Seagate 2003 Annual Report Download - page 34

Table of Contents
assets will be realized. The amount of deferred tax assets considered realizable, however, may increase or decrease in subsequent quarters,
when we reevaluate the underlying basis for our estimates of future U.S. and certain foreign taxable income.
Certain of our foreign tax returns for various fiscal years are under examination by taxing authorities. We believe that adequate amounts
of tax have been provided for any final assessment that may result from these examinations.
Liquidity and Capital Resources
The following is a discussion of our principal liquidity requirements and capital resources.
In May 2002, we refinanced all of our then outstanding indebtedness. Since that time, our indebtedness has consisted of $400 million in
principal amount of 8% senior notes due 2009 and senior secured credit facilities which consist of a $350 million term loan facility that has
been drawn in full and a $150 million revolving credit facility, under which $113 million was available for borrowing as of July 2, 2004.
Although no borrowings have been drawn under this revolving credit facility to date, we had utilized $37 million of the credit facility for
outstanding letters of credit and bankers’ guarantees as of July 2, 2004. The credit agreement that governs our senior secured credit facilities
contains covenants that Seagate Technology HDD Holdings, our wholly-owned subsidiary that operates our rigid disc drive business, must
satisfy in order to remain in compliance with the agreement. These covenants require Seagate Technology HDD Holdings, among other things,
to maintain the following ratios: (1) an interest expense coverage ratio for any period of four consecutive fiscal quarters of at least 2.50 to 1.00;
(2) a fixed charge coverage ratio for any four consecutive fiscal quarters of at least 1.50 to 1.00; and (3) a net leverage ratio of not more than
1.50 to 1.00 as of the end of any fiscal quarter. We are currently in compliance with all of these covenants, including the financial ratios that we
are required to maintain.
The calculated financial ratios for the quarter ended July 2, 2004 are as follows:
The degree to which we are leveraged could materially and adversely affect our ability to obtain financing for working capital, capital
expenditures, product development efforts, strategic acquisitions, investments and alliances or other purposes and could make us more
vulnerable to industry downturns and competitive pressures. Although we are currently not a party to any agreement or letter of intent with
respect to potential investments in, or acquisitions of, complementary businesses, products or technologies, we may enter into these types of
arrangements in the future, which could also require us to seek additional equity or debt financing. Additional funds may not be available on
terms favorable to us or at all. We will require substantial amounts of cash to fund scheduled payments of principal and interest on our
indebtedness, future capital expenditures and any increased working capital requirements. If we are unable to meet our cash requirements out of
existing cash or cash flow from operations, we cannot assure you that we will be able to obtain alternative financing on terms acceptable to us,
if at all.
Discussion of Cash Flows
Required
July 2, 2004
Interest Coverage Ratio
Not less than 2.50
31.46
Fixed Charge Coverage Ratio
Not less than 1.50
3.15
Net Leverage Ratio
Not greater than 1.50
(0.48
)
At July 2, 2004, our working capital was $1.213 billion, which included cash, cash equivalents and short-term investments of $1.183
billion. Cash, cash equivalents and short-term investments decreased $11 million from fiscal year 2003 to fiscal year 2004. This decrease was
primarily due to investments in property, equipment and leasehold improvements and distributions to shareholders offset by cash provided by
operating activities and proceeds from employee stock option exercises.
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