FINANCIAL INSTRUMENTS

Short-term investments

Fair values were as follows:



	June 29, 2013								June 30, 2012
	Amortized Cost		Gross Unrealized Gain		Gross Unrealized Loss		Estimated Fair Value		Amortized Cost		Gross Unrealized Gain		Gross Unrealized Loss		Estimated Fair Value
	(in thousands)
Available-for-sale investments
Government agency securities	$	25,024	$	36	$	—	$	25,060	$	75,007	$	319	$	—	$	75,326
Total available-for-sale investments	$	25,024	$	36	$	—	$	25,060	$	75,007	$	319	$	—	$	75,326

In the fiscal years ended June 29, 2013 and June 30, 2012, Maxim Integrated did not recognize any impairment charges on short-term investments.

The government agency securities outstanding are maturing on December 18, 2013.

Derivative instruments and hedging activities

Foreign Currency Risk

The Company generates less than 5% of its revenues in various global markets based on orders obtained in non-U.S. currencies, primarily the Japanese Yen, the Euro and the British Pound. The Company incurs expenditures denominated in non-U.S. currencies, principally the Philippine Peso and Thai Baht associated with the Company's manufacturing activities in the Philippines and Thailand, respectively, and expenditures for sales offices and research and development activities undertaken outside of the U.S. The Company is exposed to fluctuations in foreign currency exchange rates primarily on orders and accounts receivable from sales in these foreign currencies and cash flows for expenditures in these foreign currencies. The Company has established risk management strategies designed to reduce the impact of volatility of future cash flows caused by changes in the exchange rate for these currencies. These strategies reduce, but do not entirely eliminate, the impact of currency exchange rates movements. The Company does not use derivative financial instruments for speculative or trading purposes. The Company routinely hedges its exposures to certain foreign currencies with various financial institutions in an effort to minimize the impact of certain currency exchange rate fluctuations. If a financial counterparty to any of the Company's hedging arrangements experiences financial difficulties or is otherwise unable to honor the terms of the foreign currency hedge, the Company may experience financial losses.

For derivative instruments that are designated and qualify as cash flow hedges under Accounting Standards Codification ("ASC") No. 815-Derivatives and Hedging, the effective portion of the gain or loss on the derivative is reported as a component of accumulated other comprehensive loss and reclassified into earnings into the same financial statement line as the item being hedged, and in the same period or periods during which the hedged transaction affects earnings. Gains and losses on the derivative representing either hedge ineffectiveness or hedge components excluded from the assessment of effectiveness are recognized in interest and other income (expense), net.

For derivative instruments that are not designated as hedging instruments under ASC No. 815, gains and losses are recognized in interest and other income (expense), net. All derivatives are foreign currency forward contracts to hedge certain foreign currency denominated assets or liabilities. The gains and losses on these derivatives largely offset the changes in the fair value of the assets or liabilities being hedged.

Fair Value of Derivative Instruments in the Consolidated Balance Sheets

Maxim Integrated estimates the fair value of derivatives primarily based on pricing models using current market rates and records all derivatives on the balance sheet at fair value. The gross notional and the recorded fair value of derivative financial instruments in the Consolidated Balance Sheets were as follows:



	As of June 29, 2013						As of June 30, 2012
	Gross Notional(1)		Other Current Assets		Accrued Expenses		Gross Notional (1)		Other Current Assets		Accrued Expenses
	(in thousands)
Derivatives designated as hedging instruments
Cash flow hedges:
Foreign exchange contracts	$	56,963	$	109	$	1,321	$	37,955	$	150	$	459

Derivatives not designated as hedging instruments
Foreign exchange contracts	51,544		78		98		35,105		492		48
Total derivatives	$	108,507	$	187	$	1,419	$	73,060	$	642	$	507

(1) Represents the face amounts of contracts that were outstanding as of June 29, 2013 and June 30, 2012, as applicable.

Derivatives designated as hedging instruments

The following table provides the balances and changes in the accumulated other comprehensive income (loss) related to derivative instruments during the fiscal year ended June 29, 2013 and the fiscal year ended June 30, 2012.



	June 29, 2013			June 30, 2012
	(in thousands)
Beginning balance	$	309		$	(234	)
Gain (loss) reclassified to income	(309		)	653
Loss (gain) recorded in other comprehensive loss	1,212			(110		)
Ending balance	$	1,212		$	309

Maxim Integrated expects to reclassify an estimated net accumulated other comprehensive gain of $1.0 million, net of taxes, to earnings in the next twelve months along with the earnings effects of the related forecasted transactions in association with cash flow hedges.

The before-tax effect of cash flow derivative instruments for the fiscal years ended June 29, 2013 and June 30, 2012 was as follows:



	Gain (Loss) Reclassified from Accumulated OCI into Income (Effective portion)
		Years Ended
	Location	June 29, 2013			June 30, 2012
		(in thousands)
Cash Flow hedges:
Foreign exchange contracts	Net Revenues	$	(122	)	$	(312	)
Foreign exchange contracts	Cost of goods sold	608			187
Foreign exchange contracts	Operating Expense	(177		)	(528		)
Total cash flow hedges		$	309		$	(653	)

The before-tax effect of derivative instruments not designated as hedging instruments on the Consolidated Statements of Income for the fiscal years ended June 29, 2013 and June 30, 2012 was as follows:



	Gain (Loss) Recognized in Income on Derivative Instrument
		Years Ended
	Location	June 29, 2013		June 30, 2012		June 25, 2011
		(in thousands)
Foreign exchange contracts	Interest and other income (expense), net	$	1,099	$	1,653	$	(1,893	)
Total		$	1,099	$	1,653	$	(1,893	)

Volume of Derivative Activity

Total net U.S. Dollar notional amounts for foreign currency forward contracts, presented by net currency purchase (sell), are as follows:



In United States Dollars	June 29, 2013			June 30, 2012
	(in thousands)
Euro	$	16,833		$	(10,686	)
Japanese Yen	(7,335		)	(2,254		)
British Pound	(4,177		)	(575		)
Philippine Peso	17,373			15,443
Thai Baht	3,512			4,264
Other Currencies	2,957			—
Total	$	29,163		$	6,192

Long-term debt

The following table summarizes the Company's long-term debt:



	June 29, 2013			June 30, 2012
	(in thousands)
3.45% fixed rate notes due June 2013	$	—		$	300,000
3.375% fixed rate notes due March 2023	500,000			—
SensorDynamics Debt (Denominated in Euro)
Term fixed rate notes (2.0%-2.5%) due up to September 2015	4,804			6,285
Amortizing fixed rate notes (1.5%-2.75%)	—			1,127
Amortizing floating rate notes (EURIBOR plus 1.5%) due up to June 2014	784			1,676
Total	505,588			309,088
Less: Current portion of long-term debt	(2,015		)	(303,496		)
Total long-term debt	$	503,573		$	5,592

On March 18, 2013, the Company completed a public offering of $500 million aggregate principal amount of the Company's 3.38% senior unsecured and unsubordinated notes ("$500 million notes") due in 2023, with an effective interest rate of 3.51%. Interest on the $500 million notes will be payable semi-annually in arrears on March 15 and September 15 of each year, commencing September 15, 2013. The $500 million notes are governed by base and supplemental indentures dated June 10, 2010 and March 18, 2013, respectively, between the Company and Wells Fargo Bank, National Association, as trustee. The net proceeds of the offering were approximately $490 million, after issuing at a discount and deducting paid expenses, and are included in the financing activities in the Consolidated Statement of Cash Flows.

Prior to December 15, 2022 (three months prior to the maturity date), the Company may redeem all or a portion of the $500 million notes at its option at any time or from time to time at a redemption price equal to the greater of:


•	Principal amount plus accrued and unpaid interest; and


•	the sum of the present values of the remaining scheduled payments of principal and interest (exclusive of interest accrued) discounted to the redemption date on a semiannual basis at the Treasury Rate (as defined in the Indenture) plus 25 basis points, plus accrued and unpaid interest on the principal amount being redeemed to, but excluding, the redemption date.

On or after December 15, 2022 (three months prior to the maturity date), the Company may redeem all or a portion of the $500 million notes at its option at any time or from time to time at a redemption price equal to the principal amount plus accrued and unpaid interest on the principal amount being redeemed.

On June 17, 2010, the Company completed a public offering of $300 million aggregate principal amount of the Company's 3.45% senior unsecured notes due on June 14, 2013. The $300 million notes were paid in full in June 2013.

In conjunction with the SensorDynamics acquisition as discussed in Note 9: "Acquisitions" of these Notes to Consolidated Financial Statements, Maxim Integrated acquired certain fixed and floating rate notes as detailed in the table above.

The Company accounts for all the notes above based on their amortized cost. The discount and expenses are being amortized to Interest and other expense, net over the life of the Notes. Interest expense associated with the Notes was $15.1 million and $11.2 million during the years ended June 29, 2013 and June 30, 2012, respectively. The interest expense is recorded in Interest and other income (expense), net in the Consolidated Statements of Income.

The estimated fair value of Maxim Integrated's debt was approximately $476 million at June 29, 2013. The estimated fair value of the debt is based primarily on an income approach utilizing market observable input such as interest rate.

Credit Facility

On October 13, 2011, the Company entered into a $250 million senior unsecured revolving credit facility with certain institutional lenders that expires on October 13, 2016. The Company agreed to pay the lenders a facility fee at a rate per annum that varies based on the Company's index debt rating. Any advances under the credit agreement will accrue interest at a base rate plus a margin based on the Company's debt index rating. The credit agreement requires the Company to comply with certain covenants, including a requirement that the Company maintain a ratio of debt to EBITDA (earnings before interest, taxes, depreciation, and amortization) of not more than 3 to 1 and a minimum interest coverage ratio (EBITDA divided by interest expense) greater than 3.5 to 1. As of June 29, 2013, the Company had not borrowed any amounts from this credit facility and was in compliance with all debt covenants.

Other Financial Instruments

For the balance of Maxim Integrated's financial instruments, cash equivalents, accounts receivable, accounts payable and other accrued liabilities, the carrying amounts approximate fair value due to their short maturities.