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Derivative Financial Instruments

3 Months Ended

Sep. 27, 2024

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative Financial Instruments

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.

The Company entered into certain interest rate swap agreements to convert the variable interest rate on its Term Loans to fixed interest rates. The objective of the interest rate swap agreements was 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. On September 13, 2023, the Company terminated its then existing interest rate swap agreements as a result of the repayment of Term Loans A1, A2 and A3 and received cash proceeds of $25 million from the counterparty. The cash proceeds are reported within Net cash provided by operating activities in the Company’s Condensed Consolidated Statements of Cash Flows as of September 29, 2023. The Company discontinued the related hedge accounting prospectively and realized a net gain of $104 million in Net gain from termination of interest rate swap in the Condensed Consolidated Statements of Operations as of September 29, 2023. Additionally, $6 million of the gains were amortized to Interest expense prior to the termination of interest rate swap in the Company’s Condensed Consolidated Statements of Operations as of September 29, 2023.

As of September 27, 2024, the Company does not have any interest rate swap contracts.

The Company did not record any net unrealized gain or loss on cash flow hedges as of September 27, 2024 and the net unrealized loss as of June 28, 2024 was immaterial.

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”). The Company entered into a Total Return Swap (“TRS”) in order to manage the equity market risks associated with the SDCP’s liabilities. 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. The contract, which settles monthly and effectively mitigates counterparty risk will mature in June 2025. The Company did not designate the TRS as a hedge. Rather, the Company records all changes in the fair value of the TRS to earnings to offset the market value changes of the SDCP’s liabilities.

The following tables show the effect of the Company’s derivative instruments in the Condensed Consolidated Statements of Comprehensive Income (Loss) and the Condensed Consolidated Statements of Operations for the three months ended September 27, 2024.

(Dollars in millions) Derivatives Not Designated as Hedging Instruments

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

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

Foreign currency forward exchange contracts

Other, net

$

11

Total return swap

Operating expenses

4

(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						$	—								Cost of revenue						$	—								Other, net						$	1

The following tables show the effect of the Company’s derivative instruments in the Condensed Consolidated Statements of Comprehensive Income (Loss) and the Condensed Consolidated Statements of Operations for the three months ended September 29, 2023.

(Dollars in millions) Derivatives Not Designated as Hedging Instruments

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

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

Foreign currency forward exchange contracts

Other, net

$

(6)

Total return swap

Operating expenses

(3)

(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						$	(7)								Cost of revenue						$	(1)								Other, net						$	—
Interest rate swap						(15)									Interest expense						(11)									Net gain from termination of interest rate swap1						104

1The net gain recognized into earnings as a result of the discontinuance of interest rate swap during the three months ended September 29, 2023.

The gross notional and fair value of derivative instruments in the Condensed Consolidated Balance Sheets as of September 27, 2024 and June 28, 2024 were as follows:

												As of September 27, 2024
												Derivative Assets												Derivative Liabilities
(Dollars in millions)						Outstanding Gross Notional						Balance Sheet Location						Fair Value						Balance Sheet Location						Fair Value
Derivatives designated as hedging instruments:
Foreign currency forward exchange contracts						$	—					Other current assets						$	—					Accrued expenses						$	—
Derivatives not designated as hedging instruments:
Foreign currency forward exchange contracts						294						Other current assets						1						Accrued expenses						—
Total return swap						115						Other current assets						—						Accrued expenses						(1)
Total derivatives						$	409											$	1											$	(1)

												As of June 28, 2024
												Derivative Assets												Derivative Liabilities
(Dollars in millions)						Outstanding Gross Notional						Balance Sheet Location						Fair Value						Balance Sheet Location						Fair Value
Derivatives designated as hedging instruments:
Foreign currency forward exchange contracts						$	35					Other current assets						$	—					Accrued expenses						$	(1)
Derivatives not designated as hedging instruments:
Foreign currency forward exchange contracts						165						Other current assets						1						Accrued expenses						—
Total return swap						112						Other current assets						—						Accrued expenses						—
Total derivatives						$	312											$	1											$	(1)

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- References

No definition available.

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- Definition

The entire disclosure for derivative instruments and hedging activities including, but not limited to, risk management strategies, non-hedging derivative instruments, assets, liabilities, revenue and expenses, and methodologies and assumptions used in determining the amounts.

+ References

Reference 1: http://www.xbrl.org/2003/role/disclosureRef
-Topic 815
-SubTopic 40
-Name Accounting Standards Codification
-Section 50
-Paragraph 5
-Subparagraph (f)
-Publisher FASB
-URI https://asc.fasb.org//1943274/2147480237/815-40-50-5

Reference 2: http://www.xbrl.org/2003/role/disclosureRef
-Topic 815
-SubTopic 10
-Name Accounting Standards Codification
-Section 50
-Paragraph 5C
-Subparagraph (b)
-Publisher FASB
-URI https://asc.fasb.org//1943274/2147480434/815-10-50-5C

Reference 3: http://fasb.org/us-gaap/role/ref/legacyRef
-Topic 815
-Name Accounting Standards Codification
-Publisher FASB
-URI https://asc.fasb.org//815/tableOfContent

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