Seagate Technology Holdings plc (STX)

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following is a discussion of the Company’s financial condition, changes in financial condition and results of operations for the fiscal years ended June 28, 2024 and June 30, 2023. Discussions of year-to-year comparisons between fiscal years 2023 and 2022 are not included in this Annual Report on Form 10-K and can be found in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended June 30, 2023, which was filed with the SEC on August 4, 2023.

You should read this discussion in conjunction with “Item 8. Financial Statements and Supplementary Data” included elsewhere in this Annual Report on Form 10-K. Except as noted, references to any fiscal year mean the twelve-month period ending on the Friday closest to June 30 of that year. Accordingly, fiscal year 2024 and 2023 both comprised of 52 weeks and ended on June 28, 2024 and June 30, 2023, respectively. Fiscal year 2026 will be comprised of 53 weeks and will end on July 3, 2026.

Our Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is provided in addition to the accompanying 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 Fiscal Year 2024. Highlights of events in fiscal year 2024 that impacted our financial position.

•Results of Operations. Analysis of our financial results comparing fiscal years 2024 and 2023.

•Liquidity and Capital Resources. Analysis of changes in our balance sheets and cash flows and discussion of our financial condition, including potential sources of liquidity, material cash requirements and their general purpose.

•Critical Accounting Policies and Estimates. 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. Business.”

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Overview of Fiscal Year 2024

During fiscal year 2024, we shipped 398 exabytes of HDD storage capacity. We generated revenue of approximately $6.6 billion with a gross margin of 23%. Our operating cash flow was $918 million and we paid $585 million in dividends. We issued $1.5 billion of exchangeable notes to primarily retire our term loans of $1.3 billion. Additionally, in April 2024, we sold certain intellectual property, equipment and other assets related to the design, development and manufacture of our System-on-Chip (“SoC”) products to Avago Technologies International Sales Pte. Limited, a subsidiary of Broadcom Inc., for $600 million and we recorded a net gain of $313 million from this business divestiture. In connection with the transaction, the Company also restructured certain pre-existing purchase agreements. Refer to “Item 8. Financial Statements and Supplementary Data—Note 18. Divestiture” for more details.

Recent Developments, Economic Conditions and Challenges

During fiscal year 2024, we experienced ongoing recovery within the global cloud market, reflecting continued improvement in end-market demand. Demand recovery for our high capacity nearline drives has been faster than anticipated, which has extended product lead times and led to tighter overall supply conditions. We continued to exercise cost discipline and implement pricing actions to improve operational efficiency and profitability. We believe that we are in the early stage of an industry-wide demand recovery and AI application deployment, however we expect the macroeconomic environment to remain dynamic and continue to impact our business and results of operations.

For a further discussion of the uncertainties and business risks, see “Part I, Item 1A. Risk Factors” of our Annual Report.

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. Refer to “Item 8. Financial Statements and Supplementary Data—Note 14. Legal, Environmental and Other Contingencies” for more details.

Results of Operations

We list in the tables below summarized information from our Consolidated Statements of Operations by dollar amounts and as a percentage of revenue:

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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 the bill from location.

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Revenue in fiscal year 2024 decreased approximately 11%, or $833 million, from fiscal year 2023, primarily due to a decrease in exabytes shipped as a result of lower broad-based market demand, slightly offset by an increase in revenue driven by favorable pricing actions undertaken by the Company.

Cost of Revenue and Gross Margin

For fiscal year 2024, gross margin increased compared to the prior fiscal year primarily driven by favorable pricing actions undertaken by the Company and product mix, a $90 million reduction in factory underutilization charges which included the decrease in depreciation expense due to the extension of useful lives of certain manufacturing equipment, a decrease of $47 million in accelerated depreciation expense for certain capital equipment, a decrease of $21 million in order cancellation fees and $7 million pandemic-related lockdown charges in one of our factories in fiscal year 2023 that did not recur in fiscal year 2024, partially offset by lower exabytes shipped.

In the fiscal year 2024, total warranty cost was 0.8% of revenue and included an unfavorable change in estimates of prior warranty accruals of 0.1% 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 fiscal years 2024, 2023 and 2022, respectively.

Operating Expenses

______________________________

*Not a meaningful figure

Product Development Expense. Product development expenses for fiscal year 2024 decreased by $143 million from fiscal year 2023 primarily due to a $112 million decrease in compensation and other employee benefits as a result of workforce and temporary salary reductions, a $49 million decrease in depreciation expense and a $7 million decrease in materials expense, partially offset by a $24 million increase in lease expense as we sold and leased back certain properties.

Marketing and Administrative Expense. Marketing and administrative expenses for fiscal year 2024 decreased by $31 million from fiscal year 2023 primarily due to a $17 million decrease in compensation and other employee benefits as a result of workforce and temporary salary reductions, a $12 million decrease in advertising costs, a $6 million decrease in outside services expense, a $5 million decrease in travel expense, partially offset by a $7 million recovery in the December 2022 quarter of an accounts receivable previously written off in prior years and a $3 million increase in depreciation expense.

Restructuring and Other, net. Restructuring and other, net for fiscal year 2024 was a benefit of $30 million primarily related to the net gain from the sale and leaseback transaction during the December 2023 quarter. The restructuring plans were substantially completed by the end of fiscal year 2023.

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Other Expense, net

Other expense, net for fiscal year 2024 decreased by $147 million compared to fiscal year 2023 primarily due to a $313 million gain from the sale of SoC operations (refer to “Item 8. Financial Statements and Supplementary Data—Note 18. Divestiture” for more details), a $104 million of net gain recognized from the termination of interest rate swaps associated with the repayment of term loans and a $5 million net increase in interest income in fiscal year 2024. The decrease is partially offset by a $190 million of net gain recognized from the early redemption of debt in fiscal year 2023, a $41 million increase in net loss from equity investments, a $29 million net loss recognized from early redemption of debt and a $19 million net increase in interest expense in fiscal year 2024.

Income Taxes

We recorded an income tax provision of $110 million for fiscal year 2024 compared to an income tax provision of $33 million for fiscal year 2023.

During the third quarter of fiscal year 2024, we established Singapore as our principal executive offices. Our parent holding company owns various U.S. and non-Singaporean subsidiaries that operate in multiple non-Singaporean income tax jurisdictions. Our worldwide operating income is either subject to varying rates of income tax or is exempt from income tax due to tax incentive programs we operate under in Singapore and Thailand. These tax incentives are scheduled to expire in whole or in part at various dates through fiscal year 2036. Certain tax incentives may be extended if specific conditions are met.

Since we established Singapore as our principal executive offices in fiscal year 2024, the Singaporean statutory rate of 17% is used for purposes of the reconciliation between the provision for income taxes at the statutory rate and our effective tax rate. For fiscal years 2023 and 2022, a notional Irish statutory rate of 25% was used.

Our income tax provision recorded for fiscal years 2024 differed from the provision for income taxes that would be derived by applying the Singaporean statutory rate of 17% to income before income taxes, primarily due to the net effect of (i) changes in valuation allowance and (ii) current year generation of research credits. Our income tax provision recorded for fiscal year 2023 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 (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 impact of 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.

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 June 28, 2024. For additional information on risks and factors that could impact our ability to fund our operations and meet our cash requirements among others, see “Part I, Item 1A. Risk Factors” of our Annual Report.

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Cash and Cash Equivalents

The following table summarizes results from the Consolidated Statements of Cash Flows for the periods indicated:

Cash Provided by Operating Activities

Cash provided by operating activities for fiscal year 2024 was $918 million and includes the effects of net income adjusted for non-cash items including depreciation, amortization, share-based compensation, net gain from business divestiture and:

•an increase of $243 million in other assets and liabilities, primarily related to the restructuring of pre-existing purchase agreements as a result of the sale of SoC operations. Refer to “Item 8. Financial Statements and Supplementary Data—Note 18. Divestiture” for more details;

•an increase of $227 million in accounts payable, primarily due to timing of payments;

•a decrease of $192 million in accounts receivable, primarily due to lower revenue and higher accounts receivable factoring; and

•an increase of $25 million cash proceeds received from the settlement of certain interest rate swap agreements; partially offset by

•a decrease of $183 million in accrued expenses primarily due to lower restructuring activities; and

•an increase of $99 million in inventories, primarily due to an increase in raw materials and work in progress inventory.

Cash provided by operating activities for fiscal year 2023 was $942 million and includes the effects of net income adjusted for non-cash items including depreciation, amortization, share-based compensation and:

•a decrease of $911 million in accounts receivable, primarily due to lower revenue and timing of collections;

•a decrease of $425 million in inventories, primarily due to a decrease in units built to align with the prevailing demand environment; and

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

•a decrease of $421 million in accounts payable, primarily due to a decrease in materials purchased; and

•a decrease of $152 million in accrued employee compensation, primarily due to cash paid to our employees as part of our variable compensation plans and a decrease in our variable compensation expense.

Cash Used in Investing Activities

In fiscal year 2024, we received $126 million for net cash investing activities, which was primarily due to the proceeds from the sale of SoC operations of $326 million (refer to “Item 8. Financial Statements and Supplementary Data—Note 18. Divestiture” for more details), $40 million from the sale of assets and $14 million from the sale of investments, offset by payments for the purchase of property, equipment and leasehold improvements of $254 million.

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In fiscal year 2023, we received $217 million for net cash investing activities, which was primarily due to proceeds of $534 million from the sale of assets, offset by payments for the purchase of property, equipment and leasehold improvements of $316 million.

Cash Used in Financing Activities

Net cash used in financing activities of $473 million for fiscal year 2024 was primarily attributable to the following activities:

•$1.3 billion repurchases of long-term debt;

•$585 million in dividends paid to our shareholders;

•$128 million debt fees relating to issuance of long-term debt and capped call transaction; and

•$38 million taxes paid related to net share settlement of equity awards; partially offset by

•$1.5 billion in net proceeds from the issuance of long-term debt; and

•$66 million in proceeds from the issuance of ordinary shares under employee stock plans.

Net cash used in financing activities of $988 million for fiscal year 2023 was primarily attributable to the following activities:

•$1.6 billion repurchases of long-term debt;

•$582 million in dividend payments; and

•$408 million in payments for repurchases of our ordinary shares; partially offset by

•$1.6 billion in proceeds from the issuance of long-term debt; and

•$68 million in proceeds from the issuance of ordinary shares under employee stock plans.

Liquidity Sources

Our primary sources of liquidity as of June 28, 2024, consist of: (1) approximately $1.4 billion in cash and cash equivalents, (2) cash we expect to generate from operations and (3) $1.5 billion available for borrowing under our senior unsecured revolving credit facility (“Revolving Credit Facility”), which is part of our Credit Agreement (as defined below).

As of June 28, 2024, 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.

As of June 28, 2024, the Credit Agreement includes two financial covenants: (1) interest coverage ratio and (2) net leverage ratio. We continue to evaluate our debt portfolio and structure to comply with our financial debt covenants. As of June 28, 2024, we were in compliance with all of the covenants under our debt agreements. Refer to “Part II, Item 8. Financial Statements—Note 4. Debt” for more details.

As of June 28, 2024, cash and cash equivalents held by our subsidiaries was $1.4 billion. This amount is potentially subject to taxation in Singapore upon repatriation by means of a dividend into our parent company, unless certain exemption is given, or a special approval is granted by the Ministry of Finance in Singapore. However, it is our intent to indefinitely reinvest earnings of subsidiaries outside of Ireland and Singapore. Our current plans do not demonstrate a need to repatriate such earnings by means of a taxable dividend. Should funds be needed in the parent company and should we be unable to fund parent company activities through means other than a taxable dividend, we would be required to accrue and pay taxes on such dividend.

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, among others, see “Part I, Item 1A. Risk Factors” of this Annual Report.

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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.

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 June 28, 2024, we had unconditional purchase obligations of approximately $1.2 billion, primarily related to purchases of inventory components with our suppliers. We expect $1.2 billion of these commitments to be paid within one year. In addition, we also had certain long-term market share based non-cancellable inventory purchase commitments as of June 28, 2024.

We recorded order cancellation fees to terminate certain purchase commitments related to the purchase of inventory components and equipment. By the end of fiscal year 2024, the cumulative unpaid order cancellation fees on the Consolidated Balance Sheets were $93 million, with $39 million in Accrued expenses and $54 million in Accounts payable, all of which is expected to be paid within one year. In certain instances, our unpaid order cancellation fees may change based on the expected timing or ongoing negotiations with our suppliers.

Capital expenditures

We incur material capital expenditures to design and manufacture our products that depend on advanced technologies and manufacturing techniques. As of June 28, 2024, we had unconditional commitments of $161 million primarily related to purchases of equipment, of which approximately $99 million is expected to be paid within one year. For fiscal year 2025, we expect capital expenditures to be higher than fiscal year 2024.

Operating leases

We are a lessee in several operating leases related to real estate facilities for warehouse, office and lab space. As of June 28, 2024, the amount of future minimum rent expense for both occupied and vacated facilities under non-cancelable operating lease contracts was $564 million, of which $63 million is expected to be paid within one year. Refer to “Item 8. Financial Statements and Supplementary Data—Note 6. Leases” for details.

Long-term debt and interest payments on debt

As of June 28, 2024, the future principal payment obligation on our long-term debt was $5.7 billion, of which $479 million will mature within one year. As of June 28, 2024, future interest payments on this outstanding debt is estimated to be approximately $2.0 billion, of which $323 million is expected to be paid within one year. From time to time, we may repurchase, redeem or otherwise extinguish any of our outstanding senior notes in open market or privately negotiated purchases or otherwise, or we may repurchase or redeem outstanding senior notes pursuant to the terms of the applicable indenture. Refer to “Item 8. Financial Statements and Supplementary Data—Note 4. Debt” for more details.

BIS settlement penalty

We accrued a settlement penalty of $300 million for fiscal year 2023, 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 are made over the course of five years beginning October 31, 2023, of which $60 million is expected to be paid within one year and $195 million thereafter. Refer to “Item 8. Financial Statements and Supplementary Data—Note 14. Legal, Environmental and Other Contingencies” for more details.

Restructuring

During the fiscal year ended June 28, 2024, we made cash payments of $116 million, primarily related to workforce reduction costs under our restructuring plans.

As of June 28, 2024, the future cash payments related to our remaining active restructuring plans were $4 million, all of which is expected to be paid within one year.

Income Tax

As of June 28, 2024, we had a liability for unrecognized tax benefits and an accrual for the payment of related interest totaling $8 million, none of which is expected to be settled within one year. Outside of one year, we are unable to make a reasonably reliable estimate of when cash settlement with a taxing authority will occur.

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Dividends

On July 23, 2024, our Board of Directors declared a quarterly cash dividend of $0.70 per share, which will be payable on October 7, 2024 to shareholders of record as of the close of business on September 23, 2024. 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. During fiscal year 2024, we repurchased approximately 1 million of our ordinary shares including shares withheld for statutory tax withholdings related to vesting of employee equity awards. See “Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities-Repurchases of Our Equity Securities.” As of June 28, 2024, $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.

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.

Critical Accounting Policies and Estimates

The Company’s accounting policies are more fully described in “Item 8. Financial Statements and Supplementary Data—Note 1. Basis of Presentation and Summary of Significant Accounting Policies”. The methods, estimates and judgments we use in applying our most critical accounting policies have a significant impact on the results we report in our Consolidated Financial Statements. Critical accounting estimates are those estimates that involve a significant level of estimation uncertainty and have had or are reasonably likely to have a material impact on our financial condition or results of operations. Based on this definition, our most critical accounting policies include: Revenue - Sales Program Accruals and Income Taxes. Below, we discuss these policies further, as well as the estimates and judgments involved. We also have other accounting policies and accounting estimates relating to warranty, uncollectible customer accounts, valuation of inventories, assessing goodwill and other long-lived assets for impairment, valuation of share-based payments and restructuring. We believe that these other accounting policies and accounting estimates either do not generally require us to make estimates and judgments that are as difficult or as subjective, or it is less likely that they would have a material impact on our reported results of operations for a given period.

Revenue - Sales Program Accruals. We record estimated variable consideration at the time of revenue recognition as a reduction to revenue. Variable consideration generally consists of sales incentive programs, such as price protection and volume incentives aimed at increasing customer demand. For OEM sales, rebates are typically established by estimating the most likely amount of consideration expected to be received based on an OEM customer's volume of purchases from us or other agreed upon rebate programs. For the distribution and retail channel, these sales incentive programs typically involve estimating the most likely amount of rebates related to a customer's level of sales, order size, advertising or point of sale activity as well as the expected value of price protection adjustments based on historical analysis and forecasted pricing environment. Total sales programs were 16% and 17% of gross revenue in fiscal years 2024 and 2023, respectively. Adjustments to revenues due to under or over accruals for sales programs related to revenues reported in prior periods were approximately 1% of gross revenue in fiscal years 2024 and 2023, respectively.

Income Taxes. We make certain estimates and judgments in determining income tax expense for financial statement purposes. These estimates and judgments occur in the calculation of tax credits, recognition of income and deductions and calculation of specific tax assets and liabilities, which arise from differences in the timing of recognition of revenue and expense for income tax and financial statement purposes, as well as tax liabilities associated with uncertain tax positions.

The deferred tax assets we record each period depend primarily on our ability to generate future taxable income in the United States and certain non-U.S. jurisdictions. Each period, we evaluate the need for a valuation allowance for our deferred tax assets and, if necessary, adjust the valuation allowance so that net deferred tax assets are recorded only to the extent we conclude it is more likely than not that these deferred tax assets will be realized.

In evaluating our ability to recover our deferred tax assets, in full or in part, we consider all available positive and negative evidence, including our past operating results, and our forecast of future earnings, future taxable income and prudent and

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feasible tax planning strategies. The assumptions utilized in determining future taxable income require significant judgment and are consistent with the plans and estimates we are using to manage the underlying businesses. Actual operating results in future years could differ from our current assumptions, judgments, and estimates. If our outlook for future taxable income changes significantly, our assessment of the need for, and the amount of, a valuation allowance may also change resulting in an additional tax provision or benefit.

Recent Accounting Pronouncements

See “Item 8. Financial Statements and Supplementary Data—Note 1. Basis of Presentation and Summary of Significant Accounting Policies” for information regarding the effect of new accounting pronouncements on our financial statements.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following is a discussion of the Company’s financial condition, changes in financial condition and results of operations for the fiscal years ended June 30, 2023 and July 1, 2022. Discussions of year-to-year comparisons between fiscal years 2022 and 2021 are not included in this Annual Report on Form 10-K and can be found in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended July 1, 2022, which was filed with the SEC on August 5, 2022.

You should read this discussion in conjunction with “Item 8. Financial Statements and Supplementary Data” included elsewhere in this Annual Report on Form 10-K. Except as noted, references to any fiscal year mean the twelve-month period ending on the Friday closest to June 30 of that year. Accordingly, fiscal year 2023 and 2022 both comprised of 52 weeks and ended on June 30, 2023 and July 1, 2022, respectively. Fiscal year 2026 will be comprised of 53 weeks and will end on July 3, 2026.

Our Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is provided in addition to the accompanying 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 Fiscal Year 2023. Highlights of events in fiscal year 2023 that impacted our financial position.

•Results of Operations. Analysis of our financial results comparing fiscal years 2023 and 2022.

•Liquidity and Capital Resources. Analysis of changes in our balance sheets and cash flows and discussion of our financial condition, including potential sources of liquidity, material cash requirements and their general purpose.

•Critical Accounting Policies and Estimates. 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. Business.”

Overview of Fiscal Year 2023

During fiscal year 2023, we shipped 441 exabytes of HDD storage capacity. We generated revenue of approximately $7.4 billion with a gross margin of 18%. Our operating cash flow was $942 million. We repurchased approximately 5 million of our ordinary shares for $408 million and paid $582 million in dividends.

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We reduced our outstanding debt by $195 million through exchange and repurchase of certain senior notes and Term Loans facility with longer duration senior notes and recorded a net gain of $190 million as a result of debt extinguishment. Additionally, we entered into a settlement agreement related to BIS’ allegations regarding violations of the U.S. EAR and recorded a settlement penalty of $300 million.

Recent Developments, Economic Conditions and Challenges

During fiscal year 2023, the data storage industry and our business continued to be impacted by macroeconomic uncertainties and customer inventory adjustments, which led to a significant slowdown in demand for our products, particularly in the mass capacity markets. In response to changes in market demand, we undertook actions to lower our cost structure and reduced manufacturing production plans, which resulted in factory underutilization charges. We expect these market conditions will continue to impact our business and results of operations over the near term. Under these conditions, we are continuing to actively manage costs, drive operational efficiencies and maintain supply discipline.

In light of the deterioration of economic conditions, we undertook the October 2022, April 2023 and other restructuring plans to reduce our cost in response to change in macroeconomic and business conditions during fiscal year 2023. These restructuring plans were substantially completed by the end of fiscal year 2023 with total charges of approximately $269 million, mainly consisting of employee severance cost and other one-time termination benefits. Refer to “ Item 8. Financial Statements and Supplementary Data—Note 7. Restructuring and Exit Costs” for more details.

We continue to actively monitor the effects and potential impacts of inflation, other macroeconomic factors and the pandemic on all aspects of our business, supply chain, liquidity and capital resources including governmental policies that could periodically shut down an entire city where we, our suppliers or our customers operate. We are complying with governmental rules and guidelines across all of our sites. Although we are unable to predict the future impact on our business, results of operations, liquidity or capital resources at this time, we expect we will continue to be negatively affected if the inflation, other macroeconomic factors and the pandemic and related public and private health measures result in substantial manufacturing or supply chain challenges, substantial reductions or delays in demand due to disruptions in the operations of our customers or partners, disruptions in local and global economies, volatility in the global financial markets, sustained reductions or volatility in overall demand trends, restrictions on the export or shipment of our products or our customer’s products, or other unexpected ramifications. For a further discussion of the uncertainties and business risks associated with the COVID-19 pandemic, see “Part I, Item 1A. Risk Factors” of our Annual Report.

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 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 currently 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 8. Financial Statements and Supplementary Data—Note 14. Legal, Environmental and Other Contingencies” for more details.

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Results of Operations

We list in the tables below summarized information from our Consolidated Statements of Operations by dollar amounts and as a percentage of revenue:

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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 the bill from location.

Revenue in fiscal year 2023 decreased approximately 37%, or $4.3 billion, from fiscal year 2022, primarily due to a decrease in exabytes shipped and to a lesser extend price erosion, as a result of lower demand in mass capacity and legacy markets that were impacted by macroeconomic conditions and pandemic-related headwinds. We expect the current market conditions will continue to persist at least through the first half of fiscal year 2024.

Cost of Revenue and Gross Margin

For fiscal year 2023, gross margin decreased compared to the prior fiscal year primarily driven by factory underutilization charges of $250 million associated with lower production levels and pandemic-related lockdown in one of our factories, order cancellation fees of $108 million, lower demand in mass capacity and legacy markets with less favorable product mix, price erosion, and accelerated depreciation expense for certain capital equipment.

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Operating Expenses

______________________________

*Not a meaningful figure

Product Development Expense. Product development expenses for fiscal year 2023 decreased by $144 million from fiscal year 2022 primarily due to a $70 million decrease in variable compensation and related benefit expenses, a $51 million decrease in compensation and other employee benefits primarily from the reduction in headcount as a result of our October 2022 and April 2023 restructuring plans and a temporary salary reduction program, a $14 million decrease in material expense and a $6 million decrease in equipment expense.

Marketing and Administrative Expense. Marketing and administrative expenses for fiscal year 2023 decreased by $68 million from fiscal year 2022 primarily due to a $41 million decrease in variable compensation and related benefit expenses, a $24 million decrease in compensation and other employee benefits primarily from the reduction in headcount as a result of our October 2022 and April 2023 restructuring plans and a temporary salary reduction program and a $7 million recovery of an accounts receivable previously written-off in prior years, partially offset by a $2 million increase in travel expense as a result of the easing of pandemic-related travel restrictions.

Amortization of Intangibles. Amortization of intangibles for fiscal year 2023 decreased by $8 million, as compared to fiscal year 2022, due to certain intangible assets that reached the end of their useful lives.

BIS settlement penalty. The BIS settlement penalty for fiscal year 2023 was $300 million, related to BIS’ allegations of violations of the EAR, which were resolved by the Settlement Agreement in April 2023. Refer to “Item 8. Financial Statements and Supplementary Data—Note 14. Legal, Environmental and Other Contingencies” for more details.

Restructuring and Other, net. Restructuring and other, net for fiscal year 2023 was $102 million, primarily comprised of workforce reduction costs and other exit costs under our October 2022 and April 2023 restructuring plans, partially offset by gains from the sale of certain properties and assets of $167 million.

Restructuring and other, net for fiscal year 2022 was not material.

Other Expense, net

Other expense, net for fiscal year 2023 decreased by $122 million compared to fiscal year 2022 primarily due to a $190 million net gain recognized from early redemption and extinguishment of certain senior notes, partially offset by a $64 million net increase in interest expense from the exchange and issuance of long-term debt.

Income Taxes

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We recorded an income tax provision of $33 million for fiscal year 2023 compared to an income tax provision of $30 million for fiscal year 2022. Despite a consolidated loss on a worldwide basis, we still have taxes payable on a global basis due to guaranteed earnings reported in certain jurisdictions as compared to fiscal year 2022.

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. Although CAMT is effective for us beginning in fiscal year 2024, Seagate does not meet the criteria to be subject to CAMT for fiscal year 2024.

Our Irish tax resident parent holding company owns various U.S. and non-Irish subsidiaries that operate in multiple non-Irish income tax jurisdictions. Our worldwide operating income is either subject to varying rates of income tax or is exempt from income tax due to tax incentive programs we operate under in Singapore and Thailand. These tax incentives are scheduled to expire in whole or in part at various dates through 2033. Certain tax incentives may be extended if specific conditions are met.

Our income tax provision recorded for fiscal years 2023 and 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 (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.

We anticipate that our effective tax rate in future periods will generally be less than the Irish statutory rate based on our ownership structure, our intention to indefinitely reinvest earnings from our subsidiaries outside of Ireland and the potential future changes in our valuation allowance for deferred tax assets.

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 other 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.

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 June 30, 2023. 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 I, Item 1A. Risk Factors” of our Annual Report.

Cash and Cash Equivalents

Our cash and cash equivalents increased by $171 million from July 1, 2022 primarily as a result of net cash of $942 million provided by operating activities, net proceeds of $1.6 billion from issuance of long-term debt and proceeds from the sale of assets of $534 million, partially offset by repayment of long-term debt of $1.6 billion, payment of dividends to our shareholders of $582 million, repurchases of our ordinary shares of $408 million, and payments for capital expenditures of $316 million. The following table summarizes results from the Consolidated Statement of Cash Flows for the periods indicated:

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Cash Provided by Operating Activities

Cash provided by operating activities for fiscal year 2023 was $942 million and includes the effects of net income adjusted for non-cash items including depreciation, amortization, share-based compensation and:

•a decrease of $911 million in accounts receivable, primarily due to lower revenue and timing of collections;

•a decrease of $425 million in inventories, primarily due to a decrease in units built to align with the prevailing demand environment; and

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

•a decrease of $421 million in accounts payable, primarily due to a decrease in materials purchased; and

•a decrease of $152 million in accrued employee compensation, primarily due to cash paid to our employees as part of our variable compensation plans and a decrease in our variable compensation expense.

Cash provided by operating activities for fiscal year 2022 was approximately $1.7 billion and includes the effects of net income adjusted for non-cash items including depreciation, amortization, share-based compensation and:

•an increase of $228 million in accounts payable, primarily due to timing of payments and an increase in materials purchased; partially offset by

•an increase of $374 million in accounts receivable, primarily due to linearity of sales; and

•an increase of $361 million in inventories, primarily due to timing of shipments, and an increase in materials purchased for production of higher capacity drives and to mitigate supply chain disruptions.

Cash Used in Investing Activities

In fiscal year 2023, we received $217 million for net cash investing activities, which was primarily due to proceeds of $534 million from the sale of assets, offset by payments for the purchase of property, equipment and leasehold improvements of $316 million.

In fiscal year 2022, we used $352 million for net cash investing activities, which was primarily due to payments for the purchase of property, equipment and leasehold improvements of $381 million and payments for the purchase of investments of $18 million, partially offset by proceeds from the sale of investments of $47 million.

Cash Used in Financing Activities

Net cash used in financing activities of $988 million for fiscal year 2023 was primarily attributable to the following activities:

•$1.6 billion repurchases of long-term debt;

•$582 million in dividend payments; and

•$408 million in payments for repurchases of our ordinary shares; partially offset by

•$1.6 billion in proceeds from the issuance of long-term debt; and

•$68 million in proceeds from the issuance of ordinary shares under employee stock plans.

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Net cash used in financing activities of $1.9 billion for fiscal year 2022 was primarily attributable to the following activities:

•$1.8 billion in payments for repurchases of our ordinary shares;

•$701 million net purchases of long-term debt; and

•$610 million in dividend payments; partially offset by

•$1.2 billion from the issuance of long-term debt; and

•$68 million in proceeds from the issuance of ordinary shares under employee stock plans.

Liquidity Sources

Our primary sources of liquidity as of June 30, 2023, consist of: (1) approximately $786 million in cash and cash equivalents, (2) cash we expect to generate from operations and (3) $1.5 billion available for borrowing under our senior unsecured revolving credit facility (“Revolving Credit Facility”), which is part of our credit agreement (the “Credit Agreement”).

As of June 30, 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) leverage ratio and (3) a minimum liquidity amount. On May 19, 2023, we entered into the Eighth Amendment to our Credit Agreement to increase the maximum permitted total net leverage ratio and reduce the minimum interest coverage ration during the covenant relief period. The maximum total net leverage ratio is 6.75 to 1.00 beginning with the fiscal quarter ending June 30, 2023, with periodic step downs during the covenant relief period, shifting to a maximum total leverage ratio of 4.00 to 1.00 for any fiscal quarter ending at any time other than during the covenant relief period. The minimum interest coverage ratio is 2.50 to 1.00 beginning with the fiscal quarter ending June 30, 2023, with periodic step downs and step ups during the covenant relief period, returning to a minimum interest coverage ratio of 3.25 to 1.00 for any fiscal quarter ending after June 28, 2024, and for any fiscal quarter ending at any time other than during the covenant relief period. The covenant relief period terminates on June 27, 2025. As part of this Amendment, the aggregate revolving loan commitments were reduced from $1.75 billion to $1.5 billion. We continue to evaluate our debt portfolio and structure to comply with our financial debt covenants. As of June 30, 2023, we were in compliance with all of the covenants under our debt agreements. Refer to “Item 8. Financial Statements and Supplementary Data—Note 4. Debt” for more details.

As of June 30, 2023, cash and cash equivalents held by non-Irish subsidiaries was $638 million. This amount is potentially subject to taxation in Ireland upon repatriation by means of a dividend into our Irish parent. However, it is our intent to indefinitely reinvest earnings of non-Irish subsidiaries outside of Ireland and our current plans do not demonstrate a need to repatriate such earnings by means of a taxable Irish dividend. Should funds be needed in the Irish parent company and should we be unable to fund parent company activities through means other than a taxable Irish dividend, we would be required to accrue and pay Irish taxes on such dividend.

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, among others, see “Part I, Item 1A. Risk Factors” of this Annual Report.

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.

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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 June 30, 2023, we had unconditional purchase obligations of approximately $3.7 billion, primarily related to purchases of inventory components with our suppliers. We expect $919 million of these commitments to be paid within one year.

Capital expenditures

We incur material capital expenditures to design and manufacture our products that depend on advanced technologies and manufacturing techniques. As of June 30, 2023, we had unconditional commitment of $238 million primarily related to purchases of equipment, of which approximately $137 million is expected to be paid within one year. For fiscal year 2024, we expect capital expenditures to be lower than fiscal year 2023.

Operating leases

We are a lessee in several operating leases related to real estate facilities for warehouse, office and lab space. As of June 30, 2023, the amount of future minimum rent expense for both occupied and vacated facilities net of sublease income under non-cancelable operating lease contracts was $564 million, of which $53 million is expected to be paid within one year. Refer to “Item 8. Financial Statements and Supplementary Data—Note 6. Leases” for details.

Long-term debt and interest payments on debt

As of June 30, 2023, the future principal payment obligation on our long-term debt was $5.5 billion, of which $63 million will mature within one year. As of June 30, 2023, future interest payments on this outstanding debt is estimated to be approximately $2.2 billion, of which $324 million is expected to be paid within one year. From time to time, we may repurchase, redeem or otherwise extinguish any of our outstanding senior notes in open market or privately negotiated purchases or otherwise, or we may repurchase or redeem outstanding senior notes pursuant to the terms of the applicable indenture. Refer to “Item 8. Financial Statements and Supplementary Data—Note 4. Debt” for more details.

BIS settlement penalty

We accrued a settlement penalty of $300 million for fiscal year 2023, 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 $45 million is expected to be paid within one year and $255 million thereafter. Refer to “Item 8. Financial Statements and Supplementary Data—Note 14. Legal, Environmental and Other Contingencies” for more details.

Restructuring

On October 24, 2022, we committed to an October 2022 plan (the “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. On April 20, 2023, the Company committed to an April 2023 restructuring plan (the “April 2023 Plan”) to further reduce its cost structure in response to changes in macroeconomic and business conditions. The April 2023 Plan was intended to align the Company’s operational needs with the near-term demand environment while continuing to support the long-term business strategy. Both the October 2022 Plan and the April 2023 Plan were substantially completed by the end of the fiscal year 2023.

During fiscal year 2023, we recorded restructuring and other, net of $102 million, primarily related to the workforce reduction costs under the October 2022 Plan and the April 2023 Plan, partially offset by gains from the sale of certain properties and assets. We made cash payments of $155 million for all active restructuring plans. As of June 30, 2023, the future cash payments related to our remaining active restructuring plans were $119 million, of which $117 million is expected to be paid within one year.

Income Tax

As of June 30, 2023, we had a liability for unrecognized tax benefits and an accrual for the payment of related interest totaling $4 million, none of which is expected to be settled within one year. Outside of one year, we are unable to make a reasonably reliable estimate of when cash settlement with a taxing authority will occur.

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Dividends

On July 26, 2023, our Board of Directors declared a quarterly cash dividend of $0.70 per share, which will be payable on October 10, 2023 to shareholders of record as of the close of business on September 26, 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. During fiscal year 2023, we repurchased approximately 6 million of our ordinary shares including shares withheld for statutory tax withholdings related to vesting of employee equity awards. See “Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities-Repurchases of Our Equity Securities.” As of June 30, 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.

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.

Critical Accounting Policies and Estimates

The Company’s accounting policies are more fully described in “Item 8. Financial Statements and Supplementary Data—Note 1. Basis of Presentation and Summary of Significant Accounting Policies”. The methods, estimates and judgments we use in applying our most critical accounting policies have a significant impact on the results we report in our consolidated financial statements. Critical accounting estimates are those estimates that involve a significant level of estimation uncertainty and have had or are reasonably likely to have a material impact on our financial condition or results of operations. Based on this definition, our most critical accounting policies include: Revenue - Sales Program Accruals, Warranty and Income Taxes. Below, we discuss these policies further, as well as the estimates and judgments involved. We also have other accounting policies and accounting estimates relating to uncollectible customer accounts, valuation of inventories, assessing goodwill and other long-lived assets for impairment, valuation of share-based payments and restructuring. We believe that these other accounting policies and accounting estimates either do not generally require us to make estimates and judgments that are as difficult or as subjective, or it is less likely that they would have a material impact on our reported results of operations for a given period.

Revenue - Sales Program Accruals. We record estimated variable consideration at the time of revenue recognition as a reduction to revenue. Variable consideration generally consists of sales incentive programs, such as price protection and volume incentives aimed at increasing customer demand. For OEM sales, rebates are typically established by estimating the most likely amount of consideration expected to be received based on an OEM customer's volume of purchases from us or other agreed upon rebate programs. For the distribution and retail channel, these sales incentive programs typically involve estimating the most likely amount of rebates related to a customer's level of sales, order size, advertising or point of sale activity as well as the expected value of price protection adjustments based on historical analysis and forecasted pricing environment. Total sales programs were 17% and 14% of gross revenue in fiscal years 2023 and 2022, respectively. Adjustments to revenues due to under or over accruals for sales programs related to revenues reported in prior quarterly periods were approximately 1% and less than 1% of gross revenue in fiscal years 2023 and 2022, respectively.

Warranty. We estimate probable product warranty costs at the time revenue is recognized. Our warranty provision considers estimated product failure rates, trends (including the timing of product returns during the warranty periods), and estimated repair or replacement costs related to product quality issues, if any. Unforeseen component failures or exceptional component performance can result in changes to warranty costs. We also exercise judgment in estimating our ability to sell refurbished products based on historical experience. Our judgment is subject to a greater degree of subjectivity with respect to newly introduced products because of limited experience with those products upon which to base our warranty estimates. If actual warranty costs differ substantially from our estimates, revisions to the estimated warranty liability would be required, which could have a material adverse effect on our results of operations.

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Income Taxes. We make certain estimates and judgments in determining income tax expense for financial statement purposes. These estimates and judgments occur in the calculation of tax credits, recognition of income and deductions and calculation of specific tax assets and liabilities, which arise from differences in the timing of recognition of revenue and expense for income tax and financial statement purposes, as well as tax liabilities associated with uncertain tax positions.

The deferred tax assets we record each period depend primarily on our ability to generate future taxable income in the United States and certain non-U.S. jurisdictions. Each period, we evaluate the need for a valuation allowance for our deferred tax assets and, if necessary, adjust the valuation allowance so that net deferred tax assets are recorded only to the extent we conclude it is more likely than not that these deferred tax assets will be realized.

In evaluating our ability to recover our deferred tax assets, in full or in part, we consider all available positive and negative evidence, including our past operating results, and our forecast of future earnings, future taxable income and prudent and feasible tax planning strategies. The assumptions utilized in determining future taxable income require significant judgment and are consistent with the plans and estimates we are using to manage the underlying businesses. Actual operating results in future years could differ from our current assumptions, judgments, and estimates. If our outlook for future taxable income changes significantly, our assessment of the need for, and the amount of, a valuation allowance may also change resulting in an additional tax provision or benefit.

Recent Accounting Pronouncements

See “Item 8. Financial Statements and Supplementary Data—Note 1. Basis of Presentation and Summary of Significant Accounting Policies” for information regarding the effect of new accounting pronouncements on our financial statements.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following is a discussion of the Company’s financial condition, changes in financial condition and results of operations for the fiscal years ended July 1, 2022 and July 2, 2021. Discussions of year-to-year comparisons between fiscal years 2021 and 2020 are not included in this Annual Report on Form 10-K and can be found in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended July 2, 2021, which was filed with the SEC on August 6, 2021.

You should read this discussion in conjunction with “Item 8. Financial Statements and Supplementary Data” included elsewhere in this Annual Report on Form 10-K. Except as noted, references to any fiscal year mean the twelve-month period ending on the Friday closest to June 30 of that year. Accordingly, fiscal year 2022 and 2021 both comprised of 52 weeks and ended on July 1, 2022 and July 2, 2021, respectively. Fiscal year 2026 will be comprised of 53 weeks and will end on July 3, 2026.

Our Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is provided in addition to the accompanying 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:

•Fiscal Year 2022 Summary. Overview of financial and other highlights affecting us in fiscal year 2022.

•Results of Operations. Analysis of our financial results comparing fiscal years 2022 and 2021.

•Liquidity and Capital Resources. Analysis of changes in our balance sheets and cash flows, discussion of our financial condition including potential sources of liquidity, and material cash requirements and their general purpose.

•Critical Accounting Estimates. Accounting 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. Business—Overview.”

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Fiscal Year 2022 Summary

During fiscal year 2022, we shipped 631 exabytes of HDD storage capacity. We generated revenue of approximately $11.7 billion with a gross margin of 30%, net income of $1.6 billion, diluted EPS of $7.36 and our operating cash flow was $1.7 billion. We increased our unsecured revolving credit facility (“Revolving Credit Facility”) to $1.75 billion, borrowed $1.2 billion under our new term loan facility and repaid $701 million of our long-term debt. We repurchased approximately 20 million of our ordinary shares for $1.8 billion and paid $610 million in dividends.

Impact of COVID-19 Pandemic

The pandemic continues to impact our business and results of operations. During fiscal year 2022, we experienced the ongoing impacts of supply chain disruptions, higher logistics, materials and operational costs globally, as well as other inflationary and macroeconomic pressures. Additionally, constraints from certain component shortages impacted our ability to fulfill demand primarily for our non-HDD business. Our customers also continued to experience certain supply chain and demand disruptions, resulting in demand variations across certain of our end markets, including impacts from periodic governmental lockdown measures. We expect these factors will continue to impact our business and results of operations over the near term.

We continue to actively monitor the effects and potential impacts of the pandemic, inflation and other macroeconomic factors on all aspects of our business, supply chain, liquidity and capital resources including governmental policies that could periodically shut down an entire city where we, our suppliers or our customers operate. We are also actively working on opportunities to lower our cost structure, drive further operational efficiencies and maintain supply chain discipline including adjusting our manufacturing production plans in response to these business conditions. We are complying with governmental rules and guidelines across all of our sites. Although we are unable to predict the future impact of the pandemic on our business, results of operations, liquidity or capital resources at this time, we expect we will continue to be negatively affected if the pandemic and related public and private health measures result in substantial manufacturing or supply chain challenges, substantial reductions or delays in demand due to disruptions in the operations of our customers or partners, disruptions in local and global economies, volatility in the global financial markets, sustained reductions or volatility in overall demand trends, restrictions on the export or shipment of our products or our customer’s products, or other unexpected ramifications from the pandemic. For a further discussion of the uncertainties and business risks associated with the COVID-19 pandemic, see the section entitled “Risk Factors” in Part I, Item 1A of our Annual Report.

Results of Operations

We list in the tables below summarized information from our Consolidated Statements of Operations by dollar amounts and as a percentage of revenue:

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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 the bill from location.

Revenue

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Revenue in fiscal year 2022 increased approximately 9%, or $980 million, from fiscal year 2021, primarily due to an increase in mass capacity exabytes shipped, partially offset by a decrease in legacy exabytes shipped. The mass capacity storage markets continued to increase as a percentage of our total revenue and exabytes shipped in fiscal year 2022. We expect this transition from legacy to mass capacity storage markets will continue, resulting in mass capacity continuing to increase as a percentage of our total revenue and total exabytes shipped in fiscal year 2023 and beyond. The long-term outlook for legacy markets is for a decrease in exabyte demand.

Cost of Revenue and Gross Margin

For fiscal year 2022, gross margin increased compared to the prior fiscal year primarily due to an increase in mass capacity exabytes shipped and improved product mix shift towards higher capacity HDDs, partially offset by higher component and logistics costs resulting from the pandemic and global inflationary pressures.

Operating Expenses

Product Development Expense. Product development expenses for fiscal year 2022 increased by $38 million from fiscal year 2021 primarily due to a $25 million increase in materials expense, a $17 million increase in depreciation expenses, an $8 million increase in compensation and other employee benefits as a result of increase in share-based compensation and a $3 million increase in equipment expense, partially offset by a $12 million decrease in outside services expense and a $9 million decrease in variable compensation expense.

Marketing and Administrative Expense. Marketing and administrative expenses for fiscal year 2022 increased by $57 million from fiscal year 2021 primarily due to a $17 million increase in compensation and other employee benefits as a result of an increase in share-based compensation, a $16 million increase in outside services expense, a $6 million increase in travel expenses as a result of the easing of pandemic-related travel restrictions, a $5 million increase in advertising costs and a $3 million increase in information technology costs.

Amortization of Intangibles. Amortization of intangibles for fiscal year 2022 decreased by $1 million, as compared to fiscal year 2021, due to certain intangible assets that reached the end of their useful lives.

Restructuring and Other, net. Restructuring and other, net for fiscal year 2022 was not material.

Restructuring and other, net for fiscal year 2021 was $8 million, primarily comprised of workforce reduction costs and supplier transition costs, partially offset by a gain from the sale of a certain property and a gain upon termination of an operating lease.

Other Expense, net

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Other expense, net for fiscal year 2022 increased by $132 million compared to fiscal year 2021 primarily due to a net $97 million higher non-recurring gain from our strategic investments in the prior-year period, a $29 million increase in interest expense from the issuance of long-term debt and a $21 million increase in losses on de-designated cash flow hedges. These changes were partially offset by a $16 million decrease in foreign exchange remeasurement expense.

Income Taxes

We recorded an income tax provision of $30 million for fiscal year 2022 compared to an income tax provision of $34 million for fiscal year 2021. Our fiscal year 2022 income tax provision included net tax benefits of approximately $15 million related to share-based compensation, $6 million resulting from recognition of deferred tax assets and $5 million associated with change in the applicable tax rate within our non-U.S. operations. Our fiscal year 2021 income tax provision included net tax benefits of approximately $8 million primarily associated with share-based compensation and $13 million related to the United Kingdom tax rate changes enacted in June 2021.

Our Irish tax resident parent holding company owns various U.S. and non-Irish subsidiaries that operate in multiple non-Irish income tax jurisdictions. Our worldwide operating income is either subject to varying rates of income tax or is exempt from income tax due to tax incentive programs we operate under in Singapore and Thailand. These tax incentives are scheduled to expire in whole or in part at various dates through 2033. Certain tax incentives may be extended if specific conditions are met.

Our income tax provision recorded for fiscal years 2022 and 2021 differed from the provision for income taxes that would be derived by applying the Irish statutory rate of 25% to income before income taxes, primarily due to the net effect of (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.

We anticipate that our effective tax rate in future periods will generally be less than the Irish statutory rate based on our ownership structure, our intention to indefinitely reinvest earnings from our subsidiaries outside of Ireland and the potential future increases in our valuation allowance for deferred tax assets.

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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, will allow us to manage the ongoing impacts of the pandemic on our business operations for the foreseeable future. However, some challenges posed by the pandemic 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 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 July 1, 2022.

Cash and Cash Equivalents

Our cash and cash equivalents decreased by $594 million from July 2, 2021 primarily as a result of repurchases of our ordinary shares of $1.8 billion, repayment of long-term debt of $701 million, payment of dividends to our shareholders of $610 million and payments for capital expenditures of $381 million, partially offset by net cash of $1.7 billion provided by operating activities and net proceeds of $1.2 billion from issuance of long-term debt. The following table summarizes results from the Consolidated Statement of Cash Flows for the periods indicated:

Cash Provided by Operating Activities

Cash provided by operating activities for fiscal year 2022 was approximately $1.7 billion and includes the effects of net income adjusted for non-cash items including depreciation, amortization, share-based compensation and:

•an increase of $228 million in accounts payable, primarily due to timing of payments and an increase in materials purchased; partially offset by

•an increase of $374 million in accounts receivable, primarily due to linearity of sales; and

•an increase of $361 million in inventories, primarily due to timing of shipments, and an increase in materials purchased for production of higher capacity drives and to mitigate supply chain disruptions.

Cash provided by operating activities for fiscal year 2021 was approximately $1.6 billion and includes the effects of net income adjusted for non-cash items including depreciation, amortization, share-based compensation and:

•an increase of $58 million in accrued employee compensation, primarily due to an increase in our variable compensation expense; partially offset by

•an increase of $64 million in inventories, primarily due to an increase in materials purchased for increased production of higher capacity drives and to mitigate supply chain disruptions; and

•an increase of $42 million in accounts receivable, primarily due to an increase in revenue.

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Cash Used in Investing Activities

In fiscal year 2022, we used $352 million for net cash investing activities, which was primarily due to payments for the purchase of property, equipment and leasehold improvements of $381 million and payments for the purchase of investments of $18 million, partially offset by proceeds from the sale of investments of $47 million.

In fiscal year 2021, we used $466 million for net cash investing activities, which was primarily due to payments for the purchase of property, equipment and leasehold improvements of approximately $498 million, partially offset by proceeds from the sale of investments of $29 million

Cash Used in Financing Activities

Net cash used in financing activities of $1.9 billion for fiscal year 2022 was primarily attributable to the following activities:

•$1.8 billion in payments for repurchases of our ordinary shares;

•$701 million net repurchases of long-term debt; and

•$610 million in dividend payments; partially offset by

•$1.2 billion from the issuance of long-term debt; and

•$68 million in proceeds from the issuance of ordinary shares under employee stock plans.

Net cash used in financing activities of $1.7 billion for fiscal year 2021 was primarily attributable to the following activities:

•$2.0 billion in payments for repurchases of our ordinary shares; and

•$649 million in dividend payments; partially offset by

•$986 million from the issuance of Senior Notes; and

•$108 million in proceeds from the issuance of ordinary shares under employee stock plans.

Liquidity Sources

Our primary sources of liquidity as of July 1, 2022, consist of: (1) approximately $615 million in cash and cash equivalents, (2) cash we expect to generate from operations and (3) $1.75 billion available for borrowing under our senior unsecured revolving credit facility (“Revolving Credit Facility”), which is part of our credit agreement (the “Credit Agreement”).

As of July 1, 2022, 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 July 1, 2022, we were in compliance with all of the covenants under our debt agreements. Based on our current outlook and the information we currently have available to us, we expect to be in compliance with the covenants in our debt agreements over the next 12 months.

As of July 1, 2022, cash and cash equivalents held by non-Irish subsidiaries was $614 million. This amount is potentially subject to taxation in Ireland upon repatriation by means of a dividend into our Irish parent. However, it is our intent to indefinitely reinvest earnings of non-Irish subsidiaries outside of Ireland and our current plans do not demonstrate a need to repatriate such earnings by means of a taxable Irish dividend. Should funds be needed in the Irish parent company and should we be unable to fund parent company activities through means other than a taxable Irish dividend, we would be required to accrue and pay Irish taxes on such dividend.

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 factors that could impact our ability to fund our operations and meet our cash requirements, including the COVID-19 pandemic, see the section entitled “Risk Factors” in Part I, Item 1A of this Annual Report.

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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.

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 July 1, 2022, we had unconditional purchase obligations of approximately $4.5 billion, primarily related to purchases of inventory components with our suppliers. We expect $1.5 billion of these commitments to be paid within one year.

Capital expenditures

We incur material capital expenditures to design and manufacture our products that depend on advanced technologies and manufacturing techniques. As of July 1, 2022, we had unconditional commitment of $307 million primarily related to purchases of equipment, of which approximately $167 million is expected to be paid within one year. For fiscal year 2023, we expect capital expenditures to be aligned to our long-term targeted range of 4% to 6% of revenue.

Operating leases

We are a lessee in several operating leases related to real estate facilities for warehouse and office space. As of July 1, 2022, the amount of future minimum rent expense for both occupied and vacated facilities net of sublease income under non-cancelable operating lease contracts was $58 million, of which $14 million is expected to be paid within one year. Refer to “Item 8. Financial Statements and Supplementary Data—Note 6. Leases” for details.

Long-term debt and interest payments on debt

As of July 1, 2022, the future principal payment obligation on our long-term debt was $5.7 billion, of which $585 million will mature within one year. As of July 1, 2022, future interest payments on these outstanding debt is estimated to be approximately $1.3 billion, of which $223 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 8. Financial Statements and Supplementary Data—Note 4. Debt” for more details.

Income Tax

As of July 1, 2022, we had a liability for unrecognized tax benefits and an accrual for the payment of related interest totaling $3 million, none of which is expected to be settled within one year. Outside of one year, we are unable to make a reasonably reliable estimate of when cash settlement with a taxing authority will occur.

Dividends

On July 21, 2022, our Board of Directors declared a quarterly cash dividend of $0.70 per share, which will be payable on October 5, 2022 to shareholders of record as of the close of business on September 21, 2022. 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 the Company’s 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. Our Board of Directors increased the authorization for the repurchase of our outstanding ordinary shares by $3.0 billion on October 21, 2020, and $2.0 billion on February 22, 2021. During fiscal year 2022, we repurchased approximately 21 million of our ordinary shares including shares withheld for statutory tax withholdings related to vesting of employee equity awards. See “Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities-Repurchases of Our Equity Securities.” As of July 1, 2022, $2.4 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.

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

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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.

Critical Accounting Policies and Estimates

The Company’s accounting policies are more fully described in “Item 8. Financial Statements and Supplementary Data—Note 1. Basis of Presentation and Summary of Significant Accounting Policies ”. The methods, estimates and judgments we use in applying our most critical accounting policies have a significant impact on the results we report in our consolidated financial statements. Critical accounting estimates are those estimates that involve a significant level of estimation uncertainty and have had or are reasonably likely to have a material impact on our financial condition or results of operations. Based on this definition, our most critical accounting policies include: Revenue - Sales Program Accruals, Warranty and Income Taxes. Below, we discuss these policies further, as well as the estimates and judgments involved. We also have other accounting policies and accounting estimates relating to uncollectible customer accounts, valuation of inventories, assessing goodwill and other long-lived assets for impairment, valuation of share-based payments and restructuring. We believe that these other accounting policies and accounting estimates either do not generally require us to make estimates and judgments that are as difficult or as subjective, or it is less likely that they would have a material impact on our reported results of operations for a given period.

Revenue - Sales Program Accruals. We record estimated variable consideration at the time of revenue recognition as a reduction to revenue. Variable consideration generally consists of sales incentive programs, such as price protection and volume incentives aimed at increasing customer demand. For OEM sales, rebates are typically established by estimating the most likely amount of consideration expected to be received based on an OEM customer's volume of purchases from us or other agreed upon rebate programs. For the distribution and retail channel, these sales incentive programs typically involve estimating the most likely amount of rebates related to a customer's level of sales, order size, advertising or point of sale activity as well as the expected value of price protection adjustments based on historical analysis and forecasted pricing environment. Total sales programs were 14% and 14% of gross revenue in fiscal years 2022 and 2021, respectively. Adjustments to revenues due to under or over accruals for sales programs related to revenues reported in prior quarterly periods were less than 1% of gross revenue in fiscal years 2022 and 2021.

Warranty. We estimate probable product warranty costs at the time revenue is recognized. Our warranty provision considers estimated product failure rates, trends (including the timing of product returns during the warranty periods), and estimated repair or replacement costs related to product quality issues, if any. Unforeseen component failures or exceptional component performance can result in changes to warranty costs. We also exercise judgment in estimating our ability to sell refurbished products based on historical experience. Our judgment is subject to a greater degree of subjectivity with respect to newly introduced products because of limited experience with those products upon which to base our warranty estimates. If actual warranty costs differ substantially from our estimates, revisions to the estimated warranty liability would be required, which could have a material adverse effect on our results of operations.

Income Taxes. We make certain estimates and judgments in determining income tax expense for financial statement purposes. These estimates and judgments occur in the calculation of tax credits, recognition of income and deductions and calculation of specific tax assets and liabilities, which arise from differences in the timing of recognition of revenue and expense for income tax and financial statement purposes, as well as tax liabilities associated with uncertain tax positions.

The deferred tax assets we record each period depend primarily on our ability to generate future taxable income in the United States and certain non-U.S. jurisdictions. Each period, we evaluate the need for a valuation allowance for our deferred tax assets and, if necessary, adjust the valuation allowance so that net deferred tax assets are recorded only to the extent we conclude it is more likely than not that these deferred tax assets will be realized.

In evaluating our ability to recover our deferred tax assets, in full or in part, we consider all available positive and negative evidence, including our past operating results, and our forecast of future earnings, future taxable income and prudent and feasible tax planning strategies. The assumptions utilized in determining future taxable income require significant judgment and are consistent with the plans and estimates we are using to manage the underlying businesses. Actual operating results in future years could differ from our current assumptions, judgments, and estimates. If our outlook for future taxable income changes significantly, our assessment of the need for, and the amount of, a valuation allowance may also change resulting in an additional tax provision or benefit.

Recent Accounting Pronouncements

See “Item 8. Financial Statements and Supplementary Data—Note 1. Basis of Presentation and Summary of Significant Accounting Policies” for information regarding the effect of new accounting pronouncements on our financial statements.

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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following is a discussion of the Company’s financial condition, changes in financial condition and results of operations for the fiscal years ended July 2, 2021, July 3, 2020 and June 28, 2019.

You should read this discussion in conjunction with “Item 8. Financial Statements and Supplementary Data” included elsewhere in this Annual Report on Form 10-K. Except as noted, references to any fiscal year mean the twelve-month period ending on the Friday closest to June 30 of that year. Accordingly, fiscal year 2021 comprised 52 weeks and ended on July 2, 2021. Fiscal year 2020 comprised 53 weeks and ended on July 3, 2020. Fiscal year 2019 comprised 52 weeks and ended on June 28, 2019. Fiscal year 2026 will also be comprised of 53 weeks and will end on July 3, 2026.

Our Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is provided in addition to the accompanying 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:

•Fiscal Year 2021 Summary. Overview of financial and other highlights affecting us in fiscal year 2021.

•Results of Operations. Analysis of our financial results comparing fiscal years 2021 and 2020 to the prior-year periods.

•Liquidity and Capital Resources. Analysis of changes in our balance sheets and cash flows, and discussion of our financial condition including potential sources of liquidity.

•Contractual Obligations and Off-Balance Sheet Arrangements. Overview of contractual obligations and contingent liabilities and commitments outstanding as of July 2, 2021 and an explanation of off-balance sheet arrangements.

•Critical Accounting Estimates. Accounting 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. Business—Overview.”

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Fiscal Year 2021 Summary

During fiscal year 2021, we shipped 535 exabytes of HDD storage capacity. We generated revenue of $10.7 billion, gross margins of 27%, net income of $1.3 billion and diluted EPS of $5.36 and our operating cash flow was $1.6 billion. We increased our unsecured revolving credit facility (“Revolving Credit Facility”) to $1.725 billion and issued $1.0 billion of new senior notes. We repurchased approximately 33 million of our ordinary shares for $2.0 billion and paid $649 million in dividends.

Impact of COVID-19

The COVID-19 pandemic has resulted in a widespread health crisis and numerous disease control measures being taken to limit its spread, the effects of which began during our quarter ended April 3, 2020. We continued to incur certain supply chain and demand disruptions during the fiscal year 2021, as well as higher logistics and operational costs and softer or higher demand across certain markets due to the COVID-19 pandemic, which we expect to continue into our fiscal year 2022. Our customers also continued to experience certain supply chain and demand disruptions in fiscal year 2021, which we anticipate will continue into fiscal year 2022. We are continuing to actively monitor the effects and potential impacts of the COVID-19 pandemic on all aspects of our business, liquidity and capital resources. We are complying with governmental rules and guidelines across all of our sites and are actively working on opportunities to lower our cost structure and drive further operational efficiencies. Although we are unable to predict the impact of COVID-19 on our business, results of operations, liquidity or capital resources at this time, we expect we will be negatively affected if the pandemic and related public and private health measures result in substantial manufacturing or supply chain problems, substantial reductions in demand due to disruptions in the operations of our customers or partners, disruptions in local and global economies, volatility in the global financial markets, sustained reductions or volatility in overall demand trends, restrictions on the export or shipment of our products, or other ramifications from the COVID-19 pandemic. For a further discussion of the uncertainties and business risks associated with the COVID-19 pandemic, see the section entitled “Risk Factors” in Part I, Item 1A of this Annual Report.

Corporate Reorganization

On May 18, 2021 we completed a corporate reorganization whereby a new Irish public limited company, Seagate Technology Holdings plc, serves as the publicly traded parent company of Seagate. The reorganization was carried out pursuant to a scheme of arrangement (the “Scheme”) under Irish law, which resulted in the exchange of ordinary shares of Seagate Technology plc for ordinary shares of Seagate Technology Holdings plc on a one-for-one basis. The purpose of the reorganization and the related transactions, which were completed on July 16, 2021, was to allow us to maintain our ability to make future distributions to our shareholders, including making dividend payments and effecting share redemptions and repurchases.

Results of Operations

We list in the tables below summarized information from our Consolidated Statements of Operations by dollar amounts and as a percentage of revenue:

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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 the bill from location.

Fiscal Year 2021 Compared to Fiscal Year 2020

Revenue

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Revenue in fiscal year 2021 increased approximately 2%, or $172 million, from fiscal year 2020, primarily due to an increase in mass capacity exabytes shipped, partially offset by price erosion and a decrease in legacy exabytes shipped.

Cost of Revenue and Gross Margin

For fiscal year 2021, gross margin as a percentage of revenue remained flat compared to the prior fiscal year primarily due to improved product mix, offset by price erosion and higher logistics costs as a result of the COVID-19 pandemic.

Operating Expenses

Product Development Expense. Product development expenses for fiscal year 2021 decreased by $70 million from fiscal year 2020 primarily due to a $42 million decrease in compensation and other employee benefits from the reduction in headcount as a result of our June 2020 restructuring plan and the additional fourteenth week in the quarter ended October 4, 2019, a $19 million decrease in information technology and software costs, a $9 million decrease in travel and entertainment expenses mainly as a result of the disruptions related to COVID-19, a $9 million decrease in materials expense and a $6 million decrease in outside services, partially offset by a $23 million increase in variable compensation expense.

Marketing and Administrative Expense. Marketing and administrative expenses for fiscal year 2021 increased by $29 million from fiscal year 2020 primarily due to a $46 million increase in information technology and software costs and a $14 million increase in variable compensation expense, partially offset by a $12 million decrease in depreciation expense, an $11 million decrease in travel and entertainment expenses mainly as a result of disruptions related to COVID-19, an $8 million decrease in equipment expense and a $7 million decrease in rent expense.

Amortization of Intangibles. Amortization of intangibles for fiscal year 2021 decreased by $2 million, as compared to fiscal year 2020, due to certain intangible assets that reached the end of their useful lives.

Restructuring and Other, net. Restructuring and other, net for fiscal year 2021 was $8 million, primarily comprised of workforce reduction costs and supplier transition costs, partially offset by a gain from the sale of a certain property and a gain upon termination of an operating lease.

Restructuring and other, net for fiscal year 2020 was $82 million, primarily comprised of restructuring charges related to the restructuring plan the Company committed to on June 1, 2020 to reduce our workforce by approximately 500 employees and charges related to a voluntary early exit program and other restructuring plans.

Other Expense, net

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Other expense, net for fiscal year 2021 decreased by $124 million compared to fiscal year 2020 primarily due to $62 million non-recurring losses in fiscal year 2020 from the repurchase and exchange of certain long-term debt, $51 million of strategic investment gains resulting from sales and upward adjustments in fiscal year 2021, a $49 million increase in equity method investment gains, a $15 million increase in gains on de-designated cash flow hedges and a $6 million decrease in strategic investment impairment charges. These changes were partially offset by a $20 million increase in foreign exchange remeasurement expense, a $19 million increase in interest expense due to the net increase in debt and a $17 million decrease in interest income primarily due to a decline in interest rates.

Income Taxes

We recorded an income tax provision of $34 million for fiscal year 2021 compared to an income tax provision of $28 million for fiscal year 2020. Our fiscal year 2021 income tax provision included net tax benefits of approximately $8 million associated with share-based compensation and $13 million related to the United Kingdom tax rate changes enacted in June 2021. Our fiscal year 2020 income tax provision included net tax benefits of approximately $12 million associated with share-based compensation and $16 million associated with the release of valuation allowances on deferred tax assets driven by our profitability outlook in the U.S.

Our Irish tax resident parent holding company owns various U.S. and non-Irish subsidiaries that operate in multiple non-Irish income tax jurisdictions. Our worldwide operating income is either subject to varying rates of income tax or is exempt from income tax due to tax incentive programs we operate under in Malaysia, Singapore and Thailand. These tax incentives are scheduled to expire in whole or in part at various dates through 2025. Certain tax incentives may be extended if specific conditions are met.

Our income tax provision recorded for fiscal year 2021 and 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 (i) tax benefits related to non-U.S. and non-Irish earnings generated in jurisdictions that are subject to tax incentive programs and are considered indefinitely reinvested outside of Ireland; and (ii) tax benefits related to research credits.

Based on our ownership structure and subject to (i) potential future increases in our valuation allowance for deferred tax assets; and (ii) a future change in our intention to indefinitely reinvest earnings from our subsidiaries outside of Ireland, we anticipate that our effective tax rate in future periods will generally be less than the Irish statutory rate.

Fiscal Year 2020 Compared to Fiscal Year 2019

Revenue

Revenue in fiscal year 2020 increased approximately 1%, or $119 million, from fiscal year 2019, primarily due to an increase in mass capacity storage exabytes shipped, partially offset by price erosion and a decrease in legacy exabytes shipped.

Cost of Revenue and Gross Margin

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For fiscal year 2020, gross margin as a percentage of revenue decreased compared to the prior fiscal year due to price erosion and higher logistics costs and factory under-utilization due to COVID-19 related disruptions, partially offset by improved product mix and lower depreciation expense due to the change in useful lives of our manufacturing equipment in the quarter ended October 4, 2019.

Operating Expenses

Product Development Expense. Product development expenses for fiscal year 2020 decreased by $18 million from fiscal year 2019 primarily due to a $21 million decrease in depreciation expense and an $18 million decrease in materials expense, partially offset by a $13 million increase in outside services expense, an $8 million increase in variable compensation expense and a $7 million increase in compensation and other employee benefits.

Marketing and Administrative Expense. Marketing and administrative expenses for fiscal year 2020 increased by $20 million from fiscal year 2019 primarily due to a $13 million increase in other general expenses, an $11 million increase in outside services expense, a $6 million increase in share-based compensation expense and a $5 million increase in variable compensation expense, partially offset by a $5 million decrease in compensation and other employee benefits and a $4 million decrease in depreciation expense.

Amortization of Intangibles. Amortization of intangibles for fiscal year 2020 decreased by $9 million compared to fiscal year 2019, due to certain intangible assets reaching the end of their useful lives.

Restructuring and Other, net. Restructuring and other, net for fiscal year 2020 was comprised of a $82 million, primarily comprised of restructuring charges related to the restructuring plan the Company committed to on June 1, 2020 to reduce our workforce by approximately 500 employees and charges related to a voluntary early exit program and other restructuring plans.

Restructuring and other, net for fiscal year 2019 was comprised of a $75 million net gain from the sale of a certain property, partially offset by charges related to a voluntary early exit program.

Other Expense, net

Other expense, net for fiscal year 2020 increased by $153 million compared to fiscal year 2019 mainly due to $80 million of non-recurring income, net in fiscal year 2019 related to our previous investment in Toshiba Memory Holdings Corporation (“TMHC”), now known as Kioxia, which was redeemed in fiscal year 2019, a $62 million loss resulting from the repurchase of certain long-term debt, an $18 million strategic investment impairment and an $11 million net increase in losses due to unfavorable changes in foreign currency exchange rates, partially offset by a $20 million decrease in interest expense related to the repurchase of certain long-term debt.

Income Taxes

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We recorded an income tax provision of $28 million for fiscal year 2020 compared to an income tax benefit of $640 million for fiscal year 2019. Our fiscal year 2020 income tax provision included net tax benefits of approximately $12 million associated with share-based compensation and $16 million associated with the release of valuation allowance on deferred tax assets driven by our profitability outlook in the U.S. Our fiscal year 2019 income tax benefit included a net tax benefit of $761 million primarily associated with the release of valuation allowance on deferred tax assets driven by improvements in our profitability outlook in the U.S., including our efforts to structurally and operationally align our systems business with the rest of the Company.

Our Irish tax resident parent holding company owns various U.S. and non-Irish subsidiaries that operate in multiple non-Irish income tax jurisdictions. Our worldwide operating income is either subject to varying rates of income tax or is exempt from income tax due to tax incentive programs we operate under in Malaysia, Singapore and Thailand. These tax incentives are scheduled to expire in whole or in part at various dates through 2025. Certain tax incentives may be extended if specific conditions are met.

Our income tax provision recorded for fiscal year 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 (i) tax benefits related to non-U.S. and non-Irish earnings generated in jurisdictions that are subject to tax incentive programs and are considered indefinitely reinvested outside of Ireland; and (ii) tax benefits related to research credits. Our income tax benefit recorded for fiscal year 2019 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 (i) a decrease in valuation allowances for certain deferred tax assets, primarily driven by improvements in our profitability outlook in the U.S.; and (ii) tax benefits related to non-U.S. and non-Irish earnings generated in jurisdictions that are subject to tax incentive programs and are considered indefinitely reinvested outside of Ireland.

Based on our ownership structure and subject to (i) potential future increases in our valuation allowance for deferred tax assets; and (ii) a future change in our intention to indefinitely reinvest earnings from our subsidiaries outside of Ireland, we anticipate that our effective tax rate in future periods will generally be less than the Irish statutory rate.

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 that our sources of cash have been and will continue to be sufficient to fund our operations and meet our cash requirements for at least the next 12 months. Although there can be no assurance, we believe that our financial resources, along with controlling our costs, will allow us to manage the potential impacts of the COVID-19 pandemic on our business operations for the foreseeable future. However, the challenges posed by the COVID-19 pandemic 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 COVID-19 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 July 2, 2021.

Cash and Cash Equivalents

Our cash and cash equivalents decreased by $513 million from July 3, 2020 primarily as a result of repurchases of our ordinary shares of $2,047 million, payment of dividends to our shareholders of $649 million and payments for capital expenditures of $498 million, partially offset by net cash of $1,626 million provided by operating activities and net proceeds of $986 million from issuance of long-term debt. The following table summarizes results from the Consolidated Statement of Cash Flows for the periods indicated:

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Cash Provided by Operating Activities

Cash provided by operating activities for fiscal year 2021 was approximately $1.6 billion and includes the effects of net income adjusted for non-cash items including depreciation, amortization, share-based compensation and:

•an increase of $58 million in accrued employee compensation, primarily due to an increase in our variable compensation expense; partially offset by

•an increase of $64 million in inventories, primarily due to an increase in materials purchased for increased production of higher capacity drives and to mitigate supply chain disruptions; and

•an increase of $42 million in accounts receivable, primarily due to an increase in revenue.

Cash provided by operating activities for fiscal year 2020 was approximately $1.7 billion and includes the effects of net income adjusted for non-cash items including depreciation, amortization, share-based compensation and:

•an increase of $394 million in accounts payable, primarily due to timing of payments and an increase in materials purchased; partially offset by

•an increase of $166 million in inventories, primarily due to an increase in materials purchased for new product ramps and the potential for supply chain disruptions due to the COVID-19 pandemic; and

•an increase of $127 million in accounts receivable, primarily due to the timing of shipments.

Cash provided by operating activities for fiscal year 2019 was approximately $1.8 billion and includes the effects of net income adjusted for non-cash items including depreciation and amortization, share-based compensation, a release of valuation allowance related to our U.S. deferred tax assets and:

•    a decrease of $204 million in accounts receivable, primarily due to lower revenue; and

•    a decrease of $80 million in inventories, primarily due to a decrease in units built; partially offset by

•    a decrease of $268 million in accounts payable, primarily due to a decrease in direct material purchases; and

•    a decrease of $84 million in accrued employee compensation, primarily due to a decrease in our variable compensation expense.

Cash (Used in) Provided by Investing Activities

In fiscal year 2021, we used $0.5 billion for net cash investing activities, which was primarily due to payments for the purchase of property, equipment and leasehold improvements of approximately $498 million, partially offset by proceeds from the sale of investments of $29 million.

In fiscal year 2020, we used $0.6 billion for net cash investing activities, which was primarily due to payments for the purchase of property, equipment and leasehold improvements of approximately $585 million and payments for the purchase of investments of $58 million.

In fiscal year 2019, we received $0.8 billion for net cash investing activities, which was primarily due to proceeds of $1.3 billion from the redemption of an investment in non-convertible preferred stock of TMHC and the proceeds of $144 million primarily from the sale of certain properties, partially offset by the payments for the purchase of property, equipment and leasehold improvements of approximately $602 million.

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Cash Used in Financing Activities

Net cash used in financing activities of $1.7 billion for fiscal year 2021 was primarily attributable to the following activities:

•$2,047 million in payments for repurchases of our ordinary shares;

•$649 million in dividend payments; partially offset by

•$986 million from the issuance of Senior Notes; and

•$108 million in proceeds from the issuance of ordinary shares under employee stock plans.

Net cash used in financing activities of $1.6 billion for fiscal year 2020 was primarily attributable to the following activities:

•$1,137 million net repurchases of long-term debt;

•$850 million in payments for repurchases of our ordinary shares;

•$673 million in dividend payments; partially offset by

•$498 million in net proceeds from borrowings under the Term Loan;

•$496 million from the issuance of Senior Notes; and

•$103 million in proceeds from the issuance of ordinary shares under employee stock plans.

Net cash used in financing activities of $2.2 billion for fiscal year 2019 was primarily attributable to the following activities:

•$963 million in payments for repurchases of our ordinary shares;

•$713 million in dividend payments; and

•$574 million net repurchases of long-term debt.

Liquidity Sources

Our primary sources of liquidity as of July 2, 2021, consist of: (1) approximately $1.2 billion in cash and cash equivalents, (2) cash we expect to generate from operations and (3) $1.725 billion available for borrowing under our senior unsecured revolving credit facility (“Revolving Credit Facility”), which is part of our credit agreement (the “Credit Agreement”).

As of July 2, 2021, 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 February 20, 2024.

As of July 2, 2021, cash and cash equivalents held by non-Irish subsidiaries was $1.2 billion. This amount is potentially subject to taxation in Ireland upon repatriation by means of a dividend into our Irish parent. However, it is our intent to indefinitely reinvest earnings of non-Irish subsidiaries outside of Ireland and our current plans do not demonstrate a need to repatriate such earnings by means of a taxable Irish dividend. Should funds be needed in the Irish parent company and should we be unable to fund parent company activities through means other than a taxable Irish dividend, we would be required to accrue and pay Irish taxes on such dividend.

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. For additional information on factors that could impact our ability to fund our operations and meet our cash requirements, including the COVID-19 pandemic, see the section entitled “Risk Factors” in Part I, Item 1A of this Annual Report.

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. Our ability to fund these requirements 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.

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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.

On July 19, 2021, our Board of Directors declared a quarterly cash dividend of $0.67 per share, which will be payable on October 6, 2021 to shareholders of record as of the close of business on September 22, 2021.

As of July 2, 2021, we were in compliance with all of the covenants under our debt agreements. Based on our current outlook and the information we currently have available to us, we expect to be in compliance with the covenants in our debt agreements over the next 12 months.

The carrying value of our debt as of July 2, 2021 and July 3, 2020 was $5.1 billion and $4.2 billion, respectively. The table below presents the principal amounts of our outstanding debt:

From time to time, at the Company’s 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. Our Board of Directors increased the authorization for the repurchase of our outstanding ordinary shares by $3.0 billion on October 21, 2020, and $2.0 billion on February 22, 2021. During fiscal year 2021, we repurchased approximately 34 million of our ordinary shares including shares withheld for statutory tax withholdings related to vesting of employee equity awards. See “Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities-Repurchases of Our Equity Securities.” As of July 2, 2021, $4.2 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.

For fiscal year 2022, we expect capital expenditures to be aligned to our updated 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.

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Contractual Obligations and Commitments

Our contractual cash obligations and commitments as of July 2, 2021, are summarized in the table below:

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(1)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.

(2)Includes total future minimum rent expense under non-cancelable leases for both occupied and vacated facilities (rent expense is shown net of sublease income). Refer to “Item 8. Financial Statements and Supplementary Data—Note 6. Leases” for details.

As of July 2, 2021, we had a liability for unrecognized tax benefits and an accrual for the payment of related interest totaling $3 million, none of which is expected to be settled within one year. Outside of one year, we are unable to make a reasonably reliable estimate of when cash settlement with a taxing authority will occur.

Off-Balance Sheet Arrangements

As of July 2, 2021, we did not have any material off-balance sheet arrangements (as defined in Item 303(a)(4)(ii) of Regulation S-K).

Critical Accounting Policies and Estimates

The methods, estimates and judgments we use in applying our most critical accounting policies have a significant impact on the results we report in our consolidated financial statements. The SEC has defined the most critical accounting policies as the ones that are most important to the portrayal of our financial condition and operating results, and require us to make our most difficult and subjective judgments, often as a result of the need to make estimates of matters that are highly uncertain at the time of estimation. Based on this definition, our most critical accounting policies include: Revenue - Sales Program Accruals, Warranty and Income taxes. Below, we discuss these policies further, as well as the estimates and judgments involved. We also have other accounting policies and accounting estimates relating to uncollectible customer accounts, valuation of inventories, assessing goodwill and other long-lived assets for impairment, valuation of share-based payments and restructuring. We believe that these other accounting policies and accounting estimates either do not generally require us to make estimates and judgments that are as difficult or as subjective, or it is less likely that they would have a material impact on our reported results of operations for a given period.

Revenue - Sales Program Accruals. We record estimated variable consideration at the time of revenue recognition as a reduction to revenue. Variable consideration generally consists of sales incentive programs, such as price protection and volume incentives aimed at increasing customer demand. For OEM sales, rebates are typically established by estimating the most likely amount of consideration expected to be received based on an OEM customer's volume of purchases from us or other agreed upon rebate programs. For the distribution and retail channel, these sales incentive programs typically involve estimating the most likely amount of rebates related to a customer's level of sales, order size, advertising or point of sale activity as well as the expected value of price protection adjustments based on historical analysis and forecasted pricing environment. Total sales programs were 14%, 12% and 11% of gross revenue in fiscal years 2021, 2020 and 2019, respectively. Adjustments to revenues due to under or over accruals for sales programs related to revenues reported in prior quarterly periods were less than 1% of gross revenue in fiscal years 2021, 2020 and 2019.

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Warranty. We estimate probable product warranty costs at the time revenue is recognized. We generally provide a warranty on our products for a period of 1 to 5 years. Our warranty provision considers estimated product failure rates and trends (including the timing of product returns during the warranty periods), and estimated repair or replacement costs related to product quality issues, if any. We also exercise judgment in estimating our ability to sell refurbished products based on historical experience. Our judgment is subject to a greater degree of subjectivity with respect to newly introduced products because of limited experience with those products upon which to base our warranty estimates.

Income Taxes. We make certain estimates and judgments in determining income tax expense for financial statement purposes. These estimates and judgments occur in the calculation of tax credits, recognition of income and deductions and calculation of specific tax assets and liabilities, which arise from differences in the timing of recognition of revenue and expense for income tax and financial statement purposes, as well as tax liabilities associated with uncertain tax positions. The calculation of tax liabilities involves uncertainties in the application of complex tax rules and the potential for future adjustment of our uncertain tax positions by various taxing authorities. If estimates of these tax liabilities are greater or less than actual results, an additional tax provision or benefit will result. The deferred tax assets we record each period depend primarily on our ability to generate future taxable income in the United States and certain non-U.S. jurisdictions. Each period, we evaluate the need for a valuation allowance for our deferred tax assets and, if necessary, adjust the valuation allowance so that net deferred tax assets are recorded only to the extent we conclude it is more likely than not that these deferred tax assets will be realized. If our outlook for future taxable income changes significantly, our assessment of the need for, and the amount of, a valuation allowance may also change.

Recent Accounting Pronouncements

See “Item 8. Financial Statements and Supplementary Data—Note 1. Basis of Presentation and Summary of Significant Accounting Policies” for information regarding the effect of new accounting pronouncements on our financial statements.