Western Digital 2005 Annual Report Download - page 58

WESTERN DIGITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
direct costs of the acquisition and other miscellaneous assumed obligations totaling $17.0 million. The Company
accounted for this transaction as an asset acquisition. The estimated fair value of the assets acquired and liabilities
assumed are as follows (in millions):
Current assetsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 17.4
Property and equipment ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 90.2
Purchased technology ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 38.8
In-process research and development ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 25.6
$172.0
As of the date of the acquisition, Read-Rite had two in-process research and development (""IPR&D'') projects:
120 gigabyte per platter and 160 gigabyte per platter products. The fair value allocated to these projects as part of the
acquisition was $17.8 million and $7.8 million, respectively. The multi-period excess earnings method, a discounted cash
flow income approach, was used to determine the value allocated to the IPR&D. The rate utilized to discount the cash
flows to their present values was based on the weighted average cost of capital and an additional risk premium based on
an analysis of the technology and the IPR&D stages of completion. Based on these factors, 27% was used as the annual
discount rate. These acquired IPR&D projects had not reached technological feasibility and had no alternative future use.
Accordingly, the Company recorded the $25.6 million as a charge to research and development expense at the time of the
acquisition.
Approximately $38.8 million of the purchase price related to purchased technology and is being amortized over a
weighted average period of three years. Accumulated amortization related to these assets was $27.6 million and
$13.2 million at July 1, 2005 and July 2, 2004, respectively. During the fiscal years ended July 1, 2005 and July 2,
2004, the Company recorded $14.4 million and $13.2 million of amortization expense related to these intangible assets,
respectively. Amortization expense is estimated to be $4.4 million, $3.4 million and $3.4 million for fiscal years 2006,
2007 and 2008, respectively.
Note 4. Short-term Borrowings and Long-term Debt
Short-term borrowings and long-term debt consisted of the following as of July 1, 2005 and July 2, 2004 (in
millions):
2005 2004
Term loan ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 37.5 $ 50.0
Capital lease obligations (See Note 5) ÏÏÏÏÏÏÏÏÏÏÏÏÏ 15.2 17.9
Total ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 52.7 67.9
Less amounts due in one year ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (20.1) (15.2)
$ 32.6 $ 52.7
Line of Credit
The Company has a $125 million credit facility (""Senior Credit Facility'') revolving credit line (subject to
outstanding letters of credit and a borrowing base calculation) and a term loan of $38 million. Both the revolving credit
facility and the term loan mature on September 19, 2008 and are secured by the Company's accounts receivable,
inventory, 65% of its stock in its foreign subsidiaries and other assets. For the year ended July 1, 2005, the Company had
no borrowings on the revolving credit line and the average variable rate on the Company's term loan was 4.5%.
The Senior Credit Facility prohibits the payment of cash dividends on common stock and contains specific financial
covenants. The Company is required to maintain an available liquidity level of $300 million at the end of each quarter.
Available liquidity is defined as cash plus eligible trade receivables. As of July 1, 2005, the Company was in compliance
52