Western Digital 2001 Annual Report Download - page 39

Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Disclosure About Foreign Currency Risk
Although the majority of the Company's transactions are in U.S. Dollars, some transactions are based in
various foreign currencies. From time to time, the Company purchases short-term, forward exchange contracts
to hedge the impact of foreign currency Öuctuations on certain underlying assets, liabilities and commitments
for operating expenses denominated in foreign currencies. The purpose for entering into these hedge
transactions is to minimize the impact of foreign currency Öuctuations on the results of operations. To date, a
majority of the increases or decreases in the Company's local currency operating expenses are oÅset by gains
and losses on the hedges. The contracts have maturity dates that do not exceed twelve months. The Company
does not purchase short-term forward exchange contracts for trading purposes.
Historically, the Company has focused on hedging its foreign currency risk related to the Singapore
Dollar, the British Pound and the Malaysian Ringgit. With the establishment of currency controls and the
prohibition of purchases or sales of the Malaysian Ringgit by oÅshore companies, the Company discontinued
hedging its Malaysian Ringgit currency risk in 1999. Future hedging of this currency will depend on currency
conditions in Malaysia. The imposition of exchange controls by the Malaysian government resulted in a
$7.5 million realized loss on terminated hedging contracts in the Ñrst quarter of 1999. As a result of the closure
of the Company's Singapore operations in 2000, the Company has also discontinued its hedging program
related to the Singapore Dollar.
As of June 29, 2001, the Company had outstanding the following purchased foreign currency forward
exchange contracts (in millions, except average contract rate):
June 29, 2001
Contract Weighted Average Unrealized
Amount Contract Rate Gain (Loss)
(U.S. Dollar equivalent amounts)
Foreign currency forward contracts:
British Pound Sterling ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 2.8 1.42 Ì
In 1999, 2000, and 2001 total realized transaction and forward exchange contract currency gains and
losses (excluding the $7.5 million realized loss on the Malaysian Ringgits realized in 1999), were not material
to the consolidated Ñnancial statements. Based on historical experience, the Company does not expect that a
signiÑcant change in foreign exchange rates would materially aÅect the Company's consolidated Ñnancial
statements.
Disclosure About Other Market Risks
Fixed Interest Rate Risk
At June 29, 2001, the market value of the Company's 5.25% zero coupon convertible subordinated
debentures due in 2018 was approximately $85.1 million, compared to the related book value of $112.5 mil-
lion. The convertible debentures will be repurchased by the Company, at the option of the holder, as of
February 18, 2003, February 18, 2008, or February 18, 2013, or if there is a Fundamental Change (as deÑned
in the Debenture documents), at the issue price plus accrued original issue discount to the date of redemption.
The payment on those dates, with the exception of a Fundamental Change, can be in cash, stock or any
combination, at the Company's option.
The Company has a note receivable from another company that carries a Ñxed rate of interest. Therefore,
a signiÑcant change in interest rates would not cause these notes to impact the Company's consolidated
Ñnancial statements.
Variable Interest Rate Risk
At the option of WDT, borrowings under the Senior Credit Facility would bear interest at either LIBOR
(with option periods of one to three months) or a base rate, plus a margin determined by the borrowing base.
This is the only debt which does not have a Ñxed-rate of interest.
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