Foreign Exchange Contracts

3 Months Ended

Oct. 02, 2015

Derivative Instruments and Hedging Activities Disclosure [Abstract]

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, 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 speculative or trading purposes. As of October 2, 2015, 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, 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 and presented within cash flow from operations. 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 months ended October 2, 2015 and October 3, 2014.

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 cost of revenue or operating expenses, depending on the nature of the underlying hedged item. All fair value hedges were determined to be effective as of October 2, 2015 and July 3, 2015. The changes in fair value on these contracts were immaterial to the condensed consolidated financial statements during the three months ended October 2, 2015 and October 3, 2014.

As of October 2, 2015, the net amount of unrealized losses with respect to the Company’s foreign exchange contracts that is expected to be reclassified into earnings within the next 12 months was $50 million. In addition, as of October 2, 2015, the Company did not have any foreign exchange contracts with credit-risk-related contingent features. The Company opened $1.0 billion and closed $1.0 billion in foreign exchange contracts during each of the three months ended October 2, 2015 and October 3, 2014. The fair value and balance sheet location of the Company's foreign exchange contracts as of October 2, 2015 and July 3, 2015 were as follows (in millions):

Asset Derivatives

Liability Derivatives

October 2, 2015

July 3, 2015

October 2, 2015

July 3, 2015

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

$

1

Other current assets

$

—

Accrued expenses

$

62

Accrued expenses

$

31

The following table presents the gross amounts of the Company's derivative instruments, amounts offset due to master netting arrangements with the Company's various counterparties, and the net amounts recognized in the condensed consolidated balance sheet as of October 2, 2015 (in millions):

Derivatives Designated as Hedging Instruments	Gross Amounts of Recognized Assets (Liabilities)			Gross Amounts Offset in the Balance Sheet			Net Amounts of Assets (Liabilities) Presented in the Balance Sheet
Foreign exchange contracts
Financial assets	$	2		$	(1	)	$	1
Financial liabilities	(63		)	1			(62		)
Total derivative instruments	$	(61	)	$	—		$	(61	)

The Company had a gross and net liability of $31 million related to its derivative instruments outstanding at July 3, 2015. There were no amounts offset due to master netting arrangements in place at July 3, 2015.

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

	Amount of Loss Recognized in Accumulated OCI on Derivatives						Location of Gain (Loss) Reclassified from Accumulated OCI into Income	Amount of Gain (Loss) Reclassified From Accumulated OCI into Income
Derivatives in Cash Flow Hedging Relationships	Three Months Ended			Three Months Ended				Three Months Ended		Three Months Ended
	October 2, 2015			October 3, 2014				October 2, 2015		October 3, 2014
Foreign exchange contracts	$	(53	)	$	(22	)	Cost of revenue	$	28	$	(4	)

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 months ended October 2, 2015 and October 3, 2014.