FINANCIAL INSTRUMENTS

Short-term investments

Fair values were as follows:



	March 30, 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	$	25,037	$	58	$	—	$	25,095	$	75,007	$	319	$	—	$	75,326
Total available-for-sale investments	$	25,037	$	58	$	—	$	25,095	$	75,007	$	319	$	—	$	75,326

In the nine months ended March 30, 2013 and the year ended 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 revenues in various global markets based on orders obtained in non-U.S. currencies, primarily the Japanese Yen, the Euro and the British Pound. Maxim Integrated 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. Maxim Integrated 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. Maxim Integrated 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. Maxim Integrated 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 Condensed 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 Condensed Consolidated Balance Sheets were as follows:



	As of March 30, 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	$	43,325	$	156	$	780	$	37,955	$	150	$	459

Derivatives not designated as hedging instruments
Foreign exchange contracts	45,331		50		227		35,105		492		48
Total derivatives	$	88,656	$	206	$	1,007	$	73,060	$	642	$	507

(1) Represents the face amounts of contracts that were outstanding as of March 30, 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 loss (income) related to derivative instruments during the nine months ended March 30, 2013 and the year ended June 30, 2012.



	March 30, 2013			June 30, 2012
	(in thousands)
Beginning balance	$	309		$	(234	)
Gain (loss) reclassified to income	(605		)	653
Loss (gain) recorded in other comprehensive loss	919			(110		)
Ending balance	$	623		$	309

Maxim Integrated expects to reclassify an estimated net accumulated other comprehensive gain of $0.4 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 three and nine months ended March 30, 2013 and March 31, 2012 was as follows:



	Loss (Gain) Reclassified from Accumulated OCI into Income (Effective portion)
		Three Months Ended						Nine Months Ended
	Location	March 30, 2013			March 31, 2012			March 30, 2013			March 31, 2012
		(in thousands)
Cash Flow hedges:
Foreign exchange contracts	Net revenues	$	—		$	(52	)	$	(122	)	$	193
Foreign exchange contracts	Cost of goods sold	(257		)	44			952			171
Foreign exchange contracts	Operating expenses	235			(266		)	(225		)	(41		)
Total cash flow hedges		$	(22	)	$	(274	)	$	605		$	323

The before-tax effect of derivative instruments not designated as hedging instruments on the Condensed Consolidated Statements of Income for the three and nine months ended March 30, 2013 and March 31, 2012 was as follows:



	Gain (Loss) Recognized in Income on Derivative Instrument
		Three Months Ended					Nine Months Ended
	Location	March 30, 2013		March 31, 2012			March 30, 2013		March 31, 2012
		(in thousands)
Foreign exchange contracts	Interest and other income (expense), net	$	1,664	$	(199	)	$	984	$	779
Total		$	1,664	$	(199	)	$	984	$	779

Volume of Derivative Activity

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



In United States Dollars	March 30, 2013			June 30, 2012
	(in thousands)
Euro	$	7,319		$	(10,686	)
Japanese Yen	(8,904		)	(2,254		)
British Pound	(5,709		)	(575		)
Philippine Peso	17,143			15,443
Thai Baht	4,552			4,264
Other Currencies	2,109			—
Total	$	16,510		$	6,192

Long-term debt

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



	March 30, 2013			June 30, 2012
	(in thousands)
3.45% fixed rate notes due June 2013	$	300,000		$	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	6,459			6,285
Amortizing fixed rate notes (1.5%-2.75%) due up to June 2014	226			1,127
Amortizing floating rate notes (EURIBOR plus 1.5%) due up to June 2014	1,202			1,676
Total	807,887			309,088
Less: Current portion	(304,314		)	(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 $491 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.

In conjunction with the SensorDynamics acquisition as discussed in Note 13: "Acquisitions" of these Notes to Condensed Consolidated Financial Statements, Maxim Integrated acquired certain fixed and floating rate notes as detailed in the table above.

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 ("$300 million notes"), with an effective interest rate of 3.49%. Interest is payable semi-annually in arrears on June 14 and December 14 of each year. The $300 million notes are governed by base and supplemental indentures dated June 10, 2010 and June 17, 2010, respectively, between the Company and Wells Fargo Bank, National Association, as trustee.

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 over the life of the notes. Interest expense associated with the notes was $3.8 million and $3.0 million during the three months ended March 30, 2013 and March 31, 2012, respectively. Interest expense associated with the notes was $9.6 million and $10.1 million during the nine months ended March 30, 2013 and March 31, 2012, respectively. The interest expense is recorded in Interest and other income (expense), net in the Condensed Consolidated Statements of Income.

The estimated fair value of Maxim Integrated's debt was approximately $814 million at March 30, 2013. The estimated fair value of the debt is based primarily on quoted market prices.

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 maturitie