Seagate 2007 Annual Report Download - page 86

Table of Contents
SEAGATE TECHNOLOGY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
—
(
Continued)
The Company transacts business in various foreign countries and its primary foreign currency cash flows are in countries where it has a
manufacturing presence. The Company has established a foreign currency hedging program to protect against the change in value of foreign
currency cash flows resulting from operating and capital expenditures over the next year. The Company hedges portions of its forecasted
expenditures denominated in foreign currencies with foreign currency forward contracts designated as cash flow hedges. 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 foreign currency 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 foreign currency forward contracts. These foreign currency forward
contracts, carried at fair value, may have maturities of up to twelve months.
For derivative instruments designated as cash flow hedges, the company initially records the effective portion of the gain or loss on the
derivative in Other comprehensive income, and the ineffective portion is reported in Other income (expense). Amounts in Other comprehensive
income are reclassified into Cost of revenue in the same period during which the hedged forecasted transaction affects earnings.
The Company also hedges a portion of its foreign currency denominated balance sheet positions with foreign currency forward contracts to
reduce the risk that its earnings will be adversely affected by changes in currency exchange rates. The changes in fair value of these hedges are
recognized in Other income (expense) 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.
The Company evaluates hedging effectiveness prospectively and retrospectively and records any ineffective portion of the hedging
instruments in Other income (expense) on the Statement of Operations. The Company 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. In addition, the Company did not
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, the notional value of the Company’s outstanding foreign currency forward contracts was approximately $25 million
in British pounds, $27 million in Euros, $115 million in Singapore dollars, $510 million in Thai baht, $20 million in Chinese yuan, $2 million in
Malaysian ringgit, $15 million in Japanese yen, and $15 million in Czech koruna. The fair value of the Company’s outstanding foreign currency
forward contracts at June 27, 2008 was a liability of $24 million. The Company does not believe that these derivatives present significant credit
risks, because the counterparties to the derivatives consist of major financial institutions with high credit quality ratings, it limits the notional
amount on contracts entered into with any one counterparty and maintains limits on maximum terms of contracts based on the credit rating of the
financial institutions. In addition, the exposure related to forward contracts is generally limited to the amount that a counterparty’s obligation
exceeds the amount owed by the Company. Net foreign currency transaction losses included in the determination of consolidated net income
were $1 million, $3 million and $6 million for fiscal years 2008, 2007 and 2006, respectively.
Accounts Receivable
85
June 27,
2008
June 29,
2007
(In millions)
Accounts receivable
$
1,416
$
1,433
Allowance for doubtful accounts
(6
)
(50
)
$
1,410
$
1,383