sheet positions with foreign currency forward exchange contracts to reduce the risk that our earnings will be adversely affected by changes in currency exchange rates. The changes in fair value of these hedges are recognized in earnings in the same period as the gains and losses from the remeasurement of the assets and liabilities. These foreign currency forward exchange contracts are not designated as hedging instruments under ASC 815, Derivatives and Hedging. All these forward contracts mature within 12 months.

        We evaluate hedging effectiveness prospectively and retrospectively and record any ineffective portion of the hedging instruments in Costs of Revenue on the Consolidated Statements of Operations. We did not

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have any material net gains (losses) recognized in Costs of Revenue for cash flow hedges due to hedge ineffectiveness or discontinued cash flow hedges during fiscal years 2014 and 2013.

        The table below provides information as of June 27, 2014 about our foreign currency forward exchange contracts. The table is provided in U.S. dollar equivalent amounts and presents the notional amounts (at the contract exchange rates) and the weighted average contractual foreign currency exchange rates.

(Dollars in millions, except average contract rate)
  Notional
Amount
  Average
Contract Rate
  Estimated
Fair
Value(1)
 

Foreign currency forward exchange contracts:

                   

Thai baht

  $ 143     32.83   $ 2  

British Pound Sterling

    25     1.55     3  

Malaysian Ringitt

    9     3.32      
                 

Total

  $ 177         $ 5  
                 
                 

(1)
Equivalent to the unrealized net gain (loss) on existing contracts.

        Other Market Risks.    We have exposure to counterparty credit downgrades in the form of credit risk related to our foreign currency forward exchange contracts and our fixed income portfolio. We monitor and limit our credit exposure for our foreign currency forward exchange contracts by performing ongoing credit evaluations. We also manage the notional amount of contracts entered into with any one counterparty, and we maintain limits on maximum tenor of contracts based on the credit rating of the financial institutions. Additionally, the investment portfolio is diversified and structured to minimize credit risk. As of June 27, 2014, we had no material credit exposure related to our foreign currency forward exchange contracts. Changes in our corporate issuer credit ratings have minimal impact on our financial results, but downgrades may negatively impact our future transaction costs and our ability to execute transactions with various counterparties.

        We are subject to equity market risks due to changes in the fair value of the notional investments selected by our employees as part of our Seagate Deferred Compensation Plan (the "SDCP"). During the 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.

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ITEM 8.    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA


SEAGATE TECHNOLOGY PLC

CONSOLIDATED BALANCE SHEETS
(In millions, except share and per share data)

 
  June 27,
2014
  June 28,
2013
 

ASSETS

             

Current assets:

             

Cash and cash equivalents

  $ 2,634   $ 1,708  

Short-term investments

    20     480  

Restricted cash and investments

    4     101  

Accounts receivable, net

    1,729     1,670  

Inventories

    985     854  

Deferred income taxes

    126     115  

Other current assets

    279     484  
           

Total current assets

    5,777     5,412  

Property, equipment and leasehold improvements, net

    2,136     2,269  

Goodwill

    537     476  

Other intangible assets, net

    359     405  

Deferred income taxes

    499     456  

Other assets, net

    184     225  
           

Total Assets

  $ 9,492   $ 9,243  
           
           

LIABILITIES AND EQUITY

             

Current liabilities:

             

Accounts payable

  $ 1,549   $ 1,690  

Accrued employee compensation

    296     335  

Accrued warranty

    148     176  

Accrued expenses

    405     407  

Current portion of long-term debt

        3  
           

Total current liabilities

    2,398     2,611  

Long-term accrued warranty

    125     144  

Long-term accrued income taxes

    90     87  

Other non-current liabilities

    127     121  

Long-term debt, less current portion

    3,920     2,774  
           

Total Liabilities

    6,660     5,737  

Commitments and contingencies (See Notes 14 and 15)

   
 
   
 
 

Equity:

   
 
   
 
 

Seagate Technology plc shareholders' equity:

             

Preferred shares, $0.00001 par value per share—100 million authorized; no shares issued or outstanding

         

Ordinary shares, $0.00001 par value per share—1,250 million authorized; 326,539,322 issued and outstanding at June 27, 2014 and 359,437,036 issued and outstanding at June 28, 2013

         

Additional paid-in capital

    5,511     5,286  

Accumulated other comprehensive loss

    (2 )   (13 )

Accumulated deficit

    (2,677 )   (1,778 )
           

Total Seagate Technology plc Shareholders' Equity

    2,832     3,495  
           

Noncontrolling interest

        11  
           

Total Equity

    2,832     3,506  
           

Total Liabilities and Equity

  $ 9,492   $ 9,243  
           
           

   

See notes to consolidated financial statements.

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SEAGATE TECHNOLOGY PLC

CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions, except per share data)

 
  Fiscal Years Ended  
 
  June 27,
2014
  June 28,
2013
  June 29,
2012
 

Revenue

  $ 13,724   $ 14,351   $ 14,939  

Cost of revenue

    9,878     10,411     10,255  

Product development

    1,226     1,133     1,006  

Marketing and administrative

    722     635     528  

Amortization of intangibles

    98     79     38  

Restructuring and other, net

    24     2     4  
               

Total operating expenses

    11,948     12,260     11,831  
               

Income from operations

    1,776     2,091     3,108  

Interest income

    8     8     8  

Interest expense

    (195 )   (214 )   (241 )

Other, net

    (33 )   (54 )   7  
               

Other expense, net

    (220 )   (260 )   (226 )
               

Income before income taxes

    1,556     1,831     2,882  

(Benefit from) provision for income taxes

    (14 )   (7 )   20  
               

Net income

    1,570     1,838     2,862  

Less: Net income attributable to noncontrolling interest

             
               

Net income attributable to Seagate Technology plc

  $ 1,570   $ 1,838   $ 2,862  
               
               

Net income per share attributable to Seagate Technology plc ordinary shareholders:

                   

Basic

  $ 4.66   $ 4.97   $ 6.72  

Diluted

    4.52     4.81     6.49  

Number of shares used in per share calculations:

                   

Basic

    337     370     426  

Diluted

    347     382     441  

Cash dividends declared per Seagate Technology plc ordinary share

  $ 1.67   $ 1.40   $ 0.86  

   

See notes to consolidated financial statements.

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SEAGATE TECHNOLOGY PLC

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In millions)

 
  Fiscal Years Ended  
 
  June 27,
2014
  June 28,
2013
  June 29,
2012
 

Net income

  $ 1,570   $ 1,838   $ 2,862  

Other comprehensive income, net of tax:

                   

Cash flow hedges

                   

Change in net unrealized gain (loss) on cash flow hedges

    (1 )       (7 )

Less: reclassification for amounts included in net income

            5  
               

Net change

    (1 )       (2 )
               

Marketable securities

                   

Change in net unrealized gain (loss) on marketable securities

    1     21     (3 )

Less: reclassification for amounts included in net income

    2     (23 )   4  
               

Net change

    3     (2 )   1  
               

Post-retirement plans

                   

Change in unrealized gain (loss) on post-retirement plans

    1     (3 )   (3 )

Less: reclassification for amounts included in net income

            1  
               

Net change

    1     (3 )   (2 )
               

Foreign currency translation adjustments

                   

Foreign currency translation adjustments

    8     1      
               

Total other comprehensive income (loss), net of tax

    11     (4 )   (3 )
               

Comprehensive income

    1,581     1,834     2,859  

Less: Comprehensive income attributable to noncontrolling interest

        1      
               

Comprehensive income attributable to Seagate Technology plc

  $ 1,581   $ 1,833   $ 2,859  
               
               

   

See notes to consolidated financial statements.

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SEAGATE TECHNOLOGY PLC

CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)

 
  Fiscal Years Ended  
 
  June 27,
2014
  June 28,
2013
  June 29,
2012
 

OPERATING ACTIVITIES

                   

Net income

  $ 1,570   $ 1,838   $ 2,862  

Adjustments to reconcile net income to net cash from operating activities:

                   

Depreciation and amortization

    879     873     814  

Share-based compensation

    118     76     51  

Loss on redemption and repurchase of debt

    81     141     17  

Gain on sale of investments

    (32 )   (61 )   (12 )

Gain on sale of property and equipment

    (4 )   (36 )   (25 )

Deferred income taxes

    (67 )   (70 )   (28 )

Other non-cash operating activities, net

    14     12     7  

Changes in operating assets and liabilities:

                   

Restricted cash and investments

    104          

Accounts receivable, net

    4     661     (824 )

Inventories

    (20 )   102     99  

Accounts payable

    (190 )   (538 )   157  

Accrued employee compensation

    (55 )   (14 )   145  

Accrued expenses, income taxes and warranty

    (80 )   (170 )   54  

Vendor non-trade receivables

    217     272     (82 )

Other assets and liabilities

    19     (39 )   27  
               

Net cash provided by operating activities

    2,558     3,047     3,262  
               

INVESTING ACTIVITIES

                   

Acquisition of property, equipment and leasehold improvements

    (559 )   (786 )   (636 )

Proceeds from the sale of property and equipment

    3     29     20  

Proceeds from the sale of strategic investments

    72          

Purchases of short-term investments

    (88 )   (351 )   (454 )

Sales of short-term investments

    508     296     397  

Maturities of short-term investments

    61     38     119  

Cash used in acquisition of businesses, net of cash acquired

    (285 )   (36 )   (561 )

Other investing activities, net

    (34 )   (15 )   1  
               

Net cash used in investing activities

    (322 )   (825 )   (1,114 )
               

FINANCING ACTIVITIES

                   

Net proceeds from issuance of long-term debt

    1,781     986      

Repayments of long-term debt

    (725 )   (1,224 )   (670 )

Repurchases of ordinary shares

    (1,912 )   (1,654 )   (2,426 )

Dividends to shareholders

    (557 )   (518 )   (372 )

Proceeds from issuance of ordinary shares under employee stock plans

    107     259     344  

Other financing activities, net

    (5 )   (71 )   6  
               

Net cash used in financing activities

    (1,311 )   (2,222 )   (3,118 )
               

Effect of foreign currency exchange rate changes on cash and cash equivalents

    1     1      
               

Increase (decrease) in cash and cash equivalents

    926     1     (970 )

Cash and cash equivalents at the beginning of the year

    1,708     1,707     2,677  
               

Cash and cash equivalents at the end of the year

  $ 2,634   $ 1,708   $ 1,707  
               
               

Supplemental Disclosure of Cash Flow Information

                   

Cash paid for interest

  $ 198   $ 219   $ 221  

Cash paid for income taxes, net of refunds

  $ 50   $ 48   $ 8  

   

See notes to consolidated financial statements.

65


Table of Contents


SEAGATE TECHNOLOGY PLC

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

For Fiscal Years Ended June 27, 2014, June 28, 2013 and June 29, 2012
(In millions)

 
   
  Seagate Technology plc Ordinary Shareholders    
 
 
  Total
Equity
  Number of
Ordinary
Shares
  Par
Value of
Shares
  Additional
Paid-in
Capital
  Accumulated
Other
Comprehensive
Loss
  Accumulated
Deficit
  Total   Noncontrolling
Interest
 

Balance at July 1, 2011

  $ 2,463     425   $   $ 3,980   $ (6 ) $ (1,511 ) $ 2,463   $  

Net income

    2,862                             2,862     2,862      

Other comprehensive loss

    (3 )                     (3 )         (3 )    

Issuance of ordinary shares under employee stock plans

    344     27           344                 344        

Repurchases of ordinary shares

    (2,426 )   (101 )                     (2,426 )   (2,426 )      

Dividends to shareholders

    (369 )                           (369 )   (369 )      

Share-based compensation

    51                 51                 51        

Issuance of ordinary shares, in connection with the acquisition of Samsung HDD assets and liabilities

    569     45           569                 569        

Tax benefit from exercise of stock options

    6                 6                 6        
                                   

Balance at June 29, 2012

    3,497     396         4,950     (9 )   (1,444 )   3,497      

Net income

    1,838                             1,838     1,838      

Other comprehensive loss

    (4 )                     (5 )         (5 )   1  

Issuance of ordinary shares under employee stock plans

    259     17           259                 259        

Repurchases of ordinary shares

    (1,654 )   (54 )                     (1,654 )   (1,654 )      

Dividends to shareholders

    (518 )                           (518 )   (518 )      

Share-based compensation

    76                 76                 76        

Acquisition of majority shares of LaCie S.A. 

    72                                         72  

Purchase of additional subsidiary shares from noncontrolling interest

    (61 )                     1           1     (62 )

Tax benefit from exercise of stock options

    1                 1                 1        
                                   

Balance at June 28, 2013

    3,506     359         5,286     (13 )   (1,778 )   3,495     11  

Net income

    1,570                             1,570     1,570      

Other comprehensive income

    11                       10           10     1  

Issuance of ordinary shares under employee stock plans

    107     9           107                 107        

Repurchases of ordinary shares

    (1,912 )   (41 )                     (1,912 )   (1,912 )      

Dividends to shareholders

    (557 )                           (557 )   (557 )      

Share-based compensation

    118                 118                 118        

Purchase of additional subsidiary shares from noncontrolling interest

    (11 )                     1           1     (12 )
                                   

Balance at June 27, 2014

  $ 2,832     327   $   $ 5,511   $ (2 ) $ (2,677 ) $ 2,832   $