Crucial 2013 Annual Report Download - page 89

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Derivatives with Cash Flow Hedge Accounting Designation
We utilize currency forward contracts that generally mature within 12 months and currency options that generally mature
from 12 to 18 months to hedge our exposure to changes in cash flows from changes in currency exchange rates for certain
capital expenditures and forecasted operating cash flows. Currency forward contracts are valued at their fair values based on
market-based observable inputs including currency exchange spot and forward rates, interest rate and credit risk spread (Level
2 fair value measurements). Currency options are valued at their fair value using a modified Black-Scholes option valuation
model using inputs of the current spot rate, strike price, risk-free interest rate, maturity, volatility and credit-risk spread (Level 2
fair value measurements). We entered into interest rate swap contracts that mature in 4 years to hedge against the variability in
future interest payments due on our $312 million floating rate debt and designated 80% of the swaps as cash flow hedges. The
fair values of the interest rate swaps have been calculated by discounting the expected future cash flows based on inputs that
are readily available in publicly quoted markets (Level 2 fair value measurements).
For derivatives designated as cash flow hedges, the effective portion of the realized and unrealized gain or loss on the
derivatives is included as a component of accumulated other comprehensive income (loss). For derivatives hedging capital
expenditures, the amounts in accumulated other comprehensive income (loss) for these cash flow hedges are reclassified into
earnings in the same line items of the consolidated statements of operation and in the same periods in which the underlying
transactions affect earnings. Amounts in accumulated other comprehensive income (loss) for inventory purchases are
reclassified to earnings when inventory is sold. Amounts in accumulated other comprehensive income (loss) for interest rate
swaps are reclassified to earnings when the related interest payments affect earnings. The ineffective or excluded portion of the
realized and unrealized gain or loss is included in other non-operating income (expense). Total gross notional amounts and fair
values for derivatives with cash flow hedge accounting designation were as follows:
Notional
Amount
(in U.S.
Dollars)
Fair Value of
Current
Assets(1) (Current
Liabilities)(2)
As of August 29, 2013
Currency forward contracts:
Yen $ 6 $ — $ (1)
Euro 6 — —
Currency options:
Yen 21 — (2)
Interest swap contracts: 250 — —
$ 283 $ — $ (3)
As of August 30, 2012
Currency forward contracts:
Yen $ 108 $ 2 $ —
Euro 35 — —
Currency options:
Yen 32 — $ —
$ 175 $ 2 $ —
(1) Included in receivables - other.
(2) Included in accounts payable and accrued expenses - other.
For 2013, 2012 and 2011, we recognized $8 million of net pre-tax derivative losses, $9 million of net derivative losses and
$49 million of net derivative gains, respectively, in accumulated other comprehensive income (loss) from the effective portion
of cash flow hedges. The ineffective and excluded portions of cash flow hedges recognized in other non-operating income
(expense) were not significant in 2013, 2012 or 2011. In 2013 and 2012, $1 million and $9 million, respectively, of net gains
were reclassified from accumulated other comprehensive income (loss) to earnings. As of August 29, 2013, the amount of pre-
tax net derivative gains included in accumulated other accumulated comprehensive income (loss) expected to be reclassified
into earnings in the next 12 months was $4 million.