Seagate 2006 Annual Report Download - page 97

Table of Contents
SEAGATE TECHNOLOGY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Maxtor Corporation
On December 20, 2005, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”
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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, the Company completed the
acquisition of Maxtor in a stock-for-stock transaction. The acquisition was structured to qualify as a tax-free
reorganization and the Company has accounted for the acquisition in accordance with SFAS No. 141. The purpose of
the acquisition was to enhance the Company’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
Company’s common shares. The Company issued approximately 96.9 million common shares to Maxtor’s
shareholders, assumed and converted Maxtor options (based on the 0.37 exchange ratio) into options to purchase
approximately 7.1 million of the Company’s common shares and assumed and converted all outstanding Maxtor
nonvested stock into approximately 1.3 million of the Company’s nonvested shares. The purchase consideration
comprising the fair value of the common shares, stock options and nonvested shares assumed and including
transaction costs was approximately $2.0 billion, excluding assumption by the Company of Maxtor’s approximate
$576 million of outstanding debt obligations.
Purchase Price Allocation
The application of purchase accounting under SFAS No. 141 requires that the total purchase price be allocated
to the fair value of assets acquired and liabilities assumed based on their fair values at the acquisition date, with
amounts exceeding the fair values being recorded as goodwill. The allocation process requires an analysis and
valuation of acquired assets, including fixed assets, technologies, customer contracts and relationships, trade names
and liabilities assumed, including contractual commitments and legal contingencies.
The Company 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 $2.2 billion to goodwill, including $297 million of net adjustments
recorded during fiscal year ended June 29, 2007. These net adjustments which reduced goodwill were primarily due
to the reversal of part of the valuation allowance previously recorded as of the acquisition date against certain
deferred tax assets comprised of former Maxtor operating losses (see Note 4 and Note 11).
Determination of Fair Values
The Company assigned fair values to all the assets and liabilities assumed as of May 19, 2006. For certain
tangible and intangible assets acquired and liabilities assumed, the Company utilized the assistance of a third party
valuation firm in accordance with SFAS No. 141.
Property, equipment and leasehold improvements
In general, plant and equipment that was to continue to be used was valued at current replacement cost for
similar capacity while plant and equipment to be sold or held and not used, was valued at fair value less cost to sell.
Land and buildings were valued using the replacement cost approach if they were to continue to be used or the
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10.
Acquisitions