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Table of Contents
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We have exposure to market risks due to the volatility of interest rates, foreign currency exchange rates, equity and bond markets. A portion
of these risks are hedged, but fluctuations could impact our results of operations, financial position and cash flows. Additionally, we have
exposure to downgrades in the credit ratings of our counterparties as well as exposure related to our credit rating changes.
Interest Rate Risk. Our exposure to market risk for changes in interest rates relates primarily to our investment portfolio. As of June 27,
2014, the Company had no available-for-sale securities that had been in a continuous unrealized loss position for a period greater than
12 months. The Company determined no available-for-sale securities were other-than-
temporarily impaired as of June 27, 2014. We currently do
not use derivative financial instruments in our investment portfolio.
We have fixed rate debt obligations. We enter into debt obligations for general corporate purposes including capital expenditures and
working capital needs. We currently do not use interest rate derivatives to hedge interest rate exposure on our outstanding debt.
The table below presents principal amounts and related weighted average interest rates by year of maturity for our investment portfolio and
debt obligations as of June 27, 2014. All short-term investments mature in four years or less.
Fiscal Years Ended
Foreign Currency Exchange Risk. We may enter into foreign currency forward exchange contracts to manage exposure related to certain
foreign currency commitments and anticipated foreign currency denominated expenditures. Our policy prohibits us from entering into derivative
financial instruments for speculative or trading purposes. During fiscal years 2014 and 2013, we did not enter into any hedges of net investments
in foreign operations.
We also hedge a portion of our foreign currency denominated balance sheet positions with foreign currency forward exchange contracts to
reduce the risk that our earnings will be adversely affected by changes in currency exchange rates. The changes in fair value of these hedges are
recognized in earnings in the same period as the gains and losses from the remeasurement of the assets and liabilities. These foreign currency
forward exchange contracts are not designated as hedging instruments under ASC 815, Derivatives and Hedging. All these forward contracts
mature within 12 months.
We evaluate hedging effectiveness prospectively and retrospectively and record any ineffective portion of the hedging instruments in Costs
of Revenue on the Consolidated Statements of Operations. We did not
60
(Dollars in millions,
except percentages)
2015
2016
2017
2018
2019
Thereafter
Total
Fair Value
at
June 27, 2014
Assets
Cash
equivalents:
Fixed rate
$
2,309
$
—
—
$
—
—
—
2,309
$
2,309
Average
interest
rate
0.27
%
0.27
%
Short-term
investments:
Fixed rate
$
19
$
—
$
—
—
—
20
$
20
Average
interest
rate
0.18
%
4.47
%
0.40
%
Total fixed
income
$
2,328
$
—
$
—
—
—
2,329
$
2,329
Average
interest
rate
0.27
%
4.47
%
0.27
%
Debt
Fixed rate
$
—
$
—
335
$
—
800
2,785
3,920
$
4,060
Average
interest
rate
6.80
%
3.75
%
5.36
%
5.15
%