Seagate 2006 Annual Report Download - page 98

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Table of Contents
SEAGATE TECHNOLOGY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
market approach if they were to be sold. The following table summarizes the estimated fair value of the property,
plant and equipment and leasehold improvements acquired from Maxtor and their estimated useful lives:
Inventories
The Company allocated $347 million of the purchase price to inventories acquired. Finished goods and
work-in-process inventories were valued based on the Income Method, which is based on the projected cash flows
derived from selling the finished goods inventory, adjusted for costs of disposition and the profit commensurate with
the amount of investment and degree of risk, and in the case of the work-in-process, also the expected costs of
completion. Raw materials were valued based on the Replacement Cost Method. The recorded fair values of the
inventories have been charged to Cost of Revenue as the inventories were sold.
Identifiable Intangible Assets Acquired
In accordance with SFAS No. 141, the Company identified intangible assets apart from goodwill if one of the
following criteria was met: 1) the asset arises from contractual or other legal rights; or 2) the asset is capable of being
separated or divided from the acquired enterprise and sold, transferred, licensed, rented, or exchanged, either
individually or in conjunction with a related contract, asset, or liability. The recorded values and estimated useful
lives of the intangibles acquired from Maxtor were:
Existing technology relates to Maxtor’
s products across all of their product lines that have reached technological
feasibility as well as a combination of Maxtor’s processes, patents, and trade secrets developed through years of
experience in design and development of their products. Existing technology was valued using the Excess Earnings
Method under the Income Approach. This approach reflects the present value of projected cash flows that a market
participant would expect to generate from these technologies less charges related to the contribution of other assets to
those cash flows. The fair value of the existing technology was amortized to Cost of Revenue in fiscal year 2007 as
the Company phased out the use of these technologies and transitioned to Seagate-designed products.
The fair value of customer relationships was determined using the Excess Earnings Method under the Income
Approach based on the estimated revenues to be derived from Maxtor’s OEM, distribution and retail customers. This
approach reflects the present value of projected cash flows that a market participant would expect to generate from
these customer relationships less charges related to the contribution of other assets to those cash flows. The fair
values of the customer relationships are being amortized to Operating Expenses on a straight-line basis over the
estimated lives of three to four years.
95
Estimated
Estimated Fair
Weighted
-
Average
Value
Useful Life
(In millions)
(In Years)
Land
$
8
N/A
Equipment
102
2
Building and leasehold improvements
69
41
Total property, equipment and leasehold Improvements
$
179
Estimated Fair
Weighted Average
Value
Useful Life
(In millions)
(In Years)
Existing technology
$
143
1.4
Customer relationships
139
3.5
Trade names
33
4.0
Total acquired identifiable intangible assets
$
315
2.6