Seagate 2008 Annual Report Download - page 73

Table of Contents
instruments, principally foreign currency forward exchange contracts, on the balance sheet as either assets or liabilities and these derivative
financial instruments are carried at fair value.
We may enter into foreign currency forward exchange contracts to manage exposure related to certain foreign currency commitments,
foreign currency denominated balance sheet positions and anticipated foreign currency denominated expenditures. Our policy prohibits us from
entering into derivative financial instruments for speculative or trading purposes. During the fiscal years 2009, 2008 and 2007, we did not enter
into any hedges of net investments in foreign operations.
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
foreign currency forward exchange contracts, carried at fair value, may have maturities of up to 12 months.
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 (loss), and the ineffective portion is reported in earnings. Amounts in Other comprehensive income (loss) 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 exchange 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 exchange 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 during fiscal year 2009, nor did we discontinue any material cash flow hedges for a forecasted transaction in
fiscal year 2009.
The table below provides information as of July 3, 2009 about our 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.
(1)
(Dollars in millions, except average contract rate)
Notional
Amount
Average
Contract
Rate
Estimated
Fair
Value
(1)
Foreign currency forward exchange contracts:
Singapore Dollar
$
27
1.46
—
Thai Baht
168
34.21
1
Czech Koruna
8
19.53
—
Total
$
203
$
1
Equivalent to the unrealized net gain (loss) on existing contracts.
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