Derivatives and Hedging Activities

12 Months Ended

Dec. 29, 2013

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 derivative instruments 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 derivative instruments 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 by the Company 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 derivative instruments, 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 revenue or other income (expense), or as other comprehensive income (“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 foreign exchange forward contracts designated as cash flow hedges to hedge a portion of future forecasted wafer purchases and 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 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 expenses are 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 cash flow hedge, as well as any amount excluded from the Company’s hedge effectiveness, is recognized as other income (expense) immediately. As of December 29, 2013, the notional amount and unrealized loss on the effective portion of the Company’s outstanding foreign exchange forward contracts to purchase Japanese yen that are designated as cash flow hedges are shown in both Japanese yen (in billions) and U.S. dollar (in thousands), based upon the exchange rate as of December 29, 2013, as follows:

	Notional Amount				Unrealized Loss
	(Japanese yen)		(U.S. dollar)		(U.S. dollar)
Foreign exchange forward contracts:
Maturities 12 months or less	¥	69.4	$	662,190	$	(38,375	)
Maturities greater than 12 months	0.2		2,295		(118		)
Total	¥	69.6	$	664,485	$	(38,493	)

The forward contracts with maturities greater than 12 months will settle by January 2015.

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 December 29, 2013 with realized and unrealized gains and losses included in other income (expense). As of December 29, 2013, the Company had foreign exchange forward contracts hedging exposures in European euros, British pounds and Japanese yen. Foreign exchange forward contracts were outstanding to buy and sell U.S. dollar equivalents of approximately $185.2 million and $98.7 million in foreign currencies, respectively, based upon the exchange rates at December 29, 2013.

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 were as follows (in thousands):

	Derivative assets reported in
	Other Current Assets				Other Non-current Assets
	December 29, 2013		December 30, 2012		December 29, 2013		December 30, 2012
Foreign exchange forward contracts not designated	$	777	$	19,064	$	—	$	994

	Derivative liabilities reported in
	Other Current Accrued Liabilities				Non-current Liabilities
	December 29, 2013		December 30, 2012		December 29, 2013		December 30, 2012
Foreign exchange forward contracts designated	$	38,375	$	7,058	$	118	$	—
Foreign exchange forward contracts not designated	7,366		6,526		—		—
Total derivatives	$	45,741	$	13,584	$	118	$	—

Foreign Exchange Forward Contracts 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 was as follows (in thousands):

	Fiscal years ended
	Amount of gain (loss) recognized in OCI									Amount of gain (loss) reclassified from AOCI to earnings
	December 29, 2013			December 30, 2012			January 1, 2012			December 29, 2013			December 30, 2012			January 1, 2012
Foreign exchange forward contracts	$	(74,834	)	$	(38,197	)	$	33,224		$	(41,523	)	$	(10,946	)	$	27,985
Equity market risk contract	—			—			(3,024		)	—			—			(9,885		)

Foreign exchange forward contracts designated as cash flow hedges relate to forecasted wafer purchases and R&D expenses in Japanese yen. Gains and losses associated with foreign exchange forward contracts designated as cash flow hedges are expected to be recorded in cost of revenue for wafer purchases or R&D expense when reclassified out of AOCI. Losses from the equity market risk contract were recorded in other income (expense) when reclassified out of AOCI. The Company expects to realize the majority of the AOCI 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) (in thousands):

	Fiscal years ended
	December 29, 2013			December 30, 2012			January 1, 2012
Foreign exchange forward contracts	$	(1,201	)	$	(6,630	)	$	(5,148	)

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) was as follows (in thousands):

	Fiscal years ended
	December 29, 2013			December 30, 2012			January 1, 2012
Gain (loss) on foreign exchange forward contracts including forward point income	$	1,427		$	9,025		$	(14,068	)
Gain (loss) from revaluation of foreign currency exposures hedged by foreign exchange forward contracts	(4,460		)	(3,511		)	17,479