Document

Derivatives Not Designated as Hedging Instruments

Location of Gain/
(Loss) Recognized in
Income on Derivatives

Amount of Gain/
(Loss) Recognized in
Income on Derivatives

Foreign currency forward exchange contracts

Other, net

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 October 4, 2019



☐	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 PUBLIC LIMITED COMPANY

(Exact name of registrant as specified in its charter)

_______________________________________



Ireland		98-0648577
(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, or a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.



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

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

As of October 28, 2019, 262,711,116 of the registrant’s ordinary shares, par value $0.00001 per share, were issued and outstanding.

INDEX

SEAGATE TECHNOLOGY PLC



		PAGE NO.

PART I	FINANCIAL INFORMATION

Item 1.	Financial Statements	3
	Condensed Consolidated Balance Sheets - October 4, 2019 (Unaudited) and June 28, 2019	4
	Condensed Consolidated Statements of Operations - Three Months Ended October 4, 2019 and September 28, 2018 (Unaudited)	5
	Condensed Consolidated Statements of Comprehensive Income - Three Months Ended October 4, 2019 and September 28, 2018 (Unaudited)	6
	Condensed Consolidated Statements of Cash Flows - Three Months Ended October 4, 2019 and September 28, 2018 (Unaudited)	7
	Condensed Consolidated Statements of Shareholders’ Equity - Three Months Ended October 4, 2019 and September 28, 2018 (Unaudited)	8
	Notes to Condensed Consolidated Financial Statements (Unaudited)	9
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	27
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	34
Item 4.	Controls and Procedures	35
PART II	OTHER INFORMATION
Item 1.	Legal Proceedings	35
Item 1A.	Risk Factors	35
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	36
Item 3.	Defaults Upon Senior Securities	36
Item 4.	Mine Safety Disclosures	36
Item 5.	Other Information	36
Item 6.	Exhibits	37
	SIGNATURES	38

Table of Contents

PART I

FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS



Table of Contents		Page
Condensed Consolidated Balance Sheets		4
Condensed Consolidated Statements of Operations		5
Condensed Consolidated Statements of Comprehensive Income		6
Condensed Consolidated Statements of Cash Flows		7
Condensed Consolidated Statements of Shareholders’ Equity		8
Notes to Condensed Consolidated Financial Statements		9
	Note 1. Basis of Presentation and Summary of Significant Accounting Policies	9
	Note 2. Balance Sheet Information	11
	Note 3. Debt	13
	Note 4. Income Taxes	14
	Note 5. Leases	15
	Note 6. Restructuring and Exit Costs	16
	Note 7. Derivative Financial Instruments	16
	Note 8. Fair Value	19
	Note 9. Equity	22
	Note 10. Revenue	23
	Note 11. Guarantees	23
	Note 12. Earnings Per Share	24
	Note 13. Legal, Environmental and Other Contingencies	24
	Note 14. Subsequent Events	24

See Notes to Condensed Consolidated Financial Statements.

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SEAGATE TECHNOLOGY PLC

CONDENSED CONSOLIDATED BALANCE SHEETS

(In millions)



	October 4, 2019			June 28, 2019
	(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	1,784		$	2,220
Accounts receivable, net	1,065			989
Inventories	1,041			970
Other current assets	141			184
Total current assets	4,031			4,363
Property, equipment and leasehold improvements, net	1,991			1,869
Goodwill	1,237			1,237
Other intangible assets, net	97			111
Deferred income taxes	1,128			1,114
Other assets, net	254			191
Total Assets	$	8,738		$	8,885
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable	$	1,750		$	1,420
Accrued employee compensation	149			169
Accrued warranty	86			91
Accrued expenses	564			552
Total current liabilities	2,549			2,232
Long-term accrued warranty	98			104
Long-term accrued income taxes	3			4
Other non-current liabilities	178			130
Long-term debt	4,140			4,253
Total Liabilities	6,968			6,723
Commitments and contingencies (See Notes 11 and 13)
Shareholders’ Equity:
Ordinary shares and additional paid-in capital	6,610			6,545
Accumulated other comprehensive loss	(40		)	(34		)
Accumulated deficit	(4,800		)	(4,349		)
Total Equity	1,770			2,162
Total Liabilities and Equity	$	8,738		$	8,885

See Notes to Condensed Consolidated Financial Statements.

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SEAGATE TECHNOLOGY PLC

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In millions, except per share data)

(Unaudited)



	For the Three Months Ended
	October 4, 2019			September 28, 2018
Revenue	$	2,578		$	2,991

Cost of revenue	1,907			2,078
Product development	255			266
Marketing and administrative	122			115
Amortization of intangibles	4			6
Restructuring and other, net	17			23
Total operating expenses	2,305			2,488

Income from operations	273			503

Interest income	11			24
Interest expense	(55		)	(58		)
Other, net	(31		)	(1		)
Other expense, net	(75		)	(35		)

Income before income taxes	198			468
(Benefit) provision for income taxes	(2		)	18
Net income	$	200		$	450

Net income per share:
Basic	$	0.75		$	1.57
Diluted	0.74			1.54
Number of shares used in per share calculations:
Basic	266			287
Diluted	270			292
Cash dividends declared per ordinary share	$	0.63		$	0.63

See Notes to Condensed Consolidated Financial Statements.

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SEAGATE TECHNOLOGY PLC

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In millions)

(Unaudited)



	For the Three Months Ended
	October 4, 2019			September 28, 2018
Net income	$	200		$	450
Other comprehensive income (loss), net of tax:
Cash flow hedges
Change in net unrealized gain (loss) on cash flow hedges	(1		)	3
Less: reclassification for amounts included in net income	—			(1		)
Net change	(1		)	2
Marketable securities
Change in net unrealized gain (loss) on available-for-sale debt securities	—			—
Less: reclassification for amounts included in net income	—			—
Net change	—			—
Post-retirement plans
Change in unrealized gain (loss) on post-retirement plans	—			—
Less: reclassification for amounts included in net income	—			—
Net change	—			—
Foreign currency translation adjustments	(5		)	2
Total other comprehensive income (loss), net of tax	(6		)	4
Comprehensive income	$	194		$	454

See Notes to Condensed Consolidated Financial Statements.

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SEAGATE TECHNOLOGY PLC

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In millions)

(Unaudited)



	For the Three Months Ended
	October 4, 2019			September 28, 2018
OPERATING ACTIVITIES
Net income	$	200		$	450
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	92			134
Share-based compensation	26			18
Deferred income taxes	(12		)	2
Other non-cash operating activities, net	44			(18		)
Changes in operating assets and liabilities:
Accounts receivable, net	(77		)	(9		)
Inventories	(65		)	(66		)
Accounts payable	281			119
Accrued employee compensation	(20		)	(79		)
Accrued expenses, income taxes and warranty	(7		)	45
Other assets and liabilities	(6		)	(9		)
Net cash provided by operating activities	456			587
INVESTING ACTIVITIES
Acquisition of property, equipment and leasehold improvements	(147		)	(177		)
Proceeds from sale of properties previously classified as held for sale	—			6
Purchases of strategic investments	(4		)	(5		)
Net cash used in investing activities	(151		)	(176		)
FINANCING ACTIVITIES
Redemption and repurchase of debt	(645		)	—
Dividends to shareholders	(170		)	(181		)
Repurchases of ordinary shares	(450		)	(150		)
Taxes paid related to net share settlement of equity awards	(37		)	(27		)
Net proceeds from issuance of long-term debt	498			—
Proceeds from issuance of ordinary shares under employee stock plans	39			32
Net cash used in financing activities	(765		)	(326		)
Effect of foreign currency exchange rate changes on cash, cash equivalents and restricted cash	(5		)	3
(Decrease) increase in cash, cash equivalents and restricted cash	(465		)	88
Cash, cash equivalents and restricted cash at the beginning of the period	2,251			1,857
Cash, cash equivalents and restricted cash at the end of the period	$	1,786		$	1,945

See Notes to Condensed Consolidated Financial Statements.

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SEAGATE TECHNOLOGY PLC

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

For the Three Months Ended October 4, 2019 and September 28, 2018

(In millions)

(Unaudited)



	Number of Ordinary Shares		Par Value of Shares		Additional Paid-in Capital		Accumulated Other Comprehensive Loss			Accumulated Deficit			Total
Balance at June 28, 2019	269		$	—	$	6,545	$	(34	)	$	(4,349	)	$	2,162
Impact of adopting new lease standard (Note 1)										(2		)	(2		)
Net income										200			200
Other comprehensive loss							(6		)				(6		)
Issuance of ordinary shares under employee stock plans	4				39								39
Repurchases of ordinary shares	(9	)								(447		)	(447		)
Tax withholding related to vesting of restricted stock units	(1	)								(37		)	(37		)
Dividends to shareholders										(165		)	(165		)
Share-based compensation					26								26
Balance at October 4, 2019	263		$	—	$	6,610	$	(40	)	$	(4,800	)	$	1,770



	Number of Ordinary Shares			Par Value of Shares		Additional Paid-in Capital		Accumulated Other Comprehensive Loss			Accumulated Deficit			Total
Balance at June 29, 2018	287			$	—	$	6,377	$	(16	)	$	(4,696	)	$	1,665
Cumulative effect of adoption of new revenue standard											34			34
Net income											450			450
Other comprehensive income								4						4
Issuance of ordinary shares under employee stock plans	3					32								32
Repurchases of ordinary shares	(3		)								(150		)	(150		)
Tax withholding related to vesting of restricted stock units	(1		)								(27		)	(27		)
Dividends to shareholders											(180		)	(180		)
Share-based compensation						18								18
Balance at September 28, 2018	$	286		$	—	$	6,427	$	(12	)	$	(4,569	)	$	1,846

See Notes to Condensed Consolidated Financial Statements.

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SEAGATE TECHNOLOGY PLC

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)


1.	Basis of Presentation and Summary of Significant Accounting Policies

Organization

Seagate Technology plc (“STX”) and its subsidiaries (collectively, unless the context otherwise indicates, the “Company”) is a leading provider of data storage technology and solutions. Its principal products are hard disk drives, commonly referred to as disk drives, hard drives or HDDs. In addition to HDDs, the Company produces a broad range of data storage products including solid state drives (“SSDs”), solid state hybrid drives (“SSHDs”) and storage subsystems.

Hard disk drives are devices that store digitally encoded data on rapidly rotating disks with magnetic surfaces. Disk drives continue to be the primary medium of mass data storage due to their performance attributes, reliability, high quality and cost effectiveness. Complementing existing data center storage architecture, solid-state drives use integrated circuit assemblies as memory to store data, and most SSDs use NAND flash memory. In addition to HDDs and SSDs, SSHDs combine the features of SSDs and HDDs in the same unit, containing a high capacity hard disk drive and a smaller SSD acting as a cache to improve performance of frequently accessed data.

The Company’s HDD products are designed for nearline and mission critical applications in enterprise servers and storage systems; edge non-compute applications, where its products are designed for a wide variety of end user devices such as portable external storage systems, video and image applications, including surveillance systems, network-attached storage (“NAS”), digital video recorders (“DVRs”) and gaming consoles; and edge compute applications, where its products are designed primarily for desktop and mobile computing. The Company’s SSD product portfolio is mainly comprised of Serial Attached SCSI (“SAS”) and Non-Volatile Memory Express (“NVMe”) and is designed for applications in enterprise servers and storage systems.

The Company’s enterprise data solutions (“EDS”) portfolio includes storage subsystems for enterprises, cloud service providers, scale-out storage servers and original equipment manufacturers (“OEMs”).

Basis of Presentation and Consolidation

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. generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the Company’s condensed consolidated financial statements and accompanying notes. Actual results could differ materially from those estimates. The methods, estimates and judgments the Company uses in applying its most critical accounting policies have a significant impact on the results the Company reports in its condensed consolidated financial statements.

The Company’s consolidated financial statements for the fiscal year ended June 28, 2019, are included in its Annual Report on Form 10-K, as filed with the United States Securities and Exchange Commission (“SEC”) on August 2, 2019. The Company believes that the disclosures included in these unaudited condensed consolidated financial statements, when read in conjunction with its consolidated financial statements as of June 28, 2019, and the notes thereto, are adequate to make the information presented not misleading.

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. The three months ended October 4, 2019 consisted of 14 weeks and the three months ended September 28, 2018 consisted of 13 weeks. Fiscal year 2020, which ends on July 3, 2020, is comprised of 53 weeks and fiscal year 2019, which ended on June 28, 2019, is comprised of 52 weeks. The fiscal quarters ended October 4, 2019, June 28, 2019 and September 28, 2018, are also referred to herein as the “September 2019 quarter”, the “June 2019 quarter”, and the “September 2018 quarter”, respectively. The results of operations for the three months ended October 4, 2019 are not necessarily indicative of the results of operations to be expected for any subsequent interim period or for the Company’s fiscal year ending July 3, 2020.

Summary of Significant Accounting Policies

Except for the change in the Company’s other long-lived assets and leases policies described below, there have been no material changes to the Company’s significant accounting policies disclosed in Note 1 - Basis of Presentation and Summary of Significant Accounting Policies of “Financial Statements and Supplementary Data” contained in Part II, Item 8 of the Company’s Annual Report on Form 10-K for the fiscal year ended June 28, 2019, as filed with the SEC on August 2, 2019.

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Other Long-Lived Assets

In accordance with its policy, the Company reviews the estimated useful lives of its fixed assets on an ongoing basis. This review indicated that the actual lives of certain manufacturing equipment at its manufacturing facilities were longer than the estimated useful lives used for deprecation purposes in the Company’s condensed consolidated financial statements. As a result, effective June 29, 2019, the Company changed its estimate of the useful lives of its manufacturing equipment from a range of three to five years to a range of three to seven years. The effect of this change in estimate increased the September 2019 quarter net income by $23 million and diluted earnings per share by $0.09.

Leases

Effective June 29, 2019, the Company adopted a new accounting policy for leases in accordance with Accounting Standard Codification (“ASC”) 842, Leases, using the modified retrospective approach. Accordingly, the Company applied the new lease accounting standard prospectively to leases existing or commencing on or after June 29, 2019. The Company elected to apply the practical expedients which allow for not reassessing whether existing contracts contain leases, the classification of existing leases and whether the existing initial direct costs meet the new definition. In addition, the Company elected to combine lease and non-lease components for facility leases and to not recognize right-of-use (“ROU”) assets and lease liabilities for leases with an initial term of 12 months of less on the balance sheet.

The Company determines if an arrangement is a lease or contains a lease at inception. ROU assets are included in Other assets, net and lease liabilities are included in Accrued expenses and Other non-current liabilities on the Company’s Condensed Consolidated Balance Sheets. ROU assets represent the Company’s right to use an underlying asset for the lease term and the corresponding lease liabilities represent its obligation to make lease payments arising from the lease.

Lease liabilities are measured at the present value of the remaining lease payments and ROU assets are based on the lease liability, adjusted for lease prepayments, lease incentives received and the lessee’s initial direct costs. As the Company’s leases do not provide an implicit rate, the net present value of future minimum lease payments is determined using the Company’s estimated incremental borrowing rate based on the information available at the lease commencement date. Additionally, the Company’s lease term may include options to extend or terminate the lease. These options are reflected in the ROU asset and lease liability when it is reasonably certain that the Company will exercise the option. The Company’s lease agreements do not contain any material residual value guarantees.

The Company recognizes lease expense on a straight-line basis over the lease term. Variable lease payments not dependent on an index or a rate primarily consist of common area maintenance charges, are expensed as incurred, and are not included in the ROU asset and lease liability calculation. The total operating and variable lease costs were included in operating expenses in the Company’s Condensed Consolidated Statements of Operations.

Recently Adopted Accounting Pronouncements

In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) 2016-02 (ASC Topic 842), Leases and subsequently issued certain interpretive clarifications on this new guidance which amends a number of aspects of lease accounting, including requiring a lessee to recognize an ROU asset and corresponding lease liability for operating leases and enhanced disclosures. As of June 29, 2019, adoption of the standard resulted in the recognition of ROU assets and corresponding current and non-current lease liabilities of $115 million, $17 million and $57 million, respectively, on the Company’s Condensed Consolidated Balance Sheet, primarily relating to real estate operating leases. The adoption of this ASU did not have a material impact on the Company’s other condensed consolidated financial statements. For information regarding the impact of ASC 842 adoption, see Summary of Significant Accounting Policies - Leases above and Note 5. Leases.

In February 2018, the FASB issued ASU 2018-02 (ASC Topic 220), Income Statement—Reporting Comprehensive Income: Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. This ASU was issued following the enactment of the U.S. Tax Cuts and Jobs Act of 2017 (the “Tax Act”) and permits entities to elect a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Act. This ASU became effective and the Company adopted the guidance in the September 2019 quarter. The Company has elected not to reclassify the stranded amounts. The adoption of this guidance did not have a material impact on its condensed consolidated financial statements and disclosures.

Recently Issued Accounting Pronouncements

In August 2018, the FASB issued ASU 2018-15 (ASC Subtopic 350-40), Intangibles - Goodwill and Other - Internal-Use Software - Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service

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Contract. This ASU aligns the accounting for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the accounting for implementation costs incurred to develop or obtain internal-use software. The Company is required to adopt the guidance in the first quarter of fiscal year 2021. Early adoption is permitted. The Company is in the process of assessing the impact of this ASU on its condensed consolidated financial statements.

In June 2016, the FASB issued ASU 2016-13 (ASC Topic 326), Financial Instruments—Credit Losses: Measurement of Credit Losses on Financial Instruments. This ASU amends the requirement on the measurement and recognition of expected credit losses for financial assets held. The Company is required to adopt this guidance in the first quarter of fiscal year 2021. The Company is in the process of assessing the impact of this ASU 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 investments as of October 4, 2019:



(Dollars in millions)	Amortized Cost		Unrealized Gain/(Loss)		Fair Value
Available-for-sale debt securities:
Money market funds	$	471	$	—	$	471
Time deposits and certificates of deposit	351		—		351
Other debt securities	10		—		10
Total	$	832	$	—	$	832

Included in Cash and cash equivalents					$	820
Included in Other current assets					2
Included in Other assets, net					10
Total					$	832

As of October 4, 2019, the Company’s Other current assets included $2 million in restricted cash and investments held as collateral at banks for various performance obligations.

As of October 4, 2019, the Company had no material available-for-sale debt securities that had been in a continuous unrealized loss position for a period greater than 12 months. The Company determined no available-for-sale debt securities were other-than-temporarily impaired as of October 4, 2019.

The fair value and amortized cost of the Company’s investments classified as available-for-sale debt securities as of October 4, 2019, by remaining contractual maturity were as follows:



(Dollars in millions)	Amortized Cost		Fair Value
Due in less than 1 year	$	822	$	822
Due in 1 to 5 years	6		6
Due in 6 to 10 years	—		—
Thereafter	4		4
Total	$	832	$	832

The following table summarizes, by major type, the fair value and amortized cost of the Company’s investments as of June 28, 2019:

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(Dollars in millions)	Amortized Cost		Unrealized Gain/(Loss)		Fair Value
Available-for-sale securities:
Money market funds	$	417	$	—	$	417
Time deposits and certificates of deposit	133		—		133
Other debt securities	7		—		7
Total	$	557	$	—	$	557

Included in Cash and cash equivalents					$	548
Included in Other current assets					2
Included in Other assets, net					7
Total					$	557

As of June 28, 2019, the Company’s Other current assets included $2 million in restricted cash and investments held as collateral at banks for various performance obligations.

As of June 28, 2019, the Company had no material available-for-sale securities that had been in a continuous unrealized loss position for a period greater than 12 months. The Company determined no available-for-sale securities were other-than-temporarily impaired as of June 28, 2019.

Cash, Cash Equivalents and Restricted Cash

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



(Dollars in millions)	October 4, 2019		June 28, 2019		September 28, 2018		June 29, 2018
Cash and cash equivalents	$	1,784	$	2,220	$	1,942	$	1,853
Restricted cash included in Other current assets	2		31		3		4
Total cash, cash equivalents and restricted cash presented on the Statements of Cash Flows	$	1,786	$	2,251	$	1,945	$	1,857

Inventories

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



(Dollars in millions)	October 4, 2019		June 28, 2019
Raw materials and components	$	352	$	336
Work-in-process	305		217
Finished goods	384		417
Total inventories	$	1,041	$	970

Property, Equipment and Leasehold Improvements, net

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



(Dollars in millions)	October 4, 2019			June 28, 2019
Property, equipment and leasehold improvements	$	9,994		$	9,835
Accumulated depreciation and amortization	(8,003		)	(7,966		)
Property, equipment and leasehold improvements, net	$	1,991		$	1,869

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Accrued Expenses

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



(Dollars in millions)	October 4, 2019		June 28, 2019
Dividends payable	$	165	$	170
Other accrued expenses	399		382
Total accrued expenses	$	564	$	552

Accumulated Other Comprehensive Income (Loss) (“AOCI”)

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



(Dollars in millions)	Unrealized Gains/(Losses) on Cash Flow Hedges			Unrealized Gains/(Losses) on Available-for-Sale Debt Securities		Unrealized Gains/(Losses) on Post-Retirement Plans			Foreign Currency Translation Adjustments			Total
Balance at June 28, 2019	$	—		$	—	$	(20	)	$	(14	)	$	(34	)
Other comprehensive income (loss) before reclassifications	(1		)	—		—			(5		)	(6		)
Amounts reclassified from AOCI	—			—		—			—			—
Other comprehensive income (loss)	(1		)	—		—			(5		)	(6		)
Balance at October 4, 2019	$	(1	)	$	—	$	(20	)	$	(19	)	$	(40	)

Balance at June 29, 2018	$	—		$	—	$	(4	)	$	(12	)	$	(16	)
Other comprehensive income (loss) before reclassifications	3			—		—			2			5
Amounts reclassified from AOCI	(1		)	—		—			—			(1		)
Other comprehensive income (loss)	2			—		—			2			4
Balance at September 28, 2018	$	2		$	—	$	(4	)	$	(10	)	$	(12	)


3.	Debt

Credit Agreement

The Company’s subsidiary, Seagate HDD Cayman, entered into a credit agreement (the “Credit Agreement”) on February 20, 2019, which was most recently amended on September 16, 2019. The Credit Agreement provides an up to $1.5 billion senior unsecured revolving credit facility (“Revolving Credit Facility”) and a term loan facility in an aggregate principal amount of $500 million (“Term Loan”). The Revolving Credit Facility has a final maturity of February 20, 2024 and the Term Loan has a final maturity date of September 16, 2025. The loans made under the Revolving Credit Facility and the Term Loan will bear interest at a rate of the London Interbank Offered Rate (“LIBOR”) plus a variable margin for each facility that will be determined based on the corporate credit rating of the Company. STX and certain of its material subsidiaries fully and unconditionally guarantee both the Revolving Credit Facility and the Term Loan. The Revolving Credit Facility also allows such facility to increase by an additional $100 million, provided that (i) there has been, and will be after giving effect to such increase, no default, (ii) the increase is at least $25 million, and (iii) the existing commitments under such facility receive 0.50% most favored nation protection. An aggregate amount of up to $75 million of the Revolving Credit Facility is available for the issuance of letters of credit, and an aggregate amount of up to $50 million of such facility is also available for swing line loans.

On September 17, 2019, Seagate HDD Cayman borrowed the $500 million principal amount under the Term Loan and the proceeds were used to repurchase a portion of its outstanding senior notes. The Term Loan is repayable in quarterly installments of 1.25% of the original principal amount beginning on December 31, 2020, with the remaining balance payable upon maturity.

The Credit Agreement includes three financial covenants: (1) interest coverage ratio, (2) total leverage ratio, and (3) a minimum liquidity amount. The Company was in compliance with the covenants as of October 4, 2019 and expects to be in compliance for the next 12 months.

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As of October 4, 2019, no borrowings were drawn and no letters of credit or swing line loans had been utilized under the Revolving Credit Facility.

Other Long-Term Debt

$750 million Aggregate Principal Amount of 4.25% Senior Notes due March 2022 (the “2022 Notes”). The interest on the 2022 Notes is payable semi-annually on March 1 and September 1 of each year. The issuer under the 2022 Notes is Seagate HDD Cayman, and the obligations under the 2022 Notes are fully and unconditionally guaranteed, on a senior unsecured basis, by STX. On September 18, 2019, the principal amount of approximately $250 million was repurchased pursuant to cash tender offers for certain senior notes (the “Tender Offers”). The Company recorded a loss of $10 million, which was included in Other, net in the Company’s Condensed Consolidated Statements of Operations.

$1 billion Aggregate Principal Amount of 4.75% Senior Notes due June 2023 (the “2023 Notes”). The interest on the 2023 Notes is payable semi-annually on June 1 and December 1 of each year. The issuer under the 2023 Notes is Seagate HDD Cayman, and the obligations under the 2023 Notes are fully and unconditionally guaranteed, on a senior unsecured basis, by STX. On September 18, 2019, the principal amount of $200 million was repurchased pursuant to the Tender Offers. The Company recorded a loss of $10 million, which was included in Other, net in the Company’s Condensed Consolidated Statements of Operations.

$500 million Aggregate Principal Amount of 4.875% Senior Notes due March 2024 (the “2024 Notes”).The interest on the 2024 Notes is payable semi-annually on March 1 and September 1 of each year. The issuer under the 2024 Notes is Seagate HDD Cayman, and the obligations under the 2024 Notes are fully and unconditionally guaranteed, on a senior unsecured basis, by STX.

$1 billion Aggregate Principal Amount of 4.75% Senior Notes due January 2025 (the “2025 Notes”). The interest on the 2025 Notes is payable semi-annually on January 1 and July 1 of each year. The issuer under the 2025 Notes is Seagate HDD Cayman, and the obligations under the 2025 Notes are fully and unconditionally guaranteed, on a senior unsecured basis, by STX. On September 18, 2019, the principal amount of approximately $170 million was repurchased pursuant to the Tender Offers. The Company recorded a loss of $8 million, which was included in Other, net in the Company’s Condensed Consolidated Statements of Operations.

$700 million Aggregate Principal Amount of 4.875% Senior Notes due June 2027 (the “2027 Notes”). The interest on the Notes is payable semi-annually on June 1 and December 1 of each year. The issuer under the 2027 Notes is Seagate HDD Cayman, and the obligations under the 2027 Notes are fully and unconditionally guaranteed, on a senior unsecured basis, by STX.

$500 million Aggregate Principal Amount of 5.75% Senior Notes due December 2034 (the “2034 Notes”). The interest on the 2034 Notes is payable semi-annually on June 1 and December 1 of each year. The issuer under the 2034 Notes is Seagate HDD Cayman, and the obligations under the 2034 Notes are fully and unconditionally guaranteed, on a senior unsecured basis, by STX.

At October 4, 2019, future principal payments on long-term debt were as follows (in millions):



Fiscal Year	Amount
Remainder of 2020	$	—
2021	19
2022	525
2023	766
2024	525
Thereafter	2,336
Total	$	4,171


4.	Income Taxes

The Company’s income tax benefit of $2 million for the three months ended October 4, 2019 included approximately $11 million of net discrete tax benefit of which $8 million was associated with net excess tax benefits related to share-based compensation expense.

The Company’s income tax provision recorded for the three months ended October 4, 2019 differed from the provision for income taxes that would be derived by applying the Irish statutory rate of 25% to income before income taxes, primarily due to the net effect of tax benefits related to (i) non-Irish earnings generated in jurisdictions that are subject to tax incentive programs and are considered indefinitely reinvested outside of Ireland and (ii) current year generation of research credits.

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During the three months ended October 4, 2019, the Company’s unrecognized tax benefits excluding interest and penalties increased by approximately $2 million to $85 million. The unrecognized tax benefits that, if recognized, would impact the effective tax rate were $85 million at October 4, 2019, subject to certain future valuation allowance reversals. During the twelve months beginning October 5, 2019, the Company expects that its unrecognized tax benefits could be reduced by an immaterial amount, as a result of expected cash payments to tax authorities.

The Company’s income tax provision of $18 million for the three months ended September 28, 2018 included approximately $1 million of net discrete tax expense.

The Company’s income tax provision recorded for the three months ended September 28, 2018 differed from the provision for income taxes that would be derived by applying the Irish statutory rate of 25% to income before income taxes, primarily due to the net effect of (i) tax benefits related to non-Irish earnings generated in jurisdictions that are subject to tax incentive programs and are considered indefinitely reinvested outside of Ireland and (ii) a decrease in valuation allowance for certain deferred tax assets.


5.	Leases

The Company is a lessee in several operating leases related to real estate facilities for warehouse and office space.

The Company’s lease arrangements comprise operating leases with various expiration dates through 2082. The lease term includes the non-cancelable period of the lease, adjusted for options to extend or terminate the lease when it is reasonably certain that an option will be exercised.

Operating lease costs include short-term lease costs and are shown net of immaterial sublease income. The components of lease costs and other information related to leases were as follows:



(Dollars in millions)	For the Three Months Ended October 4, 2019
Operating lease cost	$	6
Variable lease cost	1
Total lease cost	$	7

Operating cash outflows from operating leases	$	4

Weighted-average remaining lease term	12.8 years
Weighted-average discount rate	6.41		%

ROU assets and lease liabilities are included on the Company’s Condensed Consolidated Balance Sheet as follows:



(Dollars in millions)	Balance Sheet Location	October 4, 2019
ROU assets	Other assets, net	$	111
Current lease liabilities	Accrued expenses	$	15
Non-current lease liabilities	Other non-current liabilities	$	56

At October 4, 2019, future lease payments included in the measurement of lease liabilities were as follows (in millions):

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Fiscal Year	Amount
Remainder of 2020	$	11
2021	15
2022	14
2023	10
2024	5
Thereafter	104
Total lease payments	159
Less: imputed interest	(88		)
Present value of lease liabilities	$	71


6.	Restructuring and Exit Costs

For the three months ended October 4, 2019, and September 28, 2018, the Company recorded restructuring charges of approximately $17 million and $23 million, respectively, comprised primarily of charges related to workforce reduction costs and facilities and other exit costs. The Company’s significant restructuring plans are described below. All restructuring charges are reported in Restructuring and other, net on the Company’s Condensed Consolidated Statements of Operations.

December 2017 Plan - On December 8, 2017, the Company committed to a restructuring plan (the “December 2017 Plan”) to reduce its cost structure. The December 2017 Plan included reducing the Company’s global headcount by approximately 500 employees. The December 2017 Plan was substantially completed by the end of fiscal year 2018.

The following table summarizes the Company’s restructuring activities under all of the Company’s active restructuring plans for the three months ended October 4, 2019:



	December 2017 Plan				Other Plans
(Dollars in millions)	Workforce Reduction Costs		Facilities and Other Exit Costs		Workforce Reduction Costs			Facilities and Other Exit Costs			Total
Accrual balances at June 28, 2019	$	—	$	1	$	13		$	16		$	30
Lease adoption adjustment	—		—		—			(11		)	(11		)
Restructuring charges	—		—		17			—			17
Cash payments	—		—		(13		)	(1		)	(14		)
Adjustments	—		—		—			—			—
Accrual balances at October 4, 2019	$	—	$	1	$	17		$	4		$	22
Total costs incurred to date as of October 4, 2019	$	26	$	8	$	449		$	109		$	592
Total expected charges to be incurred as of October 4, 2019	$	—	$	—	$	1		$	—		$	1


7.	Derivative Financial Instruments

The Company is exposed to foreign currency exchange rate, interest rate, and to a lesser extent, equity market risks relating to its ongoing business operations. From time to time, the Company enters into cash flow hedges in the form of foreign currency forward exchange contracts. The objective of foreign currency forward exchange contracts is to manage the foreign currency exchange rate risk on forecasted expenses and investments denominated in foreign currencies.

In the September 2019 quarter, the Company entered into certain interest rate swap agreements with a notional amount of $500 million to convert the variable interest rate on its Term Loan to fixed interest rates. The contracts were effective as of October 4, 2019 and will mature on September 16, 2025. The objective of the interest rate swap agreements is to eliminate the variability of interest payment cash flows associated with variable interest rates. The Company designated the interest rate swaps as cash flow hedges.

The Company’s accounting policies for these instruments are based on whether the instruments are classified as designated or non-designated hedging instruments. The Company records all derivatives on its Condensed Consolidated Balance Sheets at fair value. The changes in the fair value of highly effective designated cash flow hedges are recorded in Accumulated

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other comprehensive loss until the hedged item is recognized in earnings. Derivatives that are not designated as hedging instruments or are not assessed to be highly effective are adjusted to fair value through earnings. The amount of net unrealized loss on cash flow hedges was not material as of October 4, 2019 and as of June 28, 2019.

The Company de-designates its cash flow hedges when the forecasted hedged transactions affect earnings or it is probable the forecasted hedged transactions will not occur in the initially identified time period. At such time, the associated gains and losses deferred in Accumulated other comprehensive loss on the Company’s Condensed Consolidated Balance Sheets are reclassified immediately into earnings and any subsequent changes in the fair value of such derivative instruments are immediately reflected in earnings. The Company did not recognize any material amounts related to the loss of hedge designation on discontinued cash flow hedges during the three months ended October 4, 2019 and September 28, 2018, respectively.

Other derivatives not designated as hedging instruments consist of foreign currency forward exchange contracts that the Company uses to hedge the foreign currency exposure on forecasted expenditures denominated in currency other than the U.S. dollar. The Company recognizes gains and losses on these contracts, as well as the related costs in Other, net on its Condensed Consolidated Statements of Operations. Deferred gains and deferred losses on derivatives are recognized in Other current assets and Accrued expenses, respectively, on the Condensed Consolidated Balance Sheets.

The following tables show the total notional value of the Company’s outstanding foreign currency forward exchange contracts and interest rate swaps as of October 4, 2019 and June 28, 2019. All of the foreign currency forward exchange contracts mature within 12 months.



	As of October 4, 2019
(Dollars in millions)	Contracts Designated as Hedges		Contracts Not Designated as Hedges
Singapore Dollar	$	58	$	46
Chinese Renminbi	30		30
British Pound Sterling	—		6
	$	88	$	82



	As of June 28, 2019
(Dollars in millions)	Contracts Designated as Hedges		Contracts Not Designated as Hedges
Singapore Dollar	$	60	$	40
Chinese Renminbi	79		20
British Pound Sterling	6		12
	$	145	$	72

The Company is subject to equity market risks due to changes in the fair value of the notional investments selected by its employees as part of its Non-qualified Deferred Compensation Plan—the Seagate Deferred Compensation Plan (the “SDCP”). In fiscal year 2014, the Company entered into a Total Return Swap (“TRS”) in order to manage the equity market risks associated with the SDCP liabilities. The Company pays a floating rate, based on LIBOR plus an interest rate spread, on the notional amount of the TRS. The TRS is designed to substantially offset changes in the SDCP liability due to changes in the value of the investment options made by employees. As of October 4, 2019, the notional investments underlying the TRS amounted to $117 million. The contract term of the TRS is through January 2020 and is settled on a monthly basis, therefore limiting counterparty performance risk. The Company does not designate the TRS as a hedge. Rather, the Company records all changes in the fair value of the TRS to earnings to offset the market value changes of the SDCP liabilities.

The following tables show the Company’s derivative instruments measured at gross fair value as reflected on its Condensed Consolidated Balance Sheets as of October 4, 2019 and June 28, 2019:

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	As of October 4, 2019
	Derivative Assets			Derivative Liabilities
(Dollars in millions)	Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value
Derivatives designated as hedging instruments:
Foreign currency forward exchange contracts	Other current assets	$	—	Accrued expenses	$	(2	)
Derivatives not designated as hedging instruments:
Foreign currency forward exchange contracts	Other current assets	—		Accrued expenses	(2		)
Total derivatives		$	—		$	(4	)



	As of June 28, 2019
	Derivative Assets			Derivative Liabilities
(Dollars in millions)	Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value
Derivatives designated as hedging instruments:
Foreign currency forward exchange contracts	Other current assets	$	—	Accrued expenses	$	—
Derivatives not designated as hedging instruments:
Foreign currency forward exchange contracts	Other current assets	1		Accrued expenses	(1		)
Total derivatives		$	1		$	(1	)

The following tables show the effect of the Company’s derivative instruments on its Condensed Consolidated Statements of Comprehensive Income and the Condensed Consolidated Statements of Operations for the three months ended October 4, 2019:

The amount of loss recognized in the Condensed Consolidated Statement of Comprehensive Income on derivatives designated as cash flow hedges was $1 million for the three months ended October 4, 2019. The amount of loss recognized in income related to the ineffective portion of the hedging relationships and to the amount excluded from the assessment of hedge ineffectiveness was not material for the three months ended October 4, 2019.

The following table shows the effect of the Company’s derivative instruments on its Condensed Consolidated Statement of Comprehensive Income and its Condensed Consolidated Statement of Operations for the three months ended September 28, 2018:



(Dollars in millions) Derivatives Designated as Hedging Instruments	Amount of Gain/(Loss) Recognized in OCI on Derivatives (Effective Portion)		Location of Gain/(Loss) Reclassified from Accumulated OCI into Income (Effective Portion)	Amount of Gain/(Loss) Reclassified from Accumulated OCI into Income (Effective Portion)		Location of Gain/(Loss) Recognized in Income on Derivatives (Ineffective Portion and Amount Excluded from Effectiveness Testing)	Amount of Gain/(Loss) Recognized in Income (Ineffective Portion and Amount Excluded from Effectiveness Testing)
Foreign currency forward exchange contracts	$	3	Other expense, net	$	1	Other expense, net	$	—

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8.	Fair Value

Measurement of Fair Value

Fair value is defined as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required to be recorded at fair value, the Company considers the principal or most advantageous market in which it would transact and it considers assumptions that market participants would use when pricing the asset or liability.

Fair Value Hierarchy

A fair value hierarchy is based on whether the market participant assumptions used in determining fair value are obtained from independent sources (observable inputs) or reflect the Company’s own assumptions of market participant valuation (unobservable inputs). A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The three levels of inputs that may be used to measure fair value are:

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

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

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

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

Items Measured at Fair Value on a Recurring Basis

The following tables present the Company’s assets and liabilities, by financial instrument type and balance sheet line item, that are measured at fair value on a recurring basis, excluding accrued interest components, as of October 4, 2019:



	Fair Value Measurements at Reporting Date Using
(Dollars in millions)	Quoted Prices in Active Markets for Identical Instruments (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total Balance
Assets:
Money market funds	$	470	$	—	$	—	$	470
Time deposits and certificates of deposit	—		350		—		350
Total cash equivalents	470		350		—		820
Restricted cash and investments:
Money market funds	1		—		—		1
Time deposits and certificates of deposit	—		1		—		1
Other debt securities	—		—		10		10
Total assets	$	471	$	351	$	10	$	832
Liabilities:
Derivative liabilities	$	—	$	4	$	—	$	4
Total liabilities	$	—	$	4	$	—	$	4

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	Fair Value Measurements at Reporting Date Using
(Dollars in millions)	Quoted Prices in Active Markets for Identical Instruments (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total Balance
Assets:
Cash and cash equivalents	$	470	$	350	$	—	$	820
Other current assets	1		1		—		2
Other assets, net	—		—		10		10
Total assets	$	471	$	351	$	10	$	832
Liabilities:
Accrued expenses	$	—	$	4	$	—	$	4
Total liabilities	$	—	$	4	$	—	$	4



	Fair Value Measurements at Reporting Date Using
(Dollars in millions)	Quoted Prices in Active Markets for Identical Instruments (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total Balance
Assets:
Money market funds	$	416	$	—	$	—	$	416
Time deposits and certificates of deposit	—		132		—		132
Total cash equivalents	416		132		—		548
Restricted cash and investments:
Money market funds	1		—		—		1
Time deposits and certificates of deposit	—		1		—		1
Other debt securities	—		—		7		7
Derivative assets	—		1		—		1
Total assets	$	417	$	134	$	7	$	558
Liabilities:
Derivative liabilities	$	—	$	1	$	—	$	1
Total liabilities	$	—	$	1	$	—	$	1

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	Fair Value Measurements at Reporting Date Using
(Dollars in millions)	Quoted Prices in Active Markets for Identical Instruments (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total Balance
Assets:
Cash and cash equivalents	$	416	$	132	$	—	$	548
Other current assets, net	1		2		—		3
Other current assets	—		—		7		7
Total assets	$	417	$	134	$	7	$	558
Liabilities:
Accrued expenses	$	—	$	1	$	—	$	1
Total liabilities	$	—	$	1	$	—	$	1

The Company classifies items in Level 1 if the financial assets consist of securities for which quoted prices are available in an active market.

The Company classifies items in Level 2 if the financial asset or liability is valued using observable inputs. The Company uses observable inputs including quoted prices in active markets for similar assets or liabilities. Level 2 assets include: agency bonds, corporate bonds, commercial paper, municipal bonds, U.S. Treasuries, time deposits and certificates of deposit. These debt investments are priced using observable inputs and valuation models which vary by asset class. The Company uses a pricing service to assist in determining the fair value of all of its cash equivalents and short-term investments. For the cash equivalents and short-term investments in the Company’s portfolio, multiple pricing sources are generally available. The pricing service uses inputs from multiple industry-standard data providers or other third-party sources and various methodologies, such as weighting and models, to determine the appropriate price at the measurement date. The Company corroborates the prices obtained from the pricing service against other independent sources and, as of October 4, 2019, has not found it necessary to make any adjustments to the prices obtained. The Company’s derivative financial instruments are also classified within Level 2. The Company’s derivative financial instruments consist of foreign currency forward exchange contracts, interest rate swaps and the TRS. The Company recognizes derivative financial instruments in its condensed consolidated financial statements at fair value. The Company determines the fair value of these instruments by considering the estimated amount it would pay or receive to terminate these agreements at the reporting date.

Items Measured at Fair Value on a Non-Recurring Basis

From time to time, the Company enters into certain strategic investments for the promotion of business and strategic objectives. These strategic investments primarily include cost basis investments representing those where the Company does have the ability to exercise significant influence but does not have control. These investments are included in Other assets, net on the Company’s Condensed Consolidated Balance Sheets, and are periodically analyzed to determine whether or not there are indicators of impairment.

As of October 4, 2019 and June 28, 2019, the carrying value of the Company’s strategic investments was $115 million and $114 million, respectively. For the three months ended October 4, 2019 and September 28, 2018, there were no upward or downward adjustments on equity investments.

As of June 28, 2019, the Company had $23 million of held for sale land and building (collectively, the “properties”) included in Other current assets on its Condensed Consolidated Balance Sheets. In July 2019, the Company completed the sale of the properties. As of October 4, 2019, the Company had no held for sale land and building.

Other Fair Value Disclosures

The Company’s debt is carried at amortized cost. The estimated fair value of the Company’s debt is derived using the closing price of the same debt instruments as of the date of valuation, which takes into account the yield curve, interest rates and other observable inputs. Accordingly, these fair value measurements are categorized as Level 2. The following table presents the fair value and amortized cost of the Company’s debt:

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	October 4, 2019					As of June 28, 2019
(Dollars in millions)	Carrying Amount			Estimated Fair Value		Carrying Amount			Estimated Fair Value
4.25% Senior Notes due March 2022	$	499		$	516	$	749		$	763
4.75% Senior Notes due June 2023	741			774		941			973
4.875% Senior Notes due March 2024	498			526		498			514
4.75% Senior Notes due January 2025	750			778		920			929
4.875% Senior Notes due June 2027	689			713		689			688
5.75% Senior Notes due December 2034	489			497		489			482
LIBOR based Term Loan due September 2025	500			484		—			—
	$	4,166		$	4,288	$	4,286		$	4,349
Less: debt issuance costs	(26		)	—		(33		)	—
Long-term debt, net of debt issuance costs	$	4,140		$	4,288	$	4,253		$	4,349


9.	Equity

Share Capital

The Company’s authorized share capital is $13,500 and consists of 1,250,000,000 ordinary shares, par value $0.00001, of which 262,624,650 shares were outstanding as of October 4, 2019, and 100,000,000 preferred shares, par value $0.00001, of which none were issued or outstanding as of October 4, 2019.

Ordinary shares—Holders of ordinary shares are entitled to receive dividends as and when declared by the board of directors (the “Board of Directors”). Upon any liquidation, dissolution, or winding up, after required payments are made to holders of preferred shares, any remaining assets will be distributed ratably to holders of the preferred and ordinary shares. Holders of shares are entitled to one vote per share on all matters upon which the ordinary shares are entitled to vote, including the election of directors.

Preferred shares—The Company may issue preferred shares in one or more series, up to the authorized amount, without shareholder approval. The Board of Directors is authorized to establish from time to time the number of shares to be included in each series, and to fix the rights, preferences and privileges of the shares of each wholly unissued series and any of its qualifications, limitations or restrictions. The Board of Directors can also increase or decrease the number of shares of a series, but not below the number of shares of that series then outstanding, without any further vote or action by the shareholders.

The Board of Directors may authorize the issuance of preferred shares with voting or conversion rights that could harm the voting power or other rights of the holders of the ordinary shares. The issuance of preferred shares, while providing flexibility in connection with possible acquisitions and other corporate purposes, could, among other things, have the effect of delaying, deferring or preventing a change in control of the Company and might harm the market price of its ordinary shares and the voting and other rights of the holders of ordinary shares.

Repurchases of Equity Securities

All repurchases are effected as redemptions in accordance with the Company’s Articles of Association.

As of October 4, 2019, $1.7 billion remained available for repurchase under the existing repurchase authorization limit.

The following table sets forth information with respect to repurchases of ordinary shares during the three months ended October 4, 2019:



(In millions)	Number of Shares Repurchased	Dollar Value of Shares Repurchased
Repurchases of ordinary shares	9	$	447
Tax withholding related to vesting of equity awards	1	37
Total	10	$	484

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10.	Revenue

The following table provides information about disaggregated revenue by sales channel and geographical region for the Company’s single reportable segment:



	For the Three Months Ended
(Dollars in millions)	October 4, 2019		September 28, 2018
Revenues by Channel
OEMs	$	1,820	$	2,138
Distributors	461		534
Retailers	297		319
Total	$	2,578	$	2,991
Revenues by Geography⁽¹⁾
Americas	$	835	$	1,006
EMEA	465		517
Asia Pacific	1,278		1,468
Total	$	2,578	$	2,991

__________________________________________

⁽¹⁾ Revenue is attributed to countries based on bill from locations.


11.	Guarantees

Indemnifications of Officers and Directors

Seagate Technology, an exempted company incorporated with limited liability under the laws of the Cayman Islands (“Seagate-Cayman”) and wholly-owned subsidiary of STX, from time to time enters into indemnification agreements with the directors, officers, employees and agents of STX or any of its subsidiaries (each, an “Indemnitee”). The indemnification agreements provide indemnification in addition to any of Indemnitee’s indemnification rights under any relevant Articles of Association (or similar constitutional document), applicable law or otherwise, and indemnifies an Indemnitee for certain expenses (including attorneys’ fees), judgments, fines and settlement amounts actually and reasonably incurred by him or her in any action or proceeding, including any action by or in the right of STX or any of its subsidiaries, arising out of his or her service as a director, officer, employee or agent of STX or any of its subsidiaries or of any other entity to which he or she provides services at the Company’s request. However, Indemnitees are not indemnified under the indemnification agreements for (i) any fraud or dishonesty in the performance of Indemnitee’s duty to STX or the applicable subsidiary or (ii) Indemnitee’s conscious, intentional or willful failure to act honestly, lawfully and in good faith with a view to the best interests of the Company. In addition, the indemnification agreements provide that Seagate-Cayman will advance expenses incurred by an Indemnitee in connection with enforcement of the indemnification agreement or with the investigation, settlement or appeal of any action or proceeding against him or her as to which he or she could be indemnified.

The nature of these indemnification obligations prevents the Company from making a reasonable estimate of the maximum potential amount it could be required to pay on behalf of its officers and directors. Historically, the Company has not made any significant indemnification payments under such agreements and no amount has been accrued in the Company’s condensed consolidated financial statements with respect to these indemnification obligations.

Intellectual Property Indemnification Obligations

The Company has entered into agreements with customers and suppliers that include limited intellectual property indemnification obligations that are customary in the industry. These guarantees generally require the Company to compensate the other party for certain damages and costs incurred as a result of third party intellectual property claims arising from these transactions. The nature of the intellectual property indemnification obligations prevents the Company from making a reasonable estimate of the maximum potential amount it could be required to pay to its customers and suppliers. Historically, the Company has not made any significant indemnification payments under such agreements and no amount has been accrued in the Company’s condensed consolidated financial statements with respect to these indemnification obligations.

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Product Warranty

The Company estimates probable product warranty costs at the time revenue is recognized. The Company generally warrants its products for a period of 1 to 5 years. The Company uses estimated repair or replacement costs and uses statistical modeling to estimate product return rates in order to determine its warranty obligation. Changes in the Company’s product warranty liability during the three months ended October 4, 2019 and September 28, 2018 were as follows:



	For the Three Months Ended
(Dollars in millions)	October 4, 2019			September 28, 2018
Balance, beginning of period	$	195		$	237
Warranties issued	24			34
Repairs and replacements	(23		)	(25		)
Changes in liability for pre-existing warranties, including expirations	(12		)	(14		)
Balance, end of period	$	184		$	232


12.	Earnings Per Share

Basic earnings per share is computed by dividing income available to shareholders by the weighted-average number of shares outstanding during the period. Diluted earnings per share is computed by dividing income available to shareholders by the weighted-average number of shares outstanding during the period and the number of additional shares that would have been outstanding if the potentially dilutive securities had been issued. Potentially dilutive securities include outstanding options, unvested restricted share units and performance-based share units and shares to be purchased under the Company’s Employee Stock Purchase Plan (“ESPP”). The dilutive effect of potentially dilutive securities is reflected in diluted earnings per share by application of the treasury stock method. Under the treasury stock method, an increase in fair market value of the Company’s share price can result in a greater dilutive effect from potentially dilutive securities. The following table sets forth the computation of basic and diluted net income per share attributable to the shareholders of the Company:



	For the Three Months Ended
(In millions, except per share data)	October 4, 2019		September 28, 2018
Numerator:
Net income	$	200	$	450
Number of shares used in per share calculations:
Total shares for purposes of calculating basic net income per share	266		287
Weighted-average effect of dilutive securities:
Employee equity award plans	4		5
Total shares for purpose of calculating diluted net income per share	270		292
Net income per share:
Basic	$	0.75	$	1.57
Diluted	$	0.74	$	1.54

The anti-dilutive shares related to employee equity award plans that were excluded from the computation of diluted net income per share were not material for the three months ended October 4, 2019 and September 28, 2018.


13.	Legal, Environmental and Other Contingencies

The Company assesses the probability of an unfavorable outcome of all its material litigation, claims, or assessments to determine whether a liability had been incurred and whether it is probable that one or more future events will occur confirming the fact of the loss. In the event that an unfavorable outcome is determined to be probable and the amount of the loss can be reasonably estimated, the Company establishes an accrual for the litigation, claim or assessment. In addition, in the event an unfavorable outcome is determined to be less than probable, but reasonably possible, the Company will disclose an estimate of the possible loss or range of such loss; however, when a reasonable estimate cannot be made, the Company will provide disclosure

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to that effect. Litigation is inherently uncertain and may result in adverse rulings or decisions. Additionally, the Company may enter into settlements or be subject to judgments that may, individually or in the aggregate, have a material adverse effect on its results of operations. Accordingly, actual results could differ materially.

Intellectual Property Litigation

Convolve, Inc. (“Convolve”) and Massachusetts Institute of Technology (“MIT”) v. Seagate Technology LLC, et al. On July 13, 2000, Convolve and MIT filed suit against Compaq Computer Corporation and Seagate Technology LLC in the U.S. District Court for the Southern District of New York, alleging infringement of U.S. Patent No. 4,916,635 (the “‘635 patent”) and U.S. Patent No. 5,638,267 (the “‘267 patent”), misappropriation of trade secrets, breach of contract, and other claims. On January 16, 2002, Convolve filed an amended complaint, alleging defendants were infringing U.S. Patent No. 6,314,473 (the “‘473 patent”). The district court ruled in 2010 that the ‘267 patent was out of the case.

On August 16, 2011, the district court granted in part and denied in part the Company’s motion for summary judgment. On July 1, 2013, the U.S. Court of Appeals for the Federal Circuit: 1) affirmed the district court’s summary judgment rulings that Seagate did not misappropriate any of the alleged trade secrets and that the asserted claims of the ‘635 patent are invalid; 2) reversed and vacated the district court’s summary judgment of non-infringement with respect to the ‘473 patent; and 3) remanded the case for further proceedings on the ‘473 patent. On July 11, 2014, the district court granted the Company’s further summary judgment motion regarding the ‘473 patent. On February 10, 2016, the U.S. Court of Appeals for the Federal Circuit: 1) affirmed the district court’s summary judgment of no direct infringement by Seagate because Seagate’s ATA/SCSI disk drives do not meet the “user interface” limitation of the asserted claims of the ‘473 patent; 2) affirmed the district court’s summary judgment of non-infringement by Compaq’s products as to claims 1, 3, and 5 of the ‘473 patent because Compaq’s F10 BIOS interface does not meet the “commands” limitation of those claims; 3) vacated the district court’s summary judgment of non-infringement by Compaq’s accused products as to claims 7-15 of the ‘473 patent; 4) reversed the district court’s summary judgment of non-infringement based on intervening rights; and 5) remanded the case to the district court for further proceedings on the ‘473 patent. In view of the rulings made by the district court and the Court of Appeals and the uncertainty regarding the amount of damages, if any, that could be awarded Convolve in this matter, the Company does not believe that it is currently possible to determine a reasonable estimate of the possible range of loss related to this matter.

Lambeth Magnetic Structures LLC v. Seagate Technology (US) Holdings, Inc., et al. On April 29, 2016, Lambeth Magnetic Structures LLC filed a complaint against Seagate Technology (US) Holdings, Inc. and Seagate Technology LLC in the U.S. District Court for the Western District of Pennsylvania, alleging infringement of U.S. Patent No. 7,128,988, “Magnetic Material Structures, Devices and Methods.” The Company believes the claims asserted in the complaint are without merit and intends to vigorously defend this case. The court issued its claim construction ruling on October 18, 2017. A jury trial in this matter is scheduled for June 1, 2020. While the possible range of loss for this matter remains uncertain, the Company estimates the amount of loss to be immaterial to the financial statements.

Environmental Matters

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

The Company has established environmental management systems and continually updates its environmental policies and standard operating procedures for its operations worldwide. The Company believes that its operations are in material compliance with applicable environmental laws, regulations and permits. The Company budgets for operating and capital costs on an ongoing basis to comply with environmental laws. If additional or more stringent requirements are imposed on the Company in the future, it could incur additional operating costs and capital expenditures.

Some environmental laws, such as the Comprehensive Environmental Response Compensation and Liability Act of 1980 (as amended, the “Superfund” law) and its state equivalents, can impose liability for the cost of cleanup of contaminated sites upon any of the current or former site owners or operators or upon parties who sent waste to these sites, regardless of whether the owner or operator owned the site at the time of the release of hazardous substances or the lawfulness of the original disposal activity. The Company has been identified as a responsible or potentially responsible party at several sites. At each of these sites, the Company has an assigned portion of the financial liability based on the type and amount of hazardous substances disposed of by each party at the site and the number of financially viable parties. The Company has fulfilled its responsibilities at some of these sites and remains involved in only a few at this time.

While the Company’s ultimate costs in connection with these sites is difficult to predict with complete accuracy, based on its current estimates of cleanup costs and its expected allocation of these costs, the Company does not expect costs in connection with these sites to be material.

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The Company may be subject to various state, federal and international laws and regulations governing the environment, including those restricting the presence of certain substances in electronic products. For example, the European Union (“EU”) enacted the Restriction of the Use of Certain Hazardous Substances in Electrical and Electronic Equipment (2011/65/EU), which prohibits the use of certain substances, including lead, in certain products, including disk drives and server storage products, put on the market after July 1, 2006. Similar legislation has been or may be enacted in other jurisdictions, including in the United States, Canada, Mexico, Taiwan, China, Japan and others. The EU REACH Directive (Registration, Evaluation, Authorization, and Restriction of Chemicals, EC 1907/2006) also restricts substances of very high concern in products. If the Company or its suppliers fails to comply with the substance restrictions, recycle requirements or other environmental requirements as they are enacted worldwide, it could have a materially adverse effect on the Company’s business.

Other Matters

The Company is involved in a number of other judicial, regulatory or administrative proceedings and investigations incidental to its business, and the Company may be involved in such proceedings and investigations arising in the normal course of its business in the future. Although occasional adverse decisions or settlements may occur, the Company believes that the final disposition of such matters will not have a material adverse effect on its financial position or results of operations.


14.	Subsequent Events

Dividend Declared

On October 28, 2019, the Company’s Board of Directors declared a quarterly cash dividend of $0.65 per share, which will be payable on January 8, 2020 to shareholders of record as of the close of business on December 26, 2019.

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ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following is a discussion of the financial condition, changes in financial condition, and results of operations for our fiscal quarters ended October 4, 2019, June 28, 2019 and September 28, 2018, referred to herein as the “September 2019 quarter,” the “June 2019 quarter,” and the “September 2018 quarter,” respectively. We operate and report financial results on a fiscal year of 52 or 53 weeks ending on the Friday closest to June 30. The September 2019 quarter was 14 weeks and the June 2019 quarter and September 2018 quarter were each 13 weeks.

You should read this discussion in conjunction with financial information and related notes included elsewhere in this report. Unless the context indicates otherwise, as used herein, the terms “we,” “us,” “Seagate,” the “Company” and “our” refer to Seagate Technology plc, an Irish public limited company, and its subsidiaries. References to “$” are to United States dollars.

This Quarterly Report on Form 10-Q contains 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, among other things, statements about our plans, strategies and prospects, market demand for our products, shifts in technology, estimates of industry growth, our ability to effectively manage our debt obligations and our cash liquidity position, our restructuring efforts, the sufficiency of our sources of cash to meet our cash needs for the next 12 months and our expectations regarding capital expenditures and projected cost savings for the fiscal year ending July 3, 2020. These statements identify prospective information and may include words such as “expects,” “intends,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “projects,” “may,” “will,”, “will continue,” “can,” “could,” or negative of these words, variations of these words and comparable terminology. These forward-looking statements are based on information available to the Company as of the date of this Quarterly Report on Form 10-Q 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 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:


•	addressing the many challenges facing the Company’s business;


•	the uncertainty in global economic and political conditions;


•	the development and introduction of products based on new technologies and expansion into new data storage markets, and market acceptance of new products;


•	the impact of competitive product announcements and unexpected advances in competing technologies or changes in market trends;


•	the impact of variable demand, changes in market demand, and an adverse pricing environment for storage products;


•	the Company’s ability to effectively manage its debt obligations and comply with certain covenants in its credit facilities with respect to financial ratios and financial condition tests and its ability to maintain a favorable cash liquidity position;


•	the Company’s ability to successfully qualify, manufacture and sell its storage products in increasing volumes on a cost-effective basis and with acceptable quality;


•	any price erosion or volatility of sales volumes through the Company’s distributor and retail channel;


•	disruptions to the Company’s supply chain or production capabilities;


•	currency fluctuations that may impact the Company’s margins, international sales and results of operations;


•	the impact of trade barriers, such as import/export duties and restrictions, tariffs and quotas, imposed by the U.S. or other countries in which the Company conducts business;


•	the evolving legal, regulatory and administrative climate in the international markets where the Company operates; and


•	cyber-attacks or other data breaches that disrupt the Company’s operations or result in the dissemination of proprietary or confidential information and cause reputational harm.

Information concerning these and other risks, uncertainties and factors, among others, that could cause results to differ materially from our expectations are described in this Quarterly Report on Form 10-Q and in “Item 1A. Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended June 28, 2019, which we encourage you to carefully read. These forward-looking statements should not be relied upon as representing our views as of any date subsequent to the date on which they were made and we undertake no obligation to update forward-looking statements except as required by law.

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

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•	Overview of the September 2019 quarter. Highlights of events in the September 2019 quarter that impacted our financial position.


•	Results of Operations. An analysis of our financial results comparing the September 2019 quarter to the September 2018 quarter and the June 2019 quarter.


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


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

For an overview of our business, see “Part I, Item 1. Financial Statements—Note 1. Basis of Presentation and Summary of Significant Accounting Policies—Organization”

Overview of the September 2019 quarter

During the September 2019 quarter, we shipped 98 exabytes of HDD storage capacity. We generated revenue of approximately $2.6 billion, gross margin of 26% and our operating cash flow was $456 million. We repurchased an aggregate principal amount of $620 million of certain outstanding senior notes in connection with the Tender Offers and borrowed $500 million under the Term Loan. We repurchased approximately 9 million of our ordinary shares for $450 million and paid $170 million in dividends. Additionally, we changed our estimate of the useful lives of our manufacturing equipment from a range of three to five years to a range of three to seven years. The effect of this change in estimate increased the September 2019 quarter net income by $23 million.

Results of Operations

We list in the tables below summarized information from our Condensed Consolidated Statements of Operations by dollars and as a percentage of revenue:



	For the Three Months Ended
(Dollars in millions)	October 4, 2019			June 28, 2019			September 28, 2018
Revenue	$	2,578		$	2,371		$	2,991
Cost of revenue	1,907			1,747			2,078
Gross margin	671			624			913
Product development	255			241			266
Marketing and administrative	122			108			115
Amortization of intangibles	4			6			6
Restructuring and other, net	17			(63		)	23
Income from operations	273			332			503
Other expense, net	(75		)	(41		)	(35		)
Income before income taxes	198			291			468
(Benefit) provision for income taxes	(2		)	(692		)	18
Net income	$	200		$	983		$	450

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	For the Three Months Ended
	October 4, 2019		June 28, 2019		September 28, 2018
Revenue	100	%	100	%	100	%
Cost of revenue	74		74		69
Gross margin	26		26		31
Product development	10		10		9
Marketing and administrative	5		5		4
Amortization of intangibles	—		—		—
Restructuring and other, net	—		(3	)	1
Income from operations	11		14		17
Other expense, net	(3	)	(2	)	(1	)
Income before income taxes	8		12		16
(Benefit) provision for income taxes	—		(29	)	1
Net income	8	%	41	%	15	%

Revenue

The following table summarizes information regarding consolidated revenues by channel and geography, HDD price per terabyte and HDD exabytes shipped:



	For the Three Months Ended
	October 4, 2019			June 28, 2019			September 28, 2018
Revenues by Channel (%)
OEMs	71		%	71		%	71		%
Distributors	18		%	17		%	18		%
Retailers	11		%	12		%	11		%
Revenues by Geography (%)
Americas	32		%	33		%	34		%
EMEA	18		%	17		%	17		%
Asia Pacific	50		%	50		%	49		%

HDD Price per Terabyte	$	24		$	26		$	28
HDD Exabytes Shipped	98			84			99

Revenue in the September 2019 quarter increased by $207 million from the June 2019 quarter primarily due to an increase in exabytes shipped and improved product mix, partially offset by price erosion.

Revenue in the September 2019 quarter decreased by $413 million from the September 2018 quarter primarily due to less favorable market conditions and price erosion.

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We maintain various sales incentive programs such as channel rebates and price masking. Sales incentive programs were approximately 13%, 11% and 11% of gross HDD revenue for the September 2019 quarter, June 2019 quarter and September 2018 quarter, respectively. Adjustments to revenues due to under or over accruals for sales incentive programs related to revenues reported in prior quarterly periods were less than 1% of quarterly gross revenue in all periods presented.

Cost of Revenue and Gross Margin



	For the Three Months Ended
(Dollars in millions)	October 4, 2019			June 28, 2019			September 28, 2018
Cost of revenue	$	1,907		$	1,747		$	2,078
Gross margin	671			624			913
Gross margin percentage	26		%	26		%	31		%

Gross margin as a percentage of revenue for the September 2019 quarter remained relatively flat compared to the June 2019 quarter.

Compared to the September 2018 quarter, gross margin as a percentage of revenue for the September 2019 quarter decreased primarily driven by price erosion and factory under-utilization.

In the September 2019 quarter, total warranty cost was 0.5% of revenue and included a favorable change in estimates of prior warranty accruals of 0.4% of revenue due to improvements in return rates on newer generation products. Warranty cost related to new shipments was 0.9%, 0.9% and 1.2% of revenue for the September 2019 quarter, June 2019 quarter and September 2018 quarter, respectively.

Operating Expenses



	For the Three Months Ended
(Dollars in millions)	October 4, 2019		June 28, 2019			September 28, 2018
Product development	$	255	$	241		$	266
Marketing and administrative	122		108			115
Amortization of intangibles	4		6			6
Restructuring and other, net	17		(63		)	23
Operating expenses	$	398	$	292		$	410

Product development expense. Product development expense for the September 2019 quarter increased by $14 million compared to the June 2019 quarter due to a $14 million increase in compensation and other employee benefits resulting primarily from the additional fourteenth week in the September 2019 quarter.

Compared to the September 2018 quarter, Product development expense for the September 2019 quarter decreased by $11 million primarily due to a $10 million decrease in other general expenses as a result of timing of materials purchases and a $5 million decrease in variable compensation expense, partially offset by an increase in expense from the additional fourteenth week in the September 2019 quarter.

Marketing and administrative expense. Marketing and administrative expense for the September 2019 quarter increased by $14 million from the June 2019 quarter, primarily due to a $9 million increase in other general expenses as a result of increased outside services, a $2 million increase in variable compensation expense and a $2 million increase in compensation and other employee benefits mainly resulting from the additional fourteenth week in the September 2019 quarter.

Compared to the September 2018 quarter, Marketing and administrative expense for the September 2019 quarter increased by $7 million, primarily due to a $4 million increase in share-based compensation expense and a $4 million increase in other general expenses mainly as a result of increased outside services and increase in expense from the additional fourteenth week in the September 2019 quarter.

Amortization of intangibles. Amortization of intangibles for the September 2019 quarter decreased by $2 million from the June 2019 quarter and the September 2018 quarter due to certain intangible assets reaching the end of their useful lives.

Restructuring and other, net. Restructuring and other, net for the September 2019 quarter was comprised of charges primarily related to a new voluntary early exit program.

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Restructuring and other, net for the June 2019 quarter was comprised primarily of a gain from the sale of certain property.

Restructuring and other, net for the September 2018 quarter was comprised of charges primarily related to a voluntary early exit program.

Other Expense, Net



	For the Three Months Ended
(Dollars in millions)	October 4, 2019			June 28, 2019			September 28, 2018
Other expense, net	$	(75	)	$	(41	)	$	(35	)

Other expense, net. Other expense, net for the September 2019 quarter increased by $34 million from the June 2019 quarter, primarily due to a $30 million loss resulting from the repurchase of certain long-term debt and a $5 million decrease in interest income mainly resulting from the redemption of our investment in Toshiba Memory Holdings Corporation (“TMHC”) in the June 2019 quarter.

Compared to the September 2018 quarter, Other expense, net for the September 2019 quarter increased by $40 million primarily due to a $30 million loss resulting from the repurchase of certain long-term debt and an $11 million decrease in interest income mainly resulting from the redemption of our investment in TMHC in the June 2019 quarter.

Income Taxes



	For the Three Months Ended
(Dollars in millions)	October 4, 2019			June 28, 2019			September 28, 2018
(Benefit) provision for income taxes	$	(2	)	$	(692	)	$	18

Our income tax benefit of $2 million for the three months ended October 4, 2019 included approximately $11 million of net discrete tax benefit of which $8 million was associated with net excess tax benefits related to share-based compensation expense.

Our income tax provision recorded for the three months ended October 4, 2019 differed from the provision for income taxes that would be derived by applying the Irish statutory rate of 25% to income before income taxes, primarily due to the net effect of tax benefits related to (i) non-Irish earnings generated in jurisdictions that are subject to tax incentive programs and are considered indefinitely reinvested outside of Ireland and (ii) current year generation of research credits.

During the three months ended October 4, 2019, our unrecognized tax benefits excluding interest and penalties increased by approximately $2 million to $85 million. The unrecognized tax benefits that, if recognized, would impact the effective tax rate were $85 million at October 4, 2019, subject to certain future valuation allowance reversals. During the 12 months beginning October 5, 2019, we expect that our unrecognized tax benefits could be reduced by an immaterial amount, as a result of expected cash payments to tax authorities.

Our income tax provision of $18 million for the three months ended September 28, 2018 included approximately $1 million of net discrete tax expense.

Our income tax provision recorded for the three months ended September 28, 2018 differed from the provision from 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-Irish 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.

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 money market funds, time deposits and certificates of deposit. The principal objectives of our investment policy are the preservation of principal and maintenance of liquidity. We believe our cash equivalents and short-term investments are liquid and accessible. We operate in some countries that have restrictive regulations over the movement of cash and/or foreign exchange across their borders. However, we believe our sources of cash have been and will continue to be sufficient to meet our cash needs for 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 we do not believe the fair value of our short-term investments has significantly changed from the values reported as of October 4, 2019.

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Cash and Cash Equivalents



(Dollars in millions)	October 4, 2019		June 28, 2019		Change
Cash and cash equivalents	$	1,784	$	2,220	$	(436	)

Our cash and cash equivalents as of October 4, 2019 decreased by $436 million from June 28, 2019 primarily as a result of the repurchase of certain senior notes of $645 million for $620 million in aggregate principal amount, repurchases of our ordinary shares of $450 million, dividends to our shareholders of $170 million, and payments for capital expenditures of $147 million, partially offset by net proceeds of $498 million from borrowings under our Term Loan and net cash of $456 million provided by operating activities.

Cash Provided by Operating Activities

Cash provided by operating activities for the three months ended October 4, 2019 was $456 million and includes the effects of net income adjusted for non-cash items including depreciation, amortization, share-based compensation and:


•	an increase of $281 million in accounts payable, primarily due to timing of payments and an increase in materials purchases;


•	partially offset by an increase of $77 million in accounts receivable, primarily due to timing of collections and an increase in revenue;


•	an increase of $65 million in inventories, primarily due to an increase in material purchases; and


•	a decrease of $20 million in accrued employee compensation primarily due to cash paid to our employees as part of our discretionary spending plans.

Cash Used in Investing Activities

Cash used in investing activities for the three months ended October 4, 2019 was $151 million, primarily attributable to the payments for the purchase of property, equipment and leasehold improvements of $147 million.

Cash Used in Financing Activities

Cash used in financing activities of $765 million for the three months ended October 4, 2019 was primarily attributable to the following activities:


•	$645 million in payments for repurchase of certain long-term debt;


•	$450 million in payments for repurchase of our ordinary shares;


•	$170 million in dividend payments;


•	$37 million in payments for taxes related to net share settlement of equity awards;


•	partially offset by $498 million in net proceeds from the borrowing under the Term Loan; and


•	$39 million in proceeds from the issuance of ordinary shares under employee stock plans.

Liquidity Sources, Cash Requirements and Commitments

Our primary sources of liquidity as of October 4, 2019 consisted of: (1) approximately $1.8 billion in cash and cash equivalents, (2) cash we expect to generate from operations, and (3) $1.5 billion available for borrowing under our Revolving Credit Facility.

On September 17, 2019, we borrowed a principal amount of $500 million under the Term Loan and the proceeds were used to repurchase a portion of our outstanding senior notes. The Term Loan bears interest at a rate of LIBOR plus a variable margin determined based on our corporate credit rating. The Term Loan is repayable in quarterly installments of 1.25% of the original principal amount beginning on December 31, 2020, with the remaining balance payable upon maturity on September 16, 2025.

As of October 4, 2019, no borrowings had been drawn and no borrowings had been utilized for letters of credit or swing line loans issued under the Revolving Credit Facility. The Revolving Credit Facility is available for borrowings, subject to compliance with financial covenants and other customary conditions to borrowing.

The Credit Agreement includes three financial covenants: (1) interest coverage ratio, (2) total leverage ratio, and (3) a minimum liquidity amount. The term of the Revolving Credit Facility is through February 20, 2024, and the maturity date of the Term Loan is September 16, 2025. We were in compliance with the covenants as of October 4, 2019 and expect to be in compliance for the next 12 months.

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Our liquidity requirements are primarily to meet our working capital, product development and capital expenditure needs, to fund scheduled payments of principal and interest on our indebtedness, and to fund our quarterly dividend and any future strategic investments. 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.

For fiscal year 2020, we expect capital expenditures to remain within our long-term targeted range of 6% to 8% of revenue.

From time to time we may repurchase any of our outstanding notes in open market or privately negotiated purchases or otherwise, or we may repurchase outstanding notes pursuant to the terms of the applicable indenture.

Dividends declared in the September 2019 quarter of $165 million were subsequently paid on October 9, 2019. Our Board of Directors declared a quarterly cash dividend of $0.65 per share on October 28, 2019, which is payable on January 8, 2020 to shareholders of record at the close of business on December 26, 2019.

From time to time, we may repurchase any of our outstanding ordinary shares through tender offers, private, open market or broker-assisted purchases or other means. As of October 4, 2019, $1.7 billion remained available for repurchases under our existing repurchase authorization. All repurchases are effected as redemptions in accordance with our Articles of Association.

Critical Accounting Policies

Our discussion and analysis of financial condition and results of operations are based upon our condensed consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of such statements requires us to make estimates and assumptions that affect the reported amounts of revenues and expenses during the reporting period and the reported amounts of assets and liabilities as of the date of the financial statements. Our estimates are based on historical experience and other assumptions that we consider to be appropriate in the circumstances. However, actual future results may vary from our estimates.

Other than as described in “Part I, Item 1. Financial Statements—Note 1. Basis of Presentation and Summary of Significant Accounting Policies”, there have been no other material changes in our critical accounting policies and estimates. Refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contained in Part II, Item 7. of our Annual Report on Form 10-K for the fiscal year ended June 28, 2019, as filed with the SEC on August 2, 2019, for a discussion of our critical accounting policies and estimates.

Recent Accounting Pronouncements

See “Part I, Item 1. Financial Statements—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 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We have exposure to market risks due to the volatility of interest rates, foreign currency exchange rates, credit rating changes, and equity and bond markets. A portion of these risks may be hedged, but fluctuations could impact our results of operations, financial position and cash flows.

Interest Rate Risk. Our exposure to market risk for changes in interest rates relates primarily to our cash investment portfolio. As of October 4, 2019, we had no available-for-sale debt securities that had been in a continuous unrealized loss position for a period greater than 12 months. We determined no available-for-sale debt securities were other-than-temporarily impaired as of October 4, 2019.

In the September 2019 quarter, we entered into certain interest rate swap agreements with a notional amount of $500 million to convert the variable interest rate on the Term Loan to fixed interest rates. The contracts were effective as of October 4, 2019 and will mature on September 16, 2025. The objective of the interest rate swap agreements is to eliminate the variability of interest payment cash flows associated with variable interest rates. The Company designated the interest rate swaps as cash flow hedges.

We have fixed rate and variable rate debt obligations. We enter into debt obligations for general corporate purposes including capital expenditures and working capital needs. Our Term Loan bears interest at a variable rate equal to LIBOR plus a variable margin set on September 19, 2019.

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 October 4, 2019.



	Fiscal Years Ended
(Dollars in millions, except percentages)	2020			2021			2022			2023			2024			Thereafter			Total			Fair Value at October 4, 2019
Assets
Cash equivalents:	—
Floating rate	$	822		$	—		$	—		$	—		$	—		$	—		$	822		$	822
Average interest rate	2.23		%																2.23		%
Other debt securities
Fixed rate	$	—		$	6		$	—		$	—		$	—		$	4		$	10		$	10
Fixed interest rate				5.00		%													5.00		%
Debt
Fixed rate	$	—		$	—		$	500		$	741		$	500		$	1,930		$	3,671		$	3,804
Average interest rate							4.25		%	4.75		%	4.88		%	5.05		%	4.86		%
Variable rate	$	—		$	19		$	25		$	25		$	25		$	406		$	500		$	484
Average interest rate				3.68		%	3.68		%	3.68		%	3.68		%	3.68		%	3.68		%

Foreign Currency Exchange Risk. From time to time, we may enter into foreign currency forward exchange contracts to manage exposure related to certain foreign currency commitments and anticipated foreign currency denominated expenditures. Our policy prohibits us from entering into derivative financial instruments for speculative or trading purposes. At this time, we have not identified any material exposure associated with the potential changes related to the British vote to exit the European Union.

We hedge portions of our foreign currency denominated balance sheet positions with foreign currency forward exchange contracts to reduce the risk that our earnings will be adversely affected by changes in currency exchange rates. The change in fair value of these contracts is recognized in earnings in the same period as the gains and losses from the remeasurement of the assets and liabilities. All foreign currency forward exchange contracts discussed above mature within 12 months.

We did not have any material net gains or losses recognized in Cost of revenue, or Other, net for cash flow hedges due to hedge ineffectiveness or discontinued cash flow hedges during the three months ended October 4, 2019.

The table below provides information as of October 4, 2019 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.

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(Dollars in millions, except weighted-average contract rate)	Notional Amount		Weighted-Average Contract Rate		Estimated Fair Value⁽¹⁾
Foreign currency forward exchange contracts:
Singapore Dollar	$	104	$	1.37	$	(1	)
Chinese Renminbi	60		$	6.85	(2		)
British Pound Sterling	6		$	0.78	(1		)
Total	$	170			$	(4	)

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

Other Market Risks. We have exposure to counterparty credit downgrades in the form of credit risk related to our foreign currency forward exchange contracts and our fixed income portfolio. We monitor and limit our credit exposure for our foreign currency forward exchange contracts by performing ongoing credit evaluations. We also manage the notional amount of contracts entered into with any one counterparty, and we maintain limits on maximum tenor of contracts based on the credit rating of the financial institution. Additionally, the investment portfolio is diversified and structured to minimize credit risk.

Changes in our corporate issuer credit ratings have minimal impact on our near term financial results, but downgrades may negatively impact our future ability to raise capital, our ability to execute transactions with various counterparties and increase the cost of such capital.

We are subject to equity market risks due to changes in the fair value of the notional investments selected by our employees as part of our SDCP. In fiscal year 2014, we entered into a TRS in order to manage the equity market risks associated with the SDCP liabilities. We pay 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. See “Part I, Item 1. Financial Statements—Note 7. Derivative Financial Instruments” of this Quarterly Report on Form 10-Q.


ITEM 4.	CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

As required by the Exchange Act Rule 13a-15, we carried out an evaluation under the supervision and with the participation of our management, including our chief executive officer and chief financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report. Based on the evaluation, our management, including our chief executive officer and chief financial officer, concluded that our disclosure controls and procedures are effective as of October 4, 2019.

Changes in Internal Control over Financial Reporting

During the quarter ended October 4, 2019, there were no changes in our internal control over financial reporting that materially affected, or were reasonably likely to materially affect, our internal control over financial reporting.

PART II

OTHER INFORMATION


ITEM 1.	LEGAL PROCEEDINGS

For a discussion of legal proceedings, see “Part I, Item 1. Financial Statements—Note 13. Legal, Environmental and Other Contingencies” of this Quarterly Report on Form 10-Q.


ITEM 1A.	RISK FACTORS

There have been no material changes to the description of the risk factors associated with our business previously disclosed in “Risk Factors” in Part I, Item 1A. in our Annual Report on Form 10-K for the fiscal year ended June 28, 2019. In addition to the other information set forth in this report, you should carefully consider the risk factors discussed in our Annual Report on Form 10-K as they could materially affect our business, financial condition and future results.

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The Risk Factors are not the only risks facing us. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially and adversely affect our business, financial condition or operating results.


ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Repurchase of Equity Securities

All repurchases of our outstanding ordinary shares are effected as redemptions in accordance with STX’s Articles of Association.

As of October 4, 2019, $1.7 billion remained available for repurchases under the existing repurchase authorization. There is no expiration date on this authorization.

The following table sets forth information with respect to all repurchases of our shares made during the fiscal quarter ended October 4, 2019, including statutory tax withholdings related to vesting of employee equity awards (in millions, except average price paid per share):



Period	Total Number of Shares Repurchased⁽¹⁾⁽²⁾	Average Price Paid Per Share⁽¹⁾⁽²⁾		Total Number of Shares Repurchased as Part of Publicly Announced Plans or Programs⁽²⁾	Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs⁽¹⁾⁽²⁾

June 29, 2019 through July 26, 2019	—	$	47.30	—	$	2,190
July 27, 2019 through August 30, 2019	6	45.45		6	1,941
August 31, 2019 through October 4, 2019	4	54.34		4	1,708
Total	10			10

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⁽¹⁾ Repurchase of shares including tax withholdings.

⁽²⁾On October 29, 2018, the Board of Directors authorized the repurchase of an additional $2.3 billion of our outstanding ordinary shares, increasing the aggregate authority to $3.0 billion.


ITEM 3.	DEFAULTS UPON SENIOR SECURITIES

None.


ITEM 4.	MINE SAFETY DISCLOSURES

Not applicable.


ITEM 5.	OTHER INFORMATION

Not applicable.

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ITEM 6.	EXHIBITS



		Incorporated by Reference
Exhibit No.	Description of Exhibit	Form	File No.	Exhibit	Filing Date	Filed Herewith
3.1	Constitution of Seagate Technology public limited company as amended and restated by Special Resolution dated October 19, 2016.	8-K	001-31560	3.1	10/24/2016

3.2	Certificate of Incorporation of Seagate Technology plc.	10-K	001-31560	3.2	8/20/2010

10.1	First Amendment, dated as of May 28, 2019, to the Credit Agreement, dated as of February 20, 2019.					X

10.2	Second Amendment and Joinder Agreement, dated as of September 16, 2019, to the Credit Agreement, dated as of February 20, 2019.					X

31.1	Certification of the Chief Executive Officer pursuant to rules 13a-14(a) and 15d-14 (a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.					X

31.2	Certification of the Chief Financial Officer pursuant to rules 13a- 14(a) and 15d -14 (a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.					X

32.1†	Certification of the Chief Executive Officer and Chief Financial Officer pursuant to Rule 13a-14(b) and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act.					X

101.INS	Inline XBRL Instance Document.					X

101.SCH	Inline XBRL Taxonomy Extension Schema Document.					X

101.CAL	Inline XBRL Taxonomy Extension Calculation Linkbase Document.					X

101.LAB	Inline XBRL Taxonomy Extension Label Linkbase Document.					X

101.PRE	Inline XBRL Taxonomy Extension Presentation Linkbase Document.					X

101.DEF	Inline XBRL Taxonomy Extension Definition Linkbase.					X

104	Inline XBRL Cover page

† The certifications attached as Exhibit 32.1 that accompany this Quarterly Report on Form 10-Q are not deemed filed with the Securities and Exchange Commission and are not to be incorporated by reference into any filing of Seagate Technology plc under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date of this Form 10-Q, irrespective of any general incorporation language contained in such filing.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



		SEAGATE TECHNOLOGY PUBLIC LIMITED COMPANY

DATE:	November 1, 2019		BY:	/s/ Gianluca Romano
				Gianluca Romano
				Executive Vice President and Chief Financial Officer (Principal Financial and Accounting Officer)