Seagate 2009 Annual Report Download - page 70

Table of Contents
The table below provides information as of July 2, 2010 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.
Other Market Risks. We have exposure to counterparty credit downgrades in the form of credit risk related to our accounts receivable
balances, our foreign currency forward exchange contracts and our fixed income portfolio. We monitor and limit our credit exposure for both our
accounts receivable balances and our foreign currency forward exchange contracts by performing ongoing credit evaluations. We also 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. Additionally, the investment portfolio is diversified and structured to minimize credit risk. As of July 2,
2010, we had counterparty credit exposure of $7 million comprised of the mark-to-market valuation related to our foreign currency forward
exchange contracts in a gain position. Changes in our corporate issuer credit ratings have minimal impact on our financial results, but
downgrades may negatively impact our future transaction costs and our ability to execute transactions with various counterparties.
We have exposure to equity market risks due to changes in the fair value of the notional investments selected by our employees as part of
our Non-qualified Deferred Compensation Plan—the Seagate Deferred Compensation Plan (the "SDCP"). In the quarter ended July 3, 2009, we
entered into a Total Return Swap (TRS) in order to manage the equity market risks associated with the SDCP plan liabilities. We pay a floating
rate, based on LIBOR plus a spread, on the notional amount of the TRS. The TRS is designed to substantially offset changes in the SDCP plan
liability due to changes in the value of the investment options made by employees. The contract term of the TRS is one year and is settled on a
monthly basis therefore limiting counterparty performance risk. The terms of the TRS required us to pledge initial collateral of $18 million to the
counterparty for the term of the contract. Additional collateral may be posted contingent on the counterparty's exposure to the market value of
the TRS. As of July 2, 2010, we had $18 million pledged to the counterparty, recorded as restricted cash.
During fiscal year 2010, approximately $1 million of our auction rate securities were called by the issuers. As of July 2, 2010, we continued
to hold auction rate securities with a par value of approximately $19 million, all of which are collateralized by student loans guaranteed by the
Federal Family Education Loan Program. Beginning in the March 2008 quarter, these securities have continuously failed to settle at auction. As
of July 2, 2010, the estimated fair value of these auction rate securities was $17 million. We believe that the impairments totaling $2 million are
temporary as we do not intend to sell these securities and have concluded it is not more likely than not that we will be required to sell the
securities before the recovery of the amortized cost basis. As such, the impairment was recorded in Other comprehensive income (loss) and these
securities were classified as long-term investments.
68
(Dollars in millions, except
average contract rate)
Notional
Amount
Average
Contract Rate
Estimated Fair
Value
(1)
Foreign currency forward
exchange contracts:
Singapore Dollar
$
92
1.41
$
2
Thai Baht
569
32.53
5
Japanese Yen
1
93.30
—
Czech Koruna
10
20.62
—
Total
$
672
$
7
(1)
Equivalent to the unrealized net gain (loss) on existing contracts.