Derivative Financial Instruments

3 Months Ended

Mar. 24, 2013

Derivative Financial Instruments [Abstract]

Derivative Financial Instruments

3. Derivative Financial Instruments

The Company is exposed to financial market risks, including fluctuations in interest rates, foreign currency exchange rates and market value risk related to its investments.  The Company uses derivative financial instruments primarily to mitigate foreign exchange rate risks, but also as part of its strategic investment program.  In the normal course of business, the Company also faces risks that are either non-financial or non-quantifiable.  Such risks principally include country risk, credit risk and legal risk, and are not discussed or quantified in the following analyses.  As of March 24, 2013, the Company's only derivatives were currency forward contracts which were not designated as accounting hedges, the Put Option (See Note 2, "Investments"), and a call option on the equity of a private domestic company.  The private domestic company is a development stage entity, and as such, the Company is unable to determine the fair value of the call option at this time.

Interest Rates

The Company is subject to interest rate risk through its investments.  The objectives of the Company's investments in debt securities are to preserve principal and maintain liquidity while maximizing returns.  To achieve these objectives, the returns on the Company's investments in short-term debt generally will be compared to yields on money market instruments such as U.S. Commercial Paper programs, LIBOR, or U.S. Treasury Bills.  Investments in long-term debt securities will be generally compared to yields on comparable maturity of U.S. Treasury obligations, investment grade corporate instruments with an equivalent credit rating or an aggregate benchmark index.

The Company had no outstanding interest rate derivatives as of March 24, 2013.

3. Derivative Financial Instruments (Continued)

Foreign Currency Exchange Rates

The Company generally hedges the risks of foreign currency-denominated repetitive working capital positions with offsetting foreign currency denominated exchange transactions, using currency forward contracts or spot transactions.  Transaction gains and losses on these foreign currency-denominated working capital positions are generally offset by corresponding gains and losses on the related hedging instruments, usually resulting in reduced net exposure.  The Company does not hedge its revenues and expenses against changes in foreign currency exchange rates, as it does notperceive the net risk of changes to translated revenues and expenses from changes in exchange rates as significant enough at this time to justify hedging.

A significant amount of the Company's revenues, expense, and capital purchasing transactions are conducted on a global basis in several foreign currencies.  At various times, the Company has currency exposure related to the British Pound Sterling, the Euro, and the Japanese Yen.  For example, in the United Kingdom, the Company has a sales office and a semiconductor wafer fabrication facility with revenues in U.S. Dollars and Euros, and expenses in British Pounds Sterling and U.S. Dollars.  To protect against exposure to currency exchange rate fluctuations on non-functional currency payables and receivables, the Company has established a balance sheet transaction risk hedging program.  This risk hedging program generally uses spot and currency forward contracts.  These contracts are not designated as hedging instruments for accounting purposes.  Through this hedging program, the Company seeks to reduce, but does not always entirely eliminate, the impact of currency exchange rate movements.

For its balance sheet transaction risk hedging program, the Company had approximately $43.8 million in notional amounts of currency forward contracts not designated as accounting hedges at March 24, 2013.  The net realized and unrealized foreign‑currency gains (losses) related to forward contracts not designated as accounting hedges recognized in earnings, as a component of other expense (income), net, were $2.1 million and $(0.0) million for the three and nine months ended March 24, 2013, respectively, and $(0.9) million and $(5.7) million for the three and nine months ended March 25, 2012, respectively.

At March 24, 2013 and June 24, 2012, the fair value carrying amount of the Company's derivatives not designated as hedging instruments were as follows (in thousands):

	March 24, 2013			June 24, 2012
	Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value
Put Option	Other assets	$	2,945	Other assets	$	2,834
Currency forward contracts	Prepaid expenses and other receivables		432	Prepaid expenses and other receivables		622
Currency forward contracts			—	Other assets		85
Total		$	3,377		$	3,541

The gain or (loss) recognized in other expense (income), net for the Company's derivatives not designated as hedging instruments during the three and nine months ended March 24, 2013 and March 25, 2012 was comprised of the following (in thousands):

	Three Months Ended						Nine Months Ended
	March 24, 2013			March 25, 2012			March 24, 2013			March 25, 2012
Put Option	$	(91	)	$	(232	)	$	111		$	23
Currency forward contracts		2,098			(856	)		(46	)		33
Total	$	2,007		$	(1,088	)	$	65		$	56

3. Derivative Financial Instruments (Continued)

Fair Value

The following tables present derivative instruments measured at fair value on a recurring basis as of March 24, 2013 and June 24, 2012 (in thousands):

	March 24, 2013
	Total		Level 1		Level 2		Level 3
Put Option	$	2,945	$	—	$	—	$	2,945
Currency forward contracts		432		—		432		—
Total derivative instruments at fair value	$	3,377	$	—	$	432	$	2,945

	June 24, 2012
	Total		Level 1		Level 2		Level 3
Put Option	$	2,834	$	—	$	—	$	2,834
Currency forward contracts		707		—		707		—
Total derivative instruments at fair value	$	3,541	$	—	$	707	$	2,834