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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
____________________________
FORM 10-Q
___________________________
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 30, 2022
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from: to
Commission File Number 001-31560
_______________________________________
SEAGATE TECHNOLOGY HOLDINGS PUBLIC LIMITED COMPANY
(Exact name of registrant as specified in its charter)
_______________________________________ | | | | | | | | |
| Ireland | | 98-1597419 |
| (State or other jurisdiction of | | (I.R.S. Employer |
| incorporation or organization) | | Identification Number) |
38/39 Fitzwilliam Square
Dublin 2, Ireland
(Address of principal executive offices)
D02 NX53
(Zip Code)
Telephone: (353) (1) 234-3136
(Registrant’s telephone number, including area code)
_______________________________________
Securities registered pursuant to Section 12(b) of the Act: | | | | | | | | | | | | | | |
| Title of each class | | Trading Symbol(s) | | Name of each exchange on which registered |
| Ordinary Shares, par value $0.00001 per share | | STX | | The NASDAQ Global Select Market |
_______________________________________
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. | | | | | | | | | | | |
| Large accelerated filer | ☒ | Accelerated filer | ☐ |
| Non-accelerated filer | ☐ | Smaller reporting company | ☐ |
| Emerging growth company | ☐ | | |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. | ☐ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of January 23, 2023, 206,483,864 of the registrant’s ordinary shares, par value $0.00001 per share, were issued and outstanding.
INDEX
SEAGATE TECHNOLOGY HOLDINGS PLC
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
See Notes to Condensed Consolidated Financial Statements.
3
SEAGATE TECHNOLOGY HOLDINGS PLC
CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions)
| | | | | | | | | | | |
| | December 30,
2022 | | July 1,
2022 |
| (unaudited) | | |
| ASSETS | | | |
| Current assets: | | | |
| Cash and cash equivalents | $ | 770 | | | $ | 615 | |
| | | |
| Accounts receivable, net | 840 | | | 1,532 | |
| Inventories | 1,194 | | | 1,565 | |
| Other current assets | 277 | | | 321 | |
| Total current assets | 3,081 | | | 4,033 | |
| Property, equipment and leasehold improvements, net | 2,122 | | | 2,239 | |
| | | |
| Goodwill | 1,237 | | | 1,237 | |
| Other intangible assets, net | 3 | | | 9 | |
| Deferred income taxes | 1,135 | | | 1,132 | |
| Other assets, net | 289 | | | 294 | |
| Total Assets | $ | 7,867 | | | $ | 8,944 | |
| LIABILITIES AND (DEFICIT) EQUITY | | | |
| Current liabilities: | | | |
| | | |
| Accounts payable | $ | 1,085 | | | $ | 2,058 | |
| Accrued employee compensation | 107 | | | 252 | |
| Accrued warranty | 68 | | | 65 | |
| Current portion of long-term debt | 636 | | | 584 | |
| Accrued expenses | 829 | | | 596 | |
| | | |
| Total current liabilities | 2,725 | | | 3,555 | |
| Long-term accrued warranty | 85 | | | 83 | |
| | | |
| Other non-current liabilities | 134 | | | 135 | |
| Long-term debt, less current portion | 5,393 | | | 5,062 | |
| Total Liabilities | 8,337 | | | 8,835 | |
| Commitments and contingencies (See Notes 10, 12 and 13) | | | |
| | | |
| Shareholders’ (Deficit) Equity: | | | |
| Ordinary shares and additional paid-in capital | 7,281 | | | 7,190 | |
| Accumulated other comprehensive income | 99 | | | 36 | |
| Accumulated deficit | (7,850) | | | (7,117) | |
| | | |
| | | |
| Total Shareholders’ (Deficit) Equity | (470) | | | 109 | |
| Total Liabilities and Shareholders’ (Deficit) Equity | $ | 7,867 | | | $ | 8,944 | |
See Notes to Condensed Consolidated Financial Statements.
4
SEAGATE TECHNOLOGY HOLDINGS PLC
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions, except per share data)
(Unaudited) | | | | | | | | | | | | | | | | | | | | | | | |
| | For the Three Months Ended | | For the Six Months Ended |
| | December 30,
2022 | | December 31,
2021 | | December 30,
2022 | | December 31,
2021 |
| Revenue | $ | 1,887 | | | $ | 3,116 | | | $ | 3,922 | | | $ | 6,231 | |
| | | | | | | | |
| Cost of revenue | 1,641 | | | 2,168 | | | 3,194 | | | 4,327 | |
| Product development | 200 | | | 228 | | | 434 | | | 461 | |
| Marketing and administrative | 125 | | | 136 | | | 254 | | | 269 | |
| Amortization of intangibles | — | | | 3 | | | 3 | | | 6 | |
| Restructuring and other, net | 81 | | | 1 | | | 90 | | | 2 | |
| Total operating expenses | 2,047 | | | 2,536 | | | 3,975 | | | 5,065 | |
| | | | | | | | |
| (Loss) income from operations | (160) | | | 580 | | | (53) | | | 1,166 | |
| | | | | | | | |
| Interest income | 1 | | | 1 | | | 2 | | | 1 | |
| Interest expense | (77) | | | (62) | | | (148) | | | (121) | |
| Net gain recognized from early redemption of debt | 204 | | | — | | | 204 | | | — | |
| Other, net | (6) | | | (5) | | | (16) | | | 1 | |
| Other income (expense), net | 122 | | | (66) | | | 42 | | | (119) | |
| | | | | | | | |
| (Loss) income before income taxes | (38) | | | 514 | | | (11) | | | 1,047 | |
| (Benefit from) provision for income taxes | (5) | | | 13 | | | (7) | | | 20 | |
| Net (loss) income | $ | (33) | | | $ | 501 | | | $ | (4) | | | $ | 1,027 | |
| | | | | | | | |
| Net (loss) income per share: | | | | | | | |
| Basic | $ | (0.16) | | | $ | 2.27 | | | $ | (0.02) | | | $ | 4.58 | |
| Diluted | $ | (0.16) | | | $ | 2.23 | | | $ | (0.02) | | | $ | 4.50 | |
| Number of shares used in per share calculations: | | | | | | | |
| Basic | 206 | | | 221 | | | 207 | | | 224 | |
| Diluted | 206 | | | 225 | | | 207 | | | 228 | |
See Notes to Condensed Consolidated Financial Statements.
5
SEAGATE TECHNOLOGY HOLDINGS PLC
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
(In millions)
(Unaudited) | | | | | | | | | | | | | | | | | | | | | | | |
| | For the Three Months Ended | | For the Six Months Ended |
| | December 30,
2022 | | December 31,
2021 | | December 30,
2022 | | December 31,
2021 |
| Net (loss) income | $ | (33) | | | $ | 501 | | | $ | (4) | | | $ | 1,027 | |
| Other comprehensive income (loss), net of tax: | | | | | | | |
| Change in net unrealized gains on cash flow hedges: | | | | | | | |
| Net unrealized gains arising during the period | 19 | | | 11 | | | 51 | | | 2 | |
| Losses reclassified into earnings | 6 | | | 9 | | | 11 | | | 12 | |
| Net change | 25 | | | 20 | | | 62 | | | 14 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| Change in unrealized components of post-retirement plans: | | | | | | | |
| Net unrealized (losses) gains arising during the period | (1) | | | — | | | — | | | 1 | |
| Losses reclassified into earnings | 1 | | | — | | | 1 | | | 1 | |
| Net change | — | | | — | | | 1 | | | 2 | |
| Foreign currency translation adjustments | 1 | | | — | | | — | | | — | |
| Total other comprehensive income, net of tax | 26 | | | 20 | | | 63 | | | 16 | |
| Comprehensive (loss) income | $ | (7) | | | $ | 521 | | | $ | 59 | | | $ | 1,043 | |
See Notes to Condensed Consolidated Financial Statements.
6
SEAGATE TECHNOLOGY HOLDINGS PLC
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
(Unaudited) | | | | | | | | | | | |
| | For the Six Months Ended |
| | December 30,
2022 | | December 31,
2021 |
| OPERATING ACTIVITIES | | | |
| Net (loss) income | $ | (4) | | | $ | 1,027 | |
| Adjustments to reconcile net (loss) income to net cash provided by operating activities: | | | |
| Depreciation and amortization | 283 | | | 212 | |
| Share-based compensation | 62 | | | 70 | |
| | | |
| Deferred income taxes | (4) | | | — | |
| | | |
| | | |
| Net gain on redemption and repurchase of debt | (204) | | | — | |
| Other non-cash operating activities, net | 28 | | | 22 | |
| Changes in operating assets and liabilities: | | | |
| Accounts receivable, net | 692 | | | (241) | |
| Inventories | 371 | | | (83) | |
| Accounts payable | (919) | | | 63 | |
| Accrued employee compensation | (145) | | | (54) | |
| Accrued expenses, income taxes and warranty | 228 | | | 40 | |
| Other assets and liabilities | 108 | | | (39) | |
| Net cash provided by operating activities | 496 | | | 1,017 | |
| INVESTING ACTIVITIES | | | |
| Acquisition of property, equipment and leasehold improvements | (212) | | | (212) | |
| Proceeds from the sale of assets | 3 | | | — | |
| Purchases of investments | (1) | | | (18) | |
| Proceeds from sale of investments | — | | | 34 | |
| | | |
| | | |
| | | |
| | | |
| Net cash used in investing activities | (210) | | | (196) | |
| FINANCING ACTIVITIES | | | |
| Redemption and repurchase of debt | — | | | (481) | |
| Dividends to shareholders | (292) | | | (304) | |
| Repurchases of ordinary shares | (408) | | | (896) | |
| Taxes paid related to net share settlement of equity awards | (39) | | | (45) | |
| Proceeds from issuance of long-term debt | 600 | | | 1,200 | |
| Proceeds from issuance of ordinary shares under employee stock plans | 29 | | | 37 | |
| Other financing activities, net | (21) | | | (6) | |
| Net cash used in financing activities | (131) | | | (495) | |
| | | |
| Increase in cash, cash equivalents and restricted cash | 155 | | | 326 | |
| Cash, cash equivalents and restricted cash at the beginning of the period | 617 | | | 1,211 | |
| Cash, cash equivalents and restricted cash at the end of the period | $ | 772 | | | $ | 1,537 | |
See Notes to Condensed Consolidated Financial Statements.
7
SEAGATE TECHNOLOGY HOLDINGS PLC
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ (DEFICIT) EQUITY
For the Three Months Ended December 30, 2022 and December 31, 2021
(In millions)
(Unaudited) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Number of Ordinary Shares | | Par Value of Shares | | Additional Paid-in Capital | | Accumulated Other Comprehensive Income | | Accumulated Deficit | | Total |
| Balance at September 30, 2022 | | 206 | | | $ | — | | | $ | 7,248 | | | $ | 73 | | | $ | (7,672) | | | $ | (351) | |
| | | | | | | | | | | | |
| Net loss | | | | | | | | | | (33) | | | (33) | |
| Other comprehensive income | | | | | | | | 26 | | | | | 26 | |
| Issuance of ordinary shares under employee share plans | | — | | | | | — | | | | | | | — | |
| Repurchases of ordinary shares | | — | | | | | | | | | — | | | — | |
| Tax withholding related to vesting of restricted share units | | — | | | | | | | | | — | | | — | |
Dividends to shareholders ($0.70 per ordinary share) | | | | | | | | | | (145) | | | (145) | |
| Share-based compensation | | | | | | 33 | | | | | | | 33 | |
| Balance at December 30, 2022 | | 206 | | | $ | — | | | $ | 7,281 | | | $ | 99 | | | $ | (7,850) | | | $ | (470) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Number of Ordinary Shares | | Par Value of Shares | | Additional Paid-in Capital | | Accumulated Other Comprehensive Loss | | Accumulated Deficit | | Total |
| Balance at October 1, 2021 | | 225 | | | $ | — | | | $ | 7,044 | | | $ | (45) | | | $ | (6,398) | | | $ | 601 | |
| Net income | | | | | | | | | | 501 | | | 501 | |
| Other comprehensive income | | | | | | | | 20 | | | | | 20 | |
| Issuance of ordinary shares under employee share plans | | — | | | | | 4 | | | | | | | 4 | |
| Repurchases of ordinary shares | | (5) | | | | | | | | | (480) | | | (480) | |
| Tax withholding related to vesting of restricted share units | | (1) | | | | | | | | | (2) | | | (2) | |
Dividends to shareholders ($0.70 per ordinary share) | | | | | | | | | | (154) | | | (154) | |
| Share-based compensation | | | | | | 36 | | | | | | | 36 | |
| Balance at December 31, 2021 | | 219 | | | $ | — | | | $ | 7,084 | | | $ | (25) | | | $ | (6,533) | | | $ | 526 | |
See Notes to Condensed Consolidated Financial Statements.
8
SEAGATE TECHNOLOGY HOLDINGS PLC
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ (DEFICIT) EQUITY
For the Six Months Ended December 30, 2022 and December 31, 2021
(In millions)
(Unaudited) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Number of Ordinary Shares | | Par Value of Shares | | Additional Paid-in Capital | | Accumulated Other Comprehensive Income | | Accumulated Deficit | | Total |
| Balance at July 1, 2022 | | 210 | | | $ | — | | | $ | 7,190 | | | $ | 36 | | | $ | (7,117) | | | $ | 109 | |
| Net loss | | | | | | | | | | (4) | | | (4) | |
| Other comprehensive income | | | | | | | | 63 | | | | | 63 | |
| Issuance of ordinary shares under employee share plans | | 2 | | | | | 29 | | | | | | | 29 | |
| Repurchases of ordinary shares | | (5) | | | | | | | | | (400) | | | (400) | |
| Tax withholding related to vesting of restricted share units | | (1) | | | | | | | | | (39) | | | (39) | |
Dividends to shareholders ($1.40 per ordinary share) | | | | | | | | | | (290) | | | (290) | |
| Share-based compensation | | | | | | 62 | | | | | | | 62 | |
| Balance at December 30, 2022 | | 206 | | | $ | — | | | $ | 7,281 | | | $ | 99 | | | $ | (7,850) | | | $ | (470) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Number of Ordinary Shares | | Par Value of Shares | | Additional Paid-in Capital | | Accumulated Other Comprehensive Loss | | Accumulated Deficit | | Total |
| Balance at July 2, 2021 | | 227 | | | $ | — | | | $ | 6,977 | | | $ | (41) | | | $ | (6,305) | | | $ | 631 | |
| Net income | | | | | | | | | | 1,027 | | | 1,027 | |
| Other comprehensive income | | | | | | | | 16 | | | | | 16 | |
| Issuance of ordinary shares under employee share plans | | 3 | | | | | 37 | | | | | | | 37 | |
| Repurchases of ordinary shares | | (10) | | | | | | | | | (905) | | | (905) | |
| Tax withholding related to vesting of restricted share units | | (1) | | | | | | | | | (45) | | | (45) | |
Dividends to shareholders ($1.37 per ordinary share) | | | | | | | | | | (305) | | | (305) | |
| Share-based compensation | | | | | | 70 | | | | | | | 70 | |
| Balance at December 31, 2021 | | 219 | | | $ | — | | | $ | 7,084 | | | $ | (25) | | | $ | (6,533) | | | $ | 526 | |
See Notes to Condensed Consolidated Financial Statements.
9
SEAGATE TECHNOLOGY HOLDINGS PLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1.Basis of Presentation and Summary of Significant Accounting Policies
Organization
Seagate Technology Holdings plc (“STX”) and its subsidiaries (collectively, unless the context otherwise indicates, the “Company”) is a leading provider of data storage technology and infrastructure solutions. Its principal products are hard disk drives, commonly referred to as disk drives, hard drives or HDDs. In addition to HDDs, the Company produces a broad range of data storage products including solid state drives (“SSDs”), solid state hybrid drives (“SSHDs”), storage subsystems, as well as a scalable edge-to-cloud mass data platform that includes data transfer shuttles and a storage-as-a-service cloud.
HDDs are devices that store digitally encoded data on rapidly rotating disks with magnetic surfaces. HDDs continue to be the primary medium of mass data storage due to their performance attributes, reliability, high capacities, superior quality and cost effectiveness. Complementing existing storage architectures, SSDs use integrated circuit assemblies as memory to store data, and most SSDs use NAND flash memory. In contrast to HDDs and SSDs, SSHDs combine the features of SSDs and HDDs in the same unit, containing a high-capacity HDD and a smaller SSD acting as a cache to improve performance.
The Company’s HDD products are designed for mass capacity storage and legacy markets. Mass capacity storage involves well-established use cases—such as hyperscale data centers and public clouds as well as emerging use cases. Legacy markets include markets the Company continues to sell to but that it does not plan to invest in significantly. The Company’s HDD and SSD product portfolio includes Serial Advanced Technology Attachment, Serial Attached SCSI and Non-Volatile Memory Express based designs to support a wide variety of mass capacity and legacy applications.
The Company’s systems portfolio includes storage subsystems for enterprises, cloud service providers, scale-out storage servers and original equipment manufacturers (“OEMs”). Engineered for modularity, mobility, capacity and performance, these solutions include the Company’s enterprise HDDs and SSDs, enabling customers to integrate powerful, scalable storage within existing environments or create new ecosystems from the ground up in a secure, cost-effective manner.
The Company’s Lyve portfolio provides a simple, cost-efficient and secure way to manage massive volumes of data across the distributed enterprise. The Lyve platform includes a shuttle solution that enables enterprises to transfer massive amounts of data from endpoints to the core cloud, a storage-as-a-service cloud offering that provides frictionless mass capacity storage at the metro edge.
Basis of Presentation and Consolidation
The unaudited Condensed Consolidated Financial Statements of the Company and the accompanying notes were prepared in accordance with United States (“U.S.”) Generally Accepted Accounting Principles (“GAAP”). The Company’s unaudited condensed consolidated financial statements include the accounts of the Company and all its wholly-owned and majority-owned subsidiaries, after elimination of intercompany transactions and balances.
The preparation of financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the Company’s condensed consolidated financial statements and accompanying notes. These estimates and assumptions include the impact of the COVID-19 pandemic. Actual results could differ materially from those estimates. The methods, estimates and judgments the Company uses in applying its most critical accounting policies have a significant impact on the results the Company reports in its condensed consolidated financial statements.
The Company’s consolidated financial statements for the fiscal year ended July 1, 2022 are included in its Annual Report on Form 10-K, as filed with the U.S. Securities and Exchange Commission (“SEC”) on August 5, 2022. The Company believes that the disclosures included in these unaudited condensed consolidated financial statements, when read in conjunction with its consolidated financial statements as of July 1, 2022, and the notes thereto, are adequate to make the information presented not misleading. The results of operations for the three and six months ended December 30, 2022 are not necessarily indicative of the results to be expected for any subsequent interim period or for the Company’s fiscal year ending June 30, 2023.
Fiscal Year
The Company operates and reports financial results on a fiscal year of 52 or 53 weeks ending on the Friday closest to June 30. In fiscal years with 53 weeks, the first quarter consists of 14 weeks and the remaining quarters consist of 13 weeks each. Both the three and six months ended December 30, 2022 and the three and six months ended December 31, 2021 consisted of 13 and 26 weeks, respectively. Fiscal years 2023 and 2022 both comprise of 52 weeks and end on June 30, 2023 and July 1, 2022, respectively. The fiscal quarters ended December 30, 2022, September 30, 2022 and December 31, 2021, are also referred to herein as the “December 2022 quarter”, the “September 2022 quarter” and the “December 2021 quarter”, respectively.
Summary of Significant Accounting Policies
There have been no material changes to the Company’s significant accounting policies disclosed in Note 1. Basis of Presentation and Summary of Significant Accounting Policies of “Financial Statements and Supplementary Data” contained in Part II, Item 8. of the Company’s Annual Report on Form 10-K for the fiscal year ended July 1, 2022, as filed with the SEC on August 5, 2022.
Recently Adopted Accounting Pronouncements
In March 2020, the Financial Accounting Standards Board (“FASB”) issued ASU 2020-04 (ASC Topic 848), Reference Rate Reform. This ASU provides optional expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships and other transactions affected by reference rate reform if certain criteria are met. In December 2022, FASB issued ASU 2022-06 (ASC Topic 848) and deferred the sunset date from December 31, 2022 to December 31, 2024. The Company adopted the guidance in the quarter ended September 30, 2022 on a prospective basis and is transitioning from an interest rate based on London Interbank Offered Rate (“LIBOR”) to Secured Overnight Financing Rate (“SOFR”). The adoption of this ASU did not have a material impact on the Company’s condensed consolidated financial statements.
In November 2021, the FASB issued ASU 2021-10 (ASC Topic 832), Disclosures by Business Entities about Government Assistance. This ASU requires annual disclosures that increase the transparency of transactions involving government grants, including (1) the type of transactions, (2) the accounting for those transactions and (3) the effect of those transactions on an entity’s financial statements. The Company adopted the guidance in the quarter ended September 30, 2022.
Recently Issued Accounting Pronouncements
In September 2022, the FASB issued ASU 2022-04 (ASC Subtopic 405-50), Disclosure of Supplier Finance Program Obligations. This ASU requires disclosure of key terms of the outstanding supplier finance programs and a rollforward of the related obligations. The Company is required to adopt this guidance in the first quarter of fiscal year 2024. Early adoption is permitted. The Company is in the process of assessing the impact of this ASU on its condensed consolidated financial statements.
In June 2022, the FASB issued ASU 2022-03 (ASC Topic 820), Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions. This ASU clarifies that a contractual restriction on the sale of equity security is not considered when measuring its fair value and requires new disclosures for equity securities subject to contractual sale restriction. The Company is required to adopt this guidance in the first quarter of fiscal year 2025. The Company does not expect the adoption of this ASU to have a material impact on its condensed consolidated financial statements.
2.Balance Sheet Information
Available-for-sale Debt Securities
The following table summarizes, by major type, the fair value and amortized cost of the Company’s available-for-sale debt investments as of December 30, 2022 and July 1, 2022:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 30,
2022 | | July 1,
2022 |
| (Dollars in millions) | | Amortized Cost | | Unrealized Gain/(Loss) | | Fair Value | | Amortized Cost | | Unrealized Gain/(Loss) | | Fair Value |
| Available-for-sale debt securities: | | | | | | | | | | | | |
| Money market funds | | $ | 173 | | | $ | — | | | $ | 173 | | | $ | 60 | | | $ | — | | | $ | 60 | |
| | | | | | | | | | | | |
| Time deposits and certificates of deposit | | 1 | | | — | | | 1 | | | 1 | | | — | | | 1 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| Other debt securities | | 16 | | | — | | | 16 | | | 23 | | | — | | | 23 | |
| Total | | $ | 190 | | | $ | — | | | $ | 190 | | | $ | 84 | | | $ | — | | | $ | 84 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| Included in Cash and cash equivalents | | | | | | $ | 172 | | | | | | | $ | 59 | |
| | | | | | | | | | | | |
| Included in Other current assets | | | | | | 2 | | | | | | | 2 | |
| Included in Other assets, net | | | | | | 16 | | | | | | | 23 | |
| Total | | | | | | $ | 190 | | | | | | | $ | 84 | |
| | | | | | | | | | | | |
As of December 30, 2022 and July 1, 2022, the Company’s Other current assets included $2 million in restricted cash equivalents held as collateral at banks for various performance obligations.
As of December 30, 2022 and July 1, 2022, the Company had no material available-for-sale debt securities that had been in a continuous unrealized loss position for a period greater than 12 months. The Company determined no impairment related to credit losses for available-for-sale debt securities as of December 30, 2022.
The fair value and amortized cost of the Company’s investments classified as available-for-sale debt securities as of December 30, 2022, by remaining contractual maturity were as follows:
| | | | | | | | | | | | | | |
| (Dollars in millions) | | Amortized Cost | | Fair Value |
| Due in less than 1 year | | $ | 174 | | | $ | 174 | |
| Due in 1 to 5 years | | 15 | | | 15 | |
| Due in 6 to 10 years | | — | | | — | |
| Thereafter | | 1 | | | 1 | |
| Total | | $ | 190 | | | $ | 190 | |
Cash, Cash Equivalents and Restricted Cash
The following table provides a summary of cash, cash equivalents and restricted cash reported within the Company’s Condensed Consolidated Balance Sheets that reconciles to the corresponding amount in the Company’s Condensed Consolidated Statements of Cash Flows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (Dollars in millions) | | December 30,
2022 | | | | July 1,
2022 | | December 31,
2021 | | | | July 2,
2021 |
| Cash and cash equivalents | | $ | 770 | | | | | $ | 615 | | | $ | 1,535 | | | | | $ | 1,209 | |
| Restricted cash included in Other current assets | | 2 | | | | | 2 | | | 2 | | | | | 2 | |
| Total cash, cash equivalents and restricted cash shown in the Statements of Cash Flows | | $ | 772 | | | | | $ | 617 | | | $ | 1,537 | | | | | $ | 1,211 | |
Accounts receivable, net
In connection with the Company’s factoring agreements, from time to time the Company sells trade receivables to a third party for cash proceeds less a discount. During the three and six months ended December 30, 2022, the Company sold trade receivables without recourse for cash proceeds of $211 million and $411 million, respectively. As of December 30, 2022, the total amount that remained subject to servicing by the Company was $287 million. The discounts on receivables sold were not material for the three and six months ended December 30, 2022. During the three and six months ended December 31, 2021, the company did not sell any trade receivables to a third party.
Inventories
The following table provides details of the inventory balance sheet item:
| | | | | | | | | | | | | | |
| (Dollars in millions) | | December 30,
2022 | | July 1,
2022 |
| Raw materials and components | | $ | 624 | | | $ | 601 | |
| Work-in-process | | 305 | | | 414 | |
| Finished goods | | 265 | | | 550 | |
| Total inventories | | $ | 1,194 | | | $ | 1,565 | |
Property, Equipment and Leasehold Improvements, net
The components of property, equipment and leasehold improvements, net, were as follows:
| | | | | | | | | | | | | | |
| (Dollars in millions) | | December 30,
2022 | | July 1,
2022 |
| Property, equipment and leasehold improvements | | $ | 10,743 | | | $ | 10,659 | |
| Accumulated depreciation and amortization | | (8,621) | | | (8,420) | |
| Property, equipment and leasehold improvements, net | | $ | 2,122 | | | $ | 2,239 | |
Accrued Expenses
The following table provides details of the accrued expenses balance sheet item:
| | | | | | | | | | | | | | |
| (Dollars in millions) | | December 30,
2022 | | July 1,
2022 |
| | | | |
| Dividends payable | | $ | 145 | | | $ | 147 | |
| Other accrued expenses | | 684 | | | 449 | |
| Total | | $ | 829 | | | $ | 596 | |
Accumulated Other Comprehensive Income (Loss) (“AOCI”)
The components of AOCI, net of tax, were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (Dollars in millions) | | Unrealized Gains/(Losses) on Cash Flow Hedges | | | | Unrealized Gains/(Losses) on Post-Retirement Plans | | Foreign Currency Translation Adjustments | | Total |
| Balance at July 1, 2022 | | $ | 51 | | | | | $ | (14) | | | $ | (1) | | | $ | 36 | |
| Other comprehensive income before reclassifications | | 51 | | | | | — | | | — | | | 51 | |
| Amounts reclassified from AOCI | | 11 | | | | | 1 | | | — | | | 12 | |
| Other comprehensive income | | 62 | | | | | 1 | | | — | | | 63 | |
| Balance at December 30, 2022 | | $ | 113 | | | | | $ | (13) | | | $ | (1) | | | $ | 99 | |
| | | | | | | | | | |
| Balance at July 2, 2021 | | $ | (18) | | | | | $ | (22) | | | $ | (1) | | | $ | (41) | |
| Other comprehensive income before reclassifications | | 2 | | | | | 1 | | | — | | | 3 | |
| Amounts reclassified from AOCI | | 12 | | | | | 1 | | | — | | | 13 | |
| Other comprehensive income | | 14 | | | | | 2 | | | — | | | 16 | |
| Balance at December 31, 2021 | | $ | (4) | | | | | $ | (20) | | | $ | (1) | | | $ | (25) | |
3.Debt
The following table provides details of the Company’s debt as of December 30, 2022 and July 1, 2022:
| | | | | | | | | | | | | | |
| (Dollars in millions) | | December 30,
2022 | | July 1,
2022 |
Unsecured Senior Notes(1) | | | | |
$1,000 issued on May 22, 2013 at 4.75% due June 1, 2023 (the “2023 Notes”), interest payable semi-annually on June 1 and December 1 of each year. | | $ | 540 | | | $ | 540 | |
$500 issued on February 3, 2017 at 4.875% due March 1, 2024 (the “2024 Notes”), interest payable semi-annually on March 1 and September 1 of each year. | | 499 | | | 499 | |
$1,000 issued on May 28, 2014 at 4.75% due January 1, 2025 (the “2025 Notes”), interest payable semi-annually on January 1 and July 1 of each year. | | 479 | | | 479 | |
$700 issued on May 14, 2015 at 4.875% due June 1, 2027 (the “2027 Notes”), interest payable semi-annually on June 1 and December 1 of each year. | | 504 | | | 504 | |
$500 issued on June 18, 2020 at 4.091% due June 1, 2029 (the “June 2029 Notes”), interest payable semi-annually on June 1 and December 1 of each year. | | 469 | | | 466 | |
$500 issued on December 8, 2020 at 3.125% due July 15, 2029 (the “July 2029 Notes”), interest payable semi-annually on January 15 and July 15 of each year. | | 164 | | | 500 | |
$500 issued on June 10, 2020 at 4.125% due January 15, 2031 (the “January 2031 Notes”), interest payable semi-annually on January 15 and July 15 of each year. | | 295 | | | 500 | |
$500 issued on December 8, 2020 at 3.375% due July 15, 2031 (the “July 2031 Notes”), interest payable semi-annually on January 15 and July 15 of each year. | | 77 | | | 500 | |
$750 issued on November 30, 2022 at 9.625% due December 1, 2032 (the “2032 Notes”), interest payable semi-annually on June 1 and December 1 of each year. | | 750 | | | — | |
$500 issued on December 2, 2014 at 5.75% due December 1, 2034 (the “2034 Notes”), interest payable semi-annually on June 1 and December 1 of each year. | | 489 | | | 489 | |
| | | | |
| Term Loans | | | | |
$600 borrowed on October 14, 2021 at SOFR plus a variable margin ranging from 1.125% to 2.375%, (the “Term Loan A1”), repayable in quarterly installments beginning on December 31, 2022, with a final maturity date of September 16, 2025. | | 600 | | | 600 | |
$600 borrowed on October 14, 2021 at SOFR plus a variable margin ranging from 1.25% to 2.5%, (the “Term Loan A2”), repayable in quarterly installments beginning on December 31, 2022, with a final maturity date of July 30, 2027. | | 600 | | | 600 | |
$600 borrowed on August 18, 2022 at SOFR plus a variable margin ranging from 1.25% to 2.5%, (the “Term Loan A3”), repayable in quarterly installments beginning on December 31, 2022, with a final maturity date of July 30, 2027. | | 600 | | | — | |
| | 6,066 | | | 5,677 | |
| Less: unamortized debt issuance costs | | (37) | | | (31) | |
| Debt, net of debt issuance costs | | 6,029 | | | 5,646 | |
| Less: current portion of long-term debt | | (636) | | | (584) | |
| Long-term debt, less current portion | | $ | 5,393 | | | $ | 5,062 | |
______________________________(1) All unsecured senior notes are issued by Seagate HDD Cayman (“Seagate HDD”), and the obligations under these notes are fully and unconditionally guaranteed, on a senior unsecured basis, by Seagate Technology Unlimited Company (“STUC”) and STX.
Debt Exchange
2032 Notes. On November 30, 2022, Seagate HDD issued, in a private placement, $750 million in aggregate principal amount of 9.625% Senior Notes due on December 1, 2032, in connection with Seagate HDD’s exchange offers to certain eligible holders of Seagate HDD’s outstanding existing senior notes as set forth below:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| (Dollars in millions) | | | | | | | | |
| Existing Notes | | Principal Amount Outstanding as of September 30, 2022 | | Principal Amount Exchanged | | Remaining Principal Amount as of December 30, 2022 | | Net Gain Recognized From Early Redemption |
| July 2031 Notes | | $ | 500 | | | $ | 423 | | | $ | 77 | | | $ | 95 | |
| July 2029 Notes | | 500 | | 336 | | | 164 | | | 70 | |
| January 2031 Notes | | 500 | | 205 | | | 295 | | | 39 | |
| Total | | $ | 1,500 | | | $ | 964 | | | $ | 536 | | | $ | 204 | |
The exchange was accounted for as a debt extinguishment and the Company recorded a net gain of $204 million, in the Company’s Condensed Consolidated Statements of Operations.
At any time prior to December 1, 2027, Seagate HDD may redeem the 2032 Notes at its option, in whole or in part, at any time and from time to time, at a “make-whole” redemption price. The “make-whole” redemption price will be equal to the greater of: (1) (a) the sum of the present values at such redemption date of the redemption price of the 2032 Notes that would apply if the new 2032 Notes were redeemed on December 1, 2027 plus the remaining scheduled payments of interest thereon to and including December 1, 2027 discounted to the redemption date on a semi-annual basis at the Treasury Rate plus 50 basis points less (b) interest accrued to the date of redemption, and (2) 100% of the principal amount of the 2032 Notes to be redeemed plus, in either case, accrued and unpaid interest thereon, if any, to, but excluding, the redemption date. At any time on or after December 1, 2027, Seagate HDD may redeem some or all of the 2032 Notes at the prices specified in the Indenture, plus accrued and unpaid interest to, but excluding, the redemption date. In addition, Seagate HDD may redeem with the net cash proceeds from one or more equity offerings up to 40% of the 2032 Notes before December 1, 2025, at a redemption price of 109.625% plus accrued and unpaid interest to, but excluding, the redemption date.
Credit Agreement
On August 18, 2022, Seagate Technology Holdings plc and Seagate HDD (the “Borrower”) entered into an amendment to its Credit Agreement (the “Sixth Amendment”), which provided for a new term loan facility in the aggregate principal amount of $600 million (“Term Loan A3”). Term Loan A3 was borrowed in full at the closing of the Sixth Amendment. The Sixth Amendment to the Credit Agreement also replaced the LIBOR interest rates plus variable margin for the Term Loans A1 and A2 with the SOFR interest rates plus a variable margin that will be determined based on the corporate credit rating of the Borrower or one of its parent entities. The Sixth Amendment also permits the Borrower to increase the revolving loan commitments or obtain new term loans of up to $100 million in aggregate (the “Incremental facility”), subject to the satisfaction of certain terms and conditions.
On November 8, 2022, Seagate Technology Holdings plc and the Borrower entered into an amendment to its Credit Agreement (the “Seventh Amendment”), to increase the maximum permitted total leverage ratio the Company must comply with during the covenant relief period that ends on June 28, 2024 and prohibit the Company from pursuing the use of the Incremental Facility during the covenant relief period. The maximum permitted total leverage ratio is 5.0 to 1.0 from the fiscal quarters ending December 30, 2022 to June 30, 2023. For the fiscal quarter ending September 29, 2023, the maximum permitted total leverage ratio is 4.75 to 1.0 and then steps down to 4.5 to 1.0 from the fiscal quarters ending December 29, 2023 to June 28, 2024. The maximum permitted leverage ratio will return to 4.0 to 1.0 for any fiscal quarter ending after June 28, 2024.
The Credit Agreement provides a term loan facility in an aggregate principal amount of $