Seagate 2002 Annual Report Download - page 31

Disposition of Assets
Sale of XIOtech Corporation. On November 4, 2002, we sold XIOtech to New SAC. New SAC in turn sold 51% of XIOtech to a third
party in a transaction in which XIOtech also sold newly issued shares to this third party. As a result, New SAC has retained an interest of less
than 20% of XIOtech.
In consideration of our sale of XIOtech to New SAC, we received a $32 million promissory note from New SAC. The amount of this
promissory note was equal to the estimated fair value of XIOtech as of the date of the sale, net of intercompany indebtedness. Immediately
after the sale of XIOtech to New SAC, we made an in-kind pro rata distribution of the entire promissory note to our existing shareholders,
including New SAC, which at the time owned approximately 99.4% of our outstanding shares. That portion of the promissory note distributed
back to New SAC was cancelled, and New SAC immediately paid off the remaining 0.6% of the promissory note held by our minority
shareholders. As a result of our sale of XIOtech we no longer consolidated XIOtech’s operations with our operations subsequent to November
4, 2002.
Because New SAC at the time owned approximately 99.4% of our outstanding shares, our sale of XIOtech to New SAC was recorded as
a distribution of an amount equal to the net book value of XIOtech rather than as a sale for the fair value of the promissory note. As of
November 4, 2002, the net book value of XIOtech was approximately $1 million.
Repair and Warranty Services Agreement. On October 28, 2002, we closed the sale of our product repair and servicing facility in
Reynosa, Mexico and certain related equipment and inventory to a wholly owned subsidiary of Jabil Circuit, Inc. After the sale, Jabil became
our primary source provider of warranty repair services for a multi-year period at costs defined in a long-term services agreement. During the
term of this services agreement, we will be dependent upon Jabil to effectively manage warranty repair related costs and activities.
The arrangement with Jabil is comprised of various elements, including the sale of the facility, equipment and inventory, our obligations
under the services agreement and potential reimbursements by us to Jabil. Because the fair values of each of these elements have not been
separately established, and because we will repurchase the inventory sold to Jabil, the $10 million excess of the sale prices assigned to the
various elements of the arrangements with Jabil over their respective carrying values will be offset against cost of revenue as a reduction to
warranty expense over the period of the long-term services agreement. Of the $10 million excess, $5 million was utilized in the quarter ended
December 27, 2002 to offset an immediate repair cost increase, and the remaining $5 million is being utilized over the remaining period of the
long-term services agreement.
Stock Compensation Expense
In connection with certain options granted during the six months ended December 27, 2002, we recorded deferred stock compensation
totaling $10.7 million, representing the difference between the exercise price and the deemed fair value of our common shares on the dates such
options were granted. This deferred stock compensation is being amortized over the vesting periods of the underlying stock options of 48
months. Through June 27, 2003, we have amortized approximately $2 million of such compensation expense.
Consummation of Initial Public Offering
On December 13, 2002, we completed the initial public offering of 72,500,000 of our common shares, 24,000,000 of which were sold by
us and 48,500,000 of which were sold by New SAC, our parent company, as selling shareholder, at a price of $12 per share. We received
proceeds from our sale of the 24,000,000 newly issued common shares of approximately $270 million after deducting underwriting fees,
discounts and commissions. In connection with our initial public offering, all previously outstanding shares of preferred stock aggregating 400
million shares were converted by New SAC into our common stock. Immediately prior to the closing of our initial public offering, we paid a
return of capital distribution of $262 million, or $0.65 per share, to the holders of our then-outstanding shares, including New SAC. We also
paid a lump sum of approximately $12 million to members of our sponsor group in exchange for the discontinuation of an annual monitoring
fee of $2 million. This payment was charged to marketing and administrative expense during the quarter ended December 27, 2002.
New SAC received proceeds of approximately $557 million from the sale of 48,500,000 common shares in our initial public offering,
after deducting underwriting discounts and commissions. New SAC distributed these net proceeds, together with the proceeds from the
distribution described above, to holders of its preferred and ordinary shares. As a result of the distribution to New SAC’s preferred
shareholders, our wholly-owned subsidiary, Seagate Technology HDD Holdings, became obligated to make payments of approximately $147
million to the participants in its deferred compensation plan. These payments were made following the closing of our initial public offering,
and as a consequence there are no longer any outstanding obligations under that deferred compensation plan.
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