XLNX 12.29.2012 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 December 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 January 18, 2013
Common Stock, $.01 par value
 
261,561,672



Table of Contents

TABLE OF CONTENTS
 
 
 
 
 

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Table of Contents

PART I.
FINANCIAL INFORMATION

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

December 31, 2011
 
December 29, 2012

December 31, 2011
Net revenues
$
509,767


$
511,091

 
$
1,636,484


$
1,681,763

Cost of revenues
170,493


174,805

 
556,617


598,501

Gross margin
339,274


336,286

 
1,079,867


1,083,262

Operating expenses:



 



Research and development
129,055


108,245

 
364,389


320,036

Selling, general and administrative
86,823


88,934

 
274,952


274,011

Amortization of acquisition-related intangibles
2,554


1,982

 
7,021


5,587

Restructuring charges



 


3,369

Total operating expenses
218,432


199,161

 
646,362


603,003

Operating income
120,842


137,125

 
433,505


480,259

Interest and other expense, net
5,149


7,187

 
24,824


23,596

Income before income taxes
115,693


129,938

 
408,681


456,663

Provision for income taxes
12,045


2,924

 
51,765


48,989

Net income
$
103,648


$
127,014

 
$
356,916


$
407,674

Net income per common share:



 



Basic
$
0.40


$
0.49

 
$
1.36


$
1.54

Diluted
$
0.38


$
0.47

 
$
1.31


$
1.50

Cash dividends per common share
$
0.22


$
0.19

 
$
0.66


$
0.57

Shares used in per share calculations:



 
 
 
 
Basic
260,690


261,257

 
261,723

 
264,183

Diluted
271,174


267,884

 
271,861

 
271,713


See notes to condensed consolidated financial statements.



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


Three Months Ended

Nine Months Ended
(In thousands)
December 29, 2012

December 31, 2011

December 29, 2012

December 31, 2011
Net income
$
103,648


$
127,014


$
356,916


$
407,674

Other comprehensive income (loss), net of tax:











Change in net unrealized gains (losses) on available-for-sale securities
(2,253
)

(436
)

4,899


3,822

Reclassification adjustment for gains on available-for-sale securities, included in net income
(421
)

(425
)

(1,336
)

(987
)
Change in net unrealized gains (losses) on hedging transactions
(684
)

(3,413
)

4,820


(12,132
)
Cumulative translation adjustment
(51
)

(2,053
)

(484
)

(1,177
)
Other comprehensive income (loss)
(3,409
)

(6,327
)

7,899


(10,474
)
Total comprehensive income
$
100,239


$
120,687


$
364,815


$
397,200


See notes to condensed consolidated financial statements.


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

March 31, 2012 [1]
 
(unaudited)

 
ASSETS



Current assets:



Cash and cash equivalents
$
623,137


$
788,822

Short-term investments
1,063,494


1,128,805

Accounts receivable, net
232,257


214,965

Inventories
225,985


204,866

Deferred tax assets
59,547


64,822

Prepaid expenses and other current assets
59,151


48,029

Total current assets
2,263,571


2,450,309

Property, plant and equipment, at cost:
794,089


788,422

Accumulated depreciation and amortization
(420,720
)

(393,440
)
Net property, plant and equipment
373,369


394,982

Long-term investments
1,560,132


1,209,228

Goodwill
158,990


149,538

Acquisition-related intangibles, net
38,541


36,332

Other assets
218,304


223,733

Total Assets
$
4,612,907


$
4,464,122

LIABILITIES AND STOCKHOLDERS’ EQUITY



Current liabilities:



Accounts payable
$
98,565


$
78,613

Accrued payroll and related liabilities
123,326


121,309

Deferred income on shipments to distributors
50,017


67,002

Other accrued liabilities
63,634


75,852

Total current liabilities
335,542


342,776

Convertible debentures
918,883


906,569

Deferred tax liabilities
506,995


463,045

Long-term income taxes payable
15,762


14,479

Other long-term liabilities
19,600


29,568

Commitments and contingencies



Stockholders' equity:



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



Common stock, $.01 par value
2,612


2,636

Additional paid-in capital
1,195,426


1,195,458

Retained earnings
1,602,924


1,502,327

Accumulated other comprehensive income
15,163


7,264

Total stockholders’ equity
2,816,125


2,707,685

Total Liabilities and Stockholders’ Equity
$
4,612,907


$
4,464,122


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


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

Nine Months Ended
(In thousands)
December 29, 2012

December 31, 2011
Cash flows from operating activities:



Net income
$
356,916


$
407,674

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



Depreciation
42,434


40,956

Amortization
12,878


12,363

Stock-based compensation
56,616


48,509

Net gain on sale of available-for-sale securities
(2,489
)

(1,861
)
Amortization of debt discount on convertible debentures
11,877


11,629

Derivatives — revaluation and amortization
437


450

Tax benefit from exercise of stock options
5,354


7,039

Excess tax benefit from stock-based compensation
(6,312
)

(8,573
)
Changes in assets and liabilities:



Accounts receivable, net
(17,292
)

75,332

Inventories
(21,018
)

19,626

Deferred income taxes
48,302


53,171

Prepaid expenses and other current assets
5,021


(5,498
)
Other assets
(6,208
)

4,371

Accounts payable
19,953


(399
)
Accrued liabilities
3,088


5,363

Income taxes payable
(9,688
)

(15,366
)
Deferred income on shipments to distributors
(16,985
)

(36,538
)
Net cash provided by operating activities
482,884


618,248

Cash flows from investing activities:



Purchases of available-for-sale securities
(2,965,026
)

(3,420,207
)
Proceeds from sale and maturity of available-for-sale securities
2,684,994


2,623,384

Purchases of property, plant and equipment
(24,053
)

(50,401
)
Other investing activities
(32,349
)

(33,886
)
Net cash used in investing activities
(336,434
)

(881,110
)
Cash flows from financing activities:



Repurchases of common stock
(197,750
)

(219,638
)
Proceeds from issuance of common stock through various stock plans
51,950


63,263

Payment of dividends to stockholders
(172,647
)

(150,370
)
Excess tax benefit from stock-based compensation
6,312


8,573

Net cash used in financing activities
(312,135
)

(298,172
)
Net decrease in cash and cash equivalents
(165,685
)

(561,034
)
Cash and cash equivalents at beginning of period
788,822


1,222,359

Cash and cash equivalents at end of period
$
623,137


$
661,325

Supplemental disclosure of cash flow information:



Interest paid
$
26,526


$
26,526

Income taxes paid, net of refunds
$
6,917


$
5,085

See notes to condensed consolidated financial statements.

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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 December 29, 2012 and December 31, 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, established by the Financial Accounting Standards Board (FASB), 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 December 29, 2012 and March 31, 2012, Avnet accounted for 67% of the Company’s total net accounts receivable for both periods. Resale of product through Avnet accounted for 47% and 46% of the Company’s worldwide net revenues in the third quarter and the first nine months of fiscal 2013, respectively. For the third quarter and the first nine months of fiscal 2012, resale of product through Avnet accounted for 50% 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.
No end customer accounted for more than 10% of the Company's worldwide net revenues for any of the periods presented.
The Company mitigates concentrations of credit risk in its investments in debt securities by currently investing more than 85% 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 December 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 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

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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 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 nine months of fiscal 2013 and the Company did not adjust or override any fair value measurements as of December 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
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

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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 December 29, 2012 and March 31, 2012:


December 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

$
211,568


$


$


$
211,568

Bank certificates of deposit



74,996




74,996

Commercial paper



39,670




39,670

Corporate bonds



34,996




34,996

U.S. government and agency securities

55,033






55,033

Foreign government and agency securities



139,972




139,972

Short-term investments:








Bank certificates of deposit



204,943




204,943

Commercial paper



259,900




259,900

Corporate bonds



55,060




55,060

Municipal bonds



3,647




3,647

U.S. government and agency securities

410,836


29,148




439,984

Foreign government and agency securities



99,956




99,956

Mortgage-backed securities



4




4

Long-term investments:








Corporate bonds



242,139




242,139

Auction rate securities





28,401


28,401

Municipal bonds



17,840




17,840

U.S. government and agency securities

38,053


48,869




86,922

Mortgage-backed securities



1,122,253




1,122,253

Debt mutual fund



62,577




62,577

Derivative financial instruments, net



1,714




1,714

Total assets measured at fair value

$
715,490


$
2,437,684


$
28,401


$
3,181,575

Liabilities








Convertible debentures — embedded derivative

$


$


$
1,324


$
1,324

Total liabilities measured at fair value

$


$


$
1,324


$
1,324

Net assets measured at fair value

$
715,490


$
2,437,684


$
27,077


$
3,180,251



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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
 
Nine Months Ended
(In thousands)

December 29, 2012

December 31, 2011
 
December 29, 2012

December 31, 2011
Balance as of beginning of period

$
27,524


$
27,041

 
$
27,998


$
34,005

Total realized and unrealized gains (losses):




 



Included in interest and other expense, net

221


655

 
(393
)

(407
)
Included in other comprehensive income (loss)

(318
)

(747
)
 
172


(1,299
)
Sales and settlements, net (1)

(350
)

(300
)
 
(700
)

(5,650
)
Balance as of end of period

$
27,077


$
26,649

 
$
27,077


$
26,649


(1)
During the three months ended December 29, 2012 and December 31, 2011, $350 thousand and $300 thousand of student loan auction rate securities, respectively, were redeemed for cash at par value. During the first nine months ended December 29, 2012 and December 31, 2011, $700 thousand and $5.7 million of student loan auction rate securities, respectively, were redeemed for cash at par value.
The amount of total gains (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
 
Nine Months Ended
(In thousands)

December 29, 2012

December 31, 2011
 
December 29, 2012

December 31, 2011
Included in interest and other expense, net

$
221


$
655

 
$
(393
)

$
(407
)
As of December 29, 2012, marketable securities measured at fair value using Level 3 inputs were comprised of $28.4 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 2.59% to 3.33% 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 December 29, 2012 were approximately $811.5 million and $872.4 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:

December 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
$
211,568


$


$


$
211,568


 
$
232,017


$


$


$
232,017

Bank certificates of deposit
279,939






279,939


 
159,972






159,972

Commercial paper
299,570






299,570


 
594,867


1


(1
)

594,867

Corporate bonds
326,856


5,487


(148
)

332,195


 
186,455


3,401


(184
)

189,672

Auction rate securities
31,900




(3,499
)

28,401


 
32,600




(3,671
)

28,929

Municipal bonds
21,021


525


(59
)

21,487


 
25,454


734


(28
)

26,160

U.S. government and








 







    agency securities
581,419


530


(10
)

581,939


 
668,702


360


(149
)

668,913

Foreign government and








 







    agency securities
239,928






239,928


 
249,951






249,951

Mortgage-backed securities
1,106,395


19,226


(3,364
)

1,122,257


 
878,842


15,094


(1,160
)

892,776

Debt mutual fund
61,350


1,331


(104
)

62,577


 
20,000




(219
)

19,781


$
3,159,946


$
27,099


$
(7,184
)

$
3,179,861


 
$
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 December 29, 2012 and March 31, 2012:


December 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
$
38,746


$
(148
)

$


$


$
38,746


$
(148
)
Auction rate securities




28,401


(3,499
)

28,401


(3,499
)
Municipal bonds
6,909


(56
)

211


(3
)

7,120


(59
)
U.S. government and













    agency securities
99,173


(10
)





99,173


(10
)
Mortgage-backed securities
281,368


(3,099
)

22,817


(265
)

304,185


(3,364
)
Debt mutual fund
20,746


(104
)
 



 
20,746


(104
)

$
446,942


$
(3,417
)

$
51,429


$
(3,767
)

$
498,371


$
(7,184
)


12

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 December 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 December 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.
 
December 29, 2012
(In thousands)
Amortized
Cost

Estimated
Fair Value
Due in one year or less
$
1,407,780


$
1,408,161

Due after one year through five years
334,557


340,427

Due after five years through ten years
227,210


231,986

Due after ten years
917,481


925,142


$
2,887,028


$
2,905,716

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

December 31, 2011
 
December 29, 2012

December 31, 2011
Proceeds from sale of available-for-sale securities
$
61,293


$
102,204

 
$
262,456


$
210,189

Gross realized gains on sale of available-for-sale securities
$
811


$
1,049

 
$
2,639


$
2,146

Gross realized losses on sale of available-for-sale securities
(63
)

(259
)
 
(150
)

(285
)
Net realized gains on sale of available-for-sale securities
$
748


$
790

 
$
2,489


$
1,861

Amortization of premiums on available-for-sale securities
$
6,580


$
3,183

 
$
18,141


$
8,758

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 December 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)
December 29, 2012

March 31, 2012
Singapore dollar
$
62,732


$
60,925

Euro
37,512


41,467

Indian Rupee
18,090


18,943

British Pound
12,363


14,250

Japanese Yen
11,491


11,076


$
142,188


$
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 January 2013 and November 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 December 29, 2012, almost all 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 December 29, 2012 that is expected to be reclassified into earnings within the next 12 months was a net gain of $1.1 million. The ineffective portion of the gains or losses on the forward contracts was included in the net income 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 $1.3 million and $931 thousand as of December 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 December 29, 2012 and March 31, 2012, located on the condensed consolidated balance sheet, utilized for risk management purposes detailed above:

Foreign Exchange Contracts

Asset Derivatives

Liability Derivatives
(In thousands)
Balance Sheet Location
Fair Value

Balance Sheet Location
Fair Value
December 29, 2012
Prepaid expenses and other current assets
$
2,992


Other accrued liabilities
$
1,278

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


Other accrued liabilities
$
3,273

 

14

Table of Contents

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


Foreign Exchange Contracts
(in thousands)
Three Months Ended

Nine Months Ended

December 29, 2012

December 31, 2011

December 29, 2012

December 31, 2011
Amount of gains (losses) recognized in other comprehensive income on derivative (effective portion of cash flow hedging)
$
(683
)

$
(3,347
)

$
4,822


$
(12,131
)








Amount of gains (losses) reclassified from accumulated other comprehensive income into income (effective portion) *
$
(19
)

$
703


$
(3,011
)

$
5,806









Amount of gains (losses) recorded (ineffective portion) *
$
(3
)

$


$
4


$
(5
)

*
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
 
Nine Months Ended
(In thousands)
December 29, 2012

December 31, 2011
 
December 29, 2012

December 31, 2011
Stock-based compensation included in:



 



Cost of revenues
$
1,517


$
1,350

 
$
4,718


$
3,944

Research and development
9,654


8,655

 
27,681


23,245

Selling, general and administrative
8,591


7,838

 
24,217


21,320


$
19,762


$
17,843

 
$
56,616


$
48,509

During the first nine 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 $5.4 million and $7.0 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 third quarter and the first nine months of fiscal 2013 was $5.98 and $6.20, respectively. The weighted-average fair value per share of stock options granted during the third quarter and the first nine months of fiscal 2012 was $7.95 and $7.89, respectively. These fair values per share were estimated at the date of grant using the following weighted-average assumptions:
 

15

Table of Contents

 
Three Months Ended
 
Nine Months Ended

December 29, 2012

December 31, 2011
 
December 29, 2012

December 31, 2011
Expected life of options (years)
4.9


5.2

 
4.9


5.2

Expected stock price volatility
0.28


0.35

 
0.28


0.32

Risk-free interest rate
0.7
%

0.9
%
 
0.7
%

1.4
%
Dividend yield
2.6
%

2.4
%
 
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 third quarter of fiscal 2013 was $31.47 ($29.47 for the third quarter of fiscal 2012) and for the first nine months of fiscal 2013 was $31.15 ($33.89 for the first nine months of fiscal 2012), which were calculated based on estimates at the date of grant using the following weighted-average assumptions:
 
 
Three Months Ended
 
Nine Months Ended

December 29, 2012

December 31, 2011
 
December 29, 2012

December 31, 2011
Risk-free interest rate
0.3
%

0.4
%
 
0.4
%

0.7
%
Dividend yield
2.6
%

2.4
%
 
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
79


$
33.38

Exercised
(2,043
)

$
24.27

Forfeited/cancelled/expired
(1,466
)

$
39.62

December 29, 2012
14,358


$
27.78

Options exercisable at:



December 29, 2012
12,965


$
27.88

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 December 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 nine months ended December 29, 2012 was $8.6 million and $20.3 million, respectively. The total pre-tax intrinsic value of options exercised during the three months and nine months ended December 31, 2011 was $3.9 million and $22.2 million, respectively. This intrinsic value represents the difference between the exercise price and the fair market value of the Company’s common stock on the date of exercise.
RSU Awards

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Table of Contents

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
2,533


$
31.15

Vested
(1,475
)

$
27.03

Cancelled
(371
)

$
29.62

December 29, 2012
5,926


$
30.36

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 December 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 6.2 million and 5.9 million potentially dilutive common equivalent shares outstanding for the third quarter and the first nine 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 third quarter and the first nine months of fiscal 2012, the total shares used in the denominator of the diluted net income per common share calculation included the impact of the 2.5 million and 3.1 million, respectively, 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 4.3 million and 4.2 million potentially dilutive common equivalent shares outstanding for the third quarter and the first nine months of fiscal 2013, respectively, that were not included in basic net income per common share. For the third quarter and the first nine months of fiscal 2012, the total shares used in the denominator of the diluted net income per common share calculation included 4.1 million and 4.5 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.

17

Table of Contents

Outstanding stock options, RSUs and warrants to purchase approximately 23.5 million shares for the third quarter and 26.9 million shares for the first nine 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)
December 29, 2012

March 31, 2012
Raw materials
$
15,174


$
11,707

Work-in-process
189,516


164,438

Finished goods
21,295


28,721


$
225,985


$
204,866


Note 10.
Convertible Debentures and Revolving Credit Facility
2.625% Senior Convertible Debentures
As of December 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)
December 29, 2012

March 31, 2012
Liability component:



   Principal amount of the 2.625% Debentures
$
600,000


$
600,000

   Unamortized discount of liability component
(68,653
)

(80,311
)
   Hedge accounting adjustment – sale of interest rate swap
19,839


23,208

   Net carrying value of the 2.625% Debentures
$
551,186


$
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
 
Nine Months Ended
(In thousands)
December 29, 2012

December 31, 2011
 
December 29, 2012

December 31, 2011
Contractual coupon interest
$
3,938


$
3,938

 
$
11,813


$
11,813

Amortization of debt issuance costs
362


362

 
1,086


1,086

Amortization of debt discount, net
2,763


2,763

 
8,289


8,289

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


$
7,063

 
$
21,188


$
21,188

3.125% Junior Subordinated Convertible Debentures
As of December 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)
December 29, 2012

March 31, 2012
Liability component:



   Principal amount of the 3.125% Debentures
$
689,635


$
689,635

   Unamortized discount of liability component
(321,860
)

(325,448
)
   Unamortized discount of embedded derivative from date of issuance
(1,402
)

(1,446
)
   Carrying value of liability component – 3.125% Debentures
366,373


362,741

   Carrying value of embedded derivative component
1,324


931

Net carrying value of the 3.125% Debentures
$
367,697


$
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
 
Nine Months Ended
(In thousands)
December 29, 2012
 
December 31, 2011
 
December 29, 2012
 
December 31, 2011
Contractual coupon interest
$
5,388

 
$
5,388

 
$
16,163

 
$
16,163

Amortization of debt issuance costs
55

 
55

 
168

 
168

Amortization of embedded derivative
14

 
14

 
43

 
43

Amortization of debt discount
1,218

 
1,133

 
3,588

 
3,339

Fair value adjustment of embedded derivative
(221
)
 
(655
)
 
393

 
407

Total interest expense related to the 3.125% Debentures
$
6,454

 
$
5,935

 
$
20,355

 
$
20,120


Revolving Credit Facility

On December 7, 2011, the Company entered into a $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 December 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

19

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 were purchased under the 2010 Repurchase Program. The 2010 and the 2012 Repurchase Programs have no stated expiration date.
Through December 29, 2012, the Company had used all of the $500.0 million authorized under the 2010 Repurchase Program, and $10.6 million of the $750.0 million authorized under the 2012 Repurchase Program, leaving $739.4 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 December 29, 2012 and March 31, 2012.
During the first nine months of fiscal 2013, the Company repurchased 5.8 million shares of common stock in the open market for $187.1 million under the 2010 Repurchase Programs. During the first nine months of fiscal 2013, the Company repurchased 322 thousand shares of common stock in the open market for $10.6 million under the 2012 Repurchase Programs. During the first nine months of fiscal 2012, the Company repurchased 7.0 million shares of common stock for a total of $219.6 million under the 2010 Repurchase Programs.

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
 
Nine Months Ended
(In thousands)
December 29, 2012

December 31, 2011
 
December 29, 2012

December 31, 2011
Interest income
$
7,120


$
5,886

 
$
19,183


$
17,428

Interest expense
(13,517
)

(13,654
)
 
(41,543
)

(40,902
)
Other income (expense), net
1,248


581

 
(2,464
)

(122
)

$
(5,149
)

$
(7,187
)
 
$
(24,824
)

$
(23,596
)
 
 
 
 
 
 
 
 

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

March 31, 2012
Accumulated unrealized gains on available-for-sale securities, net of tax
$
12,479


$
8,916

Accumulated unrealized gains (losses) on hedging transactions, net of tax
1,719


(3,101
)
Accumulated cumulative translation adjustment
965


1,449

Accumulated other comprehensive income
$
15,163


$
7,264


Note 15.
Income Taxes
The Company recorded tax provisions of $12.0 million and $51.8 million for the third quarter and the first nine months of fiscal 2013, respectively, representing effective tax rates of 10% and 13%, respectively. The rate for the third quarter of fiscal 2013 included a net discrete benefit of $5.3 million relating primarily to lapses of statutes of limitation. The Company recorded tax provisions of $2.9 million and $49.0 million for the third quarter and the first nine months of fiscal 2012, respectively, representing effective tax rates of 2% and 11%, respectively. The rate for the third quarter of fiscal 2012 included a net discrete benefit of $15.3 million relating primarily to lapses of statutes of limitation.

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The difference between the U.S. federal statutory tax rate of 35% and the Company’s effective tax rate in all periods 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 December 29, 2012, determined in accordance with FASB authoritative guidance for measuring uncertain tax positions, decreased by $7.3 million in the third quarter of fiscal 2013 to $57.5 million. The decrease was primarily attributable to lapses of statutes of limitation. The total amount of unrecognized tax benefits that, if realized in a future period, would favorably affect the effective tax rate was $25.8 million as of December 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 balances of accrued interest and penalties recorded in the condensed consolidated balance sheets and the amounts of interest and penalties included in the Company's provisions for income taxes were not material for any period presented.
The Company is no longer subject to U.S. federal audits by taxing authorities for years through fiscal 2009. 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 2008.

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 three months)
$
1,639

2014
5,341

2015
3,526

2016
2,057

2017
1,690

Thereafter
5,774


$
20,027

Aggregate future rental income to be received, which includes rents from both owned and leased property, totaled $4.1 million as of December 29, 2012. Rent expense, net of rental income, under all operating leases was $904 thousand and $3.0 million for the third quarter and the first nine months of fiscal 2013, respectively. Rent expense, net of rental income, under all operating leases was $598 thousand and $2.2 million for the third quarter and the first nine months of fiscal 2012, respectively. Rental income was not material for the third quarter and the first nine months of fiscal 2013 or 2012.
Other commitments as of December 29, 2012 totaled $109.8 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 December 29, 2012, the Company also had $16.1 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

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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 third 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 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,

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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.

On May 30, 2012, a patent infringement lawsuit was filed by Semcon Tech, LLC (Semcon) against the Company in the U.S. 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.

On November 5, 2012, a patent infringement lawsuit was filed by Mosaid Technologies Inc. (Mosaid) against the Company in the U.S. District Court For the Eastern District of Texas (Mosaid Technologies Inc. v. Xilinx, Inc., Case No 6:12-CV-00847). The lawsuit pertains to five patents and Mosaid seeks unspecified damages, costs, fees, royalties and injunctive relief 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 December 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)
December 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
(52,013
)

(46,051
)


Core technology, net
37,347


30,389



Other intangibles, gross
46,516


46,206


2.7 years
Less accumulated amortization
(45,322
)

(44,263
)


Other intangibles, net
1,194


1,943



Total acquisition-related intangibles, gross
135,876


126,646



Less accumulated amortization
(97,335
)

(90,314
)


Total acquisition-related intangibles, net
$
38,541


$
36,332




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Amortization expense for acquisition-related intangible assets for the three and nine months ended December 29, 2012 was $2.6 million and $7.0 million, respectively. Amortization expense for acquisition-related intangibles for the three and nine months ended December 31, 2011 was $2.0 million and $5.6 million, respectively. Based on the carrying value of acquisition-related intangibles recorded as of December 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:
 
Fiscal Year
(In thousands)
2013 (remaining three months)
$
2,486

2014
9,542

2015
8,846

2016
8,244

2017
6,473

Thereafter
2,950

Total
$
38,541


Note 21.
Subsequent Event
On January 16, 2013, the Company’s Board of Directors declared a cash dividend of $0.22 per common share for the fourth quarter of fiscal 2013. The dividend is payable on February 27, 2013 to stockholders of record on February 6, 2013.

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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: Third quarter and first nine months of fiscal 2013 compared to the third quarter and first nine months of fiscal 2012
The following table sets forth statement of income data as a percentage of net revenues for the periods indicated: