XLNX 9.29.2012 10Q
Table of Contents


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q
(Mark One)
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 29, 2012
or
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to _______ .
Commission File Number 000-18548
 ______________________________________________________________________________
Xilinx, Inc.
(Exact name of registrant as specified in its charter)
 ______________________________________________________________________________
 
Delaware
 
 
 
77-0188631
(State or other jurisdiction of
incorporation or organization)
 
 
 
(I.R.S. Employer
Identification No.)
 
 
 
 
 
2100 Logic Drive, San Jose, California
 
 
 
95124
(Address of principal executive offices)
 
 
 
(Zip Code)
(408) 559-7778
(Registrant’s telephone number, including area code)
N/A
(Former name, former address, and former fiscal year, if changed since last report)
 ______________________________________________________________________________
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer
 
x
  
Accelerated filer
 
¨
 
 
 
 
 
 
 
Non-accelerated filer
 
¨
  
Smaller reporting company
 
¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x
Shares outstanding of the registrant’s common stock:
Class
 
Shares Outstanding as of October 19, 2012
Common Stock, $.01 par value
 
260,922,630



Table of Contents

TABLE OF CONTENTS
 
 
 
 
 

2

Table of Contents

PART I.
FINANCIAL INFORMATION

ITEM 1.
FINANCIAL STATEMENTS
XILINX, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
 
 
Three Months Ended
 
Six Months Ended
(In thousands, except per share amounts)
September 29, 2012

October 1, 2011
 
September 29, 2012

October 1, 2011
Net revenues
$
543,933


$
555,209

 
$
1,126,717


$
1,170,672

Cost of revenues
187,713


200,564

 
386,124


423,696

Gross margin
356,220


354,645

 
740,593


746,976

Operating expenses:



 



Research and development
113,887


105,774

 
235,334


211,791

Selling, general and administrative
91,928


88,681

 
188,129


185,077

Amortization of acquisition-related intangibles
2,319


1,982

 
4,467


3,605

Restructuring charges


3,369

 


3,369

Total operating expenses
208,134


199,806

 
427,930


403,842

Operating income
148,086


154,839

 
312,663


343,134

Interest and other expense, net
10,003


8,598

 
19,675


16,409

Income before income taxes
138,083


146,241

 
292,988


326,725

Provision for income taxes
14,646


19,955

 
39,720


46,065

Net income
$
123,437


$
126,286

 
$
253,268


$
280,660

Net income per common share:



 



Basic
$
0.47


$
0.48

 
$
0.97


$
1.06

Diluted
$
0.46


$
0.47

 
$
0.93


$
1.03

Cash dividends per common share
$
0.22


$
0.19

 
$
0.44


$
0.38

Shares used in per share calculations:



 
 
 
 
Basic
260,605


264,006

 
262,143

 
264,853

Diluted
270,265


267,927

 
272,182

 
273,009


See notes to condensed consolidated financial statements.



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Table of Contents

XILINX, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)


Three Months Ended

Six Months Ended
(In thousands)
September 29, 2012

October 1, 2011

September 29, 2012

October 1, 2011
Net income
$
123,437


$
126,286


$
253,268


$
280,660

Other comprehensive income (loss), net of tax:











Change in net unrealized gain on available-for-sale securities
5,650


1,328


7,152


4,258

Reclassification adjustment for gains on available-for sale securities, included in net income
(585
)

(375
)

(915
)

(562
)
Change in net unrealized gain (loss) on hedging transactions
7,968


(8,120
)

5,504


(8,719
)
Cumulative translation adjustment
622


218


(433
)

876

Other comprehensive income (loss)
13,655


(6,949
)

11,308


(4,147
)
Total comprehensive income
$
137,092


$
119,337


$
264,576


$
276,513


See notes to condensed consolidated financial statements.


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Table of Contents

XILINX, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
 
(In thousands, except par value amounts)
September 29, 2012

March 31, 2012 [1]
 
(unaudited)

 
ASSETS



Current assets:



Cash and cash equivalents
$
595,119


$
788,822

Short-term investments
1,111,338


1,128,805

Accounts receivable, net
222,269


214,965

Inventories
204,067


204,866

Deferred tax assets
62,838


64,822

Prepaid expenses and other current assets
54,427


48,029

Total current assets
2,250,058


2,450,309

Property, plant and equipment, at cost:
798,801


788,422

Accumulated depreciation and amortization
(416,595
)

(393,440
)
Net property, plant and equipment
382,206


394,982

Long-term investments
1,497,394


1,209,228

Goodwill
158,990


149,538

Acquisition-related intangibles, net
41,096


36,332

Other assets
218,890


223,733

Total Assets
$
4,548,634


$
4,464,122

LIABILITIES AND STOCKHOLDERS’ EQUITY



Current liabilities:



Accounts payable
$
96,478


$
78,613

Accrued payroll and related liabilities
124,040


121,309

Deferred income on shipments to distributors
47,967


67,002

Other accrued liabilities
74,171


75,852

Total current liabilities
342,656


342,776

Convertible debentures
915,109


906,569

Deferred tax liabilities
499,709


463,045

Long-term income taxes payable
15,704


14,479

Other long-term liabilities
23,765


29,568

Commitments and contingencies



Stockholders' equity:



Preferred stock, $.01 par value (none issued)



Common stock, $.01 par value
2,608


2,636

Additional paid-in capital
1,166,835


1,195,458

Retained earnings
1,563,676


1,502,327

Accumulated other comprehensive income
18,572


7,264

Total stockholders’ equity
2,751,691


2,707,685

Total Liabilities and Stockholders’ Equity
$
4,548,634


$
4,464,122


[1]
Derived from audited financial statements
See notes to condensed consolidated financial statements.


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Table of Contents

XILINX, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

Six Months Ended
(in thousands)
September 29, 2012

October 1, 2011
Cash flows from operating activities:



Net income
$
253,268


$
280,660

Adjustments to reconcile net income to net cash provided by operating activities:



Depreciation
28,754


27,094

Amortization
8,455


8,036

Stock-based compensation
36,854


30,666

Net gain on sale of available-for-sale securities
(1,741
)

(1,071
)
Amortization of debt discount on convertible debentures
7,897


7,732

Derivatives — revaluation and amortization
643


1,091

Tax benefit from exercise of stock options
3,282


6,531

Excess tax benefit from stock-based compensation
(4,766
)

(7,928
)
Changes in assets and liabilities:



Accounts receivable, net
(7,305
)

70,048

Inventories
675


17,271

Deferred income taxes
35,900


30,034

Prepaid expenses and other current assets
5,931


(7,659
)
Other assets
(1,750
)

9,362

Accounts payable
17,865


(15,067
)
Accrued liabilities
1,444


280

Income taxes payable
(6,055
)

7,457

Deferred income on shipments to distributors
(19,035
)

(27,259
)
Net cash provided by operating activities
360,316


437,278

Cash flows from investing activities:



Purchases of available-for-sale securities
(2,020,793
)

(2,287,016
)
Proceeds from sale and maturity of available-for-sale securities
1,766,216


1,514,431

Purchases of property, plant and equipment
(15,978
)

(31,417
)
Other investing activities
(27,649
)

(34,507
)
Net cash used in investing activities
(298,204
)

(838,509
)
Cash flows from financing activities:



Repurchases of common stock
(178,148
)

(177,191
)
Proceeds from issuance of common stock through various stock plans
32,888


51,891

Payment of dividends to stockholders
(115,321
)

(100,804
)
Excess tax benefit from stock-based compensation
4,766


7,928

Net cash used in financing activities
(255,815
)

(218,176
)
Net decrease in cash and cash equivalents
(193,703
)

(619,407
)
Cash and cash equivalents at beginning of period
788,822


1,222,359

Cash and cash equivalents at end of period
$
595,119


$
602,952

Supplemental disclosure of cash flow information:



Interest paid
$
18,651


$
18,651

Income taxes paid, net of refunds
$
5,822


$
3,807

See notes to condensed consolidated financial statements.

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Table of Contents

XILINX, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Note 1.
Basis of Presentation
The accompanying interim condensed consolidated financial statements have been prepared in conformity with United States (U.S.) generally accepted accounting principles (GAAP) for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X, and should be read in conjunction with the Xilinx, Inc. (Xilinx or the Company) consolidated financial statements filed with the U.S. Securities and Exchange Commission (SEC) on Form 10-K for the fiscal year ended March 31, 2012. The interim financial statements are unaudited, but reflect all adjustments which are, in the opinion of management, of a normal, recurring nature necessary to provide a fair statement of results for the interim periods presented. The results of operations for the interim periods shown in this report are not necessarily indicative of the results that may be expected for the fiscal year ending March 30, 2013 or any future period.
The Company uses a 52- to 53-week fiscal year ending on the Saturday nearest March 31. Fiscal 2013 is a 52-week year ending on March 30, 2013. Fiscal 2012, which ended on March 31, 2012, was also a 52-week fiscal year. The quarters ended September 29, 2012 and October 1, 2011 each consisted of 13 weeks.

Note 2.
Recent Accounting Changes and Accounting Pronouncements

In the first quarter of fiscal 2013, the Company adopted the authoritative guidance to increase the prominence of items reported in other comprehensive income. Under this guidance, an entity has the option to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. The Company elected to present its comprehensive income in a separate but consecutive statement. This guidance does not affect the underlying accounting for components of other comprehensive income.

Note 3.
Significant Customers and Concentrations of Credit Risk
Avnet, Inc. (Avnet), one of the Company’s distributors, distributes the Company’s products worldwide. As of September 29, 2012 and March 31, 2012, Avnet accounted for 64% and 67% of the Company’s total net accounts receivable, respectively. Resale of product through Avnet accounted for 44% and 45% of the Company’s worldwide net revenues in the second quarter and the first six months of fiscal 2013, respectively. For the second quarter and the first six months of fiscal 2012, resale of product through Avnet accounted for 47% and 48% of the Company’s worldwide net revenues, respectively. The percentage of accounts receivable due from Avnet and the percentage of worldwide net revenues from Avnet are consistent with historical patterns.
Xilinx is subject to concentrations of credit risk primarily in its trade accounts receivable and investments in debt securities to the extent of the amounts recorded on the consolidated balance sheet. The Company attempts to mitigate the concentration of credit risk in its trade receivables through its credit evaluation process, collection terms, distributor sales to diverse end customers and through geographical dispersion of sales. Xilinx generally does not require collateral for receivables from its end customers or from distributors.
One end customer accounted for 11% and 14% of the Company's worldwide net revenues for the second quarter of fiscal 2013 and 2012, respectively. One end customer accounted for 11% of the Company's worldwide net revenues for the first six months of fiscal 2012. No end customer accounted for more than 10% of the Company's worldwide net revenues for the first six months of fiscal 2013.
The Company mitigates concentrations of credit risk in its investments in debt securities by currently investing more than 89% of its portfolio in AA or higher grade securities as rated by Standard & Poor’s or Moody’s Investors Service. The Company’s methods to arrive at investment decisions are not solely based on the rating agencies’ credit ratings. Xilinx also performs additional credit due diligence and conducts regular portfolio credit reviews, including a review of counterparty credit risk related to the Company’s forward currency exchange contracts. Additionally, Xilinx limits its investments in the debt securities of a single issuer based upon the issuer’s credit rating and attempts to further mitigate credit risk by diversifying risk across geographies and type of issuer.
As of September 29, 2012, approximately 35% of the portfolio consisted of mortgage-backed securities. All of the mortgage-backed securities in the investment portfolio were issued by U.S. government-sponsored enterprises and agencies and are rated AA+ by Standard & Poor’s and AAA by Moody’s Investors Service.
The global credit and capital markets have continued to experience adverse conditions that have negatively impacted the values

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of various types of investment and non-investment grade securities, and have experienced volatility and disruption due to instability in the global financial system, uncertainty related to global economic conditions and concerns regarding sovereign financial stability. Therefore, there is a risk that the Company may incur other-than-temporary impairment charges for certain types of investments should credit market conditions deteriorate or the underlying assets fail to perform as anticipated. See "Note 5. Financial Instruments" for a table of the Company’s available-for-sale securities.

Note 4.
Fair Value Measurements
The guidance for fair value measurements established by the Financial Accounting Standards Board (FASB) defines fair value as the exchange price that would be received from selling an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required or permitted to be recorded at fair value, the Company considers the principal or most advantageous market in which Xilinx would transact and also considers assumptions that market participants would use when pricing the asset or liability, such as inherent risk, transfer restrictions and risk of nonperformance.
The Company determines the fair value for marketable debt securities using industry standard pricing services, data providers and other third-party sources and by internally performing valuation testing and analyses. The Company primarily uses a consensus price or weighted-average price for its fair value assessment. The Company determines the consensus price using market prices from a variety of industry standard pricing services, data providers, security master files from large financial institutions and other third party sources and uses those multiple prices as inputs into a distribution-curve-based algorithm to determine the daily market value. The pricing services use multiple inputs to determine market prices, including reportable trades, benchmark yield curves, credit spreads and broker/dealer quotes as well as other industry and economic events. For certain securities with short maturities, such as discount commercial paper and certificates of deposit, the security is accreted from purchase price to face value at maturity. If a subsequent transaction on the same security is observed in the marketplace, the price on the subsequent transaction is used as the current daily market price and the security will be accreted to face value based on the revised price. For certain other securities, such as student loan auction rate securities, the Company performs its own valuation analysis using a discounted cash flow pricing model.
The Company validates the consensus prices by taking random samples from each asset type and corroborating those prices using reported trade activity, benchmark yield curves, binding broker/dealer quotes or other relevant price information. There have not been any changes to the Company's fair value methodology during the first six months of fiscal 2013 and the Company did not adjust or override any fair value measurements as of September 29, 2012.
Fair Value Hierarchy
The fair value framework requires the categorization of assets and liabilities into three levels based upon the assumptions (inputs) used to price the assets or liabilities. The guidance for fair value measurements requires that assets and liabilities carried at fair value be classified and disclosed in one of the following categories:
Level 1 — Quoted (unadjusted) prices in active markets for identical assets or liabilities.
The Company's Level 1 assets consist of U.S. government and agency securities and money market funds.
Level 2 — Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the asset or liability.
The Company's Level 2 assets consist of bank certificates of deposit, commercial paper, corporate bonds, municipal bonds, U.S. agency securities, foreign government and agency securities, mortgage-backed securities and a debt mutual fund. The Company's Level 2 assets and liabilities also include foreign currency forward contracts and commodity swap contracts.
Level 3 — Unobservable inputs to the valuation methodology that are supported by little or no market activity and that are significant to the measurement of the fair value of the assets or liabilities. Level 3 assets and liabilities include those whose fair value measurements are determined using pricing models, discounted cash flow methodologies or similar valuation techniques, as well as significant management judgment or estimation.
The Company's Level 3 assets and liabilities include student loan auction rate securities and the embedded derivative related to the Company's debentures.
Assets and Liabilities Measured at Fair Value on a Recurring Basis

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In instances where the inputs used to measure fair value fall into different levels of the fair value hierarchy, the fair value measurement has been determined based on the lowest level input that is significant to the fair value measurement in its entirety. The Company's assessment of the significance of a particular item to the fair value measurement in its entirety requires judgment, including the consideration of inputs specific to the asset or liability. The following tables present information about the Company's assets and liabilities measured at fair value on a recurring basis as of September 29, 2012 and March 31, 2012:


September 29, 2012
(In thousands)

Quoted
Prices in
Active
Markets for
Identical
Instruments
(Level 1)

Significant
Other
Observable
Inputs
(Level 2)

Significant
Unobservable
Inputs
(Level 3)

Total Fair
Value
Assets








Cash and cash equivalents:








Money market funds

$
165,775


$


$


$
165,775

Bank certificates of deposit



29,997




29,997

Commercial paper



158,233




158,233

U.S. government and agency securities

110,009


9,998




120,007

Foreign government and agency securities



49,993




49,993

Short-term investments:








Bank certificates of deposit



134,930




134,930

Commercial paper



328,905




328,905

Corporate bonds



25,768




25,768

Municipal bonds



3,473




3,473

U.S. government and agency securities

356,044


52,257




408,301

Foreign government and agency securities



209,942




209,942

Mortgage-backed securities



19




19

Long-term investments:








Corporate bonds



223,462




223,462

Auction rate securities





29,069


29,069

Municipal bonds



14,232




14,232

U.S. government and agency securities

37,472


63,936




101,408

Mortgage-backed securities



1,087,735




1,087,735

Debt mutual fund



41,488




41,488

Derivative financial instruments, net



2,402




2,402

Total assets measured at fair value

$
669,300


$
2,436,770


$
29,069


$
3,135,139

Liabilities








Convertible debentures — embedded derivative

$


$


$
1,545


$
1,545

Total liabilities measured at fair value

$


$


$
1,545


$
1,545

Net assets measured at fair value

$
669,300


$
2,436,770


$
27,524


$
3,133,594



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March 31, 2012
(In thousands)

Quoted
Prices in
Active
Markets for
Identical
Instruments
(Level 1)

Significant
Other
Observable
Inputs
(Level 2)

Significant
Unobservable
Inputs
(Level 3)

Total Fair
Value
Assets








Cash and cash equivalents:








Money market funds

$
232,017


$


$


$
232,017

Bank certificates of deposit



29,994




29,994

Commercial paper



233,980




233,980

U.S. government and agency securities

75,036


84,985




160,021

Foreign government and agency securities



68,993




68,993

Short-term investments:








Bank certificates of deposit



129,978




129,978

Commercial paper



360,887




360,887

Corporate bonds



14,257




14,257

U.S. government and agency securities

322,763


119,931




442,694

Foreign government and agency securities



180,958




180,958

Mortgage-backed securities



31




31

Long-term investments:








Corporate bonds



175,415




175,415

Auction rate securities





28,929


28,929

Municipal bonds



26,160




26,160

U.S. government and agency securities

17,539


48,659




66,198

Mortgage-backed securities



892,745




892,745

Debt mutual fund



19,781




19,781

Total assets measured at fair value

$
647,355


$
2,386,754


$
28,929


$
3,063,038

Liabilities








Derivative financial instruments, net

$


$
3,070


$


$
3,070

Convertible debentures — embedded derivative





931


931

Total liabilities measured at fair value

$


$
3,070


$
931


$
4,001

Net assets measured at fair value

$
647,355


$
2,383,684


$
27,998


$
3,059,037



Changes in Level 3 Instruments Measured at Fair Value on a Recurring Basis

The following table is a reconciliation of all assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3): 
 

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Three Months Ended
 
Six Months Ended
(In thousands)

September 29, 2012

October 1, 2011
 
September 29, 2012

October 1, 2011
Balance as of beginning of period

$
27,270


$
30,636

 
$
27,998


$
34,005

Total realized and unrealized gains (losses):




 



Included in interest and other expense, net



(1,435
)
 
(614
)

(1,062
)
Included in other comprehensive income

254


(1,210
)
 
490


(552
)
Sales and settlements, net (1)



(950
)
 
(350
)

(5,350
)
Balance as of end of period

$
27,524


$
27,041

 
$
27,524


$
27,041


(1)
There was no redemption of auction rate securities during the three months ended September 29, 2012. During the three months ended October 1, 2011, $950 thousand of student loan auction rate securities were redeemed for cash at par value. During the first six months ended September 29, 2012 and October 1, 2011, $350 thousand and $5.4 million of student loan auction rate securities, respectively, were redeemed for cash at par value.
The amount of total losses included in net income attributable to the change in unrealized gains (losses) relating to assets and liabilities still held as of the end of the period was as follows:
 

Three Months Ended
 
Six Months Ended
(In thousands)

September 29, 2012

October 1, 2011
 
September 29, 2012

October 1, 2011
Interest and other expense, net

$


$
(1,435
)
 
$
(614
)

$
(1,062
)
As of September 29, 2012, marketable securities measured at fair value using Level 3 inputs were comprised of $29.1 million of student loan auction rate securities. Auction failures during the fourth quarter of fiscal 2008 and the lack of market activity and liquidity required that the Company's student loan auction rate securities be measured using observable market data and Level 3 inputs. The fair values of the Company's student loan auction rate securities were based on the Company's assessment of the underlying collateral and the creditworthiness of the issuers of the securities. Substantially all of the underlying assets that secure the student loan auction rate securities are pools of student loans originated under Federal Family Education Loan Program, which are substantially guaranteed by the U.S. Department of Education. The fair values of the Company's student loan auction rate securities were determined using a discounted cash flow pricing model that incorporated financial inputs such as projected cash flows, discount rates, expected interest rates to be paid to investors and an estimated liquidity discount. The most significant assumptions of the model are the weighted-average life over which cash flows were projected of 8 years (given the collateral composition of the securities) and the discount rates ranging from 2.41% to 3.12% that were applied to the pricing model (based on market data and information for comparable- or similar-term student loan asset-backed securities). A hypothetical 20% increase or decrease of the weighted-average life over which cash flows were projected and 100 basis points (one percentage point) increase or decrease in the discount rates would not have a material effect on the fair values of the Company's student loan auction rate securities. The Company does not intend to sell, nor does it believe it is more likely than not that it would be required to sell, the student loan auction rate securities before anticipated recovery, which could be at final maturity that ranges from December 2027 to May 2046.
    
The 3.125% Junior Convertible Debentures due March 15, 2037 (3.125% Debentures) included embedded features that qualify as an embedded derivative, and was separately accounted for as a discount on the 3.125% Debentures. Its fair value was established at the inception of the 3.125% Debentures. Each quarter, the change in the fair value of the embedded derivative, if any, is recorded in the consolidated statements of income. The Company uses a derivative valuation model to derive the value of the embedded derivative. Key inputs into this valuation model are the Company’s current stock price, risk-free interest rates, the stock dividend yield, the stock volatility and the 3.125% Debenture’s credit spread over London Interbank Offered Rate. The first three inputs are based on observable market data and are considered Level 2 inputs while the last two inputs require management judgment and are Level 3 inputs.

Financial Instruments Not Recorded at Fair Value on a Recurring Basis

The Company's Senior Convertible Debentures due June 15, 2017 (2.625% Debentures) and 3.125% Debentures are measured at fair value on a quarterly basis for disclosure purposes. The fair values of the 2.625% and 3.125% Debentures as of September 29, 2012 were approximately $791.3 million and $827.5 million, respectively, based on the last trading price of the respective debentures for the period (classified as level 2 in fair value hierarchy due to relatively low trading volume).

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Note 5.
Financial Instruments
The following is a summary of cash equivalents and available-for-sale securities as of the end of the periods presented:

September 29, 2012

 
March 31, 2012
(In thousands)
Amortized Cost

Gross Unrealized Gains

Gross Unrealized Losses

Estimated Fair Value

 
Amortized Cost

Gross Unrealized Gains

Gross Unrealized Losses

Estimated Fair Value
Money market funds
$
165,775


$


$


$
165,775


 
$
232,017


$


$


$
232,017

Bank certificates of deposit
164,927






164,927


 
159,972






159,972

Commercial paper
487,133


5




487,138


 
594,867


1


(1
)

594,867

Corporate bonds
243,395


5,868


(33
)

249,230


 
186,455


3,401


(184
)

189,672

Auction rate securities
32,250




(3,181
)

29,069


 
32,600




(3,671
)

28,929

Municipal bonds
17,148


597


(40
)

17,705


 
25,454


734


(28
)

26,160

U.S. government and








 







    agency securities
629,129


605


(18
)

629,716


 
668,702


360


(149
)

668,913

Foreign government and








 







    agency securities
259,935






259,935


 
249,951






249,951

Mortgage-backed securities
1,068,361


21,517


(2,124
)

1,087,754


 
878,842


15,094


(1,160
)

892,776

Debt mutual fund
40,500


988




41,488


 
20,000




(219
)

19,781


$
3,108,553


$
29,580


$
(5,396
)

$
3,132,737


 
$
3,048,860


$
19,590


$
(5,412
)

$
3,063,038

The following tables show the fair values and gross unrealized losses of the Company’s investments, aggregated by investment category, for individual securities that have been in a continuous unrealized loss position for the length of time specified, as of September 29, 2012 and March 31, 2012:


September 29, 2012

Less Than 12 Months

12 Months or Greater

Total
(In thousands)
Fair Value

Gross Unrealized Losses

Fair Value

Gross Unrealized Losses

Fair Value

Gross Unrealized Losses
Corporate bonds
$
10,282


$
(33
)

$


$


$
10,282


$
(33
)
Auction rate securities




29,069


(3,181
)

29,069


(3,181
)
Municipal bonds
1,625


(36
)

712


(4
)

2,337


(40
)
U.S. government and













    agency securities
242,997


(18
)





242,997


(18
)
Mortgage-backed securities
175,426


(1,848
)

23,542


(276
)

198,968


(2,124
)

$
430,330


$
(1,935
)

$
53,323


$
(3,461
)

$
483,653


$
(5,396
)


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Table of Contents


March 31, 2012

Less Than 12 Months

12 Months or Greater

Total
(In thousands)
Fair Value

Gross Unrealized Losses

Fair Value

Gross Unrealized Losses

Fair Value

Gross Unrealized Losses
Commercial paper
$
79,994


$
(1
)

$


$


$
79,994


$
(1
)
Corporate bonds
21,111


(184
)





21,111


(184
)
Auction rate securities




28,929


(3,671
)

28,929


(3,671
)
Municipal bonds
2,173


(24
)

366


(4
)

2,539


(28
)
U.S. government and













    agency securities
460,735


(149
)





460,735


(149
)
Mortgage-backed securities
147,726


(1,040
)

15,923


(120
)

163,649


(1,160
)
Debt mutual fund
19,781


(219
)





19,781


(219
)

$
731,520


$
(1,617
)

$
45,218


$
(3,795
)

$
776,738


$
(5,412
)

The gross unrealized losses on these investments were primarily related to failed auction rate securities, which was due to adverse conditions in the global credit markets during the past three years. The Company reviewed the investment portfolio and determined that the gross unrealized losses on these investments as of September 29, 2012 and March 31, 2012 were temporary in nature as evidenced by the fluctuations in the gross unrealized losses within the investment categories. Furthermore, the aggregate of individual unrealized losses that had been outstanding for 12 months or more was not significant as of September 29, 2012 and March 31, 2012. The Company neither intends to sell these investments nor concludes that it is more-likely-than-not that it will have to sell them until recovery of their carrying values. The Company also believes that it will be able to collect both principal and interest amounts due to the Company at maturity, given the high credit quality of these investments and any related underlying collateral.
The amortized cost and estimated fair value of marketable debt securities (bank certificates of deposit, commercial paper, corporate bonds, auction rate securities, municipal bonds, U.S. and foreign government and agency securities and mortgage-backed securities), by contractual maturity, are shown below. Actual maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations without call or prepayment penalties.
 
September 29, 2012
(In thousands)
Amortized
Cost

Estimated
Fair Value
Due in one year or less
$
1,469,412


$
1,469,567

Due after one year through five years
330,949


337,646

Due after five years through ten years
243,009


248,253

Due after ten years
858,908


870,008


$
2,902,278


$
2,925,474

Certain information related to available-for-sale securities is as follows:
 
Three Months Ended
 
Six Months Ended
(In thousands)
September 29, 2012

October 1, 2011
 
September 29, 2012

October 1, 2011
Proceeds from sale of available-for-sale securities
$
119,058


$
77,608

 
$
201,163


$
107,985

Gross realized gains on sale of available-for-sale securities
$
1,042


$
758

 
$
1,829


$
1,097

Gross realized losses on sale of available-for-sale securities
(12
)

(21
)
 
(88
)

(26
)
Net realized gains on sale of available-for-sale securities
$
1,030


$
737

 
$
1,741


$
1,071

Amortization of premiums on available-for-sale securities
$
5,942


$
3,262

 
$
11,561


$
5,575

The cost of securities matured or sold is based on the specific identification method.


13

Table of Contents

Note 6.
Derivative Financial Instruments
The Company’s primary objective for holding derivative financial instruments is to manage foreign currency exchange rate risk and interest rate risk. As a result of the use of derivative financial instruments, the Company is exposed to the risk that counterparties to derivative contracts may fail to meet their contractual obligations. The Company manages counterparty credit risk in derivative contracts by reviewing counterparty creditworthiness on a regular basis, establishing collateral requirement and limiting exposure to any single counterparty. The right of set-off that exists with certain transactions enables the Company to net amounts due to and from the counterparty, reducing the maximum loss from credit risk in the event of counterparty default.
As of September 29, 2012 and March 31, 2012, the Company had the following outstanding forward currency exchange contracts (in notional amount), which are derivative financial instruments:
 
(In thousands and U.S. dollars)
September 29, 2012

March 31, 2012
Singapore dollar
$
60,969


$
60,925

Euro
35,774


41,467

Indian Rupee
19,725


18,943

British Pound
13,136


14,250

Japanese Yen
12,026


11,076


$
141,630


$
146,661


As part of the Company’s strategy to reduce volatility of operating expenses due to foreign exchange rate fluctuations, the Company employs a hedging program with a forward outlook of up to two years for major foreign-currency-denominated operating expenses. The outstanding forward currency exchange contracts expire at various dates between October 2012 and August 2014. The net unrealized gain or loss, which approximates the fair market value of the above contracts, is expected to be realized and reclassified into net income within the next two years.
As of September 29, 2012, 99% of the forward foreign currency exchange contracts was designated and qualified as cash flow hedges and the effective portion of the gain or loss on the forward contracts was reported as a component of other comprehensive income and reclassified into net income in the same period during which the hedged transaction affects earnings. The estimated amount of such gains or losses as of September 29, 2012 that is expected to be reclassified into earnings within the next 12 months was a net gain of $1.4 million. The ineffective portion of the gains or losses on the forward contracts was included in the net income for all periods presented.
As of September 29, 2012, 1% of the forward foreign currency exchange contracts was designated and qualified as fair value hedges, and the related realized and unrealized gain or loss on the forward contracts was immaterial for all periods presented.
The Company may enter into forward foreign currency exchange contracts to hedge firm commitments such as acquisitions and capital expenditures. Gains and losses on foreign currency forward contracts that are designated as hedges of anticipated transactions, for which a firm commitment has been attained and the hedged relationship has been effective, are deferred and included in income or expenses in the same period that the underlying transaction is settled. Gains and losses on any instruments not meeting the above criteria are recognized in income or expenses in the consolidated statements of income as they are incurred.
The 3.125% Debentures include provisions which qualify as an embedded derivative. See "Note 4. Fair Value Measurements" for more discussion about the embedded derivative. The fair value of the embedded derivative was $1.5 million and $931 thousand as of September 29, 2012 and March 31, 2012, respectively. The changes in the fair value of the embedded derivative were recorded to interest and other expense, net, on the Company’s condensed consolidated statements of income.
The Company had the following derivative instruments as of September 29, 2012 and March 31, 2012, located on the condensed consolidated balance sheet, utilized for risk management purposes detailed above:

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Table of Contents


Foreign Exchange Contracts

Asset Derivatives

Liability Derivatives
(In thousands)
Balance Sheet Location
Fair Value

Balance Sheet Location
Fair Value
September 29, 2012
Prepaid expenses and other current assets
$
3,436


Other accrued liabilities
$
1,035

March 31, 2012
Prepaid expenses and other current assets
$
203


Other accrued liabilities
$
3,273

 
The following table summarizes the effect of derivative instruments on the condensed consolidated statements of income for second quarter and the first six months of fiscal 2013 and 2012:

(In thousands)
Amount of Gain (Loss) Recognized in OCI on Derivative (Effective portion of cash flow hedging)
 
Amount of Gain (Loss) Reclassified from
Accumulated OCI into Income
(Effective portion)*
 
Amount of Gain (Loss) Recorded (Ineffective Portion)
Derivatives Types
 
 
Three Months Ended September 29, 2012
Foreign exchange contracts
$
7,968


$
(1,833
)

$
8

 Three Months Ended October 1, 2011
Foreign exchange contracts
$
(8,187
)

$
2,339


$
(3
)
Six Months Ended September 29, 2012
Foreign exchange contracts
$
5,505


$
(2,992
)

$
7

 Six Months Ended October 1, 2011
Foreign exchange contracts
$
(8,784
)

$
5,103


$
(4
)

*
Recorded in Interest and Other Expense location within the condensed consolidated statements of income.

Note 7.
Stock-Based Compensation Plans
The Company’s equity incentive plans are broad-based, long-term retention programs that cover employees, consultants and non-employee directors of the Company. These plans are intended to attract and retain talented employees, consultants and non-employee directors and to provide such persons with a proprietary interest in the Company.
Stock-Based Compensation

The following table summarizes stock-based compensation expense related to stock awards granted under the Company’s equity incentive plans and rights to acquire stock granted under the Company’s Employee Stock Purchase Plan (ESPP):
 
Three Months Ended
 
Six Months Ended
(In thousands)
September 29, 2012

October 1, 2011
 
September 29, 2012

October 1, 2011
Stock-based compensation included in:



 



Cost of revenues
$
1,473


$
1,284

 
$
3,201


$
2,594

Research and development
9,404


8,103

 
18,027


14,590

Selling, general and administrative
8,369


7,512

 
15,626


13,482


$
19,246


$
16,899

 
$
36,854


$
30,666

During the first six months of fiscal 2013 and 2012, the tax benefit realized for the tax deduction from option exercises and other awards, including amounts credited to additional paid-in capital, totaled $3.3 million and $6.5 million, respectively.
The fair values of stock options and stock purchase plan rights under the Company’s equity incentive plans and ESPP were estimated as of the grant date using the Black-Scholes option pricing model. The Company’s expected stock price volatility assumption for stock options is estimated using implied volatility of the Company’s traded options. The expected life of options granted is based on the historical exercise activity as well as the expected disposition of all options outstanding. The expected life of options granted also considers the actual contractual term. The weighted-average fair value per share of stock options granted during the second

15

Table of Contents

quarter and the first six months of fiscal 2013 was $6.35 for both periods. The weighted-average fair value per share of stock options granted during the second quarter and the first six months of fiscal 2012 was $8.03 and $7.87, respectively. These fair values per share were estimated at the date of grant using the following weighted-average assumptions:
 
 
Three Months Ended
 
Six Months Ended

September 29, 2012

October 1, 2011
 
September 29, 2012

October 1, 2011
Expected life of options (years)
4.9


5.2

 
4.9


5.2

Expected stock price volatility
0.29


0.34

 
0.29


0.31

Risk-free interest rate
0.7
%

1.2
%
 
0.7
%

1.7
%
Dividend yield
2.6
%

2.3
%
 
2.6
%

2.3
%

The estimated fair values of restricted stock unit (RSU) awards were calculated based on the market price of Xilinx common stock on the date of grant, reduced by the present value of dividends expected to be paid on Xilinx common stock prior to vesting. The per share weighted-average fair value of RSUs granted during the second quarter of fiscal 2013 was $31.12 ($34.33 for the second quarter of fiscal 2012) and for the first six months of fiscal 2013 was $31.57 ($34.13 for the first six months of fiscal 2012), which were calculated based on estimates at the date of grant using the following weighted-average assumptions:
 
 
Three Months Ended
 
Six Months Ended

September 29, 2012

October 1, 2011
 
September 29, 2012

October 1, 2011
Risk-free interest rate
0.4
%

0.7
%
 
0.4
%

0.8
%
Dividend yield
2.7
%

2.1
%
 
2.7
%

2.1
%

Employee Stock Option Plans
A summary of the Company’s option plans activity and related information is as follows:
 
 
Options Outstanding
(Shares in thousands)
Number of Shares

Weighted-Average Exercise Price Per Share
April 2, 2011
24,969


$
29.11

Granted
207


$
34.79

Exercised
(3,622
)

$
24.70

Forfeited/cancelled/expired
(3,766
)

$
37.35

March 31, 2012
17,788


$
28.32

Granted
48


$
33.33

Exercised
(1,205
)

$
24.25

Forfeited/cancelled/expired
(1,366
)

$
39.86

September 29, 2012
15,265


$
27.63

Options exercisable at:



September 29, 2012
13,619


$
27.81

March 31, 2012
15,349


$
28.78

The types of awards allowed under the 2007 Equity Plan include incentive stock options, non-qualified stock options, RSUs, restricted stock and stock appreciation rights. To date, the Company has issued a mix of non-qualified stock options and RSUs under the 2007 Equity Plan. On August 8, 2012, the stockholders approved an amendment to increase the authorized number of shares reserved for issuance under the 2007 Equity Plan by 3.5 million shares. As of September 29, 2012, 16.4 million shares remained available for grant under the 2007 Equity Plan.
The total pre-tax intrinsic value of options exercised during the three months and six months ended September 29, 2012 was $7.8 million and $11.7 million, respectively. The total pre-tax intrinsic value of options exercised during the three months and six months ended October 1, 2011 was $3.3 million and $18.3 million, respectively. This intrinsic value represents the difference

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between the exercise price and the fair market value of the Company’s common stock on the date of exercise.
RSU Awards
A summary of the Company’s RSU activity and related information is as follows:
 
 
RSUs Outstanding
(Shares in thousands)
Number of Shares

Weighted-Average Grant-Date Fair Value Per Share
April 2, 2011
4,215


$
23.19

Granted
2,977


$
33.69

Vested
(1,543
)

$
23.11

Cancelled
(410
)

$
25.18

March 31, 2012
5,239


$
29.01

Granted
2,380


$
31.57

Vested
(1,392
)

$
27.16

Cancelled
(258
)

$
29.51

September 29, 2012
5,969


$
30.25

Employee Stock Purchase Plan
Under the Company’s ESPP, shares are only issued during the second and fourth quarters of each fiscal year. Employees purchased 521 thousand shares for $14.1 million during the second quarter of fiscal 2013 and 501 thousand shares for $13.3 million in the second quarter of fiscal 2012. The per-share weighted-average fair value of stock purchase rights granted under the ESPP during the second quarter of fiscal 2013 and 2012 was $8.53 and $9.37, respectively. The fair values of stock purchase plan rights granted in the second quarter of fiscal 2013 and 2012 were estimated at the date of grant using the following assumptions:

2013

2012
Expected life of options (years)
1.25


1.25

Expected stock price volatility
0.29


0.29

Risk-free interest rate
0.2
%

0.2
%
Dividend yield
2.7
%

2.4
%

The next scheduled purchase under the ESPP is in the fourth quarter of fiscal 2013. On August 8, 2012, the stockholders approved an amendment to increase the authorized number of shares reserved for issuance under the ESPP by 2.0 million shares. As of September 29, 2012, 9.6 million shares were available for future issuance under the ESPP.

Note 8.
Net Income Per Common Share
The computation of basic net income per common share for all periods presented is derived from the information on the condensed consolidated statements of income, and there are no reconciling items in the numerator used to compute diluted net income per common share.

The total shares used in the denominator of the diluted net income per common share calculation included 5.5 million and 5.8 million potentially dilutive common equivalent shares outstanding for the second quarter and the first six months of fiscal 2013, respectively, that were not included in basic net income per common share by applying the treasury stock method to the impact of incremental shares issuable assuming conversion of the debentures (see "Note 10. Convertible Debentures and Revolving Credit Facility"). For the second quarter and the first six months of fiscal 2012, the total shares used in the denominator of the diluted net income per common share calculation included zero and 3.5 million, respectively, to the impact of incremental shares issuable assuming conversion of the debentures.
Additionally, the total shares used in the denominator of the diluted net income per common share calculation included 4.1 million and 4.3 million potentially dilutive common equivalent shares outstanding for the second quarter and the first six months of fiscal 2013, respectively, that were not included in basic net income per common share. For the second quarter and the first six months of fiscal 2012, the total shares used in the denominator of the diluted net income per common share calculation included 3.9 million

17

Table of Contents

and 4.6 million potentially dilutive common equivalent shares, respectively. Potentially dilutive common equivalent shares are determined by applying the treasury stock method to the impact of incremental shares issuable assuming exercise of outstanding stock options, vesting of outstanding RSUs and issuance of common stock under the ESPP.
Outstanding stock options, RSUs and warrants to purchase approximately 24.6 million shares for the second quarter and 26.2 million shares for the first six months of fiscal 2013 under the Company’s stock award plans were excluded from diluted net income per common share by applying the treasury stock method, as their inclusion would have been antidilutive. These options, RSUs and warrants could be dilutive in the future if the Company’s average share price increases and is greater than the combined exercise prices and the unamortized fair values of these options, RSUs and warrants.
To hedge against potential dilution upon conversion of the 2.625% Debentures, the Company also purchased call options on its common stock from the hedge counterparties. The call options give the Company the right to purchase up to 19.8 million shares of its common stock at $30.29 per share. These call options are not considered for purposes of calculating the total shares outstanding under the basic and diluted net income per share, as their effect would be anti-dilutive. Upon exercise, the call options would serve to neutralize the dilutive effect of the 2.625% Debentures and potentially reduce the weighted number of diluted shares used in per share calculations.

Note 9.
Inventories
Inventories are stated at the lower of cost (determined using the first-in, first-out method), or market (estimated net realizable value) and are comprised of the following:
 
(In thousands)
September 29, 2012

March 31, 2012
Raw materials
$
14,558


$
11,707

Work-in-process
166,669


164,438

Finished goods
22,840


28,721


$
204,067


$
204,866


Note 10.
Convertible Debentures and Revolving Credit Facility
2.625% Senior Convertible Debentures
As of September 29, 2012, the Company had $600.0 million principal amount of 2.625% Debentures outstanding. The 2.625% Debentures are senior in right of payment to the Company’s existing and future unsecured indebtedness that is expressly subordinated in right of payment to the 2.625% Debentures, including the 3.125% Debentures described below. The 2.625% Debentures are convertible, subject to certain conditions, into shares of Xilinx common stock at a conversion rate of 33.0164 shares of common stock per $1 thousand principal amount of the 2.625% Debentures, representing an effective conversion price of approximately $30.29 per share of common stock. The conversion rate is subject to adjustment for certain events as outlined in the indenture governing the 2.625% Debentures but will not be adjusted for accrued interest.
The carrying values of the liability and equity components of the 2.625% Debentures are reflected in the Company’s condensed consolidated balance sheets as follows:
(In thousands)
September 29, 2012

March 31, 2012
Liability component:



   Principal amount of the 2.625% Debentures
$
600,000


$
600,000

   Unamortized discount of liability component
(72,539
)

(80,311
)
   Hedge accounting adjustment – sale of interest rate swap
20,962


23,208

   Net carrying value of the 2.625% Debentures
$
548,423


$
542,897







Equity component – net carrying value
$
105,620


$
105,620


Interest expense related to the 2.625% Debentures was included in interest and other expense, net on the condensed consolidated statements of income as follows:


18

Table of Contents

 
Three Months Ended
 
Six Months Ended
(In thousands)
September 29, 2012

October 1, 2011
 
September 29, 2012

October 1, 2011
Contractual coupon interest
$
3,938


$
3,938

 
$
7,875


$
7,875

Amortization of debt issuance costs
362


362

 
724


724

Amortization of debt discount, net
2,763


2,763

 
5,526


5,526

Total interest expense related to the 2.625% Debentures
$
7,063


$
7,063

 
$
14,125


$
14,125

3.125% Junior Subordinated Convertible Debentures
As of September 29, 2012, the Company had $689.6 million principal amount of 3.125% Debentures outstanding. The 3.125% Debentures are subordinated in right of payment to the Company’s existing and future senior debt, including the 2.625% Debentures, and to the other liabilities of the Company’s subsidiaries. The 3.125% Debentures are convertible, subject to certain conditions, into shares of Xilinx common stock at a conversion rate of 33.9021 shares of common stock per $1 thousand principal amount of 3.125% Debentures, representing an effective conversion price of approximately $29.50 per share of common stock. The conversion rate is subject to adjustment for certain events as outlined in the indenture governing the 3.125% Debentures but will not be adjusted for accrued interest.
The carrying values of the liability and equity components of the 3.125% Debentures are reflected in the Company’s condensed consolidated balance sheets as follows:
(In thousands)
September 29, 2012

March 31, 2012
Liability component:



   Principal amount of the 3.125% Debentures
$
689,635


$
689,635

   Unamortized discount of liability component
(323,077
)

(325,448
)
   Unamortized discount of embedded derivative from date of issuance
(1,417
)

(1,446
)
   Carrying value of liability component – 3.125% Debentures
365,141


362,741

   Carrying value of embedded derivative component
1,545


931

Net carrying value of the 3.125% Debentures
$
366,686


$
363,672

Equity component – net carrying value
$
229,513


$
229,513


Interest expense related to the 3.125% Debentures was included in interest and other expense, net on the condensed consolidated statements of income and was recognized as follows:
 
Three Months Ended
 
Six Months Ended
(In thousands)
September 29, 2012
 
October 1, 2011
 
September 29, 2012
 
October 1, 2011
Contractual coupon interest
$
5,388

 
$
5,388

 
$
10,776

 
$
10,776

Amortization of debt issuance costs
55

 
55

 
112

 
112

Amortization of embedded derivative
14

 
14

 
29

 
29

Amortization of debt discount
1,196

 
1,113

 
2,371

 
2,206

Fair value adjustment of embedded derivative

 
1,434

 
614

 
1,062

Total interest expense related to the 3.125% Debentures
$
6,653

 
$
8,004

 
$
13,902

 
$
14,185


Revolving Credit Facility

On December 7, 2011, the Company entered into a 5 years $250.0 million senior unsecured revolving credit facility with a syndicate of banks (expiring in December 2016). Borrowings under the credit facility will bear interest at a benchmark rate plus an applicable margin based upon the Company’s credit rating. In connection with the credit facility, the Company is required to maintain certain financial and nonfinancial covenants. As of September 29, 2012, the Company had made no borrowings under this credit facility and was not in violation of any of the covenants.

Note 11.
Common Stock Repurchase Program

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Table of Contents

The Board of Directors has approved stock repurchase programs enabling the Company to repurchase its common stock in the open market or through negotiated transactions with independent financial institutions. In June 2010, the Board authorized the repurchase of up to $500.0 million of common stock and debentures (2010 Repurchase Program). In August 2012, the Board authorized the repurchase of an additional $750.0 million of the Company's common stock and debentures (2012 Repurchase Program). The shares authorized for purchase under the 2012 Repurchase Program are in addition to the shares that may yet be purchased under the 2010 Repurchase Program. The 2010 and the 2012 Repurchase Programs have no stated expiration date.
Through September 29, 2012, the Company had used $491.0 million of the $500.0 million authorized under the 2010 Repurchase Program, and none of the $750.0 million authorized under the 2012 Repurchase Program, leaving $759.0 million available for future repurchases. The Company’s current policy is to retire all repurchased shares, and consequently, no treasury shares were held as of September 29, 2012 and March 31, 2012.
During the first six months of fiscal 2013, the Company repurchased 5.6 million shares of common stock in the open market for a total of $178.1 million under the 2010 Repurchase Program. During the first six months of fiscal 2012, the Company repurchased 5.9 million shares of common stock for a total of $187.2 million.

Note 12.
Restructuring Charges

During the second quarter of fiscal 2012, the Company implemented restructuring measures designed to consolidate its research and development activities in the U.S. and to reduce its global workforce by 46 net positions, or less than 2%. The Company completed this restructuring plan and recorded total restructuring charges of $3.4 million in the second quarter of fiscal 2012, which was predominantly related to severance costs and benefits expenses.

Note 13.
Interest and Other Expense, Net
The components of interest and other expense, net are as follows: 
 
Three Months Ended
 
Six Months Ended
(In thousands)
September 29, 2012

October 1, 2011
 
September 29, 2012

October 1, 2011
Interest income
$
6,271


$
6,200

 
$
12,063


$
11,542

Interest expense
(13,717
)

(13,634
)
 
(27,412
)

(27,248
)
Other expense, net
(2,557
)

(1,164
)
 
(4,326
)

(703
)

$
(10,003
)

$
(8,598
)
 
$
(19,675
)

$
(16,409
)
 
 
 
 
 
 
 
 

Note 14.
Accumulated Other Comprehensive Income
The components of accumulated other comprehensive income are as follows:
 
(In thousands)
September 29, 2012

March 31, 2012
Accumulated unrealized gains on available-for-sale securities, net of tax
$
15,153


$
8,916

Accumulated unrealized gains (losses) on hedging transactions, net of tax
2,403


(3,101
)
Accumulated cumulative translation adjustment
1,016


1,449

Accumulated other comprehensive income
$
18,572


$
7,264


Note 15.
Income Taxes
The Company recorded tax provisions of $14.6 million and $39.7 million for the second quarter and the first six months of fiscal 2013, respectively, representing effective tax rates of 11% and 14%, respectively. The Company recorded tax provisions of $20.0 million and $46.1 million for the second quarter and the first six months of fiscal 2012, respectively, representing effective tax rates of 14% for both periods.
The difference between the U.S. federal statutory tax rate of 35% and the Company’s effective tax rate is primarily due to income earned in lower tax rate jurisdictions, for which no U.S. income tax has been provided, as the Company intends to permanently reinvest these earnings outside of the U.S.
The Company’s total gross unrecognized tax benefits as of September 29, 2012, determined in accordance with FASB authoritative guidance for measuring uncertain tax positions, decreased by $977 thousand in the second quarter of fiscal 2013 to $64.7 million.

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The net decrease includes a $4.0 million reduction in positions for prior years as a result of a recent Tax Court ruling concerning the Federal research credit. Accordingly, certain aspects of the credit calculation were determined to meet the more likely than not threshold for recording an uncertain tax benefit. The total amount of unrecognized tax benefits that, if realized in a future period, would favorably affect the effective tax rate was $37.8 million as of September 29, 2012. It is reasonably possible that changes to our unrecognized tax benefits could be significant in the next twelve months due to tax audit settlements and lapses of statutes of limitation. As a result of uncertainties regarding tax audit settlements and their possible outcomes, an estimate of the range of increase or decrease that could occur in the next twelve months cannot be made.
The Company’s policy is to include interest and penalties related to income tax liabilities within the provision for income taxes on the consolidated statements of income. The balance of accrued interest and penalties recorded in the condensed consolidated balance sheet as of September 29, 2012 was $803 thousand. The decrease of interest and penalties included in the Company’s provision for income taxes totaled $135 thousand and $36 thousand, respectively, in the three and six months ended September 29, 2012.
The Company is no longer subject to U.S. federal audits by taxing authorities for years through fiscal 2008. The Company is no longer subject to U.S. state audits for years through fiscal 2004, except for fiscal years 1996 through 2001 which are still open for audit purposes. The Company is no longer subject to tax audits in Ireland for years through fiscal 2007.

Note 16.
Commitments
Xilinx leases some of its facilities and office buildings under non-cancelable operating leases that expire at various dates through October 2021. Additionally, Xilinx entered into a land lease in conjunction with the Company’s building in Singapore, which will expire in November 2035 and the lease cost was settled in an up-front payment in June 2006. Some of the operating leases for facilities and office buildings require payment of operating costs, including property taxes, repairs, maintenance and insurance. Most of the Company’s leases contain renewal options for varying terms. Approximate future minimum lease payments under non-cancelable operating leases are as follows:

Fiscal years
(In thousands)
2013 (remaining six months)
$
3,197

2014
4,924

2015
2,850

2016
1,384

2017
1,132

Thereafter
4,139


$
17,626

Aggregate future rental income to be received, which includes rents from both owned and leased property, totaled $5.1 million as of September 29, 2012. Rent expense, net of rental income, under all operating leases was $1.3 million and $2.1 million for the second quarter and the first six months of fiscal 2013, respectively. Rent expense, net of rental income, under all operating leases was $521 thousand and $1.6 million for the second quarter and the first six months of fiscal 2012, respectively. Rental income was not material for the second quarter and the first six months of fiscal 2013 or 2012.
Other commitments as of September 29, 2012 totaled $119.3 million and consisted of purchases of inventory and other non-cancelable purchase obligations related to subcontractors that manufacture silicon wafers and provide assembly and some test services. The Company expects to receive and pay for these materials and services in the next three to six months, as the products meet delivery and quality specifications. As of September 29, 2012, the Company also had $19.6 million of non-cancelable license obligations to providers of electronic design automation software and hardware/software maintenance expiring at various dates through March 2015.
The Company committed up to $5.0 million to acquire, in the future, rights to intellectual property until July 2023. License payments will be amortized over the useful life of the intellectual property acquired.

Note 17.
Product Warranty and Indemnification
The Company generally sells products with a limited warranty for product quality. The Company provides an accrual for known product issues if a loss is probable and can be reasonably estimated. As of the end of the second quarter of fiscal 2013 and the end of fiscal 2012, the accrual balances of the product warranty liability were immaterial.
The Company offers, subject to certain terms and conditions, to indemnify certain customers and distributors for costs and damages

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awarded against these parties in the event the Company’s hardware products are found to infringe third-party intellectual property rights, including patents, copyrights or trademarks, and to compensate certain customers for limited specified costs they actually incur in the event our hardware products experience epidemic failure. To a lesser extent, the Company may from time-to-time offer limited indemnification with respect to its software products. The terms and conditions of these indemnity obligations are limited by contract, which obligations are typically perpetual from the effective date of the agreement. The Company has historically received only a limited number of requests for indemnification under these provisions and has not made any significant payments pursuant to these provisions. The Company cannot estimate the maximum amount of potential future payments, if any, that the Company may be required to make as a result of these obligations due to the limited history of indemnification claims and the unique facts and circumstances that are likely to be involved in each particular claim and indemnification provision. However, there can be no assurances that the Company will not incur any financial liabilities in the future as a result of these obligations.

Note 18.
Contingencies

Patent Litigation

On December 28, 2007, a patent infringement lawsuit was filed by PACT XPP Technologies, AG (PACT) against the Company in the U.S. District Court for the Eastern District of Texas, Marshall Division (PACT XPP Technologies, AG. v. Xilinx, Inc. and Avnet, Inc. Case No. 2:07-CV-563). The lawsuit pertained to eleven different patents and PACT sought injunctive relief, damages including enhanced damages, interest and attorneys' fees. Nine of the 11 patents were dismissed from the case prior to trial. Trial commenced in the matter on May 14, 2012 and on May 18, 2012 the jury concluded its deliberations. The jury found five claims of the two patents held by PACT were valid and were willfully infringed by the Company. The jury awarded PACT the sum of $15.4 million as damages and royalties on past Xilinx sales. The presiding judge will decide the component for willful infringement at a future date which has not yet been determined, and such enhanced damages, including the willfulness component, could be as much as treble the $15.4 million jury verdict. In its post trial motions, the plaintiff has moved for attorneys' fees, an ongoing royalty for future sales of infringing products, pre- and post-judgment interest, and certain other relief. The Company intends to appeal the verdict and has filed motions for judgment as a matter of law.

On February 14, 2011, the Company filed a complaint for declaratory judgment of patent noninfringement and invalidity against Intellectual Ventures Management LLC and related entities (Intellectual Ventures) in the U.S. District Court for the Northern District of California. On September 30, 2011, the Company amended its complaint in this case to eliminate certain defendants and patents from the action (Xilinx, Inc. v. Intellectual Ventures I LLC and Intellectual Ventures II LLC, Case No CV11-0671). The lawsuit pertains to five patents and seeks judgments of non-infringement by Xilinx and judgments that the patents are invalid and unenforceable, as well as costs and attorneys' fees.

On February 15, 2011, Intellectual Ventures added the Company as a defendant in its complaint for patent infringement previously filed against Altera Corporation (Altera), Microsemi Corporation (Microsemi) and Lattice Semiconductor Corporation (Lattice) in the U.S. District Court for the District of Delaware (Intellectual Ventures I LLC and Intellectual Ventures II LLC v. Altera Corporation, Microsemi Corporation, Lattice Semiconductor Corporation and Xilinx, Inc., Case No. 10-CV-1065). The lawsuit pertains to five patents, four of which Xilinx is alleged to be infringing. Intellectual Ventures seeks unspecified damages, interest and attorneys' fees and the proceedings are in their early stages. The Company is unable to estimate its range of possible loss in this matter at this time.

On October 17, 2011, Xilinx filed a complaint for patent non-infringement and invalidity and violation of California Business and Professions Code Section 17200 in the U.S. District Court for the Northern District of California against Intellectual Ventures and related entities as well as additional defendants (Xilinx, Inc. v. Intellectual Ventures, LLC. Intellectual Ventures Management, LLC, Detelle Relay KG, LLC, Roldan Block NY LLC, Latrosse Technologies LLC, TR Technologies Foundation LLC, Taichi Holdings, LLC, Noregin Assets N.V., LLC and Intellectual Venture Funding LLC Case No CV-04407). By order dated January 25, 2012, the Court granted with leave to amend defendants' motion to dismiss Xilinx's claim for violation of California Business and Professions Code section 17200. The Company has amended its complaint to remove the claim for violation of California Business and Professions Code section 17200. The remainder of the lawsuit pertains to seven patents and seeks judgments of non-infringement by Xilinx and judgments that the patents are invalid and unenforceable, as well as costs and attorneys' fees.

On March 23, 2012, a patent infringement lawsuit was filed by Advanced Processor Technologies LLC (APT) against the Company in the U.S. District Court for the Eastern District of Texas, Marshall Division (Advanced Processor Technologies LLC v. Xilinx, Inc., Case No. 2;12-CV-158). The lawsuit pertains to three patents and APT seeks royalties, injunctive relief and unspecified damages and the proceedings are in their early stages. The Company is unable to estimate its range of possible loss in this matter at this time.


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On May 30, 2012, a patent infringement lawsuit was filed by Semcon Tech, LLC (Semcon) against the Company in the United States District Court for the District of Delaware (Semcon Tech, LLC v. Xilinx, Inc., Case No. 1:12-CV-00691). The lawsuit pertains to one patent and Semcon seeks unspecified damages, costs and expenses and the proceedings are in their early stages. The Company is unable to estimate its range of possible loss in this matter at this time.

Other Matters

Except as stated above, there are no pending legal proceedings of a material nature to which the Company is a party or of which any of its property is the subject.

From time to time, the Company is involved in various disputes and litigation matters that arise in the ordinary course of its business. These include disputes and lawsuits related to intellectual property, mergers and acquisitions, licensing, contract law, tax, regulatory, distribution arrangements, employee relations and other matters. Periodically, the Company reviews the status of each matter and assesses its potential financial exposure. If the potential loss from any claim or legal proceeding is considered probable and a range of possible losses can be estimated, the Company accrues a liability for the estimated loss. Legal proceedings are subject to uncertainties, and the outcomes are difficult to predict. Because of such uncertainties, accruals are based only on the best information available at the time. As additional information becomes available, the company continues to reassess the potential liability related to pending claims and litigation and may revise estimates.

Note 19.
Business Combination

During the second quarter of fiscal 2013, the Company purchased substantially all of the assets and assumed certain liabilities of Modesat Communications, a wireless mobile backhaul solutions company that specializes in the development of microwave modem solutions for the mobile backhaul market. This acquisition aligns with the Company's strategy to expand its new adjacent markets in communication infrastructure by delivering industry leading wireless backhaul solutions to the Company's top tier customers. The acquisition was accounted under the purchase method of accounting, and the aggregate financial impact was not material to the Company.
 
Note 20.
Goodwill and Acquisition-Related Intangibles
As of September 29, 2012 and March 31, 2012, the gross and net amounts of goodwill and of acquisition-related intangibles for all acquisitions were as follows:
 







Weighted-Average
(In thousands)
September 29, 2012

March 31, 2012

Amortization Life
Goodwill
$
158,990


$
149,538



In-process research and development
$


$
4,000



Core technology, gross
89,360


76,440


5.8 years
Less accumulated amortization
(49,834
)

(46,051
)


Core technology, net
39,526


30,389



Other intangibles, gross
46,516


46,206


2.7 years
Less accumulated amortization
(44,946
)

(44,263
)


Other intangibles, net
1,570


1,943



Total acquisition-related intangibles, gross
135,876


126,646



Less accumulated amortization
(94,780
)

(90,314
)


Total acquisition-related intangibles, net
$
41,096


$
36,332



Amortization expense for acquisition-related intangible assets for the three and six months ended September 29, 2012 was $2.3 million and $4.5 million, respectively. Amortization expense for acquisition-related intangibles for the three and six months ended October 1, 2011 was $2.0 million and $3.6 million, respectively. Based on the carrying value of acquisition-related intangibles recorded as of September 29, 2012, and assuming no subsequent impairment of the underlying assets, the annual amortization expense for acquisition-related intangibles is expected to be as follows:
 

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Fiscal Year
(In thousands)
2013 (remaining six months)
$
5,041

2014
9,542

2015
8,846

2016
8,244

2017
6,473

Thereafter
2,950

Total
$
41,096


Note 21.
Subsequent Event
On October 16, 2012, the Company’s Board of Directors declared a cash dividend of $0.22 per common share for the third quarter of fiscal 2013. The dividend is payable on November 28, 2012 to stockholders of record on November 7, 2012.

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ITEM 2.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The statements in this Management's Discussion and Analysis that are forward-looking, within the meaning of the Private Securities Litigation Reform Act of 1995, involve numerous risks and uncertainties and are based on current expectations. The reader should not place undue reliance on these forward-looking statements. Our actual results could differ materially from those anticipated in these forward-looking statements for many reasons, including those risks discussed under "Risk Factors" and elsewhere in this document. Often, forward-looking statements can be identified by the use of forward-looking words, such as "may," "will," "could," "should," "expect," "believe," "anticipate," "estimate," "continue," "plan," "intend," "project" and other similar terminology, or the negative of such terms. We disclaim any responsibility to update or revise any forward-looking statement provided in this Management's Discussion and Analysis for any reason.
Critical Accounting Policies and Estimates
The methods, estimates and judgments we use in applying our most critical accounting policies have a significant impact on the results we report in our consolidated financial statements. The SEC has defined critical accounting policies as those that are most important to the portrayal of our financial condition and results of operations and require us to make our most difficult and subjective judgments, often as a result of the need to make estimates of matters that are inherently uncertain. Based on this definition, our critical accounting policies include: valuation of marketable securities, which impacts losses on debt and equity securities when we record impairments; revenue recognition, which impacts the recording of revenues; and valuation of inventories, which impacts cost of revenues and gross margin. Our critical accounting policies also include: the assessment of impairment of long-lived assets including acquisition-related intangibles, which impacts their valuation; the assessment of the recoverability of goodwill, which impacts goodwill impairment; accounting for income taxes, which impacts the provision or benefit recognized for income taxes, as well as, the valuation of deferred tax assets recorded on our consolidated balance sheet; and valuation and recognition of stock-based compensation, which impacts gross margin, research and development (R&D) expenses, and selling, general and administrative (SG&A) expenses. For more discussion please refer to "Item 7. Management’s Discussion and Analysis of Financial condition and Results of Operations" included in our Form 10-K for the year ended March 31, 2012 filed with the SEC. We also have other key accounting policies that are not as subjective, and therefore, their application would not require us to make estimates or judgments that are as difficult, but which nevertheless could significantly affect our financial reporting.
Results of Operations: Second quarter and first six months of fiscal 2013 compared to the second quarter and first six months of fiscal 2012
The following table sets forth statement of income data as a percentage of net revenues for the periods indicated:

Three Months Ended
 
Six Months Ended

September 29, 2012

October 1, 2011
 
September 29, 2012

October 1, 2011
Net revenues
100.0
%

100.0
%
 
100.0
%

100.0
%
Cost of revenues
34.5


36.1