Share-based Compensation

Share-Based Compensation Plans

The Company's share-based compensation plans have been established to promote the Company's long-term growth and financial success by providing incentives to its employees, directors, and consultants through grants of share-based awards. The provisions of the Company's share-based benefit plans, which allow for the grant of various types of equity-based awards, are also intended to provide greater flexibility to maintain the Company's competitive ability to attract, retain and motivate participants for the benefit of the Company and its shareholders.

Seagate Technology plc 2012 Equity Incentive Plan (the “EIP”). On October 26, 2011, the shareholders approved the EIP and authorized the issuance of up to a total of 27.0 million ordinary shares, par value $0.0001 per share, plus any shares remaining available for grant under the Seagate Technology plc 2004 Share Compensation Plan (the "SCP") as of the effective date of the EIP (which was equal to 11.0 million ordinary shares as of the effective date of the EIP and which will increase by such additional number of shares as will be returned to the share reserve in respect of awards previously granted under the SCP) (together, the “Share Reserve”). On October 22, 2014, the shareholders authorized the issuance from the EIP of an additional 25 million ordinary shares, par value $0.0001 per share. Any shares that are subject to options or share appreciation rights granted under the EIP will be counted against the Share Reserve as one share for every one share granted, and any shares that are subject to restricted share bonus awards, restricted share units, performance share bonus awards or performance share awards (collectively, “Full-Value Share Awards”) will generally be counted against the Share Reserve as two and five-tenths shares for every one share granted. On October 19, 2016, the shareholders authorized the issuance from the EIP of an additional 7.5 million ordinary shares, par value $0.0001 per share. As of June 30, 2017, there were approximately 30.8 million ordinary shares available for issuance under the EIP.

Dot Hill Systems 2009 Equity Incentive Plan (the "DHEIP"). Seagate Technology plc acquired the Dot Hill Systems 2009 Equity Incentive Plan effective October 6, 2015. The Company assumed the remaining authorized but unused share reserve of approximately 2 million shares, based on the conversion ratio, from the DHEIP on the acquisition date. Any shares that are subject to options or share appreciation rights granted under the DHEIP will be counted against the Share Reserve as one share for every one share granted, and any shares that are subject to restricted share bonus awards, restricted share units, performance share bonus awards or performance share awards (collectively, “Full-Value Share Awards”) will generally be counted against the Share Reserve as one and five-tenths shares for every one share granted. As of June 30, 2017, there were approximately 1 million ordinary shares available for issuance under the DHEIP.

Seagate Technology plc Employee Stock Purchase Plan (the "ESPP"). There are 50.0 million ordinary shares authorized to be issued under the ESPP. The ESPP consists of a six-month offering period with a maximum issuance of 1.5 million ordinary shares per offering period. The ESPP permits eligible employees to purchase ordinary shares through payroll deductions generally at 85% of the fair market value of the ordinary shares. As of June 30, 2017 there were approximately 4.8 million ordinary shares available for issuance under the ESPP.

Equity Awards

Full-Value Share Awards (e.g. restricted share units, "RSU") generally vest over a period of three to four years, with cliff vesting of a portion of each award occurring annually, subject to continuous employment with the Company through the vesting date. Options generally vest as follows: 25% of the options will vest on the first anniversary of the vesting commencement date and the remaining 75% will vest ratably each month thereafter over the next 36 months. Options granted under the EIP and SCP have an exercise price equal to the fair market value of the Company's ordinary shares on the grant date. Fair market value is defined as the closing price of the Company's ordinary shares on NASDAQ on the grant date.

The Company granted awards of performance-based share units ("PSU") to its senior executive officers under the SCP and the EIP where vesting is subject to both the continued employment of the participant by the Company and the achievement of certain performance goals established by the Compensation Committee of the Company's Board of Directors, including market-based performance goals. A single PSU represents the right to receive a single ordinary share of the Company. During fiscal years 2017, 2016 and 2015, the Company granted 0.6 million, 0.4 million and 0.3 million PSUs, respectively, where performance is measured based on a three-year average return on invested capital ("ROIC") goal and a relative total shareholder return ("TSR") goal, which is based on the Company's ordinary shares measured against a benchmark TSR of a peer group over the same three-year period (the "TSR/ROIC" awards). These awards vest after the end of the performance period of three years from the grant date. A percentage of these units may vest only if at least the minimum ROIC goal is met regardless of whether the TSR goal is met. The number of share units to vest will range from 0% to 200% of the targeted units. In evaluating the fair value of these units, the Company used a Monte Carlo simulation on the grant date, taking the market-based TSR goal into consideration. Compensation expense related to these units is only recorded in a period if it is probable that the ROIC goal will be met, and it is to be recorded at the expected level of achievement.

The Company also granted 0.2 million, 0.2 million and 0.4 million PSUs during fiscal years 2017, 2016 and 2015 respectively, to its senior executive officers which are subject to a performance goal related to the Company's adjusted earnings per share (the "AEPS" awards). These awards have a maximum seven-year vesting period, with 25% annual vesting starting on the first anniversary of the grant date. If the performance goal is not achieved, vesting is delayed to a following year in which the AEPS goal is achieved. Any unvested awards from prior years may vest cumulatively in a future year within the seven-year vesting period if the annual AEPS goal is achieved during a subsequent year. If the AEPS goal has not been met by the end of the seven year period, any unvested shares will be forfeited.

Determining Fair Value of Seagate Technology Stock Plans

Valuation and amortization method - The Company estimates the fair value of stock options, RSU and performance awards subject to an AEPS condition granted using the Black-Scholes-Merton valuation model and a single share award approach. This fair value is then amortized on a straight-line basis over the requisite service periods of the awards, which is generally the vesting period or the remaining service (vesting) period.

Expected Term - Expected term represents the period that the Company's share-based awards are expected to be outstanding and was determined based on historical experience of similar awards, giving consideration to the contractual terms of the share-based awards, vesting schedules and expectations of future employee behavior as influenced by changes to the terms of its share-based awards.

Expected Volatility - The Company uses a combination of the implied volatility of its traded options and historical volatility of its share price.

Expected Dividend - The Black-Scholes-Merton valuation model calls for a single expected dividend yield as an input. The dividend yield is determined by dividing the expected per share dividend during the coming year by the grant date share price. The expected dividend assumption is based on the Company's current expectations about its anticipated dividend policy. Also, because the expected dividend yield should reflect marketplace participants' expectations, the Company does not incorporate changes in dividends anticipated by management unless those changes have been communicated to or otherwise are anticipated by marketplace participants.

Risk-Free Interest Rate - The Company bases the risk-free interest rate used in the Black-Scholes-Merton valuation model on the implied yield currently available on U.S. Treasury zero-coupon issues with an equivalent remaining term. Where the expected term of the Company's share-based awards do not correspond with the terms for which interest rates are quoted, the Company performed a straight-line interpolation to determine the rate from the available term maturities.

The fair value of the Company's shares related to options and RSU granted to employees, shares issued from the ESPP and PSUs subject to TSR/ROIC or AEPS conditions for fiscal years 2017, 2016 and 2015 were estimated using the following assumptions:



	Fiscal Years
	2017			2016			2015
Options
Expected term (in years)	4.2			2.1 - 4.2			4.2
Volatility	38 - 42%			33 - 48%			33 - 35%
Weighted-average volatility	39		%	36		%	34		%
Expected dividend rate	4.9 - 6.4%			4.6 - 11.0%			2.9 - 4.0%
Weighted-average expected dividend rate	6.3		%	5.6		%	3.0		%
Risk-free interest rate	1.1 - 1.8%			0.6 - 1.5%			1.1 - 1.5%
Weighted-average fair value	$	6.83		$	12.28		$	12.98
RSU
Expected term (in years)	4.2			4.2			4.2
Expected dividend rate	4.6 - 7.7%			4.6 - 11.0%			2.9% - 4.0%
Weighted-average expected dividend rate	6.4		%	5.16		%	3.11		%
Weighted-average fair value	$	30.85		$	41.47		$	46.1
ESPP
Expected term (in years)	0.5			0.5			0.5
Volatility	36 - 49%			28 - 46%			28 - 29%
Weighted-average volatility	43		%	39		%	28		%
Expected dividend rate	5.6 - 7.8%			4.6 - 8.3%			3.0 - 3.8%
Weighted-average expected dividend rate	6.8		%	6.9		%	3.4		%
Risk-free interest rate	0.4 - 0.6%			0.2 - 0.5%			0.1		%
Weighted-average fair value	$	9.78		$	9.08		$	12.21
PSUs subject to market condition
Expected term (in years)	3.0			3.0			3.0
Volatility	41 - 42%			30		%	40		%
Weighted-average volatility	41		%	30		%	40		%
Expected dividend rate	6.3-7.0%			4.3		%	2.8		%
Weighted-average expected dividend rate	7.0		%	4.3		%	2.8		%
Risk-free interest rate	0.9 - 1.3%			1.1		%	1.1		%
Weighted-average fair value	$	32.41		$	47.34		$	58.31
PSUs subject to an AEPS condition
Expected term (in years)	4.2			4.2			4.2
Expected dividend rate	5.9 - 6.4%			4.6 - 7.3%			3.0 - 4.0%
Weighted-average expected dividend rate	6.2		%	5.9		%	3.3		%
Weighted-average fair value	$	31.61		$	42.09		$	46.52

Share-based Compensation Expense

The Company recorded $137 million, $120 million and $137 million of share-based compensation during fiscal years 2017, 2016 and 2015, respectively. Management has made an estimate of expected forfeitures and is recognizing compensation costs only for those equity awards expected to vest. When estimating forfeitures, the Company considers voluntary termination behavior as well as analysis of actual forfeited awards.

Stock Option Activity

The Company issues new ordinary shares upon exercise of stock options. The following is a summary of option activities:



Options	Number of Shares		Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term	Aggregate Intrinsic Value
	(In millions)				(In years)	(Dollars in millions)
Outstanding at July 1, 2016	5.4		$	34.91	4.6	$14
Granted	2.3		$	36.78
Exercised	(1.6	)	$	19.87
Forfeitures	(0.3	)	$	41.07
Expirations	(0.1	)	$	47.66
Outstanding at June 30, 2017	5.7		$	39.24	5.0	$22
Vested and expected to vest at June 30, 2017	5.5		$	39.28	5.0	$21
Exercisable at June 30, 2017	2.1		$	39.82	3.6	$12

The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying awards and the quoted price of the Company's ordinary shares for the options that were in-the-money at June 30, 2017. During fiscal years 2017, 2016 and 2015, the aggregate intrinsic value of options exercised under the Company's stock option plans was $29 million, $44 million and $92 million, respectively, determined as of the date of option exercise. The aggregate fair value of options vested during fiscal years 2017, 2016 and 2015 were approximately $15 million, $18 million and $10 million, respectively.

At June 30, 2017, the total compensation cost related to options granted to employees but not yet recognized was approximately $25 million, net of estimated forfeitures of approximately $1 million. This cost is being amortized on a straight-line basis over a weighted-average remaining term of approximately 2.5 years and will be adjusted for subsequent changes in estimated forfeitures.

Nonvested Awards Activity

The following is a summary of nonvested award activities which do not contain a performance condition:



Nonvested Awards	Number of Shares		Weighted- Average Grant- Date Fair Value
	(In millions)
Nonvested at July 1, 2016	4.8		$	39.95
Granted	3.1		$	30.85
Forfeitures	(0.7	)	$	39.72
Vested	(2.0	)	$	37.02
Nonvested at June 30, 2017	5.2		$	35.75

At June 30, 2017, the total compensation cost related to nonvested awards granted to employees but not yet recognized was approximately $135 million, net of estimated forfeitures of approximately $8 million. This cost is being amortized on a straight-line basis over a weighted-average remaining term of 2.6 years and will be adjusted for subsequent changes in estimated forfeitures. The aggregate fair value of nonvested awards vested during fiscal years 2017, 2016 and 2015 were approximately $73 million, $102 million and $156 million, respectively.

Performance Awards

The following is a summary of nonvested award activities which contain a performance condition:



Performance Awards	Number of Shares		Weighted- Average Grant- Date Fair Value
	(In millions)
Performance units at July 1, 2016	1.4		$	47.41
Granted	0.8		$	32.16
Forfeitures	(0.3	)	$	41.06
Vested	(0.4	)	$	41.91
Performance units at June 30, 2017	1.5		$	41.88

At June 30, 2017, the total compensation cost related to performance awards granted to employees but not yet recognized was approximately $36 million. This cost is being amortized on a straight-line basis over a weighted-average remaining term of 3.29 years.

ESPP

During fiscal years 2017, 2016 and 2015, the aggregate intrinsic value of shares purchased under the Company's ESPP was approximately $24 million, $12 million and $15 million, respectively. At June 30, 2017, the total compensation cost related to options to purchase the Company's ordinary shares under the ESPP but not yet recognized was approximately $1.7 million. This cost will be amortized on a straight-line basis over a weighted-average period of approximately one month. During fiscal year 2017, the Company issued 2.0 million ordinary shares with a weighted-average purchase price of $26.68 per share.

Tax-Deferred Savings Plan

The Company has a tax-deferred savings plan, the Seagate 401(k) Plan (the "40l(k) plan"), for the benefit of qualified employees. The 40l(k) plan is designed to provide employees with an accumulation of funds at retirement. Qualified employees may elect to make contributions to the 401(k) plan on a bi-weekly basis. Pursuant to the 401(k) plan, the Company matches 50% of employee contributions, up to 6% of compensation, subject to maximum annual contributions of $4,500 per participating employee. During fiscal years 2017, 2016 and 2015, the Company made matching contributions of $18 million, $19 million and $18 million, respectively.

Deferred Compensation Plan

On January 1, 2001, the Company adopted the SDCP for the benefit of eligible employees. This plan is designed to permit certain discretionary employer contributions, in excess of the tax limits applicable to the 401(k) plan and to permit employee deferrals in excess of certain tax limits. During fiscal year 2014, the Company entered into a TRS in order to manage the equity market risks associated with the SDCP liabilities. See "Note 8. Derivative Financial Instruments" contained in this report for additional information about the TRS.