Foreign Exchange Contracts

6 Months Ended

Dec. 28, 2012

Foreign Exchange Contracts

8. Foreign Exchange Contracts

Although the majority of the Company’s transactions are in U.S. dollars, some transactions are based in various foreign currencies. The Company purchases short-term, foreign exchange contracts to hedge the impact of foreign currency exchange fluctuations on certain underlying assets, revenue, liabilities and commitments for operating expenses and product costs denominated in foreign currencies. The purpose of entering into these hedging transactions is to minimize the impact of foreign currency fluctuations on the Company’s results of operations. These contract maturity dates do not exceed 12 months. All foreign exchange contracts are for risk management purposes only. The Company does not purchase foreign exchange contracts for trading purposes. As of December 28, 2012, the Company had outstanding foreign exchange contracts with commercial banks for British Pound Sterling, Euro, Japanese Yen, Malaysian Ringgit, Philippine Peso, Singapore Dollar and Thai Baht, all of which were designated as either cash flow or fair value hedges.

If the derivative is designated as a cash flow hedge, the effective portion of the change in fair value of the derivative is initially deferred in other comprehensive income (loss), net of tax. These amounts are subsequently recognized into earnings when the underlying cash flow being hedged is recognized into earnings. Recognized gains and losses on foreign exchange contracts entered into for manufacturing-related activities are reported in cost of revenue. Hedge effectiveness is measured by comparing the hedging instrument’s cumulative change in fair value from inception to maturity to the underlying exposure’s terminal value. The Company determined the ineffectiveness associated with its cash flow hedges to be immaterial to the condensed consolidated financial statements for the three and six months ended December 28, 2012 and December 30, 2011.

A change in the fair value of fair value hedges is recognized in earnings in the period incurred and is reported as a component of operating expenses. All fair value hedges were determined to be effective. The fair value and the changes in fair value on these contracts were not material to the condensed consolidated financial statements during the three and six months ended December 28, 2012 and December 30, 2011.

As of December 28, 2012, the net amount of unrealized gains with respect to the Company’s foreign exchange contracts that is expected to be reclassified into earnings within the next 12 months was $10 million. In addition, as of December 28, 2012, the Company did not have any foreign exchange contracts with credit-risk-related contingent features. The Company opened $647 million and $1.4 billion, and closed $923 million and $2.0 billion, in foreign exchange contracts in the three and six months ended December 28, 2012, respectively. The Company opened $391 million and $1.3 billion, and closed $815 million and $1.7 billion, in foreign exchange contracts in the three and six months ended December 30, 2011, respectively. The fair value and balance sheet location of such contracts were as follows (in millions):

Asset Derivatives

Liability Derivatives

Dec. 28, 2012

Jun. 29, 2012

Dec. 28, 2012

Jun. 29, 2012

Derivatives Designated as Hedging Instruments

Balance Sheet Location

Fair Value

Balance Sheet Location

Fair Value

Balance Sheet Location

Fair Value

Balance Sheet Location

Fair Value

Foreign exchange contracts

Other current assets

$

15

Other current assets

$

1

Accrued expenses

$

3

Accrued expenses

$

22

The impact on the condensed consolidated financial statements was as follows (in millions):

	Amount of Gain (Loss) Recognized in Accumulated OCI on Derivatives									Location of Gain (Loss) Reclassified		Amount of Gain (Loss) Reclassified From Accumulated OCI into  Income
Derivatives in Cash Flow Hedging Relationships	Three Months Ended		Six Months Ended		Three Months Ended		Six Months Ended			from Accumulated OCI into Income		Three Months Ended		Six Months Ended		Three Months Ended			Six Months Ended
	Dec. 28, 2012				Dec. 30, 2011							Dec. 28, 2012				Dec. 30, 2011
Foreign exchange contracts	$	14	$	45	$	2	$	(6	)		Cost of revenue	$	16	$	19	$	(8	)	$	3

The total net realized transaction and foreign exchange contract currency gains and losses were not material to the condensed consolidated financial statements during the three and six months ended December 28, 2012 and December 30, 2011.