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Table of Contents
SEAGATE TECHNOLOGY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
participants’ expectations, the Company does not incorporate changes in dividends anticipated by management unless those changes have been
communicated to or otherwise are anticipated by marketplace participants.
Risk-Free Interest Rate —The Company bases the risk-free interest rate used in the Black-Scholes-Merton valuation method on the
implied yield currently available on U.S. Treasury zero-coupon issues with an equivalent remaining term. Where the expected term of the
Company’s stock-based awards do not correspond with the terms for which interest rates are quoted, the Company performed a straight-line
interpolation to determine the rate from the available term maturities.
Estimated Forfeitures —
When estimating forfeitures, the Company considers voluntary termination behavior as well as analysis of actual
option forfeitures.
Fair Value —The fair value of the Company’s stock options granted to employees or assumed from Maxtor for the fiscal years ended
2006, 2005 and 2004 were estimated using the following weighted-average assumptions:
Stock Compensation Expense
Fiscal Years Ended
2006
2005
2004
Seagate Option Plans Shares
Expected term (in years)
3.5
–
4.0
3.0
–
3.5
3.0
Volatility
40
–
43%
50
–
80%
80%
Expected dividend
1.2
–
2.3%
1.3
–
2.3%
0.5
–
2.0%
Risk
-
free interest rate
4.1
–
5.0%
2.9
–
3.6%
2.3
–
2.5%
Estimated annual forfeitures
4.6
–
4.9%
—
—
Weighted
-
average fair value
$7.15
$6.55
$11.45
Maxtor Option Plans Shares
Expected term (in years)
0
–
4.8
—
—
Volatility
36
–
39%
—
—
Expected dividend
1.3%
—
—
Risk
-
free interest rate
5.0
–
5.1%
—
—
Weighted
-
average fair value
$10.49
—
—
ESPP Shares
Expected term (in years)
0.5
–
1.0
0.5
–
1.0
0.5
–
1.0
Volatility
37
–
41%
30
–
60%
50
–
100%
Expected dividend
1.2
–
1.7%
1.9
–
2.1%
0.8
–
1.5%
Risk
-
free interest rate
3.6
–
4.5%
1.6
–
2.2%
1.0
–
1.3%
Weighted
-
average fair value
$7.28
$3.86
$4.72
Deferred Stock Compensation —In connection with certain stock options granted shortly prior to the Company’s initial public offering in
fiscal year 2003, the Company, in accordance with APBO 25, recorded deferred stock compensation aggregating $9.7 million, net of
subsequent cancellations, representing the difference between the exercise price of the options and the deemed fair value of the Company’s
common shares on the dates the options were granted. This deferred stock compensation is being amortized on a straight-line basis over the
vesting periods of the underlying stock options of 48 months. The Company has amortized approximately $9 million of such compensation
expense through June 30, 2006.
Stock Compensation Expense —The Company recorded $74 million of stock-based compensation during the fiscal year ended 2006.
Additionally, in connection with the assumed options and nonvested shares exchanged in the Maxtor acquisition, the Company recorded $16
million of stock-based compensation (see Note 10). The total fair value of shares vested during fiscal year 2006 was approximately $75
million.
77