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Table of Contents
For derivative instruments designated as cash flow hedges, we initially record the effective portion of the gain or loss on the derivative in
Other comprehensive income, and the ineffective portion is reported in earnings. Amounts in Other comprehensive income are reclassified into
earnings in the same period during which the hedged forecasted transaction affects earnings.
We also hedge a portion of our foreign currency denominated balance sheet positions with foreign currency forward contracts to reduce the
risk that our earnings will be adversely affected by changes in currency exchange rates. The changes in fair value of these hedges are recognized
in earnings in the same period as the gains and losses from the remeasurement of the assets and liabilities. These foreign currency forward
contracts are not designated as hedging instruments under SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities.
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 2008, 2007 and 2006. Nor did we discontinue any cash flow hedges for a probable forecasted
transaction that would not occur in fiscal years 2008, 2007, and 2006.
As of June 27, 2008, our notional fair values of foreign currency forward contracts totaled $729 million. We do not believe that these
derivatives present significant credit risks, because the counterparties to the derivatives consist of highly rated financial institutions, we manage
the notional amount of contracts entered into with any one counterparty, and we maintain limits on maximum tenor of contracts based on the
credit rating of the financial institutions. The table below provides information as of June 27, 2008, about our derivative financial instruments,
comprised of foreign currency forward 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.
70
(In millions, except average contract rate)
Notional
Amount
Average
Contract
Rate
Estimated
Fair
Value (1)
Foreign currency forward contracts:
British Pound
$
25
1.94
$
—
Euro
27
1.55
—
Singapore Dollar
115
1.36
—
Thai Baht
510
32.18
(23
)
Chinese Yuan
20
6.75
—
Malaysian Ringgit
2
3.26
—
Japanese Yen
15
103.45
(1
)
Czech Koruna
15
15.94
—
Total
$
729
$
(24
)
(1)
Equivalent to the unrealized net gain (loss) on existing contracts.