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57
been significant and we are unable to estimate the maximum potential impact of these indemnification provisions on our future
results of operations.
To the extent permitted under Delaware law, we have agreements whereby we indemnify our directors and officers for
certain events or occurrences while the director or officer is or was serving at our request in such capacity. The indemnification
period covers all pertinent events and occurrences during the director’s or officer’s lifetime. The maximum potential amount of
future payments we could be required to make under these indemnification agreements is unlimited; however, we have director
and officer insurance coverage that limits our exposure and enables us to recover a portion of any future amounts paid.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
All market risk sensitive instruments were entered into for non-trading purposes.
Foreign Currency Risk
Foreign Currency Exposures and Hedging Instruments
In countries outside the U.S., we transact business in U.S. Dollars and various other currencies which subject us to exposure
from movements in exchange rates. We may use foreign exchange purchased options or forward contracts to hedge our foreign
currency revenue denominated in Euro, British Pounds and Yen. Additionally, we hedge our net recognized foreign currency assets
and liabilities with foreign exchange forward contracts. We hedge these exposures to reduce the risk that our earnings and cash
flows will be adversely affected by changes in exchange rates.
Our revenue exposures for fiscal 2014, 2013 and 2012 were as follows (in millions, except Yen):
Fiscal
2014 Fiscal
2013 Fiscal
2012
Euro........................................................................................................... € 455.5 € 434.7 € 530.7
Yen (in billions)......................................................................................... ¥ 28 ¥ 32.5 ¥ 34.8
British Pounds........................................................................................... £ 159.1 £ 145.3 £ 145.1
As of November 28, 2014, the total absolute value of all outstanding foreign exchange contracts, including options and
forwards, was $672.9 million which included the notional equivalent of $359.5 million in Euros, $104.7 million in British Pounds,
$159.5 million in Yen and $49.2 million in other foreign currencies. As of November 28, 2014, all contracts were set to expire at
various dates through June 2015. The bank counterparties in these contracts expose us to credit-related losses in the event of their
nonperformance. However, to mitigate that risk, we only contract with counterparties who meet our minimum requirements under
our counterparty risk assessment process. In addition, our hedging policy establishes maximum limits for each counterparty.
A sensitivity analysis was performed on all of our foreign exchange derivatives as of November 28, 2014. This sensitivity
analysis measures the hypothetical market value resulting from a 10% shift in the value of exchange rates relative to the U.S.
Dollar. For option contracts, the Black-Scholes option pricing model was used. A 10% increase in the value of the U.S. Dollar and
a corresponding decrease in the value of the hedged foreign currency asset would lead to an increase in the fair value of our
financial hedging instruments by $40.9 million. Conversely, a 10% decrease in the value of the U.S. Dollar would result in a
decrease in the fair value of these financial instruments by $28.9 million.
As a general rule, we do not use foreign exchange contracts to hedge local currency denominated operating expenses in
countries where a natural hedge exists. For example, in many countries, revenue in the local currencies substantially offsets the
local currency denominated operating expenses.
We also have long-term investment exposures consisting of the capitalization and retained earnings in our non-U.S. Dollar
functional currency foreign subsidiaries. As of November 28, 2014 and November 29, 2013, this long-term investment exposure
totaled a notional equivalent of $161.7 million and $355.6 million, respectively. At this time, we do not hedge these long-term
investment exposures.
We do not use foreign exchange contracts for speculative trading purposes, nor do we hedge our foreign currency exposure
in a manner that entirely offsets the effects of changes in foreign exchange rates. We regularly review our hedging program and
assess the need to utilize financial instruments to hedge currency exposures on an ongoing basis.