Seagate 2007 Annual Report Download - page 90

Table of Contents
SEAGATE TECHNOLOGY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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(
Continued)
approximately 58.6938 shares per $1,000 principal amount of the notes, at the option of the holders, at any time during a fiscal quarter if, during
the last 30 trading days of the immediately preceding fiscal quarter the common shares trade at a price in excess of 110% of the conversion price
for 20 consecutive trading days. Upon conversion, the 2.375% Notes are subject to “net cash”
settlement whereby the Company will deliver cash
for the lesser of the principal amount of the notes being converted or the “conversion value” of the notes which is calculated by multiplying the
conversion rate then in effect by the market price of the Company’s common shares at the time of conversion. To the extent that the conversion
value exceeds the principal amount of the 2.375% Notes, the Company will, at its election, pay cash or issue common shares with a value equal
to the value of such excess. If the 2.375% Notes are surrendered for conversion, the Company may direct the conversion agent to surrender those
notes to a financial institution selected by the Company for exchange, in lieu of conversion, into a number of the Company’s common shares
equal to the applicable conversion rate, plus cash for any fractional shares, or cash or a combination of cash and the Company’s common shares
in lieu thereof. The 2.375% Notes are classified as a current liability on the consolidated balance sheets because they are currently convertible as
the Company’s share price was in excess of 110% of the conversion price for at least 20 consecutive trading days during the last 30 trading days
of the fourth quarter of fiscal year 2008. The payment of dividends to holders of the Company’s common shares have in certain quarters resulted
in upward adjustments to the conversion rate of the 2.375% Notes and may continue in the future. If the conversion rate continues to increase,
the Company may be required to book an increased amount of interest expense.
$55 Million Aggregate Principal Amount of 5.75% Subordinated Debentures due March 2012 (the “5.75% Debentures”). As a result of
the Maxtor acquisition (see Note 10), the Company assumed the 5.75% Debentures. The 5.75% Debentures require semi-annual interest
payments on March 1 and September 1 and annual sinking fund payments of $5 million or repurchases of $5 million in principal amount of
debentures in lieu of sinking fund payments. The 5.75% Debentures are currently convertible for a cash payment of $167.50 per $1,000 principal
amount of debentures.
$60 million LIBOR Based China Manufacturing Facility Loan. As a result of the Maxtor acquisition (see Note 10), the Company assumed
an outstanding plant construction loan in the amount of $30 million and an outstanding project loan in the amount of $30 million. In fiscal year
2008, the Company repaid the $30 million project loan. The interest rate on the plant construction loan is LIBOR plus 70 to 80 basis points, with
the borrowings repayable in two installment payments of $15 million each, one due in October 2008 and the other due in April 2009. Interest
payments on the construction loan are made semi-
annually on October 15 and April 15. The loan requires annual financial covenants, including a
maximum liability to assets ratio and a minimum earnings to interest expense ratio, with which the Company is currently in compliance.
In accordance with APBO No. 14, Accounting for Convertible Debt and Debt Issued with Stock Purchase Warrants, (“APBO 14”), the
Company determined the existence of a 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 in Shareholders’
Equity. All other debt assumed in
the Maxtor acquisition was recorded at fair market value (see Note 10).
$400 Million Aggregate Principal Amount of 8% Senior Notes Previously due May 2009. In October 2006, the Company redeemed its
8% Senior Notes due May 2009 (the “8% Notes”) at a redemption price of $1,040 per $1,000 principal amount of Notes for a total amount paid
of $416 million. The redemption premium of $16 million as well as approximately $3 million of unamortized issuance costs were recorded as
interest expense in the Company’s Consolidated Statement of Operations for fiscal year 2007.
The Company has guaranteed all Senior Notes on a full and unconditional basis (see Note 14).
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