Derivative Financial Instruments

12 Months Ended

Jun. 29, 2014

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative Financial Instruments

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. 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 June 29, 2014, 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 achieving market returns on the investment portfolio. 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 June 29, 2014.

Foreign Currency Exchange Rates

A significant amount of the Company's revenues, expense, and capital purchasing transactions are conducted on a global basis in several foreign currencies. To protect against exposure to currency exchange rate fluctuations, the Company has established a balance sheet risk hedging program. Through this hedging program, the Company seeks to reduce, but does not always entirely eliminate, the impact of currency exchange rate movements on certain balance sheet line items.

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. At various times, the Company has currency exposure related primarily to the British Pound Sterling, the Euro, and the Japanese Yen, as well as other foreign currencies.  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. 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. The aggregate foreign currency losses included in net income for the fiscal years ended June 29, 2014, June 30, 2013, and June 24, 2012 were $1.5 million, $2.2 million, and $3.5 million, respectively.

For its balance sheet risk hedging program, the Company had approximately $11.6 million and $14.4 million in notional amounts of forward contracts not designated as accounting hedges outstanding at June 29, 2014 and June 30, 2013, respectively.  Net realized and unrealized foreign currency gains related to foreign currency forward contracts not designated as accounting hedges recognized in earnings, as a component of other expense, net, were $1.1 million, $0.1 million, and $1.0 million for the fiscal years ended June 29, 2014, June 30, 2013, and June 24, 2012, respectively.

At June 29, 2014 and June 30, 2013, the fair value carrying amounts of the Company’s derivative financial instruments were as follows (in thousands):

	June 29, 2014			June 30, 2013
	Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value
Put Option	Other assets	$	1,451	Other assets	$	2,888
Currency forward contracts	Prepaid expenses and other current assets	19		Prepaid expenses and other current assets	19
Total		$	1,470		$	2,907

The gain or (loss) recognized in other expense, net, for the Company’s derivative financial instruments not designated as hedging instruments during the fiscal years ended June 29, 2014, June 30, 2013, and June 24, 2012 was comprised of the following (in thousands):

	Fiscal Year Ended
	June 29, 2014			June 30, 2013		June 24, 2012
Put Option	$	(1,437	)	$	54	$	61
Currency forward contracts	1,137			129		961
Total	$	(300	)	$	183	$	1,022

Fair Value

The following tables present derivative financial instruments measured at fair value on a recurring basis as of June 29, 2014 and June 30, 2013 (in thousands):

	June 29, 2014
	Total		Level 1		Level 2		Level 3
Put Option	$	1,451	$	—	$	—	$	1,451
Foreign currency derivatives:
Assets	19		—		19		—
Total derivative financial instruments at fair value	$	1,470	$	—	$	19	$	1,451

	June 30, 2013
	Total		Level 1		Level 2		Level 3
Put Option	$	2,888	$	—	$	—	$	2,888
Foreign currency derivatives:
Assets	19		—		19		—
Total derivative financial instruments at fair value	$	2,907	$	—	$	19	$	2,888