Seagate 2009 Annual Report Download - page 101

Table of Contents
SEAGATE TECHNOLOGY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The Company files U.S. federal, U.S. state, and non-U.S. tax returns. The Internal Revenue Service (IRS) is currently examining fiscal
years 2005 through 2007. For state and non
-U.S. tax returns, the Company is generally no longer subject to tax examinations for years prior to
fiscal year 2001. The statute of limitation for U.S. Federal returns is open for fiscal year 2005 and forward.
7. Derivative Financial Instruments
The Company is exposed to foreign currency exchange rate, interest rate, and to a lesser extent, equity price risks relating to its ongoing
business operations. The Company enters into foreign currency forward exchange contracts in order to manage the foreign currency exchange
rate risk on forecasted expenses denominated in foreign currencies and to mitigate the remeasurement risk of certain foreign currency
denominated liabilities. The Company's accounting policies for these instruments are based on whether the instruments are designated as hedge
or non-hedge instruments. The Company records all derivatives on the Consolidated Balance Sheets at fair value. The effective portions of cash
flow hedges are recorded in other comprehensive income until the hedged item is recognized in earnings. Derivatives that are not designated as
hedging instruments and the ineffective portions of cash flow hedges are adjusted to fair value through earnings.
The Company's unrealized net gains (losses) on cash flow hedges are included as a component of Accumulated other comprehensive
income (loss) at July 2, 2010 and July 3, 2009 and were not material.
The Company dedesignates its cash flow hedges when the forecasted hedged transactions are realized or it is probable the forecasted
hedged transaction will not occur in the initially identified time period. At such time, the associated gains and losses deferred in Other
comprehensive income (loss) (OCI) are reclassified into earnings in the same period that the underlying hedged transaction is included in
earnings. Any subsequent changes in the fair value of such derivative instruments are immediately reflected in earnings. As of July 2, 2010, the
Company's existing foreign currency forward exchange contracts are expected to mature within 12 months. The deferred amount currently
recorded in Accumulated other comprehensive income (loss) expected to be recognized into earnings over the next 12 months is $4 million.
As of July 2, 2010, the total notional value of the Company's outstanding foreign currency forward exchange contracts was:
The Company is subject to equity market risks due to changes in the fair value of the notional investments selected by its employees as part
of its Non-qualified Deferred Compensation Plan—the Seagate Deferred Compensation Plan (the "SDCP"). In the quarter ended July 3, 2009,
the Company entered into a Total Return Swap (TRS) in order to manage the equity market risks associated with the SDCP liabilities. The
Company pays a floating rate, based on LIBOR plus an interest rate spread, on the notional amount of the TRS. The TRS is designed to
substantially offset changes in the SDCP liability due to changes in the value of the investment options made by employees. As of July 2, 2010,
the notional investments underlying the TRS amounted to $68 million. The contract term of the TRS is approximately one year and is settled on
a monthly basis, therefore limiting counterparty performance risk. The terms of
95
(Dollars in
millions)
Contracts Qualifying as
Hedges
Under ASC 815
Contracts Not Qualifying as
Hedges
Under ASC 815
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