Derivatives and Hedging Activities

12 Months Ended

Jan. 01, 2012

Derivative Instruments, Gain (Loss)

Derivative Instruments and Hedging Activities Disclosure [Text Block]

Derivatives and Hedging Activities

The Company uses derivative instruments primarily to manage exposures to foreign currency. The Company’s primary objective in holding derivatives is to reduce the volatility of earnings and cash flows associated with changes in foreign currency. The program is not designated for trading or speculative purposes. The Company’s derivatives expose the Company to credit risk to the extent that the counterparties may be unable to meet the terms of the agreement. The Company seeks to mitigate such risk by limiting its counterparties to major financial institutions and by spreading the risk across several major financial institutions. In addition, the potential risk of loss with any one counterparty resulting from this type of credit risk is monitored on an ongoing basis.

The Company recognizes derivative instruments as either assets or liabilities on the balance sheet at fair value and provides qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about fair value amounts of gains and losses on derivative instruments, and disclosures about credit-risk-related contingent features in derivative agreements. Changes in fair value (i.e., gains or losses) of the derivatives are recorded as cost of product revenues or other income (expense), or as accumulated OCI. The Company does not offset or net the fair value amounts of derivative instruments and separately discloses the fair value amounts of the derivative instruments as either assets or liabilities.

Cash Flow Hedges. The Company uses forward contracts designated as cash flow hedges to hedge a portion of future forecasted purchases in Japanese yen. The gain or loss on the effective portion of a cash flow hedge is initially reported as a component of accumulated OCI and subsequently reclassified into cost of product revenues in the same period or periods in which the cost of product revenues is recognized, or reclassified into other income (expense) if the hedged transaction becomes probable of not occurring. Any gain or loss after a hedge is no longer designated because it is no longer probable of occurring or it is related to an ineffective portion of a hedge, as well as any amount excluded from the Company’s hedge effectiveness, is recognized as other income(expense) immediately. As of January 1, 2012, the Company had forward contracts in place to hedge future purchases of approximately 102.6 billion Japanese yen, or approximately $1.3 billion based upon the exchange rate as of January 1, 2012, and the net unrealized gain on the effective portion of these cash flow hedges was $11.6 million. The forward contracts cover a portion of the Company’s future Japanese yen purchases that are expected to occur during fiscal year 2012.

In the fourth quarter of fiscal year 2011, the Company sold certain available-for-sale investments in equity securities. In connection with the sale, the Company settled the cash flow hedge designated to mitigate the equity risk associated with these securities. The Company received net proceeds of $87.0 million and realized a $28.7 million gain, which was offset by the settlement of the cash flow hedge that resulted in a loss of ($9.9) million.

Other Derivatives. Other derivatives that are non-designated consist primarily of forward and cross currency swap contracts to minimize the risk associated with the foreign exchange effects of revaluing monetary assets and liabilities. Monetary assets and liabilities denominated in foreign currencies and the associated outstanding forward and cross currency swap contracts were marked-to-market at January 1, 2012 with realized and unrealized gains and losses included in other income (expense). As of January 1, 2012, the Company had foreign currency forward contracts hedging exposures in European euros, British pounds and Japanese yen. Foreign currency forward contracts were outstanding to buy and (sell) U.S. dollar equivalents of approximately $340.7 million and ($177.7) million in foreign currencies, respectively, based upon the exchange rates at January 1, 2012.

The Company currently has currency swap transactions with various counterparties to exchange Japanese yen for U.S. dollars that require the Company to comply with certain covenants, the strictest of which is to maintain a minimum liquidity of $1.5 billion on or prior to June 24, 2012 and $1.0 billion thereafter. These currency swap transactions have a combined notional amount of ($221.6) million.  Currency swap transactions contracts were outstanding to buy and (sell) U.S. dollar equivalents of approximately $168.4 million and ($390.0) million in foreign currencies, respectively, based upon the exchange rates at January 1, 2012. Liquidity is defined as the sum of the Company’s cash and cash equivalents and short and long-term marketable securities. Should the Company fail to comply with these covenants, the Company may be required to settle the unrealized gain or loss on the foreign exchange contracts prior to the original maturity. The Company was in compliance with these covenants as of January 1, 2012.

The amounts in the tables below include fair value adjustments related to the Company’s own credit risk and counterparty credit risk.

Fair Value of Derivative Contracts. Fair value of derivative contracts as of January 1, 2012 and January 2, 2011 were as follows (in thousands):

	Derivative assets reported in
	Other Current Assets				Other Non-current Assets
	January 1, 2012		January 2, 2011		January 1, 2012		January 2, 2011
Designated cash flow hedges
Foreign exchange contracts	$	14,890	$	14,193	$	—	$	—
	14,890		14,193		—		—
Foreign exchange contracts not designated	6,203		4,389		—		880
Total derivatives	$	21,093	$	18,582	$	—	$	880

	Derivative liabilities reported in
	Other Current Accrued Liabilities				Non-current Liabilities
	January 1, 2012		January 2, 2011		January 1, 2012		January 2, 2011
Designated cash flow hedges
Foreign exchange contracts	$	3,265	$	728	$	—	$	—
Equity market risk contract	—		6,861		—		—
	3,265		7,589		—		—
Foreign exchange contracts not designated	36,780		26,017		5,790		43,156
Total derivatives	$	40,045	$	33,606	$	5,790	$	43,156

Foreign Exchange and Equity Market Risk Contracts Designated as Cash Flow Hedges. The impact of the effective portion of designated cash flow derivative contracts on the Company’s results of operations for the years endedJanuary 1, 2012 and January 2, 2011 was as follows (in thousands):

	Amount of gain (loss) recognized in OCI						Amount of gain (loss) reclassified from OCI to the Statements of Operations during the year ended
	January 1, 2012			January 2, 2011			January 1, 2012			January 2, 2011
Foreign exchange contracts	$	33,224		$	27,825		$	27,985		$	14,646
Equity market risk contract	(3,024		)	(7,585		)	(9,885		)	—

Foreign exchange contracts designated as cash flow hedges relate primarily to wafer purchases in Japanese yen. Gains and losses associated with foreign exchange contracts designated as cash flow hedges are expected to be recorded in cost of product revenues when reclassified out of accumulated OCI. Losses from the equity market risk contract were recorded in other income (expense) when reclassified out of accumulated OCI. The Company expects to realize the accumulated OCI balance related to foreign exchange contracts within the next twelve months.

The following table includes the ineffective portion of designated cash flow derivative contracts and the forward points excluded for the purposes of cash flow hedging designation recognized in other income (expense) for the fiscal years 2011, 2010 and 2009 (in thousands):

	Fiscal years ended
	January 1, 2012			January 2, 2011			January 3, 2010
Foreign exchange contracts	$	(5,148	)	$	(583	)	$	(1,047	)

Effect of Non-Designated Derivative Contracts on the Consolidated Statements of Operations. The effect of non-designated derivative contracts on the Company’s results of operations recognized in other income (expense) for fiscal years 2011, 2010 and 2009 was as follows (in thousands):

	Fiscal years ended
	January 1, 2012			January 2, 2011			January 3, 2010
Gain (loss) on foreign exchange contracts including forward point income	$	(14,068	)	$	(41,095	)	$	92,291
Gain (loss) from revaluation of foreign currency exposures hedged by foreign exchange contracts	17,479			41,514			(88,342		)