5.	Fair value of financial instruments

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. A fair value hierarchy is established which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs for the valuation of an asset or liability as of measurement date. The three levels of inputs that may be used to measure fair value are defined as follows:

Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities.

Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for assets or liabilities, either directly or indirectly. If the assets or liabilities have a specified (contractual) term, Level 2 inputs must be observable for substantially the full term of assets or liabilities.

Level 3 inputs are unobservable inputs for assets or liabilities, which require the reporting entity to develop its own valuation techniques and assumptions.

The Company utilizes the market approach to measure fair value for its financial assets and liabilities. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities.

The following table provides details of the financial instruments measured at fair value on a recurring basis, including:


	Fair Value Measurements at Reporting Date Using
(amount in thousands)	Level 1		Level 2			Level 3		Total
As of March 25, 2016
Assets
Cash equivalents	$	—	$	2,315		$	—	$	2,315
Corporate bonds and commercial papers		—		116,558			—		116,558
U.S. agency and U.S. treasury securities		—		27,752			—		27,752
Sovereign and municipal securities		—		498			—		498
Derivative assets		—		674	⁽¹⁾		—		674

Total	$	—	$	147,797		$	—	$	147,797

Liabilities
Derivative liabilities	$	—	$	2,334	⁽²⁾	$	—	$	2,334

Total	$	—	$	2,334		$	—	$	2,334


	Fair Value Measurements at Reporting Date Using
(amount in thousands)	Level 1		Level 2			Level 3		Total
As of June 26, 2015
Assets
Cash equivalents	$	—	$	7,430		$	—	$	7,430
Corporate bonds and commercial papers		—		120,101			—		120,101
U.S. agency and U.S. treasury securities		—		21,027			—		21,027
Sovereign and municipal securities		—		1,738			—		1,738
Derivative assets		—		4	⁽³⁾		—		4

Total	$	—	$	150,300		$	—	$	150,300

Liabilities
Derivative liabilities	$	—	$	371	⁽⁴⁾	$	—	$	371

Total	$	—	$	371		$	—	$	371

⁽¹⁾

Foreign currency forward contracts with notional amount of $30.0 million.

⁽²⁾

Foreign currency forward contracts with notional amount of $102.0 million and Canadian Dollars 0.3 million.

⁽³⁾

Foreign currency options with notional amount of $3.0 million and forward contracts with notional amount of Canadian Dollars 0.4 million.

⁽⁴⁾

Foreign currency options with notional amount of $41.0 million.

Derivative Financial Instruments

As a result of foreign currency rate fluctuations, the U.S. dollar equivalent values of the Company’s foreign currency denominated assets and liabilities change. The Company uses foreign currency contracts to manage the foreign exchange risk associated with certain foreign currency denominated assets and liabilities and other foreign currency transactions. The Company minimizes the credit risk in derivative instruments by limiting its exposure to any single counterparty and by entering into derivative instruments only with counterparties that meet the Company’s minimum credit quality standard. As of March 25, 2016 and June 26, 2015, the Company recognized the fair value of foreign currency forward contracts and options of $1.7 million and $0.4 million, respectively, as derivative liabilities in condensed consolidated balance sheet.

As of March 25, 2016, the Company hedges forecasted foreign currency transactions related to its operating expenses and other costs and the construction costs of a new manufacturing building at the Company’s Chonburi campus with certain forward contracts, designated as cash flow hedges. The Company had six outstanding forward contracts with notional amount of $30.0 million, mature during April 2016 to September 2016. The Company included unrealized gain of $0.7 million from changes in fair value of foreign currency forward contracts, designated as hedging instrument, in accumulated other comprehensive income in unaudited condensed consolidated balance sheets. There was no ineffective portion during the three and nine months ended March 25, 2016. As of March 27, 2015, the Company had no foreign currency forward contracts designated as cash flow hedges.

The following table presents the effect of foreign currency forward contracts, designated as cash flow hedges, and their classification within comprehensive income:


	Nine Months Ended
(amount in thousands)	March 25, 2016		March 27, 2015

Currency contracts that hedge costs of sales	$	483	$	—
Currency contracts that hedge operating expenses		36		—
Currency contracts that hedge construction costs		155		—

	$	674	$	—

There was no discontinued of cash flow hedges which recognized in the unaudited condensed consolidated statements of operations and comprehensive income during the three and nine months ended March 25, 2016.

As of March 25, 2016, the Company had 17 outstanding foreign currency forward contracts with notional amount of $102.0 million and Canadian Dollars 0.3 million, maturing during June 2016 to December 2016. These foreign currency forward contracts were not designated for hedge accounting and were used to hedge fluctuations in the U.S. Dollar value of forecasted transactions denominated in Thai Baht and Canadian Dollar. During the nine months ended March 25, 2016, the Company included unrealized loss of $2.3 million from changes in fair value of foreign currency contracts in earnings in unaudited condensed consolidated statements of operations and comprehensive income.

As of March 27, 2015, the Company had 46 outstanding foreign currency forward contracts and options with notional amount of $45.0 million and Canadian Dollars 0.4 million, maturing during April 2015 to July 2015. These foreign currency forward contracts and options were not designated for hedge accounting and were used to hedge fluctuations in the U.S. Dollar value of forecasted transactions denominated in Thai Baht and Canadian Dollar. During the nine months ended March 27, 2015, the Company included unrealized gain of $0.2 million from changes in fair value of foreign currency contracts in earnings in unaudited condensed consolidated statements of operations and comprehensive income.