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WESTERN DIGITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Foreign Exchange Contracts
Although the majority of the Company’s transactions are in U.S. dollars, some transactions are based in various
foreign currencies. The Company purchases short-term, foreign exchange contracts to hedge the impact of foreign
currency fluctuations on certain underlying assets, 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. The 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 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 $1.3 billion and $1.5 billion at July 3, 2015 and June 27, 2014, 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). 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 revenue and pre-
sented within cash flow from operations. 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 associated with its cash flow hedges to be immaterial for all years presented.
A change in the fair value of fair value hedges is recognized in earnings in the period incurred and is reported as a
component of operating expenses. All fair value hedges were determined to be effective. The changes in fair value on these
contracts were immaterial to the consolidated financial statements for all years presented. See Notes 10 and 12 below.
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 below.
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 May 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)
No. 2015-07, “Fair Value Measurement (Topic 820): Disclosures for Investments in Certain Entities That Calculate
Net Asset Value per Share (or Its Equivalent)” (“ASU 2015-07”). This guidance eliminates the requirement to catego-
rize investments within the fair value hierarchy if their fair value is measured using the net asset value (“NAV”) per
share practical expedient in the FASB’s fair value measurement guidance. The new standard is effective for fiscal years
and interim periods within those fiscal years, beginning after December 15, 2015, which for the Company is the first
quarter of fiscal 2017. The Company does not expect the adoption of ASU 2015-07 to have a material effect on its
consolidated financial statements.
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