Seagate 2006 Annual Report Download - page 59

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Table of Contents
Foreign Currency Exchange Risk. We transact business in various foreign countries. Our primary foreign
currency cash flows are in countries where we have a manufacturing presence. We have established a foreign
currency hedging program to protect against the increase in value of foreign currency cash flows resulting from
operating and capital expenditures over the next year. We hedge portions of our forecasted expenses denominated in
foreign currencies with forward exchange contracts. When the U.S. dollar weakens significantly against the foreign
currencies, the increase in the value of the future foreign currency expenditure is offset by gains in the value of the
forward 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 contracts. These forward foreign exchange
contracts, carried at fair value, may have maturities of up to twelve months. Additionally, in the fourth quarter of
fiscal year 2007, we entered into forward contracts to hedge the capital expense costs associated with a new
manufacturing facility under construction in Malaysia.
We evaluate hedging effectiveness prospectively and retrospectively and record any ineffective portion of the
hedging instruments in other income (expense) on the statement of operations. We did not have any net gains (losses)
recognized in other income (expense) for cash flow hedges due to hedge ineffectiveness in fiscal years 2007, 2006
and 2005.
As of June 29, 2007, our notional fair values of foreign exchange forward contracts totaled $148 million. We do
not believe that these derivatives present significant credit risks, because the counterparties to the derivatives consist
of major financial institutions, and we manage the notional amount of contracts entered into with any one
counterparty. We maintain limits on maximum tenor of contracts based on the credit rating of the financial
institutions. We do not enter derivative financial instruments for speculative or trading purposes. The table below
provides information as of June 29, 2007 about our derivative financial instruments, comprised of foreign currency
forward exchange contracts. The table is provided in U.S. dollar equivalent amounts and presents the notional
amounts (at the contract exchange rates) and the weighted average contractual foreign currency exchange rates.
56
Fair Value
Fiscal Year
Fiscal Year
Fiscal Year
Fiscal Year
Fiscal Year
June 29,
2008
2009
2010
2011
2012
Thereafter
Total
2007
(In millions)
Assets
Cash equivalents:
Fixed rate
$
862
$
862
$
862
Average interest rate
5.27
%
5.27
%
Short
-
term investments:
Fixed rate
$
130
$
27
$
157
$
156
Average interest rate
4.29
%
4.95
%
4.40
%
Total investment securities
$
992
$
27
$
1,019
$
1,018
Average interest rate
5.14
%
4.95
%
5.14
%
Long
-
Term Debt
Fixed rate
$
330
$
5
$
142
$
5
$
630
$
600
$
1,712
$
1,810
Average interest rate
2.43
%
5.75
%
6.76
%
5.75
%
6.35
%
6.8
%
5.78
%
Variable rate
$
30
$
330
$
360
$
360
Average interest rate
5.81
%
6.19
%
6.16
%
Average
Estimated
Notional
Contract
Fair
Amount
Rate
Value
(In millions, except average contract rate)
Foreign currency forward exchange contracts:
Thai baht
$
23
34.58
$
—
Singapore dollar
86
1.52
—
Malaysian ringgit
39
3.48
—
$
148
$
—