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WESTERN DIGITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
currency exchange fluctuations on certain underlying assets, revenue, liabilities and commitments for operating
expenses and product costs denominated in foreign currencies. The purpose of entering into these hedging transactions
is to minimize the impact of foreign currency fluctuations on the Company’s results of operations. These contract
maturity dates do not exceed 12 months. All foreign exchange contracts are for risk management purposes only. The
Company does not purchase foreign exchange contracts for trading purposes. The Company had outstanding foreign
exchange contracts with commercial banks for British Pound Sterling, Euro, Japanese Yen, Malaysian Ringgit,
Philippine Peso, Singapore Dollar and Thai Baht, which were designated as either cash flow or fair value hedges and
had an aggregate notional amount of $1.6 billion and $1.5 billion at June 29, 2012 and July 1, 2011, respectively.
If the derivative is designated as a cash flow hedge, the effective portion of the change in fair value of the
derivative is initially deferred in other comprehensive income (loss), net of tax. These amounts are subsequently
recognized into earnings when the underlying cash flow being hedged is recognized into earnings. Recognized gains
and losses on foreign exchange contracts entered into for manufacturing-related activities are reported in cost of rev-
enue. Hedge effectiveness is measured by comparing the hedging instrument’s cumulative change in fair value from
inception to maturity to the underlying exposure’s terminal value. The Company determined the ineffectiveness asso-
ciated with its cash flow hedges to be immaterial.
A change in the fair value of fair value hedges is recognized in earnings in the period incurred. For our Japanese
subsidiary in which Yen is the functional currency, a change in the fair value of fair value hedges is recognized in other
comprehensive income (loss) in the period incurred. All fair value hedges were determined to be effective. The fair
value and the changes in fair value on these contracts were not material to the consolidated financial statements for all
years presented. See Notes 10 and 11 for additional disclosures related to foreign exchange contracts.
Pensions and Other Postretirement Benefit Plans
The Company has defined benefit pension plans and other postretirement plans covering certain employees in
various countries. The benefits are based on the employees’ years of service and compensation. The plans are funded in
conformity with the funding requirements of applicable government authorities. The Company amortizes unrecog-
nized actuarial gains and losses and prior service costs on a straight-line basis over the remaining estimated average
service life of the participants. The measurement date for the plans is the Company’s fiscal year-end. The Company
recognizes the funded status of its defined benefit pension and postretirement plans in the consolidated balance sheets,
with changes in the funded status recognized through accumulated other comprehensive income (loss) in the year in
which such changes occur. See Note 14 for additional disclosures related to the Company’s pension and other post-
retirement benefit plans.
Use of Estimates
Company management has made estimates and assumptions relating to the reporting of certain assets and liabilities
in conformity with U.S. GAAP. These estimates and assumptions have been applied using methodologies that are con-
sistent throughout the periods presented. However, actual results could differ materially from these estimates.
Recent Accounting Pronouncements
In June 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)
2011-05 “Presentation of Comprehensive Income” (“ASU 2011-05”). The new standard requires that all non-owner
changes in shareholders’ equity be presented either in a single continuous statement of comprehensive income or in
two separate but continuous statements. If presented in two separate statements, the first statement should present
total net income and its components followed immediately by a second statement of total other comprehensive
income, its components and the total comprehensive income. In December 2011, the FASB deferred certain changes
in ASU 2011-05 that relate to the presentation of reclassification adjustments. The new standard is effective for fiscal
years and interim periods within those fiscal years, beginning after December 15, 2011, which for the Company is the
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