WESTERN DIGITAL CORP 10-Q

Item 3. Quantitative and Qualitative Disclosures About Market Risk Except as disclosed below, there have been no material changes to our market risk during the three months ended December 31, 2021 . See Part II, Item 7A, Quantitative and Qualitative Disclosures About Market Risks in our Annual Report on Form 10-K for the fiscal year ended July 2, 2021 for further information about our exposure to market risk. Foreign Currency Risk We performed sensitivity analyses as of December 31, 2021 and July 2, 2021 using a modeling technique that measures the change in the fair values arising from a hypothetical 10% adverse movement in the levels of foreign currency exchange rates relative to the U.S. dollar, with all other variables held constant. The analyses cover all of our foreign currency derivative contracts used to offset the underlying exposures. The foreign currency exchange rates used in performing the sensitivity analyses were based on market rates in effect at December 31, 2021 and July 2, 2021. The sensitivity analyses indicated that a hypothetical 10% adverse movement in foreign currency exchange rates relative to the U.S. dollar would result in a foreign exchange fair value loss of $294 million and $183 million at December 31, 2021 and July 2, 2021, respectively. Interest Rate Risk We have generally held a balance of fixed and variable rate debt. As of December 31, 2021, we had reduced the amount of variable rate debt to $3.0 billion from $5.43 billion as of July 2, 2021. As of December 31, 2021, a one percent increase in the variable rate of interest would increase annual interest expense by $30 million. We currently have pay-fixed interest rate swaps on $2.00 billion notional amount, which would help mitigate the impact of fluctuations in variable interest rates through February 2023.