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Table of Contents
SEAGATE TECHNOLOGY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Trade names reflect the value associated with Maxtor’s brand names. Trade names were valued using the Relief-
from-
Royalty Method, a form of the Income Approach, which estimates the royalty cost avoided by owning the trade
names as opposed to having to license them from an independent third party. The resulting cash flow savings
estimated over the remaining useful life of the trade names are then discounted to present value to arrive at the fair
value allocated to this intangible. Trade names are being amortized to Operating Expenses over the estimated useful
life of four years.
In-Process Research and Development
As of the date of the acquisition, all future development activities at Maxtor were discontinued. Therefore there
were no assets that qualified as in-process research and development.
Debt Assumed
Upon the closing of the Merger, the Company assumed all of Maxtor’s outstanding debt, including Maxtor’s
convertible senior notes. In addition, upon the closing of the Merger, Seagate and Maxtor entered into a supplemental
indenture whereby the Seagate agreed to unconditionally guarantee the notes on a senior unsecured basis (see
Note 14).
In accordance with APBO 14, the Company determined the existence of substantial premium for both the
2.375% Notes and 6.8% Notes and recorded the notes at par value with the resulting excess over par (the substantial
premium) recorded in Additional Paid-In Capital included in Shareholders’ Equity. All other debt was recorded at
fair market value.
Adverse/Favorable Leasehold Interests
In accordance with the guidance in SFAS No. 141, the Company analyzed all contractual leases to determine the
fair value of the leasehold interests. An adverse leasehold position exists when the present value of the contractual
rental obligation is greater than the present value of the market rental obligation, and conversely for a favorable
leasehold interest. The Company recorded adverse leasehold interests totaling $74 million and favorable leasehold
interest aggregating $4 million, which will be amortized to Cost of Revenue and Operating Expenses over the
remaining duration of the leases.
Recognition of Liabilities in Connection with Maxtor Acquisition
Under EITF 95-3, Recognition of Liabilities in Connection with a Business Combination, the Company has
accrued certain exit costs aggregating $247 million, of which $108 million relates to employee severance,
$45 million relates to the planned exit of leased or owned excess facilities and $94 million relates to the cancellation
or settlement of contractual obligations that will not provide any future economic benefit. The severance and
associated benefits liability relates to the employment termination of approximately 4,900 Maxtor employees,
primarily in the U.S. and Far East, all of whom had been terminated as of June 29, 2007. In the fiscal
96
Substantial
Premium
Estimated
Recorded in
Initial
Par
Fair Value on
Additional Paid in
Carrying
Value
May 19, 2006
Capital
Amount
(In millions)
6.80% Senior Convertible Notes due April 2010
$
135
$
153
$
18
$
135
5.75% Subordinated Debentures due March 2012
55
49
—
49
2.375% Senior Convertible Notes due August 2012
326
483
157
326
LIBOR Based China Manufacturing Facility Loan
60
60
—
60
$
576
$
745
$
175
$
570