Seagate Technology Holdings 10-Q 2023-03-31

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 March 31, 2023

☐ 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)

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:

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.

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 April 24, 2023, 207,082,374 of the registrant’s ordinary shares, par value $0.00001 per share, were issued and outstanding.

INDEX

SEAGATE TECHNOLOGY HOLDINGS PLC

PART I

FINANCIAL INFORMATION

See Notes to Condensed Consolidated Financial Statements.

SEAGATE TECHNOLOGY HOLDINGS PLC

CONDENSED CONSOLIDATED BALANCE SHEETS

(In millions)

See Notes to Condensed Consolidated Financial Statements.

SEAGATE TECHNOLOGY HOLDINGS PLC

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In millions, except per share data)

(Unaudited)

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The following is a discussion of the financial condition, changes in financial condition and results of operations for our fiscal quarters ended March 31, 2023, December 30, 2022 and April 1, 2022, referred to herein as the “March 2023 quarter,” the “December 2022 quarter,” and the “March 2022 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 March 2023 quarter, the December 2022 quarter and the March 2022 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 collectively to Seagate Technology Holdings plc, an Irish public limited company, and its subsidiaries. References to “$” or “dollars” are to United States dollars.

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements provide current expectations of future events based on certain assumptions and include any statement that does not directly relate to historical fact. These statements may include, among other things, statements about our plans, strategies and prospects; beliefs and assumptions of our management; anticipated market demand for our products; shifts in technology; estimates of industry growth; anticipated economic conditions worldwide; statements regarding our settlement with BIS; expectations regarding our ability to effectively manage our cash liquidity position and debt obligations, and comply with the covenants in our credit facilities; projections regarding our cost savings and restructuring efforts; the sufficiency of our sources of cash to meet cash needs for the next 12 months; and our expectations regarding capital expenditures. Forward-looking statements generally can be identified by 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. However, the absence of these words or similar expressions does not mean that a statement is not forward-looking. 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 subject to known and unknown risks and uncertainties that could cause actual results, performance or events to differ materially from historical experience and our present expectations or projections. Therefore, undue reliance should not be placed on forward-looking statements. These risks and uncertainties include, but are not limited to, those set forth in “Part II, Item 1A. Risk Factors” in this Quarterly Report on Form 10-Q. We undertake no obligation to update forward-looking statements.

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:

*•*Overview of the March 2023 quarter. Highlights of events in the March 2023 quarter that impacted our financial position.

*•*Results of Operations. Analysis of our financial results comparing the March 2023 quarter to the December 2022 quarter and the March 2022 quarter.

• Liquidity and Capital Resources. An analysis of changes in our balance sheet and cash flows, and discussion of our financial condition including 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 March 2023 quarter

During the March 2023 quarter, we shipped 119 exabytes of HDD storage capacity. We generated revenue of approximately $1.9 billion with a gross margin of 17%. Our operating cash flow was $228 million and we paid $145 million in dividends. Additionally, we accrued a settlement penalty of $300 million related to BIS’ allegations regarding violations of the U.S. EAR, which were subsequently resolved by a settlement agreement in April 2023.

Recent Development, Economic Conditions and Challenges

During the March 2023 quarter, the data storage industry and our business continued to be impacted by macroeconomic headwinds and customer inventory adjustments, which led to a slowdown in demand for our products, particularly in the mass capacity markets. These reductions in demand have required us to reduce manufacturing production plans and recognize manufacturing underutilization charges. We expect these factors will continue to impact our business and results of operations over the near-term.

During the March 2023 quarter, in light of further deteriorating economic conditions, we committed to an expansion of the October 2022 Plan to further reduce the global headcount by approximately 480 employees to a total reduction of approximately 3,480 employees. This expanded plan includes aligning our business plan to near-term market conditions, along with other cost saving measures. The October 2022 Plan is expected to be substantially completed by the end of the fiscal year 2023. In connection to this expansion of the October 2022 Plan, we incurred additional employee termination costs and accelerated depreciation of certain capital equipment that would not be utilized as part of our operations.

We continue to actively monitor the effects and potential impacts of the macroeconomic conditions, pandemic and other factors on all aspects of our business, supply chain, liquidity and capital resources. We are also actively working on opportunities to further lower our cost structure, drive operational efficiencies through simplifying our product roadmaps and maintain supply chain discipline including adjusting our manufacturing production plans, annual capital expenditure plans and other meaningful cost savings measures in response to these business conditions. Subsequently on April 20, 2023, we committed to undertake the April 2023 restructuring plan to further reduce our cost in response to changes in macroeconomic and business conditions. The April 2023 Plan is expected to be substantially completed by the end of the fiscal year 2023, with estimated total pre-tax charges of approximately $150 million. These charges are expected to be primarily cash-based and consist of employee severance and other one-time termination benefits. For a further discussion of the uncertainties and business risks associated with the COVID-19 pandemic, see “Part II, Item 1A. Risk Factors” of this Quarterly Report on Form 10-Q.

Subsequent Regulatory Settlement

On April 18, 2023, our subsidiaries Seagate Technology LLC and Seagate Singapore International Headquarters Pte. Ltd entered into the Settlement Agreement with the BIS that resolves BIS’ allegations regarding our sales of hard disk drives to Huawei between August 17, 2020 and September 29, 2021. Under the terms of the Settlement Agreement, we agreed to pay $300 million to the BIS in quarterly installments of $15 million over the course of five years beginning October 31, 2023. We have also agreed to complete three audits of its compliance with the license requirements of Section 734.9 of the U.S. EAR, including one audit by an unaffiliated third-party consultant chosen by us with expertise in U.S. export control laws and two internal audits. The Settlement Agreement also includes a denial order that is suspended and will be waived five years after the date of the order issued under the Settlement Agreement, provided that we have made full and timely payments under the Settlement Agreement and timely completed the audit requirements. While we are in compliance with and upon successful compliance in full with the terms of the Settlement Agreement, BIS has agreed it will not initiate any further administrative proceedings against us in connection with any violation of the EAR arising out of the transactions detailed in the Settlement Agreement.

While we believed that we complied with all relevant export control laws at the time we made the hard disk drive sales at issue, we determined that engaging with BIS and settling this matter was in the best interest of Seagate, our customers and our shareholders. In determining to engage with BIS and resolve this matter through a settlement agreement, we considered a number of factors, including the risks and cost of protracted litigation involving the U.S. government, as well as the size of the potential penalty and our desire to focus on current business challenges and long-term business strategy. The Settlement Agreement includes a finding that we incorrectly interpreted the regulation at issue to require evaluation of only the last stage of our hard disk drive manufacturing process rather than the entire process. As part of this settlement, we have agreed not to contest BIS’ determination that the sales in question did not comply with the U.S. EAR. Refer to “Item 1. Financial Statements—Note 12. Legal, Environmental and Other Contingencies” for more details.

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:

Revenue

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

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

Revenue in the March 2023 quarter decreased by $27 million from the December 2022 quarter primarily due to price erosion, partially offset by an increase in mass capacity exabytes shipped and higher demand for our non-HDD products.

Revenue for the three and nine months ended March 31, 2023 decreased by $942 million and $3.3 billion from the three and nine months ended April 1, 2022, respectively, primarily due to a decrease in exabytes shipped as a result of lower market demand in mass capacity and legacy markets that were impacted by macroeconomic conditions and price erosion. Additionally, the decrease in revenue for the nine months ended March 31, 2023 compared to the nine months ended April 1, 2022 was impacted by pandemic-related headwinds.

We maintain various sales incentive programs such as channel and OEM rebates. Sales incentive programs were approximately 16% of gross revenue for the March 2023 quarter, 17% for the December 2022 quarter and 14% for the March 2022 quarter. 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

Gross margin for the March 2023 quarter increased compared to the December 2022 quarter primarily driven by $108 million of order cancellation fees incurred during the December 2022 quarter that did not recur, and lower accelerated depreciation expense for certain capital equipment, partially offset by price erosion.

Gross margin for the March 2023 quarter decreased compared to the March 2022 quarter primarily due to price erosion, less favorable product mix, $75 million of factory underutilization charges associated with lower production levels and accelerated depreciation expense for certain capital equipment.

Gross margin for the nine months ended March 31, 2023 decreased compared to the nine months ended April 1, 2022 primarily driven by $210 million factory underutilization charges associated with lower production levels and pandemic-related lockdown in one of our factories, $108 million of order cancellation fees, price erosion and accelerated depreciation expense for certain capital equipment.

In the March 2023 quarter, total warranty cost was 1.7% of revenue and included an unfavorable change in estimates of prior warranty accruals of 0.9% of revenue primarily due to changes to our estimated future product return rates. Warranty cost related to new shipments was 0.8%, 0.7% and 0.7% of revenue for the March 2023 quarter, December 2022 quarter and March 2022 quarter, respectively.

Operating Expenses

Product development expense. Product development expenses decreased by $9 million in the March 2023 quarter compared to the December 2022 quarter primarily due to a $7 million decrease in compensation and other employee benefits from the reduction in headcount as a result of our October 2022 restructuring plan and a $2 million decrease in materials expense.

Product development expenses decreased by $42 million in the March 2023 quarter compared to the March 2022 quarter primarily due to a $17 million decrease in variable compensation and related benefit expense, a $16 million decrease in compensation and other employee benefits from the reduction in headcount as a result of our October 2022 restructuring plan and a $6 million decrease in materials expense.

Product development expenses decreased by $69 million for the nine months ended March 31, 2023 compared to the nine months ended April 1, 2022 primarily due to a $57 million decrease in variable compensation and related benefit expense, a $19 million decrease in compensation and other employee benefits from the reduction in headcount as a result of our October 2022 restructuring plan, a $7 million decrease in materials expense and a $4 million decrease in equipment expense, partially offset by a $24 million increase in depreciation expense as a result of acceleration of depreciation for certain capital equipment.

Marketing and administrative expense. Marketing and administrative expenses decreased by $2 million in the March 2023 quarter compared to the December 2022 quarter primarily due to a $5 million decrease in compensation and other employee benefits primarily from the reduction in headcount as a result of our October 2022 restructuring plan and a $3 million decrease in outside services expense, partially offset by a $7 million recovery in December 2022 quarter of an accounts receivable previously written-off in prior year.

Marketing and administrative expenses decreased by $18 million in the March 2023 quarter compared to the March 2022 quarter primarily due to a $10 million decrease in variable compensation and related benefit expense, a $4 million decrease compensation and other employee benefits primarily from the reduction in headcount as a result of our October 2022 restructuring plan and a $3 million decrease in outside services expense.

Marketing and administrative expenses decreased by $33 million for the nine months ended March 31, 2023 compared to the nine months ended April 1, 2022 primarily due to a $34 million decrease in variable compensation and related benefit expense, a $7 million decrease in compensation and other employee benefits primarily from the reduction in headcount as a result of our October 2022 restructuring plan and a $7 million recovery of an accounts receivable previously written-off in the prior year, partially offset by a $5 million increase in travel expenses as a result of the easing of pandemic-related travel restrictions, a $3 million increase in outside services expense and a $2 million increase in advertising costs.

Amortization of intangibles. Amortization of intangibles for the three and nine months ended March 31, 2023 decreased by $3 million and $6 million, respectively, compared to the three and nine months ended April 1, 2022, due to certain intangible assets that reached the end of their useful lives.

BIS settlement penalty. BIS settlement penalty for the three and nine months ended March 31, 2023 was $300 million, related to BIS’ allegations of violations of the U.S. EAR, which were subsequently resolved by the Settlement Agreement in April 2023.

Restructuring and other, net. Restructuring and other, net for the three and nine months ended March 31, 2023 was $20 million and $110 million, respectively, which was primarily comprised of workforce reduction costs under our October 2022 Plan.

Other (Expense) Income, Net

Other (expense) income, net. Other expense, net increased by $207 million for the March 2023 quarter compared to the December 2022 quarter primarily due to a $204 million net gain recognized in December 2022 quarter from early redemption and extinguishment of $964 million of debt from the July 2029 Notes, January 2031 Notes and July 2031 Notes in exchange with issuance of the new December 2032 Notes of $750 million.

Other expense, net increased by $7 million for the March 2023 quarter compared to the March 2022 quarter primarily due to a $19 million increase in interest expense from the issuance of long-term debt partially offset by a net $10 million higher non-recurring gain from our strategic investments in the March 2022 quarter.

Other expense, net decreased by $154 million for the nine months ended March 31, 2023 compared to the nine months ended April 1, 2022 primarily due to a $204 million net gain recognized from early redemption and extinguishment of $964 million of debt from the July 2029 Notes, January 2031 Notes and July 2031 Notes in exchange with issuance of the new December 2032 Notes of $750 million, partially offset by a $45 million increase in interest expense.

Income Taxes

We recorded income tax provisions of $33 million and $26 million for the three and nine months ended March 31, 2023, respectively. The discrete items in the income tax provision were not material for the three and nine months ended March 31, 2023.

On August 16, 2022, the Inflation Reduction Act of 2022 (the “IRA”) was enacted into U.S. law. The legislation includes a new corporate alternative minimum tax (the “CAMT”) of 15% on the adjusted financial statement income (“AFSI”) of corporations with average AFSI exceeding $1.0 billion over a three-year period. The CAMT is effective for us beginning in fiscal year 2024. We assessed the potential impact of the CAMT and do not expect to have a material impact to our financial statements or results of operations.

During the nine months ended March 31, 2023, our 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. We do not expect material changes to our unrecognized tax benefits in the next twelve months beginning April 1, 2023.

We recorded income tax provisions of $5 million and $25 million for the three and nine months ended April 1, 2022, respectively. The income tax provision for the three months ended April 1, 2022 included approximately $6 million of net discrete tax benefit, primarily associated with a change in the applicable tax rate within our non-U.S. operations. The income tax provision for the nine months ended April 1, 2022 included approximately $15 million of net discrete tax benefit, primarily associated with net excess tax benefits related to share-based compensation expense.

Our income tax provision recorded for the three and nine months ended March 31, 2023 and April 1, 2022 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.

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. The principal objectives of our investment policy are the preservation of principal and maintenance of liquidity. We believe our cash equivalents 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 will continue to be sufficient to fund our operations and meet our cash requirements for the next 12 months. Although there can be no assurance, we believe that our financial resources, along with controlling our costs and capital expenditures, will allow us to manage the ongoing impacts of macroeconomic and pandemic-related headwinds including higher inflationary pressures, inventory adjustments by our customers and the overall market demand disruptions on our business operations for the foreseeable future. However, some challenges to our industry and to our business continue to remain uncertain and cannot be predicted at this time. Consequently, we will continue to evaluate our financial position in light of future developments, particularly those relating to the global economic factors and the pandemic.

We are not aware of any downgrades, losses or other significant deterioration in the fair value of our cash equivalents from the values reported as of March 31, 2023.

Cash and Cash Equivalents

Our cash and cash equivalents as of March 31, 2023 increased by $151 million from July 1, 2022 primarily as a result of net cash of $724 million provided by operating activities and net proceeds of $600 million from the issuance of long-term debt partially offset by the dividends paid to our shareholders of $437 million, repurchases of our ordinary shares of $408 million, payments for capital expenditures of $266 million and $71 million redemption and repurchases of long-term debt.

Cash Provided by Operating Activities

Cash provided by operating activities for the nine months ended March 31, 2023 was $724 million and includes the effects of net loss adjusted for non-cash items including depreciation, amortization, share-based compensation and:

*•*a decrease of $538 million in accounts receivable, primarily due to lower revenue and timing of collections;

• a decrease of $365 million in inventories, primarily due to a decrease in units built to align with the prevailing demand environment;

• an increase of $110 million cash proceeds received from the settlement of certain interest rate swap agreements; partially offset by

• a decrease of $327 million in accounts payable, primarily due to a decrease in materials purchased; and

*•*a decrease of $168 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 nine months ended March 31, 2023 was $252 million, primarily attributable to payments for the purchase of property, equipment and leasehold improvements.

Cash Used in Financing Activities

Net cash used in financing activities of $321 million for the nine months ended March 31, 2023 was primarily attributable to the following activities:

• $437 million in dividend payments;

• $408 million in payments for repurchases of our ordinary shares; and

• $71 million redemption and repurchases of long-term debt; partially offset by

• $600 million in net proceeds from the issuance of Term Loan A3.

Liquidity Sources

Our primary sources of liquidity as of March 31, 2023 consist of: (1) approximately $766 million in cash and cash equivalents, (2) cash we expect to generate from operations and (3) $1.75 billion available for borrowing under our Revolving Credit Facility, which is part of the Credit Agreement.

As of March 31, 2023, no borrowings (including swing line loans) were outstanding and no commitments were utilized for letters of credit 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 October 14, 2026. As of March 31, 2023, we were in compliance with all of the covenants under our debt agreements. On November 8, 2022, we entered into the Seventh Amendment to our Credit Agreement to increase the maximum permitted total leverage ratio we must comply with during the covenant relief period which ends on June 28, 2024. We continue to evaluate our debt portfolio and structure to comply with our financial debt covenants.

We believe that our sources of cash will be sufficient to fund our operations and meet our cash requirements for at least the next 12 months. Our ability to fund liquidity requirements beyond 12 months 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 additional information on risks and factors that could impact our ability to fund our operations and meet our cash requirements, including the pandemic, among others, see “Part II, Item 1A. Risk Factors” of this Quarterly Report on Form 10-Q.

Cash Requirements and Commitments

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. As of March 31, 2023, our contractual cash requirements have not changed materially since our Annual Report on Form 10-K for the fiscal year ended July 1, 2022, except for the purchase obligations, long-term debt obligations, restructuring and BIS settlement penalty.

Purchase obligations

Purchase obligations are defined as contractual obligations for the purchase of goods or services, which are enforceable and legally binding on us, and that specify all significant terms. From time to time, we enter into long-term, non-cancelable purchase commitments or make large up-front investments with certain suppliers in order to secure certain components or technologies for the production of our products or to supplement our internal manufacturing capacity for certain components. As of March 31, 2023, we had unconditional purchase obligations of approximately $4.1 billion primarily related to purchases of inventory components with our suppliers. We expect $1.6 billion of these short-term commitments to be paid within one year and expect $2.5 billion of these long-term commitments to be paid thereafter.

During the nine months ended March 31, 2023, we recorded order cancellation fees of $108 million to terminate certain purchase commitments related to the purchase of inventory components and equipment, of which $68 million remained unpaid as of March 31, 2023. We expect these remaining amounts to be paid within one year.

Long-term debt and interest payments on debt

On August 18, 2022, we amended our credit agreement and borrowed a new Term Loan A3 in the aggregate principal amount of $600 million. 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 and is scheduled to mature on July 30, 2027.

On November 30, 2022, we completed an exchange offer in which $964 million principal amount in aggregate of the July 2029 Notes, January 2031 Notes and July 2031 Notes were exchanged for $750 million principal amount of 9.625% Senior Notes due on December 1, 2032. The exchange was accounted for as a debt extinguishment and resulted in a net gain of $204 million for the nine months ended March 31, 2023.

During the March 2023 quarter, $20 million principal amount of the January 2031 Notes, $5 million principal amount of the June 2029 Notes and $5 million principal amount of the July 2031 Notes were repurchased for cash at a discount to their principal amounts, plus accrued and unpaid interest. We recorded a gain of $3 million on these repurchases during the March

2023 quarter.

As of March 31, 2023, the future principal payment obligation on our long-term debt was $6.0 billion, of which $1.1 billion will mature within one year. As of March 31, 2023, future interest payments on this outstanding debt is estimated to be approximately $1.8 billion, of which $316 million is expected to be paid within one year. From time to time, we may repurchase any of our outstanding senior notes in open market or privately negotiated purchases or otherwise, or we may repurchase outstanding senior notes pursuant to the terms of the applicable indenture. Refer to “Item 1. Financial Statements—Note 3. Debt” for more details.

BIS settlement penalty

We accrued a settlement penalty of $300 million for the March 2023 quarter, related to BIS’ allegations of violations of the U.S. EAR, which were subsequently resolved by the Settlement Agreement in April 2023. As part of the Settlement Agreement with BIS, quarterly payments of $15 million will be made over the course of five years beginning October 31, 2023, of which $30 million is expected to be paid within one year and $270 million thereafter. Refer to “Item 1. Financial Statements—Note 12. Legal, Environmental and Other Contingencies” for more details.

Restructuring

On October 24, 2022, we committed to an October 2022 plan to reduce our cost structure to better align our operational needs to current economic conditions while continuing to support the long-term business strategy. On March 29, 2023, in light of further deteriorating economic conditions, we committed to an expansion of the October 2022 Plan to further reduce the global headcount by approximately 480 employees to a total reduction of approximately 3,480 employees. The expanded plan includes aligning our business plan to near-term market conditions, along with other cost saving measures. The October 2022 Plan is expected to be substantially completed by the end of the fiscal year 2023. During the nine months ended March 31, 2023, we recorded restructuring and other, net of $110 million, primarily related to the workforce reduction costs under the October 2022 plan, and made cash payments of $88 million for all active restructuring plans.

As of March 31, 2023, the future cash payments related to our remaining active restructuring plans were $38 million, of which $35 million is expected to be paid within one year.

Dividends

During the March 2023 quarter, our Board of Directors declared dividends of $0.70 per share, totaling $145 million, which was paid on April 6, 2023. On April 20, 2023, our Board of Directors declared a quarterly cash dividend of $0.70 per share, payable on July 5, 2023 to shareholders of record at the close of business on June 21, 2023. Our ability to pay dividends in the future will be subject to, among other things, general business conditions within the data storage industry, our financial results, the impact of paying dividends on our credit ratings and legal and contractual restrictions on the payment of dividends by our subsidiaries to us or by us to our ordinary shareholders, including restrictions imposed by covenants on our debt instruments.

Share repurchases

From time to time, at our discretion, we may repurchase any of our outstanding ordinary shares through private, open market, or broker-assisted purchases, tender offers, or other means, including through the use of derivative transactions. As of March 31, 2023, $1.9 billion remained available for repurchase under our existing repurchase authorization limit. We may limit or terminate the repurchase program at any time. All repurchases are effected as redemptions in accordance with our Constitution.

Other

For fiscal year 2023, we expect capital expenditures to be at the low-end of our long-term targeted range of 4% to 6% of revenue. We require substantial amounts of cash to fund any increased working capital requirements, future capital expenditures, scheduled payments of principal and interest on our indebtedness and payments of dividends. We will continue to evaluate and manage the retirement and replacement of existing debt and associated obligations, including evaluating the issuance of new debt securities, exchanging existing debt securities for other debt securities and retiring debt pursuant to privately negotiated transactions, open market purchases, tender offers or other means or otherwise. In addition, we may selectively pursue strategic alliances, acquisitions, joint ventures and investments, which may require additional capital.

Subsequent event

On April 20, 2023, we committed to the April 2023 restructuring plan to further reduce our cost structure in response to changes in macroeconomic and business conditions. The April 2023 Plan is intended to align our operational needs with the near-term demand environment while continuing to support the long-term business strategy. The April 2023 Plan is expected to be substantially completed by the end of the fiscal year 2023, with estimated total pre-tax charges of approximately $150 million. These charges are expected to be primarily cash-based and consist of employee severance and other one-time termination benefits.

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 “Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the fiscal year ended July 1, 2022, as filed with the SEC on August 5, 2022, 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.

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 March 31, 2023, 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 impairment related to credit losses for available-for-sale debt securities as of March 31, 2023.

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 Loans bear interest at a variable rate equal to SOFR plus a variable margin.

We have entered into certain interest rate swap agreements to convert the variable interest rate on the 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. We designated the interest rate swaps as cash flow hedges. As of March 31, 2023, the aggregate notional amount of the Company’s interest-rate swap contracts was $1.6 billion, of which $600 million will mature through September 2025 and $1.0 billion will mature through July 2027.

The table below presents principal amounts and related fixed or weighted-average interest rates by year of maturity for our investment portfolio and debt obligations as of March 31, 2023.

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.

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 mature within 12 months.

We recognized a net loss of $1 million and a net gain of $10 million in Cost of revenue and Interest expense, respectively, related to the de-designation on discontinued cash flow hedges during the three months ended March 31, 2023. We recognized a net loss of $20 million and a net gain of $18 million in Cost of revenue and Interest expense, respectively, related to the de-designation on discontinued cash flow hedges during the nine months ended March 31, 2023.

The table below provides information as of March 31, 2023 about our foreign currency forward exchange contracts. The table is provided in dollar equivalent amounts and presents the notional amounts (at the contract exchange rates) and the weighted-average contractual foreign currency exchange rates.

(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 may 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 non-qualified deferred compensation plan—the SDCP. In fiscal year 2014, we entered into a TRS agreement in order to manage the equity market risks associated with the SDCP liabilities. We pay a floating rate, based on SOFR plus an interest rate spread, on the notional amount of the TRS. The TRS is designed to substantially offset changes in the SDCP liabilities due to changes in the value of the investment options made by employees. See “Part I, Item 1. Financial Statements—Note 6. Derivative Financial Instruments” of this Quarterly Report on Form 10-Q.

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 (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) are effective as of March 31, 2023.

Changes in Internal Control over Financial Reporting

During the quarter ended March 31, 2023, there were no changes in our internal control over financial reporting that have 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 12. Legal, Environmental and Other Contingencies” of this Quarterly Report on Form 10-Q.

Summary of Risk Factors

The following is a summary of the principal risks and uncertainties that could materially adversely affect our business, results of operations, financial condition, cash flows, brand or the price of our outstanding ordinary shares and make an investment in our ordinary shares speculative or risky.

Risks Related to our Business, Operations and Industry

• Our ability to increase our revenue and maintain our market share depends on our ability to successfully introduce and achieve market acceptance of new products on a timely basis. If our products do not keep pace with customer requirements, our results of operations will be adversely affected.

• We operate in highly competitive markets and our failure to anticipate and respond to technological changes and other market developments, including price, could harm our ability to compete.

• We may be adversely affected by reduced, delayed, loss of or canceled purchases by, one or more of our key customers, including large hyperscale data center companies and cloud service providers (“CSPs”).

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

• We must plan our investments in our products and incur costs before we have customer orders or know about the market conditions at the time the products are produced. If we fail to predict demand accurately for our products or if the markets for our products change, we may have insufficient demand or we may be unable to meet demand, which may materially adversely affect our financial condition and results of operations.

• Changes in demand for computer systems, data storage subsystems and consumer electronic devices may in the future cause a decline in demand for our products.

• We have a long and unpredictable sales cycle for nearline storage solutions, which impairs our ability to accurately predict our financial and operating results in any period and may adversely affect our ability to forecast the need for investments and expenditures.

• We experience seasonal declines in the sales of our consumer products during the second half of our fiscal year which may adversely affect our results of operations.

• We may not be successful in our efforts to grow our systems, SSD and Lyve revenues.

• Our worldwide sales and manufacturing operations subject us to risks that may adversely affect our business related to disruptions in international markets, currency exchange fluctuations and increased costs.

• The ongoing COVID-19 pandemic has impacted our business, operating results and financial condition, as well as the operations and financial performance of many of the customers and suppliers in industries that we serve. We are unable to predict the extent to which the pandemic and related effects will adversely impact our business operations, financial performance, results of operations, financial position and the achievement of our strategic objectives.

• If we do not control our costs, we will not be able to compete effectively and may suffer an adverse impact on our financial condition.

Risks Associated with Supply and Manufacturing

• Shortages or delays in the receipt of, or cost increases in, critical components, equipment or raw materials necessary to manufacture our products, as well as reliance on single-source suppliers, may affect our production and development of products and may harm our operating results.

• We have cancelled purchased commitments with suppliers and incurred cost associated with such cancellations, and if revenues fall or customer demand decreases significantly, we may not meet all of our purchase commitments to certain suppliers in the future, which could result in penalties, increased manufacturing costs or excess inventory.

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

Risks Related to Human Capital

• The loss of or inability to attract, retain and motivate key executive officers and employees could negatively impact our business prospects.

• We are subject to risks related to corporate and social responsibility and reputation.

Risks Related to Financial Performance or General Economic Conditions

• Changes in the macroeconomic environment have impacted and may in the future negatively impact our results of operations.

• We may not be able to generate sufficient cash flows from operations and our investments to meet our liquidity requirements, including servicing our indebtedness.

• We are subject to counterparty default risks.

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

• Any cost reduction initiatives that we undertake may not deliver the results we expect and these actions may adversely affect our business.

• The effect of geopolitical uncertainties, war, terrorism, natural disasters, public health issues and other circumstances, on national and/ or international commerce and on the global economy, could materially adversely affect our results of operations and financial condition.

Legal, Regulatory and Compliance Risks

• Our business is subject to various laws, regulations, governmental policies, litigation, governmental investigations or governmental proceedings that may cause us to incur significant expense or adversely impact our results or operations and financial condition.

• Some of our products and services are subject to export control laws and other laws affecting the countries in which our products and services may be sold, distributed, or delivered and any changes to or violation of these laws could have a material adverse effect on our business, results of operations, financial condition and cash flows.

• Changes in U.S. trade policy, including the imposition of sanctions or tariffs and the resulting consequences, may have a material adverse impact on our business and results of operations.

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

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

• Our business and certain products and services depend in part on IP and technology licensed from third parties, as well as data centers and infrastructure operated by third parties.

Risks Related to Information Technology, Data and Information Security

• We could suffer a loss of revenue and increased costs, exposure to significant liability including legal and regulatory consequences, reputational harm and other serious negative consequences in the event of cyber-attacks, ransomware or other cyber security breaches or incidents that disrupt our operations or result in unauthorized access to, or the loss, corruption, unavailability or dissemination of proprietary or confidential information of our customers or about us or our customers or other third parties.

• We must successfully implement our new global enterprise resource planning system and maintain and upgrade our IT systems, and our failure to do so could have a material adverse effect on our business, financial condition and results of operations.

Risks Related to Owning our Ordinary Shares

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

• Any decision to reduce or discontinue the payment of cash dividends to our shareholders or the repurchase of our ordinary shares pursuant to our previously announced share repurchase program could cause the market price of our ordinary shares to decline significantly.

RISKS RELATED TO OUR BUSINESS, OPERATIONS AND INDUSTRY

**Our ability to increase our revenue and maintain our market sha

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Not applicable.

+ Management contract or compensatory plan or arrangement.

† 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 Holdings 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.

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.