Western Digital 2011 Annual Report Download - page 77

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U.S. Treasury Securities. The Company’s U.S. Treasury securities are investments in Treasury bills with original
maturities of three months or less, are held in custody by a third party and are recorded within cash and cash equivalents
in the consolidated balance sheets. U.S. Treasury securities are valued using a market approach which is based on
observable inputs including market interest rates from multiple pricing sources.
U.S. Government Agency Securities. The Company’s U.S. Government agency securities are investments in fixed
income securities sponsored by the U.S. Government with original maturities of three months or less, are held in custody
by a third party and are recorded within cash and cash equivalents in the consolidated balance sheets. U.S. Government
agency securities are valued using a market approach which is based on observable inputs including market interest rates
from multiple pricing sources.
Auction-Rate Securities. The Company’s auction-rate securities have maturity dates through 2050, are primarily
backed by insurance products and are accounted for as available-for-sale securities. These investments are expected to be
held until secondary markets become available and as a result, are classified as long-term investments and recorded
within other non-current assets in the consolidated balance sheets. Auction-rate securities are valued using an income
approach which is based on a discounted cash flow model or a credit default model. The inputs to the discounted cash
flow model include market interest rates and a discount factor to reflect the illiquidity of the investments. The inputs to
the credit default model include market interest rates, yields of similar securities, and probability-weighted assumptions
related to the creditworthiness of the underlying assets.
Foreign Exchange Contracts. The Company’s foreign exchange contracts are short-term contracts to hedge the
Company’s foreign currency risk related to the Thai Baht, Malaysian Ringgit, Euro and British Pound Sterling. Foreign
exchange contracts are classified within other current assets in the consolidated balance sheets. Foreign exchange
contracts are valued using an income approach which is based on a present value of future cash flows model. The market-
based observable inputs for the model include forward rates and credit default swap rates.
The following table presents the changes in Level 3 financial assets measured on a recurring basis (in millions):
U.S.
Government
Agency
Securities
Auction-rate
Securities Total
July 3, 2009 ................................. $ 1 $18 $19
Sales. .................................... — (3) (3)
Maturities ................................. (1) — (1)
July 2, 2010 ................................. $— $15 $15
For the year ended July 1, 2011, there were no changes in Level 3 financial assets measured on a recurring basis. The
Company had no liabilities that were re-measured and reported at fair value on a recurring basis during the year ended
July 2, 2010.
Note 11. Foreign Exchange Contracts
As of July 1, 2011, the net amount of existing gains expected to be reclassified into earnings within the next twelve
months was $5 million and the Company did not have any foreign exchange contracts with credit-risk-related contingent
features. The Company opened $4.7 billion and $4.8 billion, and closed $3.2 billion and $4.1 billion, in foreign
71
WESTERN DIGITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)