Derivatives and Hedging Activities

9 Months Ended

Sep. 27, 2015

Derivative Instruments, Gain (Loss)

Derivative Instruments and Hedging Activities Disclosure

Derivatives and Hedging Activities

Cash Flow Hedges. From time to time, the Company uses foreign exchange forward contracts designated as cash flow hedges to hedge a portion of future forecasted wafer purchases and research and development (“R&D”) expenses in Japanese yen. The gain or loss on the effective portion of a cash flow hedge is initially reported as a component of accumulated other comprehensive income (loss) (“AOCI”) and subsequently reclassified into cost of revenue or R&D expense in the same period or periods in which the cost of revenue or R&D expense 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 related to an ineffective portion of a cash flow hedge, as well as any amount excluded from the hedge effectiveness, is recognized immediately as other income (expense).

Net Investment Hedges. To help protect certain foreign currency denominated equity method investments from adverse changes in foreign currency exchange rates, the Company may enter into foreign currency forward contracts to partially hedge the changes in the carrying amounts of these investments due to fluctuations in foreign currency exchange rates. Foreign exchange forward contracts designated as net investment hedges relate to the underlying value of the Company’s equity method investments in Japanese yen. The effective portion of a net investment hedge is initially recorded in AOCI as a part of foreign currency translation. Cumulative gains and losses including forward points associated with foreign exchange forward contracts designated as net investment hedges would be reclassified to other income (expense) from AOCI upon sale or substantial liquidation of the foreign equity method investments. The ineffective portions of net investment hedges are recognized immediately as other income (expense).

As of September 27, 2015, the notional amount and unrealizedgain and loss on the effective portion of the outstanding foreign exchange forward contracts to purchase Japanese yen that are designated as cash flow hedges and sell Japanese yen that are designated as net investment hedges are shown in both Japanese yen and U.S. dollar, based upon the exchange rate at September 27, 2015, as follows:

	Notional Amount						Unrealized Gain (Loss)
	(Japanese yen, in billions)			(U.S. dollar, in thousands)			(U.S. dollar, in thousands)
Designated foreign exchange forward contracts:
Cash flow hedges	¥	18.3		$	151,800		$	(91	)
Net investment hedges	(20.0		)	(165,523		)	1,065
Total designated foreign exchange forward contracts	¥	(1.7	)	$	(13,723	)	$	974

As of September 27, 2015, the maturities of the designated foreign exchange forward contract hedges weretwomonths or less.

Other Derivatives. Other derivatives that are non-designated consist primarily of foreign exchange forward 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 foreign exchange forward contracts were marked-to-market at September 27, 2015 with realized and unrealized gains and losses included in other income (expense). As of September 27, 2015, the Company had foreign exchange forward contracts hedging balance sheet remeasurement exposures in British pounds, European euros, Japanese yen and Malaysian ringgits. Foreign exchange forward contracts were outstanding to buy and sell U.S. dollar-equivalents of approximately $414.3 million and $165.2 million in foreign currencies, respectively, based upon the exchange rates at September 27, 2015.

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. Gross fair value of derivative contracts was as follows:

	Derivative assets reported in
	Other Current Assets
	September 27, 2015		December 28, 2014
	(In thousands)
Foreign exchange forward contracts designated	$	1,147	$	—
Foreign exchange forward contracts not designated	4,492		4,800
Total derivatives	$	5,639	$	4,800

	Derivative liabilities reported in
	Other Current Accrued Liabilities
	September 27, 2015		December 28, 2014
	(In thousands)
Foreign exchange forward contracts designated	$	213	$	1,472
Foreign exchange forward contracts not designated	1,510		6,752
Total derivatives	$	1,723	$	8,224

As of September 27, 2015, the potential effect of rights of set-off associated with the above foreign exchange forward contracts would result in a net derivative asset balance of $4.1 million and an immaterial net derivative liability balance. As of December 28, 2014, the potential effect of rights of set-off would result in a net derivative asset balance of $2.8 million and a net derivative liability balance of $6.3 million.

Effect of Foreign Exchange Forward Contracts Designated as Cash Flow and Net Investment Hedges on the Condensed Consolidated Statements of Operations. All designated cash flow and net investment hedge derivative contracts were considered effective for each of the three and nine months endedSeptember 27, 2015 and September 28, 2014. The impact of the effective portion of designated cash flow and net investment derivative contracts on the Company’s results of operations was as follows:

	Three months ended											Nine months ended
	Amount of gain (loss) recognized in OCI						Amount of gain (loss) reclassified from AOCI to earnings					Amount of gain recognized in OCI				Amount of loss reclassified from AOCI to earnings
	September 27, 2015			September 28, 2014			September 27, 2015		September 28, 2014			September 27, 2015		September 28, 2014		September 27, 2015			September 28, 2014
	(In thousands)
Foreign exchange forward contracts:
Cash flow hedges	$	1,532		$	(15,021	)	$	604	$	(6,353	)	$	2,312	$	3,897	$	(13,151	)	$	(15,760	)
Net investment hedges	(2,646		)	—			—		—			2,986		—		—			—
Total foreign exchange forward contracts	$	(1,114	)	$	(15,021	)	$	604	$	(6,353	)	$	5,298	$	3,897	$	(13,151	)	$	(15,760	)

The Company expects to realize the majority of the AOCI balance related to cash flow hedges within the next 12 months. Cumulative gains and losses on net investment hedges recognized in AOCI would be reclassified to other income (expense) from AOCI upon sale or substantial liquidation of the foreign equity method investments.

The following table presents the forward points on foreign exchange contracts excluded for the purposes of cash flow hedging designation recognized in other income (expense):

	Three months ended						Nine months ended
	September 27, 2015			September 28, 2014			September 27, 2015			September 28, 2014
	(In thousands)
Foreign exchange forward contracts	$	(152	)	$	(204	)	$	(358	)	$	(915	)

Effect of Non-Designated Derivative Contracts on the Condensed Consolidated Statements of Operations. The effect of non-designated derivative contracts on the Company’s results of operations recognized in other income (expense) was as follows:

	Three months ended						Nine months ended
	September 27, 2015			September 28, 2014			September 27, 2015			September 28, 2014
	(In thousands)
Loss on foreign exchange forward contracts including forward point income	$	(218	)	$	(5,869	)	$	(293	)	$	(2,594	)
Gain (loss) from revaluation of foreign currency exposures hedged by foreign exchange forward contracts	(288		)	4,676			(4,461		)	1,926
Total effect of non-designated derivative contracts	$	(506	)	$	(1,193	)	$	(4,754	)	$	(668	)