FINANCIAL INSTRUMENTS

Short-term investments

Fair values were as follows:



	December 24, 2016								June 25, 2016
	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
U.S. Treasury bills	$	400,728	$	—	$	1,267	$	399,461	$	124,950	$	489	$	—	$	125,439
Total available-for-sale investments	$	400,728	$	—	$	1,267	$	399,461	$	124,950	$	489	$	—	$	125,439

In the three and six months ended December 24, 2016 and the year ended June 25, 2016, the Company did not recognize any impairment charges on short-term investments. The U.S. Treasury bills have maturity dates between December 15, 2017 and January 31, 2019.

Securities received as consideration for sale of assets

During the third quarter of fiscal 2016, the Company received approximately $40.0 million in common shares of Tower Semiconductor Ltd. as consideration for the sale of the Company's semiconductor wafer manufacturing facility in San Antonio, Texas. During the six months ended December 24, 2016, the Company sold all of these common shares for gross proceeds of approximately $51.0 million and recorded a realized gain of $5.0 million. The Company was required to return to Tower Semiconductor the first $6.0 million in gain realized upon the sale of such shares. During the three months ended December 24, 2016, the Company paid Tower Semiconductor $1.0 million and will pay the remaining $5.0 million over the next two quarters.

Derivative instruments and hedging activities

The Company incurs expenditures denominated in non-U.S. currencies, primarily the Philippine Peso and the Thai Baht associated with the Company's manufacturing activities in the Philippines and Thailand, respectively, and the European Union Euro, South Korean Won, Japanese Yen and Chinese Yuan associated with expenditures for sales offices and research and development activities undertaken outside of the U.S.

The Company has established a program that primarily utilizes foreign currency forward contracts to offset the risks associated with the effects of certain foreign currency exposures. The Company does not use these foreign currency forward contracts for trading purposes.

Derivatives designated as cash flow hedging instruments

The Company designates certain forward contracts as hedging instruments. As of December 24, 2016 and June 25, 2016, the notional amounts of the forward contracts the Company held to purchase international currencies were $44.3 million and $68.0 million, respectively, and the notional amounts of forward contracts the Company held to sell international currencies were $2.1 million and $2.6 million, respectively.

Derivatives not designated as hedging instruments

As of December 24, 2016 and June 25, 2016, the notional amounts of the forward contracts the Company held to purchase international currencies were $21.3 million and $25.4 million, respectively, and the notional amounts of forward contracts the Company held to sell international currencies were $19.6 million and $24.6 million, respectively. The fair values of our outstanding foreign currency forward contracts and related gain (loss) included in the Condensed Consolidated Statements of Income were not material for the three and six months ended December 24, 2016 and the year ended June 25, 2016.

Long-term debt

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



	December 24, 2016			June 25, 2016
	(in thousands)
2.5% fixed rate notes due November 2018	$	500,000		$	500,000
3.375% fixed rate notes due March 2023	500,000			500,000
Short-term credit agreement	—			250,000
Total	1,000,000			1,250,000
Less: Current portion	—			(249,717		)
Less: Reduction for unamortized discount and debt issuance costs	(8,719		)	(10,193		)
Total long-term debt	$	991,281		$	990,090

On November 21, 2013, the Company completed a public offering of $500 million aggregate principal amount of the Company’s 2.5% coupon senior unsecured and unsubordinated notes due in November 2018 (“2018 Notes”), with an effective interest rate of 2.6%. Interest on the 2018 Notes is payable semi-annually in arrears on May 15 and November 15 of each year, commencing on May 15, 2014. The net proceeds of this offering were approximately $494.5 million, after issuing at a discount and deducting paid expenses.

On March 18, 2013, the Company completed a public offering of $500 million aggregate principal amount of the Company’s 3.375% senior unsecured and unsubordinated notes due in March 2023 (“2023 Notes”), with an effective interest rate of 3.5%. Interest on the 2023 Notes is payable semi-annually in arrears on March 15 and September 15 of each year. The net proceeds of this offering were approximately $490.0 million, after issuing at a discount and deducting paid expenses.

The debt indentures that govern the 2023 Notes and the 2018 Notes, respectively, include covenants that limit the Company's ability to grant liens on its facilities and to enter into sale and leaseback transactions, which could limit the Company's ability to secure additional debt funding in the future. In circumstances involving a change of control of the Company followed by a downgrade of the rating of the 2023 Notes or the 2018 Notes, the Company would be required to make an offer to repurchase the affected notes at a purchase price equal to 101% of the aggregate principal amount of such notes, plus accrued and unpaid interest.

The Company accounts for all the notes above based on their amortized cost. The discount and expenses are being amortized to Interest and other income (expense), net in the Condensed Consolidated Statements of Income over the life of the notes. The interest expense is recorded in Interest and other income (expense), net in the Condensed Consolidated Statements of Income. Amortized discount and expenses, as well as interest expense associated with the notes was $9.3 million and $7.9 million during the three months ended December 24, 2016 and December 26, 2015, respectively. Amortized discount and expenses, as well as interest expense associated with the notes was $18.4 million and $15.7 million during the six months ended December 24, 2016 and December 26, 2015, respectively.

The estimated fair value of the Company’s long-term debt was approximately $1,000 million as of December 24, 2016. The estimated fair value of the debt is based primarily on observable market inputs and is a Level 2 measurement.

The Company recorded interest expense of $9.5 million and $8.2 million during the three months ended December 24, 2016, and December 26, 2015, respectively. The Company recorded interest expense of $18.8 million and $16.3 million during the six months ended December 24, 2016, and December 26, 2015, respectively.

Credit Facility

Revolving credit facility

The Company has access to a $350 million senior unsecured revolving credit facility with certain institutional lenders that expires on June 27, 2019. The facility fee is at a rate per annum that varies based on the Company’s index debt rating and any advances under the credit agreement will accrue interest at a base rate plus a margin based on the Company’s index debt 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 December 24, 2016, the Company had not borrowed any amounts from this credit facility and was in compliance with all debt covenants.

Short-term credit agreement

On June 23, 2016, Maxim Holding Company Ltd., a wholly-owned foreign subsidiary of the Company, entered into a short-term credit agreement (the “Credit Agreement”) with The Bank of Tokyo-Mitsubishi UFJ, Ltd. (the “Lender”), in order to facilitate the return of capital to the Company. The Credit Agreement provides for, among other things, the Lender making an unsecured term loan in an amount equal to $250.0 million with a maturity date of June 22, 2017. The net proceeds of this Credit Agreement were approximately $249.7 million, after deducting paid issuance costs. The interest rate on the note was based on LIBOR plus a margin. The initial interest rate was 1.69% per annum and was adjusted quarterly. On December 21, 2016, the $250.0 million aggregate principal amount and all outstanding interest on the loan were repaid.

Other Financial Instruments

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