Tesla 2016 Annual Report Download - page 45

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InNovember2015,weimplementedaprogramtohedgetheforeigncurrencyexposureriskrelatedtocertainforecastedinventorypurchasesdenominatedin
Japaneseyen.Thederivativeinstrumentsweuseareforeigncurrencyforwardcontractsandaredesignatedascashflowhedgeswithmaturitydatesof12monthsor
less.Wedonotenterintoderivativecontractsfortradingorspeculativepurposes.Wedocumenteachhedgerelationshipandassessitsinitialeffectivenessatthe
inceptionofthehedgecontractandwemeasureitsongoingeffectivenessonaquarterlybasisusingregressionanalysis.Duringthetermofaneffectivehedge
contract,werecordgainsandlosseswithinaccumulatedothercomprehensiveloss.Wereclassifythesegainsorlossestocostsofautomotivesalesintheperiodthe
relatedfinishedgoodsinventoryissoldoroverthedepreciationperiodforthosesalesaccountedforasleases.Althoughourcontractsareconsideredeffective
hedges,wemayexperiencesmallamountsofineffectivenessduetotimingdifferencesbetweenouractualinventorypurchasesandthesettlementdateofthe
relatedforeigncurrencyforwardcontracts.Wehaverecordedzeroamountofineffectivenesswithinotherincome(expense),netinourConsolidatedStatementsof
Operations,asofDecember31,2015.AsofDecember31,2015wehadrecordedagainof$7.3milliontoAOCIrelatedtoourforeigncurrencycashflowhedges.
IftheU.S.dollarhadstrengthenedby10%asofDecember31,2015,theamountrecordedinaccumulatedAOCIrelatedtoourforeignexchangecontractsbefore
taxeffectwouldhavebeenalossofapproximately$21.1million.
Interest Rate Risk
Wehadcashandcashequivalentstotaling$1.20billionasofDecember31,2015.Asignificantportionofourcashandcashequivalentswereinvestedin
moneymarketfunds.Cashandcashequivalentsareheldforworkingcapitalpurposes.Wedonotenterintoinvestmentsfortradingorspeculativepurposes.We
believethatwedonothaveanymaterialexposuretochangesinthefairvalueasaresultofchangesininterestratesduetotheshorttermnatureofourcash
equivalents.
AsofDecember31,2015,wehad$2.96billionaggregateprincipalamountofconvertibleseniornotesoutstanding,whicharefixedrateinstruments.
Therefore,ourresultsofoperationsarenotsubjecttofluctuationsininterestrates.However,thefairvalueofourdebtwillfluctuatewithmovementsofinterest
rates,increasinginperiodsofdecliningratesofinterestanddeclininginperiodsofincreasingratesofinterest.BaseduponquotedmarketpricesandLevel2inputs,
thefairvalueofourtotaldebtwas$3.4billionasofDecember31,2015.
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