FINANCIAL INSTRUMENTS

Short-term investments

Fair values were as follows:



	December 31, 2011									June 25, 2011
	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	$	74,981	$	400	$	(6	)	$	75,375	$	49,826	$	520	$	—	$	50,346
Total available-for-sale investments	$	74,981	$	400	$	(6	)	$	75,375	$	49,826	$	520	$	—	$	50,346

In the six months ended December 31, 2011 and the year ended June 25, 2011, Maxim did not recognize any impairment charges on short-term investments.

The government agency securities have maturity dates between February 26, 2013 and 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 incurs expenditures denominated in non-US currencies, principally Philippine Pesos 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 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 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 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 counter party 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 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 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 December 31, 2011						As of June 25, 2011
	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	$	34,129	$	43	$	679	$	35,629	$	53	$	287

Derivatives not designated as hedging instruments
Foreign exchange contracts	16,378		31		12		26,342		273		22
Total derivatives	$	50,507	$	74	$	691	$	61,971	$	326	$	309

(1) Represents the face amounts of contracts that were outstanding as of December 31, 2011 and June 25, 2011, respectively.

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 six months ended December 31, 2011 and the year ended June 25, 2011.



	December 31, 2011			June 25, 2011
	(in thousands)
Beginning balance	$	(234	)	$	(235	)
Loss reclassified to income	597			514
Gain (loss) recorded in other comprehensive loss	274			(513		)
Ending balance	$	637		$	(234	)

Maxim expects to reclassify an estimated net accumulated other comprehensive loss 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 six months ended December 31, 2011 and December 25, 2010 was as follows:



	Gain (Loss) Reclassified from Accumulated OCI into Income (Effective portion)
		Three Months Ended					Six Months Ended
	Location	December 31, 2011			December 25, 2010		December 31, 2011			December 25, 2010
		(in thousands)
Cash Flow hedges:
Foreign exchange contracts	Net Revenues	$	(3	)	$	349	$	(245	)	$	(1,295	)

Foreign exchange contracts	Cost of goods sold	(322		)	425		(127		)	593
Foreign exchange contracts	Operating Expense	(225		)	—		(225		)	—
Total cash flow hedges		$	(550	)	$	774	$	(597	)	$	(702	)

The before-tax effect of derivative instruments not designated as hedging instruments on the Condensed Consolidated Statements of Income for the three and six months ended December 31, 2011 and December 25, 2010 was as follows:



	Gain (Loss) Recognized in Income on Derivative Instrument
		Three Months Ended					Six Months Ended
	Location	December 31, 2011		December 25, 2010			December 31, 2011		December 25, 2010
		(in thousands)
Foreign exchange contracts	Interest and other income (expense), net	$	645	$	(136	)	$	979	$	(838	)
Total		$	645	$	(136	)	$	979	$	(838	)

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	December 31, 2011			June 25, 2011
	(in thousands)
Euro	$	1,691		$	1,542
Japanese Yen	1,325			(5,156		)
British Pound	(4,184		)	(10,928		)
Philippine Peso	14,531			17,140
Thai Baht	3,592			3,523
Total	$	16,955		$	6,121

Long-term debt

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



	December 31, 2011			June 25, 2011
	(in thousands)
3.45% fixed rate notes due June 2013	$	300,000		$	300,000
SensorDynamics Debt (Denominated in Euro)
Term fixed rate notes (2.0%-2.5%) due March 2013 to September 2015	6,120			—
Amortizing fixed rate notes (1.5%-2.75%) due up to June 2014	2,215			—
Amortizing floating rate notes (EURIBOR plus 1.5%) due up to June 2014	2,310			—
Total	310,645			300,000
Less: Current portion (1)	(1,945		)	—
Total long-term debt	$	308,700		$	300,000

(1) Current portion of long-term debt is included under accrued expenses in the Condensed Consolidated Balance Sheets.

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 (the "Notes") due on June 14, 2013, with an effective interest rate of 3.49%. Interest on the Notes is payable semi-annually in arrears on June 14 and December 14 of each year. The Notes are governed by a base and supplemental indenture dated June 10, 2010 and June 17, 2010, respectively, between the Company and Wells Fargo Bank, National Association, as trustee.

In conjunction with the SensorDynamics acquisition as discussed in Note 13 to the condensed consolidated financial statements, Maxim acquired certain fixed and floating rate notes as detailed in the table above.

The Company accounts for the Notes 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 expenses associated with the Notes was $2.7 million and $2.6 million during the three months ended December 31, 2011 and December 25, 2010, respectively. Interest expenses associated with the Notes was $5.4 million and $5.2 million during the six months ended December 31, 2011 and December 25, 2010, 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's debt was approximately $320 million at December 31, 2011. The estimated fair value of the debt is based primarily on quoted market prices.

As of December 31, 2011, the Company had the capacity to issue an unspecified amount of additional debt securities, common stock, preferred stock, warrants, rights and units under its 2010 Shelf Registration Statement.

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. As of December 31, 2011, the Company had not borrowed any amounts from this credit facility.

Other Financial Instruments

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