Foreign Exchange Contracts

3 Months Ended

Sep. 30, 2011

Foreign Exchange Contracts [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, 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 or speculative purposes. As of September 30, 2011, the Company had outstanding foreign exchange contracts with commercial banks for Thai Baht, Malaysian Ringgit, Euro and British Pound Sterling. Thai Baht contracts are designated as either cash flow or fair value hedges. Malaysian Ringgit contracts are designated as cash flow hedges. Euro and British Pound Sterling contracts are designated as 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. As of September 30, 2011, the net amount of existing gains expected to be reclassified into earnings within the next 12 months was $24 million. The Company determined the ineffectiveness associated with its cash flow hedges to be immaterial.

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.

As of September 30, 2011, the Company did not have any foreign exchange contracts with credit-risk-related contingent features. The Company opened $902 million and $907 million, and closed $836 million and $727 million, in foreign exchange contracts in the three months ended September 30, 2011 and October 1, 2010, respectively. The fair value and balance sheet location of such contracts were as follows (in millions):

Asset Derivatives

Liability Derivatives

Sept. 30, 2011

Jul. 1, 2011

Sept. 30, 2011

Jul. 1, 2011

Derivatives Designated as

Balance Sheet

Fair

Balance Sheet

Fair

Balance Sheet

Fair

Balance Sheet

Fair

Hedging Instruments

Location

Value

Location

Value

Location

Value

Location

Value

Foreign exchange contracts

—

—

—

—

Accrued Expenses

$

33

Accrued Expenses

$

5

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

	Amount of Gain (Loss)						Amount of Gain (Loss)
	Recognized in					Location of Gain	Reclassified from
	Accumulated OCI					(Loss) Reclassified	Accumulated OCI into
Derivatives in Cash	on Derivatives					from Accumulated	Income
Flow Hedging Relationships	Sept. 30, 2011			Oct. 1, 2010		OCI into Income	Sept. 30, 2011		Oct. 1, 2010
Foreign exchange contracts	$	(8	)	$	55	Cost of revenue	$	11	$	27

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 September 30, 2011 and October 1, 2010.