FINANCIAL INSTRUMENTS

Short-term investments

Fair values were as follows:



	September 23, 2017									June 24, 2017
	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
Agency Securities	6,973		1		—			6,974		—			—		—			—
Certificates of deposit	47,549		—		—			47,549		—		—	—		—			—
Commercial paper	105,971		—		—			105,971		—			—		—			—
Corporate debt securities	381,292		—		(177		)	381,115		—			—		—			—
U.S. Treasury securities	$	656,374	$	—	$	(1,156	)	$	655,218	$	499,952		$	—	$	(1,234	)	$	498,718
Total available-for-sale investments	$	1,198,159	$	1	$	(1,333	)	$	1,196,827	$	499,952		$	—	$	(1,234	)	$	498,718

In the three months ended September 23, 2017 and the year ended June 24, 2017, the Company did not recognize any impairment charges on short-term investments. The U.S. Treasury securities have maturity dates between November 30, 2017 and June 15, 2019.

Our investment managers invest in various financial instruments including U.S Treasury securities, corporate debt securities, commercial paper, and certificates of deposit which include instruments issued or managed by industrial, financial, and utility institutions and U.S. Treasury securities which include U.S. government Treasury Bills and Treasury Notes.

Derivative instruments and hedging activities

In the first quarter of fiscal year 2018, the Company early-adopted ASU 2017-12, Derivatives and Hedging (Topic 815), which is intended to improve accounting for hedging activities by expanding and refining hedge accounting for both nonfinancial and financial risk components and aligning the recognition and presentation of the effects of the hedging instrument and the hedged item in the financial statements. There was no material change to the Company's consolidated financial statements as a result of this adoption. This adoption was on a prospective basis and therefore had no impact on prior periods.

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 European Euro, Indian Rupee, Japanese Yen, Taiwan New Dollar, South Korean Won, and Chinese Yuan, 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 pursuant to Accounting Standards Codification (“ASC”) No. 815-Derivatives and Hedging (“ASC 815”). As of September 23, 2017 and June 24, 2017, the notional amounts of the forward contracts the Company held to purchase international currencies were $52.6 million and $36.2 million, respectively, and the notional amounts of forward contracts the Company held to sell international currencies were $1.5 million and $0.2 million, respectively.

Derivatives not designated as hedging instruments

As of September 23, 2017 and June 24, 2017, the notional amounts of the forward contracts the Company held to purchase international currencies were $15.9 million and $44.5 million, respectively, and the notional amounts of forward contracts the Company held to sell international currencies were $25.1 million and $21.6 million, respectively. The fair values of our outstanding foreign currency forward contracts and gain (loss) included in the Condensed Consolidated Statements of Income were not material for the three months ended September 23, 2017 and the year ended June 24, 2017.

Effect of hedge accounting on the Condensed Consolidated Statements of Income

The following table summarizes the gains and (losses) from hedging activities recognized in the Company's Condensed Consolidated Statements of Income:



	September 23, 2017
	Net Revenue			Cost of Goods Sold		Operating Expenses
	(in thousands)
Income and expenses line items in which the effects of cash flow hedges are recorded	$	575,676		$	201,845	$	188,665

Gain (loss) on cash flow hedges:
Foreign exchange contracts:
Gain (loss) reclassified from accumulated other comprehensive income into income	(41		)	3		1,148

Outstanding debt obligations

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



	September 23, 2017			June 24, 2017
	(in thousands)
3.450% fixed rate notes due June 2027	$	500,000		$	500,000
2.5% fixed rate notes due November 2018	500,000			500,000
3.375% fixed rate notes due March 2023	500,000			500,000
Total	1,500,000			1,500,000
Less: Reduction for unamortized discount and debt issuance costs	(11,594		)	(12,322		)
Total long-term debt	$	1,488,406		$	1,487,678

On June 15, 2017, the Company completed a public offering of $500 million aggregate principal amount of the Company's 3.450% senior unsecured and unsubordinated notes due in June 2027 (“2027 Notes”), with an effective interest rate of 3.5%. Interest on the 2027 Notes is payable semi-annually in arrears on June 15 and December 15 of each year, commencing on December 15, 2017. The net proceeds of this offering were approximately $495.2 million, after issuing at a discount and deducting paid expenses.

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 million, after issuing at a discount and deducting paid expenses.

The debt indentures that govern the 2027 Notes, 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 2027 Notes, 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 $12.6 million and $9.1 million during the three months ended September 23, 2017 and September 24, 2016, respectively.

The estimated fair value of the Company’s long-term debt was approximately $1,518 million as of September 23, 2017. 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 $12.6 million and $9.8 million during the three months ended September 23, 2017, and September 24, 2016, 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 September 23, 2017, 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 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.