10-Q 1 stx-20211001.htm 10-Q stx-20211001
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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 October 1, 2021
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 25, 2021, 222,635,945 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)
 October 1,
2021
July 2,
2021
(unaudited)
ASSETS  
Current assets:  
Cash and cash equivalents$991 $1,209 
Accounts receivable, net1,301 1,158 
Inventories1,188 1,204 
Other current assets188 208 
Total current assets3,668 3,779 
Property, equipment and leasehold improvements, net2,213 2,181 
Goodwill1,237 1,237 
Other intangible assets, net24 29 
Deferred income taxes1,128 1,117 
Other assets, net343 332 
Total Assets$8,613 $8,675 
LIABILITIES AND EQUITY  
Current liabilities:  
Accounts payable$1,766 $1,725 
Accrued employee compensation190 282 
Accrued warranty62 61 
Current portion of long-term debt245 245 
Accrued expenses626 608 
Total current liabilities2,889 2,921 
Long-term accrued warranty78 75 
Other non-current liabilities154 154 
Long-term debt, less current portion4,891 4,894 
Total Liabilities8,012 8,044 
Commitments and contingencies (See Notes 10 and 12)
Shareholders’ Equity:
Ordinary shares and additional paid-in capital7,044 6,977 
Accumulated other comprehensive loss(45)(41)
Accumulated deficit(6,398)(6,305)
Total Equity601 631 
Total Liabilities and Equity$8,613 $8,675 




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
 October 1,
2021
October 2,
2020
Revenue$3,115 $2,314 
 
Cost of revenue2,159 1,718 
Product development233 223 
Marketing and administrative133 118 
Amortization of intangibles3 3 
Restructuring and other, net1 1 
Total operating expenses2,529 2,063 
 
Income from operations586 251 
 
Interest income 1 
Interest expense(59)(50)
Other, net6 19 
Other expense, net(53)(30)
 
Income before income taxes533 221 
Provision (benefit) for income taxes7 (2)
Net income$526 $223 
 
Net income per share:
Basic$2.33 $0.87 
Diluted2.28 0.86 
Number of shares used in per share calculations:  
Basic226 257 
Diluted231 259 


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
 October 1,
2021
October 2,
2020
Net income$526 $223 
Other comprehensive (loss) income, net of tax:
Change in net unrealized (losses) gains on cash flow hedges:
Net unrealized (losses) gains arising during the period(9)4 
Losses (gains) reclassified into earnings3  
Net change(6)4 
Change in unrealized components of post-retirement plans:
Net unrealized gains arising during the period1  
Losses reclassified into earnings1 1 
Net change2 1 
Foreign currency translation adjustments 15 
Total other comprehensive (loss) income, net of tax(4)20 
Comprehensive income $522 $243 

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
 October 1,
2021
October 2,
2020
OPERATING ACTIVITIES  
Net income$526 $223 
Adjustments to reconcile net income to net cash provided by operating activities: 
Depreciation and amortization104 99 
Share-based compensation34 28 
Deferred income taxes(4)(18)
Other non-cash operating activities, net2 (8)
Changes in operating assets and liabilities: 
Accounts receivable, net(143)249 
Inventories16 (181)
Accounts payable28 (24)
Accrued employee compensation(92)(67)
Accrued expenses, income taxes and warranty11 (21)
Other assets and liabilities 14 17 
Net cash provided by operating activities496 297 
INVESTING ACTIVITIES  
Acquisition of property, equipment and leasehold improvements(117)(111)
Proceeds from sale of investments15 11 
Purchases of investments(18)(4)
Net cash used in investing activities(120)(104)
FINANCING ACTIVITIES 
Redemption and repurchase of debt(6)(13)
Dividends to shareholders(153)(167)
Repurchases of ordinary shares(425)(68)
Taxes paid related to net share settlement of equity awards(43)(31)
Proceeds from issuance of ordinary shares under employee stock plans33 29 
Other financing activities, net (1)
Net cash used in financing activities(594)(251)
Decrease in cash, cash equivalents and restricted cash(218)(58)
Cash, cash equivalents and restricted cash at the beginning of the period1,211 1,724 
Cash, cash equivalents and restricted cash at the end of the period$993 $1,666 

See Notes to Condensed Consolidated Financial Statements.
7


SEAGATE TECHNOLOGY HOLDINGS PLC
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY 
For the Three Months Ended October 1, 2021 and October 2, 2020
(In millions)
(Unaudited)
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 plans
3 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 compensation
34 34 
Balance at October 1, 2021225 $ $7,044 $(45)$(6,398)$601 
 Number of Ordinary SharesPar Value of SharesAdditional Paid-in CapitalAccumulated Other Comprehensive LossAccumulated DeficitTotal
Balance at July 3, 2020257 $ $6,757 $(66)$(4,904)$1,787 
Net income223 223 
Other comprehensive income20 20 
Issuance of ordinary shares under employee share plans3 29 29 
Repurchases of ordinary shares(1)(68)(68)
Tax withholding related to vesting of restricted share units(1)(31)(31)
Dividends to shareholders ($0.65 per ordinary share)
(167)(167)
Share-based compensation28 28 
Balance at October 2, 2020258 $ $6,814 $(46)$(4,947)$1,821 

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 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 of frequently accessed data.
The Company’s HDD products are designed for mass capacity storage and legacy markets. Mass capacity storage involves well-established use cases—such as hyperscale data centers and public clouds as well as emerging use cases. Legacy markets include markets the Company continues to service 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 system 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 legacy environments or build 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 that provides frictionless mass capacity storage at the metro edge, a converged object storage solution enabling efficient capture and consolidation of massive data sets and Cortx, an open-source object storage software optimized for mass capacity and data intensive workloads.
Basis of Presentation and Consolidation
The unaudited Condensed Consolidated Financial Statements of the Company 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 2, 2021 are included in its Annual Report on Form 10-K, as filed with the U.S. Securities and Exchange Commission (“SEC”) on August 6, 2021. 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 2, 2021, 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 October 1, 2021 are not necessarily indicative of the results to be expected for any subsequent interim period or for the Company’s fiscal year ending July 1, 2022.
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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 October 1, 2021 and October 2, 2020 consisted of 13 weeks. Fiscal year 2022, which ends on July 1, 2022, is comprised of 52 weeks and fiscal year 2021, which ended on July 2, 2021, was comprised of 52 weeks. The fiscal quarters ended October 1, 2021, July 2, 2021 and October 2, 2020, are also referred to herein as the “September 2021 quarter”, the “June 2021 quarter” and the “September 2020 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 2, 2021, as filed with the SEC on August 6, 2021.
Recently Adopted Accounting Pronouncements
In December 2019, the Financial Accounting Standards Board (“FASB”) issued ASU 2019-12 (ASC Topic 740), Simplifying the Accounting for Income Taxes. This ASU simplifies accounting for income taxes by removing certain exceptions to the general principles and amending existing guidance to improve consistent application. This ASU became effective and the Company adopted the guidance in the September 2021 quarter. The adoption of this ASU did not have an impact on the Company’s condensed consolidated financial statements.
In July 2021, the FASB issued ASU 2021-05 (ASC Topic 842), Lessors—Certain Leases with Variable Lease Payments. This ASU requires lessors to classify and account for a lease with variable lease payments that do not depend on a reference index or a rate as an operating lease if the lease would have been classified as a sales-type lease or a direct financing lease and the lessor would have otherwise recognized a day-one loss. The Company adopted the guidance in the September 2021 quarter on a prospective basis. The adoption of this ASU did not have an impact on the Company’s condensed consolidated financial statements.
Recently Issued Accounting Pronouncements
In March 2020, the 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. Adoption of the expedients and exceptions is permitted upon issuance of this update through December 31, 2022. 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 October 1, 2021 and July 2, 2021:
October 1,
2021
July 2,
2021
(Dollars in millions)Amortized CostUnrealized Gain/(Loss)Fair ValueAmortized CostUnrealized Gain/(Loss)Fair Value
Available-for-sale debt securities:      
Money market funds$423 $ $423 $552 $ $552 
Time deposits and certificates of deposit1  1 1  1 
Other debt securities36  36 18  18 
Total$460 $ $460 $571 $ $571 
Included in Cash and cash equivalents  $422   $551 
Included in Other current assets  2   2 
Included in Other assets, net36 18 
Total  $460   $571 
As of both October 1, 2021 and July 2, 2021, 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 1, 2021 and July 2, 2021, 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 October 1, 2021 and July 2, 2021.
The fair value and amortized cost of the Company’s investments classified as available-for-sale debt securities as of October 1, 2021, by remaining contractual maturity were as follows:
(Dollars in millions)Amortized CostFair Value
Due in less than 1 year$424 $424 
Due in 1 to 5 years28 28 
Due in 6 to 10 years  
Thereafter8 8 
Total$460 $460 
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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)October 1,
2021
July 2,
2021
October 2,
2020
July 3,
2020
Cash and cash equivalents$991 $1,209 $1,664 $1,722 
Restricted cash included in Other current assets2 2 2 2 
Total cash, cash equivalents and restricted cash shown in the Statements of Cash Flows$993 $1,211 $1,666 $1,724 
Inventories
The following table provides details of the inventory balance sheet item:
(Dollars in millions)October 1,
2021
July 2,
2021
Raw materials and components$424 $375 
Work-in-process459 443 
Finished goods305 386 
Total inventories$1,188 $1,204 
Property, Equipment and Leasehold Improvements, net
The components of property, equipment and leasehold improvements, net, were as follows:
(Dollars in millions)October 1,
2021
July 2,
2021
Property, equipment and leasehold improvements$10,469 $10,378 
Accumulated depreciation and amortization(8,256)(8,197)
Property, equipment and leasehold improvements, net$2,213 $2,181 
 
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Accrued Expenses
The following table provides details of the accrued expenses balance sheet item:
(Dollars in millions)October 1,
2021
July 2,
2021
Dividends payable$151 $153 
Other accrued expenses475 455 
Total$626 $608 
Accumulated Other Comprehensive Loss (“AOCL”)
The components of AOCL, net of tax, were as follows:
(Dollars in millions)Unrealized Gains/(Losses) on Cash Flow HedgesUnrealized Gains/(Losses) on Post-Retirement PlansForeign Currency Translation AdjustmentsTotal
Balance at July 2, 2021$(18)$(22)$(1)$(41)
Other comprehensive (loss) income before reclassifications (9)1  (8)
Amounts reclassified from AOCL3 1  4 
Other comprehensive loss(6)2  (4)
Balance at October 1, 2021$(24)$(20)$(1)$(45)
Balance at July 3, 2020$(24)$(26)$(16)$(66)
Other comprehensive income before reclassifications 4   4 
Amounts reclassified from AOCL 1 15 16 
Other comprehensive income4 1 15 20 
Balance at October 2, 2020$(20)$(25)$(1)$(46)

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3.Debt
The following table provides details of the Company’s debt as of October 1, 2021 and July 2, 2021:
(Dollars in millions)October 1,
2021
July 2,
2021
Unsecured Senior Notes(1)
$750 issued on February 3, 2017 at 4.25% due March 1, 2022 (the “2022 Notes”), interest payable semi-annually on March 1 and September 1 of each year.
$220 $220 
$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.
541 541 
$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.
462 461 
$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.
500 499 
$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 Loan
$500 borrowed on September 17, 2019 at London Interbank Offered Rate (“LIBOR”), (the “September 2019 Term Loan”), repayable in quarterly installments of 1.25% of the original principal amount beginning on December 31, 2020, with a final maturity date of September 16, 2025(2).
475 481 
5,169 5,173 
Less: unamortized debt issuance costs(33)(34)
Debt, net of debt issuance costs5,136 5,139 
Less: current portion of long-term debt(245)(245)
Long-term debt, less current portion$4,891 $4,894 
__________________________________
(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.
(2) The Term Loan was fully repaid on October 14, 2021. See Credit Agreement (including subsequent event) below for more information.

Unsecured Senior Notes
2022 Notes. During the three months ended October 2, 2020, $9 million aggregate principal amount of the 2022 Notes were repurchased for cash at a premium to their principal amount, plus accrued and unpaid interest.
2023 Notes. During the three months ended October 2, 2020, $5 million aggregate principal amount of the 2023 Notes were repurchased for cash at a premium to their principal amount, plus accrued and unpaid interest, of which $2 million remained unsettled as of October 2, 2020. The Company recorded a loss of $1 million, on repurchases during the three months ended October 2, 2020, which is included in Other, net in the Company’s Condensed Consolidated Statements of Operations.

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Credit Agreement (including subsequent event)
The Company’s subsidiary, Seagate HDD Cayman, entered into a credit agreement on February 20, 2019, which was amended on September 16, 2019, January 13, 2021, May 18, 2021 and October 14, 2021 (the “Credit Agreement”).

Prior to the October 14, 2021 amendment, the Credit Agreement provided a term loan facility in an aggregate principal amount of $500 million and a $1.725 billion senior unsecured revolving credit facility (“Revolving Credit Facility”). The September 2019 Term Loan has a final maturity date of September 16, 2025 and the Revolving Credit Facility has a final maturity of February 20, 2024. On September 17, 2019, Seagate HDD Cayman borrowed the $500 million principal amount under the September 2019 Term Loan. The Company repaid $6 million principal amount of the September 2019 Term Loan during the three months ended October 1, 2021 and had a remaining principal balance of $475 million as of October 1, 2021.

On October 14, 2021, STX and Seagate HDD Cayman entered into an amendment to the Credit Agreement (“Fifth Amendment”), which provides for a new term loan facility in the aggregate principal amount of $1.2 billion that was extended in two tranches of $600 million each (“Term Loan A1” and “Term Loan A2” and together the “Term Loans”). The proceeds of the Term Loan A1 and Term Loan A2 may be used for general corporate purposes, to refinance or repay the September 2019 Term Loan and to refinance or repay the 2022 Notes. Term Loan A1 and Term Loan A2 were each drawn in full on the closing date for the Fifth Amendment. Term Loan A1 will bear interest at a rate of LIBOR plus a variable margin ranging from 1.125% to 2.375% that will be determined based on the corporate credit rating of the Company. Term Loan A1 is repayable in quarterly installments beginning on December 31, 2022 and has a final maturity date of September 16, 2025. Term Loan A2 will bear interest at a rate of LIBOR plus a variable margin ranging from 1.25% to 2.5% that will be determined based on the corporate credit rating of the Company. Term Loan A2 is repayable in quarterly installments beginning on December 31, 2022 and has a final maturity date of July 30, 2027. On October 14, 2021, Seagate HDD Cayman utilized part of the proceeds of Term Loan A1 to fully repay the $475 million principal amount outstanding of the September 2019 Term Loan.

In addition, pursuant to the Fifth Amendment, the maturity date for the revolving loan commitments was extended until October 14, 2026, the revolving commitments were increased to $1.75 billion and the interest rate margins for the revolving loans were amended to LIBOR plus a variable margin ranging from 1.125% to 2.375% that will be determined based on the corporate credit rating of the Company.
STX and certain of its material subsidiaries, including STUC, fully and unconditionally guarantee both the Revolving Credit Facility and 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 October 1, 2021 and expects to be in compliance for the next 12 months. As of October 1, 2021, 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 October 1, 2021, future principal payments on long-term debt were as follows (in millions):
Fiscal YearAmount
Remainder of 2022$239 
2023566 
2024525 
2025504 
2026381 
Thereafter2,995 
Total$5,210 
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4.Income Taxes
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.
During the three months ended October 1, 2021, the Company’s unrecognized tax benefits excluding interest and penalties increased by approximately $4 million to $112 million, substantially all of which would impact the effective tax rate, if recognized, subject to certain future valuation allowance reversals. During the twelve months beginning October 2, 2021, the Company expects that its unrecognized tax benefits could be reduced by an immaterial amount, as a result of the expiration of certain statutes of limitation.
The Company’s income tax benefit of $2 million for the three months ended October 2, 2020 included approximately $10 million of net discrete tax benefit of which $4 million was associated with net excess tax benefits related to share-based compensation expense and $3 million was associated with the postponement of the previously enacted United Kingdom tax rate change in the quarter ended October 2, 2020.
The Company’s income tax provision recorded for the three months ended October 1, 2021 and October 2, 2020 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 $1 million for each of the three months ended October 1, 2021 and October 2, 2020. 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 2, 2021$2 $6 $8 
Restructuring charges1  1 
Cash payments(1)(1)(2)
Accrual balances at October 1, 2021
$2 $5 $7 
Total costs incurred inception to date as of October 1, 2021
$64 $23 $87 
Total expected charges to be incurred as of October 1, 2021
$ $7 $7 
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.
In the quarter ended October 4, 2019, 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 will mature on September 16, 2025. The notional amount of the interest rate swap agreements was $475 million as of October 1, 2021. On October 19, 2021, the Company entered into additional interest rate swap agreements with a notional amount of $600 million to convert the variable interest rate on certain principal amounts of the Term Loans drawn on October 14, 2021 in connection with the closing of the Fifth Amendment. The contracts will mature on July 15, 2027. 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 designated the interest rate swaps as cash flow hedges.

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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 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 $24 million and $18 million as of October 1, 2021 and as of July 2, 2021, respectively. As of October 1, 2021, the amount of existing net losses related to cash flow hedges recorded in Accumulated other comprehensive loss included $19 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 Accumulated other comprehensive loss 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 $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. 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 2, 2020.
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 recognizes gains and losses on these contracts, as well as the related costs in Other, net on its Condensed Consolidated Statements of Operations.
The following tables show the total notional value of the Company’s outstanding foreign currency forward exchange contracts as of October 1, 2021 and July 2, 2021. All of the foreign currency forward exchange contracts mature within 12 months.
 As of October 1, 2021
(Dollars in millions)Contracts Designated as HedgesContracts Not Designated as Hedges
Singapore Dollar$170 $48 
Thai Baht161 38 
Chinese Renminbi78 22 
British Pound Sterling63 19 
$472 $127 
 As of July 2, 2021
(Dollars in millions)Contracts Designated as HedgesContracts Not Designated as Hedges
Singapore Dollar$172 $43 
Thai Baht131 46 
Chinese Renminbi73 21 
British Pound Sterling54 16 
$430 $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 October 1, 2021, the notional investments underlying the TRS amounted to $126 million. The contract term of the TRS is through January 2022 and is settled on a monthly basis, therefore limiting counterparty performance risk. The Company did not designate the TRS as a hedge. Rather, the Company records all changes in the fair value of the TRS to earnings to offset the market value changes of the SDCP’s liabilities.
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The following tables show the Company’s derivative instruments measured at gross fair value as reflected in the Condensed Consolidated Balance Sheets as of October 1, 2021 and July 2, 2021:
As of October 1, 2021
 Derivative AssetsDerivative Liabilities
(Dollars in millions)Balance Sheet LocationFair ValueBalance Sheet LocationFair Value
Derivatives designated as hedging instruments:    
Foreign currency forward exchange contractsOther current assets$ Accrued expenses$(12)
Interest rate swapOther current assets Accrued expenses(12)
Derivatives not designated as hedging instruments:  
Foreign currency forward exchange contractsOther current assets1 Accrued expenses(4)
Total derivatives $1  $(28)
As of July 2, 2021
 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$1 Accrued expenses$(5)
Interest rate swapOther current assets Accrued expenses(14)
Derivatives not designated as hedging instruments:  
Foreign currency forward exchange contractsOther current assets1 Accrued expenses(2)
Total return swapOther current assets2 Accrued expenses 
Total derivatives $4  $(21)

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 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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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 2, 2020:
(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$6 
Total return swapOperating expenses$5 


(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$4 Other expense, net$2 Other expense, net$ 
Interest rate swap Other expense, net(2)Other expense, net 
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:
October 1, 2021July 2, 2021
 Fair Value Measurements at Reporting Date UsingFair 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 BalanceQuoted 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$422 $ $ $422 $551 $ $ $551 
Time deposits and certificates of deposit