Western Digital 2009 Annual Report Download - page 81

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Note 10. Fair Value Measurements
In the first quarter of 2009, the Company adopted SFAS 157 for financial assets and liabilities that are re-measured
and reported at fair value at each reporting period. SFAS 157 requires that fair value measurements be classified and
disclosed in one of the following three categories:
Level 1. Quoted prices in active markets for identical assets or liabilities.
Level 2. Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar
assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated
by observable market data for substantially the full term of the assets or liabilities.
Level 3. Inputs that are unobservable for the asset or liability and that are significant to the fair value of the assets
or liabilities.
The following table presents information about the Company’s financial assets that are measured at fair value on a
recurring basis as of July 3, 2009, and indicates the fair value hierarchy of the valuation techniques utilized to determine
such value (in millions):
July 3,
2009
Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Fair Value Measurements at
Reporting Date using
Assets
Money market funds ..................... $468 $468 $ — $—
U.S. Treasury securities ................... 197 — 197 —
U.S. Government agency securities ........... 80 — 79 1
Auction-rate securities .................... 18 — — 18
Foreign exchange contracts ................ 5 — 5 —
The Company’s money market funds are classified within Level 1 and valued based on quoted market prices.
U.S Treasury securities are classified within Level 2 and are valued based on broker quotations using observable inputs.
U.S. Government agency securities classified within Level 2 are valued based on broker quotations using observable
inputs. Securities classified as Level 3 are valued using a third party pricing service. Foreign currency hedges are classified
within Level 2 and valued based on the present value of future cash flows using market-based observable inputs,
including forward rates and credit default swap rates.
Money Market Funds. The Company’s money market funds are AAA rated institutional money market funds which
are invested in U.S. Treasury securities and are recorded within cash and cash equivalents in the consolidated balance
sheet.
U.S. Treasury Securities. The Company’s U.S. Treasury securities are investments in Treasury bills with original
maturities of three months or less and are recorded within cash and cash equivalents in the consolidated balance sheet.
U.S. Government Agency Securities. The Company’s U.S. Government agency securities are fixed income securities
sponsored by the U.S. Government of which $79 million have original maturities of three months or less and are recorded
within cash and cash equivalents and $1 million are classified as available-for-sale securities and are recorded within other
current assets in the consolidated balance sheet.
Auction-Rate Securities. The Company’s auction-rate securities are primarily backed by insurance products and are
expected to be held until secondary markets become available. As a result, they are classified as long-term investments.
75
WESTERN DIGITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)