10-Q 1 stx-20220930.htm 10-Q stx-20220930
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
____________________________ 
FORM 10-Q
___________________________ 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2022
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from:                to                
Commission File Number 001-31560
 _______________________________________
SEAGATE TECHNOLOGY HOLDINGS PUBLIC LIMITED COMPANY
(Exact name of registrant as specified in its charter)
 _______________________________________
Ireland 98-1597419
(State or other jurisdiction of(I.R.S. Employer
incorporation or organization) Identification Number)
38/39 Fitzwilliam Square
Dublin 2, Ireland
(Address of principal executive offices)
D02 NX53
(Zip Code)
 
Telephone: (353) (1) 234-3136
(Registrant’s telephone number, including area code)
_______________________________________ 
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Ordinary Shares, par value $0.00001 per shareSTXThe NASDAQ Global Select Market
_______________________________________ 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filerAccelerated 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 24, 2022, 206,454,363 of the registrant’s ordinary shares, par value $0.00001 per share, were issued and outstanding.




INDEX
SEAGATE TECHNOLOGY HOLDINGS PLC
   PAGE NO.
    
  
 
  
  
  
  
  
 
 
 
 
 
 
 
 
 
 
 
  

2

PART I
FINANCIAL INFORMATION

See Notes to Condensed Consolidated Financial Statements.
3


SEAGATE TECHNOLOGY HOLDINGS PLC
CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions)
 September 30,
2022
July 1,
2022
(unaudited)
ASSETS  
Current assets:  
Cash and cash equivalents$761 $615 
Accounts receivable, net1,098 1,532 
Inventories1,606 1,565 
Other current assets275 321 
Total current assets3,740 4,033 
Property, equipment and leasehold improvements, net2,196 2,239 
Goodwill1,237 1,237 
Other intangible assets, net5 9 
Deferred income taxes1,137 1,132 
Other assets, net296 294 
Total Assets$8,611 $8,944 
LIABILITIES AND (DEFICIT) EQUITY  
Current liabilities:  
Accounts payable$1,712 $2,058 
Accrued employee compensation106 252 
Accrued warranty66 65 
Current portion of long-term debt636 584 
Accrued expenses618 596 
Total current liabilities3,138 3,555 
Long-term accrued warranty83 83 
Other non-current liabilities128 135 
Long-term debt, less current portion5,613 5,062 
Total Liabilities8,962 8,835 
Commitments and contingencies (See Notes 10 and 12)
Shareholders’ (Deficit) Equity:
Ordinary shares and additional paid-in capital7,248 7,190 
Accumulated other comprehensive income73 36 
Accumulated deficit(7,672)(7,117)
Total Shareholders’ (Deficit) Equity(351)109 
Total Liabilities and Shareholders’ (Deficit) Equity$8,611 $8,944 




See Notes to Condensed Consolidated Financial Statements.
4


SEAGATE TECHNOLOGY HOLDINGS PLC
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions, except per share data)
(Unaudited)
 For the Three Months Ended
 September 30,
2022
October 1,
2021
Revenue$2,035 $3,115 
 
Cost of revenue1,553 2,159 
Product development234 233 
Marketing and administrative129 133 
Amortization of intangibles3 3 
Restructuring and other, net9 1 
Total operating expenses1,928 2,529 
 
Income from operations107 586 
 
Interest income1  
Interest expense(71)(59)
Other, net(10)6 
Other expense, net(80)(53)
 
Income before income taxes27 533 
(Benefit from) provision for income taxes(2)7 
Net income$29 $526 
 
Net income per share:
Basic$0.14 $2.33 
Diluted$0.14 $2.28 
Number of shares used in per share calculations:  
Basic208 226 
Diluted210 231 


See Notes to Condensed Consolidated Financial Statements.
5


SEAGATE TECHNOLOGY HOLDINGS PLC
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In millions)
(Unaudited)
 For the Three Months Ended
 September 30,
2022
October 1,
2021
Net income$29 $526 
Other comprehensive income (loss), net of tax:
Change in net unrealized gains (losses) on cash flow hedges:
Net unrealized gains (losses) arising during the period32 (9)
Losses reclassified into earnings5 3 
Net change37 (6)
Change in unrealized components of post-retirement plans:
Net unrealized gains arising during the period1 1 
Losses reclassified into earnings 1 
Net change1 2 
Foreign currency translation adjustments(1) 
Total other comprehensive income (loss), net of tax37 (4)
Comprehensive income $66 $522 

See Notes to Condensed Consolidated Financial Statements.
6


SEAGATE TECHNOLOGY HOLDINGS PLC
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
(Unaudited)
 For the Three Months Ended
 September 30,
2022
October 1,
2021
OPERATING ACTIVITIES  
Net income$29 $526 
Adjustments to reconcile net income to net cash provided by operating activities: 
Depreciation and amortization135 104 
Share-based compensation29 34 
Deferred income taxes(5)(4)
Other non-cash operating activities, net13 2 
Changes in operating assets and liabilities: 
Accounts receivable, net434 (143)
Inventories(41)16 
Accounts payable(300)28 
Accrued employee compensation(146)(92)
Accrued expenses, income taxes and warranty4 11 
Other assets and liabilities 93 14 
Net cash provided by operating activities245 496 
INVESTING ACTIVITIES  
Acquisition of property, equipment and leasehold improvements(133)(117)
Proceeds from the sale of assets1  
Purchases of investments(1)(18)
Proceeds from sale of investments 15 
Net cash used in investing activities(133)(120)
FINANCING ACTIVITIES 
Redemption and repurchase of debt (6)
Dividends to shareholders(147)(153)
Repurchases of ordinary shares(408)(425)
Taxes paid related to net share settlement of equity awards(39)(43)
Proceeds from issuance of long-term debt600  
Proceeds from issuance of ordinary shares under employee stock plans29 33 
Other financing activities, net(1) 
Net cash provided by (used in) financing activities34 (594)
Increase (decrease) in cash, cash equivalents and restricted cash146 (218)
Cash, cash equivalents and restricted cash at the beginning of the period617 1,211 
Cash, cash equivalents and restricted cash at the end of the period$763 $993 

See Notes to Condensed Consolidated Financial Statements.
7


SEAGATE TECHNOLOGY HOLDINGS PLC
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ (DEFICIT) EQUITY 
For the Three Months Ended September 30, 2022 and October 1, 2021
(In millions)
(Unaudited)
Number of Ordinary SharesPar Value of SharesAdditional Paid-in CapitalAccumulated Other Comprehensive IncomeAccumulated DeficitTotal
Balance at July 1, 2022210 $ $7,190 $36 $(7,117)$109 
Net income29 29 
Other comprehensive income37 37 
Issuance of ordinary shares under employee share plans2 29 29 
Repurchases of ordinary shares(5)(400)(400)
Tax withholding related to vesting of restricted share units(1)(39)(39)
Dividends to shareholders ($0.70 per ordinary share)
(145)(145)
Share-based compensation29 29 
Balance at September 30, 2022206 $ $7,248 $73 $(7,672)$(351)
 Number of Ordinary SharesPar Value of SharesAdditional Paid-in CapitalAccumulated Other Comprehensive LossAccumulated DeficitTotal
Balance at July 2, 2021227 $ $6,977 $(41)$(6,305)$631 
Net income526 526 
Other comprehensive loss(4)(4)
Issuance of ordinary shares under employee share plans3 33 33 
Repurchases of ordinary shares(5)(425)(425)
Tax withholding related to vesting of restricted share units (43)(43)
Dividends to shareholders ($0.67 per ordinary share)
(151)(151)
Share-based compensation34 34 
Balance at October 1, 2021225 $ $7,044 $(45)$(6,398)$601 

See Notes to Condensed Consolidated Financial Statements.
8


SEAGATE TECHNOLOGY HOLDINGS PLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1.Basis of Presentation and Summary of Significant Accounting Policies
Organization
Seagate Technology Holdings plc (“STX”) and its subsidiaries (collectively, unless the context otherwise indicates, the “Company”) is a leading provider of data storage technology and infrastructure solutions. Its principal products are hard disk drives, commonly referred to as disk drives, hard drives or HDDs. In addition to HDDs, the Company produces a broad range of data storage products including solid state drives (“SSDs”), solid state hybrid drives (“SSHDs”), storage subsystems, as well as a scalable edge-to-cloud mass data platform that includes data transfer shuttles and a storage-as-a-service cloud.
HDDs are devices that store digitally encoded data on rapidly rotating disks with magnetic surfaces. HDDs continue to be the primary medium of mass data storage due to their performance attributes, reliability, high capacities, superior quality and cost effectiveness. Complementing existing storage architectures, SSDs use integrated circuit assemblies as memory to store data, and most SSDs use NAND flash memory. In contrast to HDDs and SSDs, SSHDs combine the features of SSDs and HDDs in the same unit, containing a high-capacity HDD and a smaller SSD acting as a cache to improve performance.
The Company’s HDD products are designed for mass capacity storage and legacy markets. Mass capacity storage involves well-established use cases—such as hyperscale data centers and public clouds as well as emerging use cases. Legacy markets include markets the Company continues to sell to but that it does not plan to invest in significantly. The Company’s HDD and SSD product portfolio includes Serial Advanced Technology Attachment, Serial Attached SCSI and Non-Volatile Memory Express based designs to support a wide variety of mass capacity and legacy applications.
The Company’s systems portfolio includes storage subsystems for enterprises, cloud service providers, scale-out storage servers and original equipment manufacturers (“OEMs”). Engineered for modularity, mobility, capacity and performance, these solutions include the Company’s enterprise HDDs and SSDs, enabling customers to integrate powerful, scalable storage within existing environments or create new ecosystems from the ground up in a secure, cost-effective manner.
The Company’s Lyve portfolio provides a simple, cost-efficient and secure way to manage massive volumes of data across the distributed enterprise. The Lyve platform includes a shuttle solution that enables enterprises to transfer massive amounts of data from endpoints to the core cloud, a storage-as-a-service cloud offering that provides frictionless mass capacity storage at the metro edge.
Basis of Presentation and Consolidation
The unaudited Condensed Consolidated Financial Statements of the Company and the accompanying notes were prepared in accordance with United States (“U.S.”) Generally Accepted Accounting Principles (“GAAP”). The Company’s unaudited condensed consolidated financial statements include the accounts of the Company and all its wholly-owned and majority-owned subsidiaries, after elimination of intercompany transactions and balances.
The preparation of financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the Company’s condensed consolidated financial statements and accompanying notes. These estimates and assumptions include the impact of the COVID-19 pandemic. Actual results could differ materially from those estimates. The methods, estimates and judgments the Company uses in applying its most critical accounting policies have a significant impact on the results the Company reports in its condensed consolidated financial statements.
The Company’s consolidated financial statements for the fiscal year ended July 1, 2022 are included in its Annual Report on Form 10-K, as filed with the U.S. Securities and Exchange Commission (“SEC”) on August 5, 2022. The Company believes that the disclosures included in these unaudited condensed consolidated financial statements, when read in conjunction with its consolidated financial statements as of July 1, 2022, and the notes thereto, are adequate to make the information presented not misleading. The results of operations and the cash flows for the three months ended September 30, 2022 are not necessarily indicative of the results to be expected for any subsequent interim period or for the Company’s fiscal year ending June 30, 2023.
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Fiscal Year
The Company operates and reports financial results on a fiscal year of 52 or 53 weeks ending on the Friday closest to June 30. In fiscal years with 53 weeks, the first quarter consists of 14 weeks and the remaining quarters consist of 13 weeks each. The three months ended September 30, 2022 and October 1, 2021 consisted of 13 weeks. Fiscal years 2023 and 2022 both comprise of 52 weeks and end on June 30, 2023 and July 1, 2022, respectively. The fiscal quarters ended September 30, 2022, July 1, 2022 and October 1, 2021, are also referred to herein as the “September 2022 quarter”, the “June 2022 quarter” and the “September 2021 quarter”, respectively.
Summary of Significant Accounting Policies
There have been no material changes to the Company’s significant accounting policies disclosed in Note 1. Basis of Presentation and Summary of Significant Accounting Policies of “Financial Statements and Supplementary Data” contained in Part II, Item 8. of the Company’s Annual Report on Form 10-K for the fiscal year ended July 1, 2022, as filed with the SEC on August 5, 2022.
Recently Adopted Accounting Pronouncements
In March 2020, the Financial Accounting Standards Board (“FASB”) issued ASU 2020-04 (ASC Topic 848), Reference Rate Reform. This ASU provides optional expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships and other transactions affected by reference rate reform if certain criteria are met. The Company adopted the guidance in the quarter ended September 30, 2022 on a prospective basis and is transitioning from an interest rate based on London Interbank Offered Rate (“LIBOR”) to Secured Overnight Financing Rate (“SOFR”). The adoption of this ASU did not have a material impact on the Company’s condensed consolidated financial statements.
In November 2021, the FASB issued ASU 2021-10 (ASC Topic 832), Disclosures by Business Entities about Government Assistance. This ASU requires annual disclosures that increase the transparency of transactions involving government grants, including (1) the type of transactions, (2) the accounting for those transactions and (3) the effect of those transactions on an entity’s financial statements. The Company adopted the guidance in the quarter ended September 30, 2022.
Recently Issued Accounting Pronouncements
In September 2022, the FASB issued ASU 2022-04 (ASC Subtopic 405-50), Disclosure of Supplier Finance Program Obligations. This ASU requires disclosure of key terms of the outstanding supplier finance programs and a rollforward of the related obligations. The Company is required to adopt this guidance in the first quarter of fiscal year 2024. Early adoption is permitted. The Company is in the process of assessing the impact of this ASU on its condensed consolidated financial statements.
In June 2022, the FASB issued ASU 2022-03 (ASC Topic 820), Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions. This ASU clarifies that a contractual restriction on the sale of equity security is not considered when measuring its fair value and requires new disclosures for equity securities subject to contractual sale restriction. The Company is required to adopt this guidance in the first quarter of fiscal year 2025. The Company does not expect the adoption of this ASU to have a material impact on its condensed consolidated financial statements.
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2.Balance Sheet Information
Available-for-sale Debt Securities
The following table summarizes, by major type, the fair value and amortized cost of the Company’s available-for-sale debt investments as of September 30, 2022 and July 1, 2022:
September 30,
2022
July 1,
2022
(Dollars in millions)Amortized CostUnrealized Gain/(Loss)Fair ValueAmortized CostUnrealized Gain/(Loss)Fair Value
Available-for-sale debt securities:      
Money market funds$159 $ $159 $60 $ $60 
Time deposits and certificates of deposit1  1 1  1 
Other debt securities16  16 23  23 
Total$176 $ $176 $84 $ $84 
Included in Cash and cash equivalents  $158   $59 
Included in Other current assets  2   2 
Included in Other assets, net16 23 
Total  $176   $84 
As of September 30, 2022 and July 1, 2022, the Company’s Other current assets included $2 million in restricted cash equivalents held as collateral at banks for various performance obligations.
As of September 30, 2022 and July 1, 2022, the Company had no material available-for-sale debt securities that had been in a continuous unrealized loss position for a period greater than 12 months. The Company determined no impairment related to credit losses for available-for-sale debt securities as of September 30, 2022.
The fair value and amortized cost of the Company’s investments classified as available-for-sale debt securities as of September 30, 2022, by remaining contractual maturity were as follows:
(Dollars in millions)Amortized CostFair Value
Due in less than 1 year$160 $160 
Due in 1 to 5 years15 15 
Due in 6 to 10 years  
Thereafter1 1 
Total$176 $176 
Cash, Cash Equivalents and Restricted Cash
The following table provides a summary of cash, cash equivalents and restricted cash reported within the Company’s Condensed Consolidated Balance Sheets that reconciles to the corresponding amount in the Company’s Condensed Consolidated Statements of Cash Flows:
(Dollars in millions)September 30,
2022
July 1,
2022
October 1,
2021
July 2,
2021
Cash and cash equivalents$761 $615 $991 $1,209 
Restricted cash included in Other current assets2 2 2 2 
Total cash, cash equivalents and restricted cash shown in the Statements of Cash Flows$763 $617 $993 $1,211 


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Accounts receivable, net
In connection with an existing factoring agreement, from time to time the Company sells trade receivables to a third party for cash proceeds less a discount. During the three months ended September 30, 2022, the Company sold trade receivables without recourse for cash proceeds of $200 million. As of September 30, 2022, the total amount that remained subject to servicing by the Company was $237 million. The discounts on receivables sold were not material for the three months ended September 30, 2022. During the three months ended October 1, 2021, the Company did not sell any trade receivables to a third party.
Inventories
The following table provides details of the inventory balance sheet item:
(Dollars in millions)September 30,
2022
July 1,
2022
Raw materials and components$648 $601 
Work-in-process402 414 
Finished goods556 550 
Total inventories$1,606 $1,565 
Property, Equipment and Leasehold Improvements, net
The components of property, equipment and leasehold improvements, net, were as follows:
(Dollars in millions)September 30,
2022
July 1,
2022
Property, equipment and leasehold improvements$10,699 $10,659 
Accumulated depreciation and amortization(8,503)(8,420)
Property, equipment and leasehold improvements, net$2,196 $2,239 
Accrued Expenses
The following table provides details of the accrued expenses balance sheet item:
(Dollars in millions)September 30,
2022
July 1,
2022
Dividends payable$145 $147 
Other accrued expenses473 449 
Total$618 $596 











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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 HedgesUnrealized Gains/(Losses) on Post-Retirement PlansForeign Currency Translation AdjustmentsTotal
Balance at July 1, 2022$51 $(14)$(1)$36 
Other comprehensive income before reclassifications 32 1  33 
Amounts reclassified from AOCI5  (1)4 
Other comprehensive income37 1 (1)37 
Balance at September 30, 2022$88 $(13)$(2)$73 
Balance at July 2, 2021$(18)$(22)$(1)$(41)
Other comprehensive (loss) income before reclassifications (9)1  (8)
Amounts reclassified from AOCI3 1  4 
Other comprehensive loss(6)2  (4)
Balance at October 1, 2021$(24)$(20)$(1)$(45)
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3.Debt
The following table provides details of the Company’s debt as of September 30, 2022 and July 1, 2022:
(Dollars in millions)September 30,
2022
July 1,
2022
Unsecured Senior Notes(1)
$1,000 issued on May 22, 2013 at 4.75% due June 1, 2023 (the “2023 Notes”), interest payable semi-annually on June 1 and December 1 of each year.
$540 $540 
$500 issued on February 3, 2017 at 4.875% due March 1, 2024 (the “2024 Notes”), interest payable semi-annually on March 1 and September 1 of each year.
499 499 
$1,000 issued on May 28, 2014 at 4.75% due January 1, 2025 (the “2025 Notes”), interest payable semi-annually on January 1 and July 1 of each year.
479 479 
$700 issued on May 14, 2015 at 4.875% due June 1, 2027 (the “2027 Notes”), interest payable semi-annually on June 1 and December 1 of each year.
504 504 
$500 issued on June 18, 2020 at 4.091% due June 1, 2029 (the “June 2029 Notes”), interest payable semi-annually on June 1 and December 1 of each year.
468 466 
$500 issued on December 8, 2020 at 3.125% due July 15, 2029 (the “July 2029 Notes”), interest payable semi-annually on January 15 and July 15 of each year.
500 500 
$500 issued on June 10, 2020 at 4.125% due January 15, 2031 (the “January 2031 Notes”), interest payable semi-annually on January 15 and July 15 of each year.
500 500 
$500 issued on December 8, 2020 at 3.375% due July 15, 2031 (the “July 2031 Notes”), interest payable semi-annually on January 15 and July 15 of each year.
500 500 
$500 issued on December 2, 2014 at 5.75% due December 1, 2034 (the “2034 Notes”), interest payable semi-annually on June 1 and December 1 of each year.
489 489 
Term Loans
$600 borrowed on October 14, 2021 at SOFR plus a variable margin ranging from 1.125% to 2.375%, (the “Term Loan A1”), repayable in quarterly installments beginning on December 31, 2022, with a final maturity date of September 16, 2025.
600 600 
$600 borrowed on October 14, 2021 at SOFR plus a variable margin ranging from 1.25% to 2.5%, (the “Term Loan A2”), repayable in quarterly installments beginning on December 31, 2022, with a final maturity date of July 30, 2027.
600 600 
$600 borrowed on August 18, 2022 at SOFR plus a variable margin ranging from 1.25% to 2.5%, (theTerm Loan A3”), repayable in quarterly installments beginning on December 31, 2022, with a final maturity date of July 30, 2027.
600  
6,279 5,677 
Less: unamortized debt issuance costs(30)(31)
Debt, net of debt issuance costs6,249 5,646 
Less: current portion of long-term debt(636)(584)
Long-term debt, less current portion$5,613 $5,062 
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(1) All unsecured senior notes are issued by Seagate HDD Cayman, and the obligations under these notes are fully and unconditionally guaranteed, on a senior unsecured basis, by Seagate Technology Unlimited Company (“STUC”) and, pursuant to a supplemental indenture dated as of May 18, 2021, STX.
Credit Agreement
The Company’s subsidiary, Seagate HDD Cayman, has a credit agreement, which was most recently amended on August 18, 2022 (the “Credit Agreement”).
Prior to the August 18, 2022 amendment, the Credit Agreement provided a term loan facility in an aggregate principal amount of $1.2 billion that was extended in two tranches of $600 million each for Term Loans A1 and A2 and a $1.75 billion senior unsecured revolving credit facility (“Revolving Credit Facility”). Term Loans A1 and A2 were drawn in full on October 14, 2021.
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On August 18, 2022, Seagate Technology Holdings plc and Seagate HDD Cayman (the “Borrower”) entered into an amendment to the Credit Agreement (the “Sixth Amendment”), which provides for a new term loan facility in the aggregate principal amount of $600 million (“Term Loan A3”). Term Loan A3 was borrowed in full at the closing of the Sixth Amendment. Term Loan A3 bears interest at a rate of SOFR plus a variable margin of 1.25% to 2.5%, in each case with such margin being determined based on the corporate credit rating of the Borrower or one of its parent entities. Term Loan A3 is repayable in quarterly installments beginning on December 31, 2022 and is scheduled to mature on July 30, 2027.
The Sixth Amendment to the Credit Agreement also replaced the LIBOR interest rates plus variable margin for the Term Loans A1 and A2 with the SOFR interest rates plus a variable margin that will be determined based on the corporate credit rating of the Borrower or one of its parent entities. The Sixth Amendment also permits the Borrower to increase the revolving loan commitments or obtain new term loans of up to $100 million in aggregate, subject to the satisfaction of certain terms and conditions.
STX and certain of its material subsidiaries, including STUC, fully and unconditionally guarantee both the Revolving Credit Facility and the Term Loans A1, A2 and A3 (the “Term Loans”).
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 September 30, 2022. As of September 30, 2022, no borrowings (including swingline loans) were outstanding and no commitments were utilized for letters of credit issued under the Revolving Credit Facility.
Future Principal Payments on Long-term Debt
At September 30, 2022, future principal payments on long-term debt were as follows (in millions):
Fiscal YearAmount
Remainder of 2023$608 
2024614 
2025627 
2026629 
2027649 
Thereafter3,188 
Total$6,315 
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4.Income Taxes
The Company recorded an income tax benefit of $2 million for the three months ended September 30, 2022. The income tax benefit included approximately $7 million of net discrete tax benefit, primarily associated with the excess tax benefits related to share-based compensation expense.
During the three months ended September 30, 2022, the Company’s unrecognized tax benefits excluding interest and penalties increased by approximately $1 million to $115 million, substantially all of which would impact the effective tax rate, if recognized, subject to certain future valuation allowance reversals. The Company is not expecting material changes to its unrecognized tax benefits in the next twelve months beginning October 1, 2022.
The Company’s income tax provision of $7 million for the three months ended October 1, 2021 included approximately $10 million of net discrete tax benefit, primarily associated with net excess tax benefits related to share-based compensation expense.
The Company’s income tax provision recorded for the three months ended September 30, 2022 and October 1, 2021 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.
5.Restructuring and Exit Costs
The Company recorded restructuring charges of $9 million and $1 million, for the three months ended September 30, 2022 and October 1, 2021 respectively. The Company’s restructuring plans are comprised primarily of charges related to workforce reduction costs and facilities and other exit costs. All restructuring charges are reported in Restructuring and other, net on the Company’s Condensed Consolidated Statements of Operations.
The following tables summarize the Company’s restructuring activities under the Company’s active restructuring plans:
(Dollars in millions)Workforce Reduction CostsFacilities and Other Exit CostsTotal
Accrual balances at July 1, 2022
$ $5 $5 
Restructuring charges9  9 
Cash payments(3)(1)(4)
Accrual balances at September 30, 2022
$6 $4 $10 
Total costs incurred inception to date as of September 30, 2022
$72 $24 $96 
Total expected charges to be incurred as of September 30, 2022
$ $1 $1 
On October 24, 2022, the Company’s Board of Directors approved and committed to an October 2022 restructuring plan (the “October 2022 Plan”) to reduce its cost structure to better align the Company’s operational needs to current economic conditions while continuing to support the long-term business strategy. The October 2022 Plan includes reducing its worldwide headcount by approximately 3,000 employees, or 8% of the global workforce, along with other cost saving measures.
The October 2022 Plan, which the Company expects to be substantially completed by the end of the fiscal second quarter 2023, is expected to result in total pre-tax charges between $60 million and $70 million. These charges are expected to be primarily cash-based and consist of employee severance and other one-time termination benefits.
6.Derivative Financial Instruments
The Company is exposed to foreign currency exchange rate, interest rate and to a lesser extent, equity market risks relating to its ongoing business operations. From time to time, the Company enters into cash flow hedges in the form of foreign currency forward exchange contracts in order to manage the foreign currency exchange rate risk on forecasted expenses and investments denominated in foreign currencies.
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The Company enters into certain interest rate swap agreements to convert the variable interest rate on its Term Loans to fixed interest rates. The objective of the interest rate swap agreements is to eliminate the variability of interest payment cash flows associated with the variable interest rate under the Term Loans. The Company designates the interest rate swaps as cash flow hedges. On September 26, 2022, the Company terminated its then existing interest rate swap agreements related to Term Loans A1 and A2 and received cash proceeds of $110 million from the counterparty. The cash proceeds are reported within Net cash provided by operating activities in the Company’s Condensed Consolidated Statement of Cash Flows. The Company discontinued the related hedge accounting prospectively and as a result the realized gain of $110 million continues to be reported in AOCI and is amortized to Interest expense in the Condensed Consolidated Statement of Operations over the remaining period of the Term Loans A1 and A2.
During the quarter ended September 30, 2022, the Company entered into new interest rate swap agreements with a notional amount of $1.6 billion, to convert the variable interest rate on certain principal amounts of the Term Loans drawn under its Credit Agreement, of which $600 million will mature in September 2025 and $1.0 billion will mature in July 2027.
The Company’s accounting policies for these instruments are based on whether the instruments are classified as designated or non-designated hedging instruments. The Company records all derivatives on its Condensed Consolidated Balance Sheets at fair value. The changes in the fair value of highly effective designated cash flow hedges are recorded in AOCI until the hedged item is recognized in earnings. Derivatives that are not designated as hedging instruments or are not assessed to be highly effective are adjusted to fair value through earnings. The amount of net unrealized loss on cash flow hedges was $23 million and net unrealized gain was $51 million as of September 30, 2022 and as of July 1, 2022, respectively. As of September 30, 2022, the amount of existing net gains related to cash flow hedges recorded in AOCI included a net loss of $3 million that is expected to be reclassified to earnings within twelve months.
The Company de-designates its cash flow hedges when the forecasted hedged transactions affect earnings or it is probable the forecasted hedged transactions will not occur in the initially identified time period. At such time, the associated gains and losses deferred in AOCI on the Company’s Condensed Consolidated Balance Sheets are reclassified into earnings and any subsequent changes in the fair value of such derivative instruments are immediately reflected in earnings. The Company recognized a net loss of $7 million and gain of $2 million in Cost of revenue and Interest expense, respectively, related to the gain and loss of hedge designation on discontinued cash flow hedges during the three months ended September 30, 2022. The Company recognized a net loss of $2 million and $1 million in Cost of revenue and Interest expense, respectively, related to the loss of hedge designation on discontinued cash flow hedges during the three months ended October 1, 2021.
Other derivatives not designated as hedging instruments consist of foreign currency forward exchange contracts that the Company uses to hedge the foreign currency exposure on forecasted expenditures denominated in currencies other than the U.S. dollar. The Company also enters into foreign currency forward contracts with contractual maturities of less than one month, which are designed to mitigate the effect of changes in foreign exchange rates on monetary assets and liabilities. The Company recognizes gains and losses on these contracts, as well as the related costs in Other, net on its Condensed Consolidated Statements of Operations.
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The following tables show the total notional value of the Company’s outstanding foreign currency forward exchange contracts as of September 30, 2022 and July 1, 2022. All of the foreign currency forward exchange contracts mature within 12 months.
 As of September 30, 2022
(Dollars in millions)Contracts Designated as HedgesContracts Not Designated as Hedges
Singapore Dollar$171 $72 
Thai Baht132 47 
Chinese Renminbi89 30 
British Pound Sterling61 24 
Total$453 $173 
 As of July 1, 2022
(Dollars in millions)Contracts Designated as HedgesContracts Not Designated as Hedges
Singapore Dollar$178 $52 
Thai Baht133 35 
Chinese Renminbi92 24 
British Pound Sterling64 15 
Total$467 $126 
The Company is subject to equity market risks due to changes in the fair value of the notional investments selected by its employees as part of its non-qualified deferred compensation plan: the Seagate Deferred Compensation Plan (the “SDCP”). In fiscal year 2014, the Company entered into a Total Return Swap (“TRS”) in order to manage the equity market risks associated with the SDCP’s liabilities. The Company pays a floating rate, based on LIBOR plus an interest rate spread, on the notional amount of the TRS. The TRS is designed to substantially offset changes in the SDCP’s liabilities due to changes in the value of the investment options made by employees. As of September 30, 2022, the notional investments underlying the TRS amounted to $98 million and the contract term is through January 2023, settled on a monthly basis, limiting counterparty performance risk. The Company did not designate the TRS as a hedge. Rather, the Company records all changes in the fair value of the TRS to earnings to offset the market value changes of the SDCP’s liabilities.
The following tables show the Company’s derivative instruments measured at gross fair value as reflected in the Condensed Consolidated Balance Sheets as of September 30, 2022 and July 1, 2022:
As of September 30, 2022
 Derivative AssetsDerivative Liabilities
(Dollars in millions)Balance Sheet LocationFair ValueBalance Sheet LocationFair Value
Derivatives designated as hedging instruments:    
Foreign currency forward exchange contractsOther current assets$ Accrued expenses$(29)
Interest rate swapOther current assets9 Accrued expenses(3)
Derivatives not designated as hedging instruments:  
Foreign currency forward exchange contractsOther current assets Accrued expenses(11)
Total return swapOther current assets Accrued expenses(11)
Total derivatives $9  $(54)
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As of July 1, 2022
 Derivative AssetsDerivative Liabilities
(Dollars in millions)Balance Sheet LocationFair ValueBalance Sheet LocationFair Value
Derivatives designated as hedging instruments:    
Foreign currency forward exchange contractsOther current assets$ Accrued expenses$(14)
Interest rate swapOther current assets65 Accrued expenses 
Derivatives not designated as hedging instruments:  
Foreign currency forward exchange contractsOther current assets Accrued expenses(5)
Total return swapOther current assets Accrued expenses(4)
Total derivatives $65  $(23)
The following tables show the effect of the Company’s derivative instruments on the Condensed Consolidated Statements of Comprehensive Income and the Condensed Consolidated Statements of Operations for the three months ended September 30, 2022:
(Dollars in millions)
Derivatives Not Designated as Hedging Instruments
Location of Gain/(Loss) Recognized in Income on DerivativesAmount of Gain/(Loss) Recognized in Income on Derivatives
Foreign currency forward exchange contractsOther, net$(10)
Total return swapOperating expenses(8)

(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$(20)Cost of revenue$(7)Other, net$(1)
Interest rate swap52 Interest expense2 Interest expense 
The following table shows the effect of the Company’s derivative instruments on the Condensed Consolidated Statements of Comprehensive Income and the Condensed Consolidated Statements of Operations for the three months ended October 1, 2021:
(Dollars in millions)
Derivatives Not Designated as Hedging Instruments
Location of Gain/(Loss) Recognized in Income on DerivativesAmount of Gain/(Loss) Recognized in Income on Derivatives
Foreign currency forward exchange contractsOther, net$(4)
Total return swapOperating expenses(1)

(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$(9)Cost of revenue$(2)Other, net$1 
Interest rate swap Interest expense(1)Interest expense 
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7.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.
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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:
September 30, 2022July 1, 2022
 Fair Value Measurements at Reporting Date UsingFair Value Measurements at Reporting Date Using