Seagate Technology Holdings plc - 10-Q filing on 2015-04-30

Fair Value

9 Months Ended

Apr. 03, 2015

Measurement of Fair Value

Fair value is defined as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required to be recorded at fair value, the Company considers the principal or most advantageous market in which it would transact and it considers assumptions that market participants would use when pricing the asset or liability.

Fair Value Hierarchy

A fair value hierarchy is based on whether the market participant assumptions used in determining fair value are obtained from independent sources (observable inputs) or reflects the Company’s own assumptions of market participant valuation (unobservable inputs). A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The three levels of inputs that may be used to measure fair value:

Level 1 — Quoted prices in active markets that are unadjusted and accessible at the measurement date for identical, unrestricted assets or liabilities;

Level 2 — Quoted prices for identical assets and liabilities in markets that are inactive; quoted prices for similar assets and liabilities in active markets or financial instruments for which significant inputs are observable, either directly or indirectly; or

Level 3 — Prices or valuations that require inputs that are both unobservable and significant to the fair value measurement.

The Company considers an active market to be one in which transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis, and views an inactive market as one in which there are few transactions for the asset or liability, the prices are not current, or price quotations vary substantially either over time or among market makers. Where appropriate the Company’s or the counterparty’s non-performance risk is considered in determining the fair values of liabilities and assets, respectively.

Items Measured at Fair Value on a Recurring Basis

The following tables present the Company’s assets and liabilities, by financial instrument type and balance sheet line item that are measured at fair value on a recurring basis, excluding accrued interest components, as of April 3, 2015:



	Fair Value Measurements at Reporting Date Using
(Dollars in millions)	Quoted Prices in Active Markets for Identical Instruments (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total Balance
Assets:
Money market funds	$	705	$	—	$	—	$	705
Certificates of deposit	—		1,481		—		1,481
Corporate bonds	—		6		—		6
Total cash equivalents and short-term investments	705		1,487		—		2,192
Restricted cash and investments:
Certificates of deposit	—		4		—		4
Total assets	$	705	$	1,491	$	—	$	2,196
Liabilities:
Derivative liabilities	$	—	$	8	$	—	$	8
Total liabilities	$	—	$	8	$	—	$	8



	Fair Value Measurements at Reporting Date Using
(Dollars in millions)	Quoted Prices in Active Markets for Identical Instruments (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total Balance
Assets:
Cash and cash equivalents	$	705	$	1,481	$	—	$	2,186
Short-term investments	—		6		—		6
Restricted cash and investments	—		4		—		4
Total assets	$	705	$	1,491	$	—	$	2,196
Liabilities:
Accrued expenses	$	—	$	8	$	—	$	8
Total liabilities	$	—	$	8	$	—	$	8



	Fair Value Measurements at Reporting Date Using
(Dollars in millions)	Quoted Prices in Active Markets for Identical Instruments (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total Balance
Assets:
Money market funds	$	793	$	—	$	—	$	793
Commercial paper	—		1,261		—		1,261
Certificates of deposit	—		269		—		269
Corporate bonds	—		6		—		6
Total cash equivalents and short-term investments	793		1,536		—		2,329
Restricted cash and investments:
Certificates of deposit	—		4		—		4
Derivative assets	—		5		—		5
Total assets	$	793	$	1,545	$	—	$	2,338
Liabilities:
Derivative liabilities	$	—	$	—	$	—	$	—
Total liabilities	$	—	$	—	$	—	$	—



	Fair Value Measurements at Reporting Date Using
(Dollars in millions)	Quoted Prices in Active Markets for Identical Instruments (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total Balance
Assets:
Cash and cash equivalents	$	793	$	1,516	$	—	$	2,309
Short-term investments	—		20		—		20
Restricted cash and investments	—		4		—		4
Other assets, net	—		5		—		5
Total assets	$	793	$	1,545	$	—	$	2,338
Liabilities:
Accrued expenses	$	—	$	—	$	—	$	—
Total liabilities	$	—	$	—	$	—	$	—

The Company classifies items in Level 1 if the financial assets consist of securities for which quoted prices are available in an active market.

The Company classifies items in Level 2 if the financial asset or liability is valued using observable inputs. The Company uses observable inputs including quoted prices in active markets for similar assets or liabilities. Level 2 assets include: agency bonds, corporate bonds, commercial paper, municipal bonds and U.S. Treasuries. These debt investments are priced using observable inputs and valuation models which vary by asset class. The Company uses a pricing service to assist in determining the fair values of all of its cash equivalents and short-term investments. For the cash equivalents and short-term investments in the Company’s portfolio, multiple pricing sources are generally available. The pricing service uses inputs from multiple industry standard data providers or other third party sources and various methodologies, such as weighting and models, to determine the appropriate price at the measurement date. The Company corroborates the prices obtained from the pricing service against other independent sources and, as of April 3, 2015, has not found it necessary to make any adjustments to the prices obtained. The Company’s derivative financial instruments are also classified within Level 2. The Company’s derivative financial instruments consist of foreign currency forward exchange contracts and the TRS. The Company recognizes derivative financial instruments in its condensed consolidated financial statements at fair value. The Company determines the fair value of these instruments by considering the estimated amount it would pay or receive to terminate these agreements at the reporting date.

The Company enters into certain strategic investments for the achievement of business and strategic objectives. Strategic investments in equity securities where the Company does not have the ability to exercise significant influence over the investees, are included in Other assets, net in the Condensed Consolidated Balance Sheets, are recorded at cost and are periodically analyzed to determine whether or not there are indicators of impairment. The carrying value of the Company’s strategic investments at April 3, 2015 and June 27, 2014 totaled $105 million and $46 million, respectively, and consisted primarily of privately held equity securities without a readily determinable fair value.

Other Fair Value Disclosures

The Company’s debt is carried at amortized cost. The fair value of the Company’s debt is derived using the closing price as of the date of valuation, which takes into account the yield curve, interest rates, and other observable inputs. Accordingly, these fair value measurements are categorized as Level 2. The following table presents the fair value and amortized cost of the Company’s debt in order of maturity:



	April 3, 2015				June 27, 2014
(Dollars in millions)	Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value
6.8% Senior Notes due October 2016	$	—	$	—	$	335	$	374
3.75% Senior Notes due November 2018	800		832		800		820
6.875% Senior Notes due May 2020	474		492		534		578
7.00% Senior Notes due November 2021	159		172		251		284
4.75% Senior Notes due June 2023	1,000		1,052		1,000		1,009
4.75% Senior Notes due January 2025	1,000		1,040		1,000		995
5.75% Senior Notes due December 2034	498		542		—		—
Long-term debt	$	3,931	$	4,130	$	3,920	$	4,060