Seagate 2003 Annual Report Download - page 74

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Table of Contents
SEAGATE TECHNOLOGY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The carrying values and fair values of the Company’s financial instruments are as follows:
Derivative Financial Instruments —The Company may enter into foreign currency forward exchange and option contracts to manage
exposure related to certain foreign currency commitments, certain foreign currency denominated balance sheet positions and anticipated
foreign currency denominated expenditures. The Company’s policy prohibits it from entering into derivative financial instruments for trading
purposes. During fiscal years 2004, 2003 and 2002, the Company did not enter into any fair value hedges or hedges of net investments in
foreign operations.
In the fourth fiscal quarter of 2004, the Company instituted a foreign currency hedging program to protect against the increase in value of
foreign currency cash flows resulting from expenses over the next fiscal year. The Company hedges portions of its forecasted expenses
denominated in foreign currencies with forward exchange contracts. When the U.S. dollar weakens significantly against the foreign currencies,
the increase in value of the future foreign currency expenditure is offset by gains in the value of the forward exchange contracts designated as
hedges. Conversely, as the U.S. dollar strengthens, the decrease in value of the future foreign currency cash flows is offset by losses in the
value of the forward exchange contracts. As at July 2, 2004, the notional value of the Company’s outstanding currency contracts was
approximately $20 million in Singapore dollars and $27 million in Thai baht. The Company did not have any foreign currency forward
exchange or purchased currency option contracts during fiscal years 2003 and 2002.
The Company has both fixed and floating rate debt obligations. The Company enters into debt obligations to support general corporate
purposes including capital expenditures and working capital needs. The Company has used derivative financial instruments in the form of an
interest rate swap agreement to hedge a portion of our floating rate debt obligations. The Company’s last interest rate swap agreement matured
in November 2002, and it currently has no swap agreements.
The Company transacts business in various foreign countries and its primary foreign currency cash flows are in emerging market
countries in Asia and in some European countries. Net foreign currency transaction gains and losses included in the determination of net
income (loss) were a gain of $1 million for fiscal year 2004, a gain of $1 million for fiscal year 2003, and a loss of $8 million for fiscal year
2002, respectively.
73
July 2, 2004
June 27, 2003
Carrying
amount
Estimated
fair value
Carrying
amount
Estimated
fair value
(in millions)
Cash equivalents
$
336
$
336
$
684
$
684
Short
-
term investments
761
761
445
445
8.0% senior subordinated notes, due 2009
(400
)
(414
)
(400
)
(433
)
Senior Credit Facilities:
Libor plus 2% Term Loan B
(343
)
(343
)
(348
)
(348
)
Foreign currency forward exchange contracts (1)
—
—
—
—
(1)
Carrying amount and estimated fair value approximated $0.1 million in fiscal year 2004. There were no foreign currency option contracts
in fiscal years 2004 and 2003, and no foreign currency forward exchange contracts in fiscal year 2003.