Derivative Financial Instruments

6 Months Ended

Dec. 30, 2016

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative Financial Instruments

The Company is exposed to foreign currency exchange rate, interest rate, and to a lesser extent, equity market risks relating to its ongoing business operations. The Company enters into foreign currency forward exchange contracts in order to manage the foreign currency exchange rate risk on forecasted expenses denominated in foreign currencies. The Company's accounting policies for these instruments are based on whether the instruments are classified as designated or non-designated hedging instruments. The Company records all derivatives in the Condensed Consolidated Balance Sheets at fair value. The changes in the fair value of the effective portions of designated cash flow hedges are recorded in Accumulated other comprehensive loss until the hedged item is recognized in earnings. Derivatives that are not designated as hedging instruments and the ineffective portions of cash flow hedges are adjusted to fair value through earnings. The amounts of net unrealized loss on cash flow hedges were $3 million and $2 million as of December 30, 2016 and July 1, 2016, respectively.

The Company dedesignates its cash flow hedges when the forecasted hedged transactions are realized or it is probable the forecasted hedged transactions will not occur in the initially identified time period. At such time, the associated gains and losses deferred in Accumulated other comprehensive loss are reclassified immediately into earnings and any subsequent changes in the fair value of such derivative instruments are immediately reflected in earnings. The Company did not recognize any net gains or losses related to the loss of hedge designation on discontinued cash flow hedges during the three months endedDecember 30, 2016. As of December 30, 2016, the Company’s existing foreign currency forward exchange contracts mature within 12 months. The deferred amount currently recorded in Accumulated other comprehensive loss expected to be recognized into earnings over the next 12 months is immaterial.

The following tables show the total notional value of the Company’s outstanding foreign currency forward exchange contracts as of December 30, 2016 and July 1, 2016:

	As of December 30, 2016
(Dollars in millions)	Contracts Designated as Hedges		Contracts Not Designated as Hedges
Singapore Dollars	$	45	$	48
Thai Bhat	43		23
British Pound Sterling	37		—

	As of July 1, 2016
(Dollars in millions)	Contracts Designated as Hedges		Contracts Not Designated as Hedges
British Pound Sterling	$	47	$	10

The Company is subject to equity market risks due to changes in the fair value of the notional investments selected by its employees as part of its Non-qualified Deferred Compensation Plan—the Seagate Deferred Compensation Plan (the “SDCP”). In fiscal year 2014, the Company entered into a Total Return Swap (“TRS”) in order to manage the equity market risks associated with the SDCP liabilities. The Company pays a floating rate, based on LIBOR plus an interest rate spread, on the notional amount of the TRS. The TRS is designed to substantially offset changes in the SDCP liability due to changes in the value of the investment options made by employees. As of December 30, 2016, the notional investments underlying the TRS amounted to $100 million.The original contract term of the TRS was through January 2016, and was settled on a monthly basis, therefore limiting counterparty performance risk. The Company renewed the contract term through January 2018 under materially the same terms. The Company did not designate the TRS as a hedge. Rather, the Company records all changes in the fair value of the TRS to earnings to offset the market value changes of the SDCP liabilities.

The following tables show the Company’s derivative instruments measured at fair value as reflected in the Condensed Consolidated Balance Sheet as of December 30, 2016 and July 1, 2016:

	As of December 30, 2016
	Asset Derivatives			Liability Derivatives
(Dollars in millions)	Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value
Derivatives designated as hedging instruments:
Foreign currency forward exchange contracts	Other current assets	$	—	Accrued expenses	$	(4	)
Derivatives not designated as hedging instruments:
Foreign currency forward exchange contracts	Other current assets	—		Accrued expenses	(1		)
Total return swap	Other current assets	—		Accrued expenses	—
Total derivatives		$	—		$	(5	)

	As of July 1, 2016
	Asset Derivatives			Liability Derivatives
(Dollars in millions)	Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value
Derivatives designated as hedging instruments:
Foreign currency forward exchange contracts	Other current assets	$	—	Accrued expenses	$	(2	)
Derivatives not designated as hedging instruments:
Foreign currency forward exchange contracts	Other current assets	—		Accrued expenses	(1		)
Total return swap	Other current assets	3		Accrued expenses	—
Total derivatives		$	3		$	(3	)

The following tables show the effect of the Company’s derivative instruments on the Condensed Consolidated Statement of Comprehensive Income and the Condensed Consolidated Statement of Operations for the three and six months endedDecember 30, 2016:

(Dollars in millions)

Derivatives Designated as Hedging Instruments	Amount of Gain or (Loss) Recognized in OCI on Derivatives (Effective Portion)						Location of Gain or (Loss) Reclassified from Accumulated OCI into Income (Effective Portion)	Amount of Gain or (Loss) Reclassified from Accumulated OCI into Income (Effective Portion)					Location of Gain or (Loss) Recognized in Income on Derivatives (Ineffective Portion and Amount Excluded from Effectiveness Testing)	Amount of Gain or (Loss) Recognized in Income (Ineffective Portion and Amount Excluded from Effectiveness Testing) (a)
	For the Three Months			For the Six Months				For the Three Months		For the Six Months				For the Three Months		For the Six Months
Foreign currency forward exchange contracts	$	(2	)	$	(3	)	Cost of revenue	$	—	$	(1	)	Cost of revenue	$	—	$	—

Derivatives Not Designated as Hedging Instruments	Location of Gain or (Loss) Recognized in Income on Derivative	Amount of Gain or (Loss) Recognized in Income on Derivative
		For the Three Months			For the Six Months
Foreign currency forward exchange contracts	Other, net	$	(2	)	$	(3	)
Total return swap	Operating expenses	1			4

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(a) The amount of gain or (loss) recognized in income represents $0 million related to the ineffective portion of the hedging relationships and $0 million related to the amount excluded from the assessment of hedge effectiveness for the three and six months endedDecember 30, 2016, respectively.

The following tables show the effect of the Company’s derivative instruments on the Condensed Consolidated Statement of Comprehensive Income and the Condensed Consolidated Statement of Operations for the three and six months endedJanuary 1, 2016:

(Dollars in millions)

Derivatives Designated as Hedging Instruments	Amount of Gain or (Loss) Recognized in OCI on Derivatives (Effective Portion)					Location of Gain or (Loss) Reclassified from Accumulated OCI into Income (Effective Portion)	Amount of Gain or (Loss) Reclassified from Accumulated OCI into Income (Effective Portion)						Location of Gain or (Loss) Recognized in Income on Derivatives (Ineffective Portion and Amount Excluded from Effectiveness Testing)	Amount of Gain or (Loss) Recognized in Income (Ineffective Portion and Amount Excluded from Effectiveness Testing) (a)
	For the Three Months		For the Six Months				For the Three Months			For the Six Months				For the Three Months		For the Six Months
Foreign currency forward exchange contracts	$	—	$	(2	)	Cost of revenue	$	(1	)	$	(2	)	Cost of revenue	$	—	$	—

Derivatives Not Designated as Hedging Instruments	Location of Gain or (Loss) Recognized in Income on Derivatives	Amount of Gain or (Loss) Recognized in Income on Derivatives
		For the Three Months		For the Six Months
Foreign currency forward exchange contracts	Other, net	$	1	$	(4	)
Total return swap	Operating expenses	1		(4		)

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(a) The amount of gain or (loss) recognized in income represents $0 million related to the ineffective portion of the hedging relationships and $0 million related to the amount excluded from the assessment of hedge effectiveness for the three and six months endedJanuary 1, 2016, respectively.