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Table of Contents
SEAGATE TECHNOLOGY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The following table provides a reconciliation of the changes in the post-retirement medical plan’s benefit obligation and a statement of
the funded status as of July 2, 2004 and June 27, 2003:
Net periodic benefit cost for the fiscal years ended July 2, 2004 and June 27, 2003 was as follows:
Weighted-Average Actuarial Assumptions:
July 2,
2004
June 27,
2003
(in millions)
Change in Benefit Obligation
Benefit obligation at beginning of year
$
28
$
26
Service and interest cost
2
2
Benefits and expenses paid
(1
)
—
Benefit obligation at end of year
$
29
$
28
Funded Status of the Plan
Unamortized actuarial gain
$
(5
)
$
(6
)
Accrued benefit liability recognized in the balance sheet at end of year
29
28
Accrued benefit cost
$
24
$
22
2004
2003
(in millions)
Service cost
$
1
$
1
Interest cost
1
1
Net periodic benefit cost
$
2
$
2
A discount rate of 5.75% was used in the determination of the accumulated benefit obligation.
The Company’s future medical benefit costs were estimated to increase at an annual rate of 11% during 2004, decreasing to an annual
growth rate of 5% in 2010 and thereafter. The Company’s cost was capped at 200% of the fiscal year 1999 employer cost and, therefore, was
not subject to medical and dental trends after the capped cost was attained. A 1% change in these annual trend rates would not have a
significant impact on the accumulated post-retirement benefit obligation at July 2, 2004, or the 2004 benefit expense. Claims are paid as
incurred.
In the fourth quarter of fiscal year 2004, the Company discontinued subsidizing its post-retirement medical plan for new retirees
subsequent to July 2, 2004. As a result, the benefit obligation accrued to date for current company employees will be eliminated and the
Company estimates that it will record a reduction in operating expenses of approximately $18 million in its first fiscal quarter of 2005 related to
this reduction in the benefit obligation.
4. Income Taxes
Certain U.S. subsidiaries of the Company are included in certain unitary and combined U.S. state tax returns with certain U.S. affiliates of
New SAC and have entered into a tax sharing agreement effective November 23, 2000. Pursuant to the terms of the state tax sharing agreement
(“State Tax Allocation Agreement”), hypothetical U.S. state tax returns (with certain modifications) are calculated as if the U.S. subsidiaries of
the Company were filing on a separate return basis. The Company’s U.S. subsidiaries are required to reimburse participating New
80