Western Digital 2009 Annual Report Download - page 55

of foreign currency fluctuations on our results of operations. The contract maturity dates do not exceed 12 months. We do
not purchase short-term foreign exchange contracts for trading purposes. Currently, we focus on hedging our foreign
currency risk related to the Thai Baht, Malaysian Ringgit, Euro and the British Pound Sterling. Malaysian Ringgit
contracts are designated as cash flow hedges. Euro and British Pound Sterling contracts are designated as fair value
hedges. Thai Baht contracts are designated as both cash flow and fair value hedges. See Part II, Item 8, Note 1 in the
Notes to Consolidated Financial Statements, included in this Annual Report on Form 10-K.
As of July 3, 2009, we had outstanding the following purchased foreign exchange contracts (in millions, except
weighted average contract rate):
Contract
Amount
Weighted Average
Contract Rate*
Unrealized
Gain
Foreign exchange contracts:
Thai Baht cash flow hedges ................ $293 34.57 $ 2
Thai Baht fair value hedges ................ $118 34.04 —
Malaysian Ringgit cash flow hedges .......... $152 3.55 —
Euro fair value hedges . . . ................. $ 14 0.71 —
British Pound Sterling fair value hedges ....... $ 6 0.61 —
* Expressed in units of foreign currency per dollar.
In 2009, 2008 and 2007, total net realized transaction and forward exchange contract currency gains and losses were
not material to our consolidated financial statements.
Disclosure About Other Market Risks
Variable Interest Rate Risk
Borrowings under the Credit Facility bear interest at a rate equal to, at the option of WDTI, either (a) a LIBOR rate
determined by reference to the cost of funds for Eurodollar deposits for the interest period relevant to such borrowing,
adjusted for certain additional costs (the “Eurocurrency Rate”); or (b) a base rate determined by reference to the higher of
(i) the federal funds rate plus 0.50% and (ii) the prime rate as announced by JPMorgan Chase Bank, N.A. (the “Base
Rate”); in each case plus an applicable margin. The applicable margin for borrowings under the term loan facility ranges
from 1.25% to 1.50% with respect to borrowings at the Eurocurrency Rate and 0.0% to 0.125% with respect to
borrowings at the Base Rate. The applicable margin for revolving loan borrowings under the revolving credit facility
ranges from 0.8% to 1.125% with respect to borrowings at the Eurocurrency Rate and 0.0% to 0.125% with respect to
borrowings at the Base Rate. The applicable margins for borrowings under the Credit Facility are determined based upon
a leverage ratio of the Company and its subsidiaries calculated on a consolidated basis. If the federal funds rate, prime rate
or LIBOR rate increases, our interest payments could also increase. A one percent increase in the variable rate of interest
on the Credit Facility would increase interest expense by approximately $5 million annually.
Credit Market Risk
Our long-term investments consist of auction-rate securities totaling $18 million as of July 3, 2009. The negative
conditions in the global credit markets have prevented us from liquidating some of our holdings of auction rate securities
because the amount of securities submitted for sale has exceeded the amount of purchase orders for such securities. If the
credit markets do not improve, auctions for our invested amounts may continue to fail. If this occurs, we may be unable to
liquidate some or all of our auction-rate securities at par should we need or desire to access the funds invested in those
securities prior to maturity of the underlying assets. In the event we need or desire to access these funds, we will not be
able to do so until a future auction on these investments is successful or a buyer is found outside the auction process. If a
buyer is found but is unwilling to purchase the investments at par, we may incur a loss. The market values of some of the
auction-rate securities we owned were impacted by the macroeconomic credit market conditions. Rating downgrades of
the security issuer or the third-parties insuring such investments may require us to adjust the carrying value of these
investments through an impairment charge. Based on our ability to access our cash, cash equivalents and cash generated
from operations, we do not anticipate these investments will affect our ability to execute our current business plan.
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