Seagate 2005 Annual Report Download - page 44

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Table of Contents
March and June 2005 quarters followed by a period of component constraints during the September and December 2005 quarters which
impacted our production capacity, we did not experience either a traditional seasonal decrease in sales of our products in the third and fourth
quarter of fiscal year 2005 or a comparative seasonal increase in sales of our products in the first half of fiscal year 2006. The lack of
seasonality in calendar year 2005 was atypical in the disc drive industry as evidenced by the modest seasonal decline we experienced in the
March 2006 quarter. We saw a return to traditional seasonality in the June 2006 quarter, particularly with respect to disc drives for desktop and
mobile applications.
We believe Seagate is leading the transition to perpendicular recording technology. To date, we have announced perpendicular
technology based products for all four major markets with products shipping for revenue in the desktop, enterprise and mobile markets during
fiscal year 2006, and in all four major markets in fiscal year 2007.
We made capital investments during fiscal year 2006 that totaled $1.0 billion. For fiscal 2007, we expect up to $1.3 billion in capital
investment will be required. The capital spending is to support continued growth and to complete the integration of Maxtor into our operations.
Acquisition of Maxtor Corporation
On December 20, 2005, we entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Maxtor Corporation, a
Delaware corporation, and MD Merger Corporation, a Delaware corporation and direct wholly-owned subsidiary of Seagate, by which Seagate
agreed to acquire Maxtor (the “Merger”), and whereby Maxtor would become a wholly owned subsidiary of Seagate. On May 19, 2006, we
completed the acquisition of Maxtor in a stock for stock transaction. The acquisition was structured to qualify as a tax-free reorganization and
we have accounted for the acquisition in accordance with SFAS No. 141, Business Combinations (“SFAS 141”). The combination of the two
companies’ brands and the related product lines represent the most differentiated storage offering to customers and enhance Seagate’
s scale and
capacity to better drive technology advances and accelerate delivery of a wide range of differentiated products and cost-effective solutions to a
growing base of customers.
Under the terms of the Merger Agreement, each share of Maxtor common stock was exchanged for 0.37 of our common shares. We
issued approximately 96.9 million of our common shares to Maxtor’s stockholders. Based on the average closing price of our common shares
on the NYSE for the two days prior to, including, and two days subsequent to the public announcement of the merger (December 21, 2005) of
$20.02 and including capitalized acquisition-related costs and the fair value of options assumed and nonvested shares exchanged, the
transaction was valued for accounting purposes at approximately $2.0 billion. We also assumed all outstanding options to purchase Maxtor
common stock with a weighted-average exercise price of $16.10 per share. Each option assumed was converted into an option to purchase one
of our common shares after applying the 0.37 exchange ratio. In total, we assumed and converted Maxtor options into options to purchase
approximately 7.1 million of our common shares. In addition, we assumed and converted all outstanding Maxtor nonvested stock into
approximately 1.3 million of our nonvested shares, based on the exchange ratio. The fair value of options assumed and nonvested shares
exchanged had a fair value of approximately $86 million. See Note 10 of the Notes to Consolidated Financial Statements elsewhere in this
report.
We have identified and recorded the assets, including specifically identifiable intangible assets, and liabilities assumed from Maxtor at
their estimated fair values as at May 19, 2006, the date of acquisition and allocated the residual value of approximately $2.5 billion to goodwill.
The values assigned to certain acquired assets and liabilities are preliminary, are based on information available as of June 30, 2006, and may
be adjusted as further information becomes available during the allocation period of up to 12 months from the acquisition date. Maxtor is now a
wholly-owned subsidiary of ours and the results of Maxtor’s operations have been included in our consolidated financial statements after the
May 19, 2006 acquisition date.
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