XLNX 9.28.2013 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 28, 2013
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 18, 2013
Common Stock, $.01 par value
 
268,313,590



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 28, 2013

September 29, 2012
 
September 28, 2013

September 29, 2012
Net revenues
$
598,937


$
543,933

 
$
1,177,892


$
1,126,717

Cost of revenues
182,816


187,713

 
362,516


386,124

Gross margin
416,121


356,220

 
815,376


740,593

Operating expenses:



 



Research and development
125,002


113,887

 
236,543


235,334

Selling, general and administrative
96,339


91,928

 
188,726


188,129

Amortization of acquisition-related intangibles
2,418


2,319

 
4,836


4,467

Litigation and contingencies
28,600



 
28,600



Total operating expenses
252,359


208,134

 
458,705


427,930

Operating income
163,762


148,086

 
356,671


312,663

Interest and other expense, net
10,997


10,003

 
20,927


19,675

Income before income taxes
152,765


138,083

 
335,744


292,988

Provision for income taxes
11,304


14,646

 
37,260


39,720

Net income
$
141,461


$
123,437

 
$
298,484


$
253,268

Net income per common share:



 



Basic
$
0.53


$
0.47

 
$
1.12


$
0.97

Diluted
$
0.49


$
0.46

 
$
1.05


$
0.93

Cash dividends per common share
$
0.25


$
0.22

 
$
0.50


$
0.44

Shares used in per share calculations:



 



Basic
268,478


260,605

 
265,350


262,143

Diluted
290,685


270,265

 
284,270


272,182


See notes to condensed consolidated financial statements.



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



Three Months Ended
 
Six Months Ended
(In thousands)
September 28, 2013

September 29, 2012
 
September 28, 2013

September 29, 2012
Net income
$
141,461


$
123,437

 
$
298,484


$
253,268

Other comprehensive income (loss), net of tax:





 





Change in net unrealized gain (loss) on available-for-sale securities
2,995


5,650

 
(13,930
)

7,152

Reclassification adjustment for (gain) loss on available-for-sale securities
155


(585
)
 
(167
)

(915
)
Change in net unrealized gain (loss) on hedging transactions
1,353


9,801

 
(155
)

8,496

Reclassification adjustment for (gain) loss on hedging transactions
1,389


(1,833
)
 
2,095


(2,992
)
Cumulative translation adjustment
(371
)

622

 
(1,064
)

(433
)
Other comprehensive income (loss)
5,521


13,655

 
(13,221
)

11,308

Total comprehensive income
$
146,982


$
137,092

 
$
285,263


$
264,576


See notes to condensed consolidated financial statements.


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XILINX, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
 
(In thousands, except par value amounts)
September 28, 2013

March 30,
2013 [1]
 
(unaudited)

 
ASSETS



Current assets:



Cash and cash equivalents
$
570,494


$
623,558

Short-term investments
1,693,571


1,091,187

Accounts receivable, net
277,539


229,175

Inventories
183,708


201,250

Deferred tax assets
2,138


60,709

Prepaid expenses and other current assets
73,756


91,760

Total current assets
2,801,206


2,297,639

Property, plant and equipment, at cost:
801,655


784,796

Accumulated depreciation and amortization
(444,235
)

(419,109
)
Net property, plant and equipment
357,420


365,687

Long-term investments
1,436,781


1,651,033

Goodwill
158,990


158,990

Acquisition-related intangibles, net
31,219


36,054

Other assets
214,436


220,048

Total Assets
$
5,000,052


$
4,729,451

LIABILITIES, TEMPORARY EQUITY AND STOCKHOLDERS’ EQUITY



Current liabilities:



Accounts payable
$
88,947


$
72,766

Accrued payroll and related liabilities
153,279


124,195

Income taxes payable
4,144


60,632

Deferred income on shipments to distributors
68,814


53,358

       Deferred tax liabilities
126,211

 
51

Other accrued liabilities
110,690


75,786

Convertible debentures (Note 10)
930,085



Total current liabilities
1,482,170


386,788

Convertible debentures (Note 10)


922,666

Deferred tax liabilities
269,250


415,442

Long-term income taxes payable
14,545


37,579

Other long-term liabilities
2,211


3,680

Commitments and contingencies



Temporary equity (Note 10)
359,549



Stockholder’s equity:



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



Common stock, $.01 par value
2,682


2,636

Additional paid-in capital
1,060,125


1,276,278

Retained earnings
1,814,081


1,675,722

Accumulated other comprehensive income (loss)
(4,561
)

8,660

Total stockholders’ equity
2,872,327


2,963,296

Total Liabilities, Temporary Equity and Stockholders’ Equity
$
5,000,052


$
4,729,451


[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)

Six Months Ended
(in thousands)
September 28, 2013

September 29, 2012
Cash flows from operating activities:



Net income
$
298,484


$
253,268

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



Depreciation
28,009


28,754

Amortization
9,770


8,455

Stock-based compensation
44,014


36,854

Net (gain) loss on sale of available-for-sale securities
148


(1,741
)
Amortization of debt discount on convertible debentures
8,073


7,897

Provision for deferred income taxes
43,754


35,900

Excess tax benefit from stock-based compensation
(18,914
)

(4,766
)
Others
(691
)

643

Changes in assets and liabilities:



Accounts receivable, net
(48,364
)

(7,305
)
Inventories
17,634


675

Prepaid expenses and other current assets
(6,667
)

5,931

Other assets
(7,016
)

(1,750
)
Accounts payable
16,181


17,865

Accrued liabilities
71,660


1,444

Income taxes payable
(72,380
)

(2,773
)
Deferred income on shipments to distributors
15,457


(19,035
)
Net cash provided by operating activities
399,152


360,316

Cash flows from investing activities:



Purchases of available-for-sale securities
(2,178,565
)

(2,020,793
)
Proceeds from sale and maturity of available-for-sale securities
1,767,178


1,766,216

Purchases of property, plant and equipment
(19,742
)

(15,978
)
Other investing activities
37,217


(27,649
)
Net cash used in investing activities
(393,912
)

(298,204
)
Cash flows from financing activities:



Repurchases of common stock
(69,981
)

(178,148
)
Proceeds from issuance of common stock through various stock plans, net
125,968


32,888

Payment of dividends to stockholders
(133,205
)

(115,321
)
Excess tax benefit from stock-based compensation
18,914


4,766

Net cash used in financing activities
(58,304
)

(255,815
)
Net decrease in cash and cash equivalents
(53,064
)

(193,703
)
Cash and cash equivalents at beginning of period
623,558


788,822

Cash and cash equivalents at end of period
$
570,494


$
595,119

Supplemental disclosure of cash flow information:



Interest paid
$
18,651


$
18,651

Income taxes paid, net of refunds
$
65,903


$
5,822

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 30, 2013. 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 29, 2014 or any future period.
The Company uses a 52- to 53-week fiscal year ending on the Saturday nearest March 31. Fiscal 2014 and 2013 are a 52-week year ending on March 29, 2014 and March 30, 2013, respectively. The quarters ended September 28, 2013 and September 29, 2012 each included 13 weeks.

Note 2.
Recent Accounting Changes and Accounting Pronouncements
The Company adopted the authoritative guidance, established by the Financial Accounting Standards Board (FASB), that sets requirements for presentation for significant items reclassified out of the accumulated other comprehensive income to net income in their entirety during the period, and for items not reclassified to net income in their entirety during the period. 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 28, 2013 and March 30, 2013, Avnet accounted for 64% of the Company’s total net accounts receivable for both periods. Resale of product through Avnet accounted for 47% and 48% of the Company’s worldwide net revenues in the second quarter and the first six months of fiscal 2014, respectively. For the second quarter and the first six months of fiscal 2013, resale of product through Avnet accounted for 44% and 45% 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 condensed 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 distributors.
No end customer accounted for more than 10% of net revenues for the second quarter of fiscal 2014 as well as the first six months of fiscal 2014 and 2013. One end customer accounted for 11% of the Company's worldwide net revenues for the second quarter of fiscal 2013.
The Company mitigates concentrations of credit risk in its investments in debt securities by currently investing more than 87% 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 28, 2013, approximately 32% 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 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 2014 and the Company did not adjust or override any fair value measurements as of September 28, 2013.
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 September 28, 2013 and March 30, 2013:


September 28, 2013
(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 equivalents:








Money market funds

$
168,053


$


$


$
168,053

Bank certificates of deposit



29,997




29,997

Commercial paper



222,987




222,987

U.S. government and agency securities

25,000






25,000

Foreign government and agency securities



79,997




79,997

Short-term investments:








Bank certificates of deposit



64,979




64,979

Commercial paper



359,361




359,361

Corporate bonds



57,276




57,276

Municipal bonds



8,757




8,757

U.S. government and agency securities

632,517


186,250




818,767

Foreign government and agency securities



239,963




239,963

Mortgage-backed securities



144,468




144,468

Long-term investments:








Corporate bonds



242,670




242,670

Auction rate securities





22,636


22,636

Municipal bonds



19,837




19,837

U.S. government and agency securities

32,184


48,305




80,489

Mortgage-backed securities



1,012,206




1,012,206

Debt mutual fund



58,943




58,943

Derivative financial instruments, net



512




512

Total assets measured at fair value

$
857,754


$
2,776,508


$
22,636


$
3,656,898

Liabilities








Convertible debentures — embedded derivative

$


$


$
407


$
407

Total liabilities measured at fair value

$


$


$
407


$
407

Net assets measured at fair value

$
857,754


$
2,776,508


$
22,229


$
3,656,491



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March 30, 2013
(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 equivalents:








Money market funds

$
108,311


$


$


$
108,311

Bank certificates of deposit



79,995




79,995

Commercial paper



208,667




208,667

U.S. government and agency securities

95,039






95,039

Foreign government and agency securities



54,989




54,989

Short-term investments:








Bank certificates of deposit



44,992




44,992

Commercial paper



294,883




294,883

Corporate bonds



40,728




40,728

Municipal bonds



3,706




3,706

U.S. government and agency securities

416,887


75,011




491,898

Foreign government and agency securities



214,912




214,912

Mortgage-backed securities



68




68

Long-term investments:








Corporate bonds



235,275




235,275

Auction rate securities





28,700


28,700

Municipal bonds



21,234




21,234

U.S. government and agency securities

55,142


55,143




110,285

Mortgage-backed securities



1,192,612




1,192,612

Debt mutual fund



62,927




62,927

Total assets measured at fair value

$
675,379


$
2,585,142


$
28,700


$
3,289,221

Liabilities








Derivative financial instruments, net

$


$
1,615


$


$
1,615

Convertible debentures — embedded derivative





1,090


1,090

Total liabilities measured at fair value

$


$
1,615


$
1,090


$
2,705

Net assets measured at fair value

$
675,379


$
2,583,527


$
27,610


$
3,286,516



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 28, 2013

September 29, 2012
 
September 28, 2013

September 29, 2012
Balance as of beginning of period

$
28,081


$
27,270

 
$
27,610


$
27,998

Total realized and unrealized gains (losses):




 



Included in interest and other expense, net

758



 
683


(614
)
Included in other comprehensive income

(260
)

254

 
586


490

Sales and settlements, net

(6,350
)


 
(6,650
)

(350
)
Balance as of end of period

$
22,229


$
27,524

 
$
22,229


$
27,524

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
 
Six Months Ended
(In thousands)

September 28, 2013

September 29, 2012
 
September 28, 2013

September 29, 2012
Interest and other expense, net

$
758


$

 
$
683


$
(614
)

As of September 28, 2013, there were no material change to the input assumptions of the pricing model for the student loan auction rate securities as compared to the assumptions used as of our last fiscal year end. The valuation methodology was consistent with prior year.

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 condensed 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 (LIBOR). 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

Our 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 value of the 2.625% and 3.125% Debentures as of September 28, 2013 were approximately $973.8 million and $1.11 billion, 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).

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:

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September 28, 2013

 
March 30, 2013
(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
$
168,053


$


$


$
168,053


 
$
108,311


$


$


$
108,311

Bank certificates of deposit
94,976






94,976


 
124,987






124,987

Commercial paper
582,348






582,348


 
503,550






503,550

Corporate bonds
299,100


2,823


(1,977
)

299,946


 
270,945


5,193


(135
)

276,003

Auction rate securities
25,150




(2,514
)

22,636


 
31,900




(3,200
)

28,700

Municipal bonds
28,592


371


(369
)

28,594


 
24,496


514


(70
)

24,940

U.S. government and








 







    agency securities
924,072


401


(217
)

924,256


 
696,836


431


(45
)

697,222

Foreign government and








 







    agency securities
319,960






319,960


 
269,901






269,901

Mortgage-backed securities
1,158,484


10,830


(12,640
)

1,156,674


 
1,180,156


17,601


(5,077
)

1,192,680

Debt mutual fund
61,350




(2,407
)

58,943


 
61,350


1,577




62,927


$
3,662,085


$
14,425


$
(20,124
)

$
3,656,386


 
$
3,272,432


$
25,316


$
(8,527
)

$
3,289,221

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 28, 2013 and March 30, 2013:


September 28, 2013

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
$
127,859


$
(1,977
)

$


$


$
127,859


$
(1,977
)
Auction rate securities




22,636


(2,514
)

22,636


(2,514
)
Municipal bonds
9,691


(341
)

862


(28
)

10,553


(369
)
U.S. government and













    agency securities
212,267


(217
)





212,267


(217
)
Mortgage-backed securities
610,583


(11,932
)

31,645


(708
)

642,228


(12,640
)
Debt mutual fund
58,943


(2,407
)





58,943


(2,407
)

$
1,019,343


$
(16,874
)

$
55,143


$
(3,250
)

$
1,074,486


$
(20,124
)


March 30, 2013

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
$
27,114


$
(135
)

$


$


$
27,114


$
(135
)
Auction rate securities




28,701


(3,200
)

28,701


(3,200
)
Municipal bonds
8,927


(70
)

60




8,987


(70
)
U.S. government and













    agency securities
388,696


(45
)





388,696


(45
)
Mortgage-backed securities
367,561


(4,930
)

11,029


(147
)

378,590


(5,077
)

$
792,298


$
(5,180
)

$
39,790


$
(3,347
)

$
832,088


$
(8,527
)


12

Table of Contents

The gross unrealized losses that had been outstanding for less than twelve months were primarily related to mortgage-backed securities, although the percentage of such losses to the total estimated fair value of the mortgage-backed securities was relatively insignificant. The gross unrealized losses that had been outstanding for more than twelve months were primarily related to failed auction rate securities, which was due to adverse conditions in the global credit markets during the past five years.

The Company reviewed the investment portfolio and determined that the gross unrealized losses on these investments as of September 28, 2013 and March 30, 2013 were temporary in nature as evidenced by the fluctuations in the gross unrealized losses within the investment categories. Additionally, in the past several years a portion of the Company's investment in the auction rate securities were redeemed by the issuers at par. Furthermore, the aggregate of individual unrealized losses that had been outstanding for twelve months or more was not significant as of September 28, 2013 and March 30, 2013. 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 28, 2013
(In thousands)
Amortized
Cost

Estimated
Fair Value
Due in one year or less
$
1,858,718


$
1,858,944

Due after one year through five years
384,528


385,905

Due after five years through ten years
252,551


254,235

Due after ten years
936,885


930,306


$
3,432,682


$
3,429,390

As of September 28, 2013, $192.6 million of marketable debt securities with contractual maturities of greater than one year was classified as short-term investments. Additionally, the above table did not include investments in money market and mutual funds because these funds do not have specific contractual maturities.
Certain information related to available-for-sale securities is as follows:
 
Three Months Ended
 
Six Months Ended
(In thousands)
September 28, 2013

September 29, 2012
 
September 28, 2013

September 29, 2012
Proceeds from sale of available-for-sale securities
$
104,021


$
119,058

 
$
199,160


$
201,163

Gross realized gains on sale of available-for-sale securities
$
266


$
1,042

 
$
1,367


$
1,829

Gross realized losses on sale of available-for-sale securities
(521
)

(12
)
 
(1,515
)

(88
)
Net realized gains (losses) on sale of available-for-sale securities
$
(255
)

$
1,030

 
$
(148
)

$
1,741

Amortization of premiums on available-for-sale securities
$
6,904


$
5,942

 
$
14,063


$
11,561

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

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.

13

Table of Contents

As of September 28, 2013 and March 30, 2013, 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 28, 2013

March 30, 2013
Singapore Dollar
$
62,688


$
70,197

Euro
40,200


39,865

Indian Rupee
14,573


16,941

British Pound
9,599


11,602

Japanese Yen
9,578


10,891


$
136,638


$
149,496


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 2013 and August 2015. 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 28, 2013, all of the forward foreign currency exchange contracts were 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 28, 2013 that is expected to be reclassified into earnings within the next twelve months was not material. 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 condensed 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 $407 thousand and $1.1 million as of September 28, 2013 and March 30, 2013, 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 (forward foreign currency exchange contracts) as of September 28, 2013 and March 30, 2013, 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
September 28, 2013
Prepaid expenses and other current assets
 
$
2,422


Other accrued liabilities
 
$
1,910

March 30, 2013
Prepaid expenses and other current assets
 
$
1,179


Other accrued liabilities
 
$
2,794

 
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 2014 and 2013:


14

Table of Contents


Three Months Ended
 
Six Months Ended
(In thousands)
September 28, 2013

September 29, 2012
 
September 28, 2013

September 29, 2012
Amount of gain recognized in other comprehensive income on derivative (effective portion of cash flow hedging)
$
2,742


$
7,968

 
$
1,940


$
5,505

 
 

 
 




Amount of loss reclassified from
accumulated other comprehensive income into income
(effective portion) *
$
(1,389
)

$
(1,833
)
 
$
(2,095
)

$
(2,992
)

 

 
 





Amount of gain recorded (ineffective portion) *
$
24


$
8

 
$
7


$
7


*
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 1990 Employee Qualified Stock Purchase Plan (ESPP):
 
Three Months Ended
 
Six Months Ended
(In thousands)
September 28, 2013

September 29, 2012
 
September 28, 2013

September 29, 2012
Stock-based compensation included in:



 



Cost of revenues
$
1,858


$
1,473

 
$
3,662


$
3,201

Research and development
11,343


9,404

 
21,562


18,027

Selling, general and administrative
9,859


8,369

 
18,790


15,626


$
23,060


$
19,246

 
$
44,014


$
36,854


During the first six months of fiscal 2014 and 2013, the tax benefits realized for the tax deduction from option exercises and other awards credited to additional paid-in capital were $16.4 million and $3.3 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 first six months of fiscal 2014 and 2013 was $6.06 and $6.35, respectively. No options were granted in the second quarter of fiscal 2014. 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 28, 2013
 
September 29, 2012
 
September 28, 2013

September 29, 2012
Expected life of options (years)
 

 
4.9

 
4.7


4.9

Expected stock price volatility
 
%
 
29.0
%
 
24.0
%

29.0
%
Risk-free interest rate
 
%
 
0.7
%
 
0.9
%

0.7
%
Dividend yield
 
%
 
2.6
%
 
2.6
%

2.6
%


15

Table of Contents

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 values of RSUs granted during the second quarter of fiscal 2014 was $37.81 ($31.12 for the second quarter of fiscal 2013), and for the first six months of fiscal 2014 was $37.63 ($31.57 for the first six months of fiscal 2013), which were calculated based on estimates at the date of grant using the following weighted-average assumptions:
 
 
Three Months Ended
 
Six Months Ended

September 28, 2013

September 29, 2012
 
September 28, 2013

September 29, 2012
Risk-free interest rate
0.7
%

0.4
%
 
0.7
%

0.4
%
Dividend yield
2.5
%

2.7
%
 
2.5
%

2.7
%

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
March 31, 2012
17,788


$
28.32

Granted
92


$
33.83

Exercised
(3,564
)

$
24.68

Forfeited/cancelled/expired
(1,563
)

$
39.54

March 30, 2013
12,753


$
28.01

Granted
5


$
38.99

Exercised
(4,376
)

$
29.09

Forfeited/cancelled/expired
(45
)

$
33.44

September 28, 2013
8,337


$
27.40

Options exercisable at:



September 28, 2013
7,678


$
27.28

March 30, 2013
11,639


$
28.07

The types of awards allowed under the 2007 Equity Incentive Plan (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 14, 2013, the stockholders approved an amendment to increase the authorized number of shares reserved for issuance under the 2007 Equity Plan by 2.0 million shares and to extend the term of the 2007 Equity Plan to December 31, 2023. As of September 28, 2013, 15.6 million shares remained available for grant under the 2007 Equity Plan.
The total pre-tax intrinsic value of options exercised during the three and six months ended September 28, 2013 was $52.5 million and $65.3 million, respectively. 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.
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
A summary of the Company’s RSU activity and related information is as follows:
 

16

Table of Contents

 
RSUs Outstanding
(Shares in thousands)
Number of Shares

Weighted-Average Grant-Date Fair Value Per Share
March 31, 2012
5,239


$
29.01

Granted
3,018


$
31.58

Vested
(1,778
)

$
27.01

Cancelled
(483
)

$
29.69

March 30, 2013
5,996


$
30.83

Granted
2,562


$
37.63

Vested
(1,600
)

$
29.18

Cancelled
(170
)

$
31.38

September 28, 2013
6,788


$
33.77

Employee Stock Purchase Plan
Under the ESPP, shares are only issued during the second and fourth quarters of each fiscal year. Employees purchased 529 thousand shares for $14.6 million during the second quarter of fiscal 2014 and 521 thousand shares for $14.1 million in the second quarter of fiscal 2013. The per-share weighted-average fair value of stock purchase rights granted under the ESPP during the second quarter of fiscal 2014 and 2013 was $11.24 and $8.53, respectively. The fair values of stock purchase plan rights granted in the second quarter of fiscal 2014 and 2013 were estimated at the date of grant using the following assumptions:

2014

2013
Expected life of options (years)
1.25


1.25

Expected stock price volatility
23.0
%

29.0
%
Risk-free interest rate
0.2
%

0.2
%
Dividend yield
2.1
%

2.7
%
The next scheduled purchase under the ESPP is in the fourth quarter of fiscal 2014. On August 14, 2013, 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 28, 2013, 10.4 million shares were available for future issuance out of 50.5 million shares authorized.

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 15.5 million and 13.3 million potentially dilutive common equivalent shares outstanding for the second quarter and the first six months of fiscal 2014, respectively, that are 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 2013, the total shares used in the denominator of the diluted net income per common share calculation included 5.5 million and 5.8 million, respectively, that are 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.
Additionally, the total shares used in the denominator of the diluted net income per common share calculation includes 6.7 million and 5.6 million potentially dilutive common equivalent shares outstanding for the second quarter and the first six months of fiscal 2014, respectively, that are not included in basic net income per common share. For the second quarter and the first six months of fiscal 2013, 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, 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 and warrants, vesting of outstanding RSUs and issuance of common stock under the ESPP.

17

Table of Contents

Outstanding stock options and RSUs to purchase approximately 1.4 million and 3.7 million shares for the second quarter and for the first six months of fiscal 2014, respectively, 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 anti-dilutive. These options and RSUs 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 and RSUs.
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 20.0 million shares of its common stock at $29.97 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 actual cost (determined using the first-in, first-out method), or market (estimated net realizable value) and are comprised of the following:
 
(In thousands)
September 28, 2013

March 30, 2013
Raw materials
$
12,851


$
12,484

Work-in-process
148,506


165,034

Finished goods
22,351


23,732


$
183,708


$
201,250


Note 10.
Convertible Debentures and Revolving Credit Facility
2.625% Senior Convertible Debentures
As of September 28, 2013, 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 price of 33.3681 shares of common stock per $1 thousand principal amount of the 2.625% Debentures, representing an effective conversion price of approximately $29.97 per share of common stock. One of the conditions allowing holders of the 2.625% Debentures to convert during any fiscal quarter is if the last reported sale price of the Company's common stock for at least 20 trading days during a period of 30 consecutive trading days ending on the last trading day of the preceding fiscal quarter is greater than or equal to 130% of the conversion price on each applicable trading day. This condition was met as of September 28, 2013 and as a result, the 2.625% Debentures were convertible at the option of the holders. As of September 28, 2013 the 2.625% Debentures were classified as a current liability on the Company's condensed consolidated balance sheet. Additionally, a portion of the equity component attributable to the conversion feature of the 2.625% Debentures was classified in temporary stockholders' equity. The amount classified as temporary equity was equal to the difference between the principal amount and carrying value of the 2.625% Debentures.
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:

18

Table of Contents

(In thousands)
September 28, 2013

March 30, 2013
Liability component:



   Principal amount of the 2.625% Debentures
$
600,000


$
600,000

   Unamortized discount of liability component
(56,995
)

(64,767
)
   Hedge accounting adjustment – sale of interest rate swap
16,470


18,716

   Net carrying value of the 2.625% Debentures
$
559,475


$
553,949





Equity component (including temporary equity) – net carrying value
$
66,415


$
66,415


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:

 
Three Months Ended
 
Six Months Ended
(In thousands)
September 28, 2013

September 29, 2012
 
September 28, 2013

September 29, 2012
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 28, 2013, 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 price of 34.2957 shares of common stock per $1 thousand principal amount of 3.125% Debentures, representing an effective conversion price of approximately $29.16 per share of common stock. One of the conditions allowing holders of the 3.125% Debentures to convert during any fiscal quarter is if the last reported sale price of the Company's common stock for at least 20 trading days during a period of 30 consecutive trading days ending on the last trading day of the preceding fiscal quarter is greater than or equal to 130% of the conversion price on each applicable trading day. This condition was met as of September 28, 2013 and as a result, the 3.125% Debentures were convertible at the option of the holders. As of September 28, 2013 the 3.125% Debentures were classified as a current liability on the Company's condensed consolidated balance sheet. Additionally, a portion of the equity component attributable to the conversion feature of the 3.125% Debentures was classified in temporary stockholders' equity. The amount classified as temporary equity was equal to the difference between the principal amount and carrying value of the 3.125% Debentures.
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:

19

Table of Contents

(In thousands)
September 28, 2013

March 30, 2013
Liability component:



   Principal amount of the 3.125% Debentures
$
689,635


$
689,635

   Unamortized discount of liability component
(318,073
)

(320,620
)
   Unamortized discount of embedded derivative from date of issuance
(1,359
)

(1,388
)
   Carrying value of liability component – 3.125% Debentures
370,203


367,627

   Carrying value of embedded derivative component
407


1,090

Net carrying value of the 3.125% Debentures
$
370,610


$
368,717





Equity component (including temporary equity) – 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 28, 2013

September 29, 2012
 
September 28, 2013

September 29, 2012
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
1,285


1,196

 
2,547


2,371

Fair value adjustment of embedded derivative
(758
)


 
(683
)

614

Total interest expense related to the 3.125% Debentures
$
5,984


$
6,653

 
$
12,781


$
13,902

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 September 28, 2013, 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
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 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 2012 Repurchase Program has no stated expiration date.
Through September 28, 2013, the Company had used $80.5 million of the $750.0 million authorized under the 2012 Repurchase Program, leaving $669.5 million available for future repurchases. The Company’s current policy is to retire all repurchased shares and debentures, and consequently, no treasury shares or debentures were held as of September 28, 2013 and March 30, 2013.

During the first six months of fiscal 2014, the Company repurchased 1.5 million shares of common stock in the open market for a total of $70.0 million. During the first six months of fiscal 2013, the Company repurchased 5.6 million shares of common stock for a total of $178.1 million.

Note 12.
Interest and Other Expense, Net
The components of interest and other expense, net are as follows: 

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Three Months Ended
 
Six Months Ended
(In thousands)
September 28, 2013

September 29, 2012
 
September 28, 2013

September 29, 2012
Interest income
$
5,363


$
6,271

 
$
10,966


$
12,063

Interest expense
(13,047
)

(13,717
)
 
(26,906
)

(28,027
)
Other expense, net
(3,313
)

(2,557
)
 
(4,987
)

(3,711
)

$
(10,997
)

$
(10,003
)
 
$
(20,927
)

$
(19,675
)

Note 13.
Accumulated Other Comprehensive Income
The components of accumulated other comprehensive income (loss) are as follows:
 
(In thousands)
September 28, 2013

March 30, 2013
Accumulated unrealized gain (loss) on available-for-sale securities, net of tax
$
(3,578
)

$
10,519

Accumulated unrealized gain (loss) on hedging transactions, net of tax
572


(1,368
)
Accumulated cumulative translation adjustment
(1,555
)

(491
)
Accumulated other comprehensive income (loss)
$
(4,561
)

$
8,660

The related tax effects of other comprehensive income (loss) were not material for all periods presented.

Note 14.
Income Taxes
The Company recorded tax provisions of $11.3 million and $37.3 million for the second quarter and the first six months of fiscal 2014, respectively, representing effective tax rates of 7% and 11%, respectively. 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 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.
During the six-month period ended September 28, 2013, there was a decrease in current deferred tax assets, an increase in current deferred tax liabilities and a decrease in long-term deferred tax liabilities. These changes in deferred tax assets and liabilities primarily related to the reclassification of the Company's debentures from long-term liabilities and additional paid-in capital to current liabilities and temporary equity. See "Note 10. Convertible Debentures and Revolving Credit Facility" for further disclosure of the underlying changes. In addition, there was a significant U.S. federal tax payment which reduced the income taxes payable balance.
The Company’s total gross unrecognized tax benefits as of September 28, 2013, determined in accordance with FASB authoritative guidance for measuring uncertain tax positions, decreased by $36.0 million in the second quarter of fiscal 2014 to $34.1 million. The decrease was primarily attributable to reductions in positions for prior years as a result of proposed regulations released on September 5, 2013, which provided clarification on the treatment of research expenditures. Due to the clarification, certain aspects of the U.S. Federal and state research credit calculations and certain related expenses 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 $12.1 million as of September 28, 2013. 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 condensed consolidated statements of income. The balance of accrued interest and penalties recorded in the condensed consolidated balance sheets and the amounts of interest and penalties included in the Company's provision for income taxes were not material for all periods 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.


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Note 15.
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
(In thousands)
2014 (remaining six months)
$
2,881

2015
4,472

2016
3,026

2017
2,295

2018
3,114

Thereafter
5,110

Total
$
20,898

Aggregate future rental income to be received, which includes rents from both owned and leased property, totaled $6.1 million as of September 28, 2013. Rent expense, net of rental income, under all operating leases was $725 thousand and $1.5 million for the second quarter and the first six months of fiscal 2014, respectively. 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. Rental income was not material for the second quarter and the first six months of fiscal 2014 or 2013.
Other commitments as of September 28, 2013 totaled $105.7 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 28, 2013, the Company also had $16.6 million of non-cancelable license obligations to providers of electronic design automation software and hardware/software maintenance expiring at various dates through September 2016.
The Company committed up to $5.0 million to acquire, in the future, rights to intellectual property (IP) until July 2023. License payments will be amortized over the useful life of the IP acquired.

Note 16.
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 2014 and the end of fiscal 2013, 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 IP 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 17.
Contingencies

Patent Litigation

On December 28, 2007, a patent infringement lawsuit was filed by 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

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and attorneys’ fees. Nine of the eleven 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 from March 2002 to May 2012. On August 30, 2013, a judge in the U.S. District Court for the Eastern District of Texas, Marshall Division, issued a memorandum order finding enhanced damages to be appropriate in the patent infringement suit brought against the Company. The judge’s order for enhanced damages adjusted the jury award to approximately $38.5 million on the basis of the judge’s consideration of applicable factors. On September 3, 2013, the court also issued an order requiring the Company to pay approximately $2.5 million for PACT’s costs and attorneys’ fees and an order requiring the Company to pay approximately $3.0 million for pre- and post-judgment interest. The court denied without prejudice PACT’s motion for ongoing royalties on Xilinx sales from May 2012 and onwards which are subject to the patents in suit, and ordered the parties to negotiate resolution of the future royalty rate on such Xilinx sales. Final judgment in the case was issued on September 4, 2013.

As a result of the August 30, 2013 and September 3, 2013 orders, the Company recorded a charge of $28.6 million in the second quarter of fiscal year 2014. The Company is unable to estimate the possible range of loss regarding the ongoing and future royalties at this time. On October 2, 2013, the Company filed a Notice of Appeal with the U.S. District Court for the Eastern District of Texas, Marshall Division of its appeal to the U.S. Court of Appeals for the Federal Circuit.

On February 14, 2011, the Company filed a complaint for declaratory judgment of patent non-infringement and invalidity against 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 one patent and seeks judgment of non-infringement by Xilinx and judgment that the patent is 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, Microsemi and 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, the Company 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 the Company'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 two patents and seeks judgments of non-infringement by the Company and judgments that the patents are invalid and unenforceable, as well as costs and attorneys’ fees.

On May 30, 2012, a patent infringement lawsuit was filed by 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 sought unspecified damages, costs and expenses. On August 5, 2013 the lawsuit was dismissed and the Company was indemnified by other parties involved in the action, therefore no payment was made by the Company in connection with the dismissal.

On November 5, 2012, a patent infringement lawsuit was filed by 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.

The Company intends to continue to protect and defend our IP vigorously.

Other Matters

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


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From time to time, the Company is involved in various disputes and litigation matters that arise in the ordinary course of our business. These include disputes and lawsuits related to IP, 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 assess 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 18.
Goodwill and Acquisition-Related Intangibles
As of September 28, 2013 and March 30, 2013, the gross and net amounts of goodwill and of acquisition-related intangibles for all acquisitions were as follows:
 
(In thousands)
September 28, 2013

March 30, 2013

Weighted Average Amortization Life
Goodwill
$
158,990


$
158,990



Core technology, gross
89,360


89,360


5.8 years
Less accumulated amortization
(58,578
)

(54,201
)


Core technology, net
30,782


35,159



Other intangibles, gross
46,516


46,516


2.7 years
Less accumulated amortization
(46,079
)

(45,621
)


Other intangibles, net
437


895



Total acquisition-related intangibles, gross
135,876


135,876



Less accumulated amortization
(104,657
)

(99,822
)


Total acquisition-related intangibles, net
$
31,219


$
36,054



Amortization expense for acquisition-related intangibles for the three and six months ended September 28, 2013 was $2.4 million and $4.8 million, respectively. Amortization expense for acquisition-related intangibles for the three and six months ended September 29, 2012 was $2.3 million and $4.5 million, respectively.
Based on the carrying value of acquisition-related intangibles recorded as of September 28, 2013, and assuming no subsequent impairment of the underlying assets, the annual amortization expense for acquisition-related intangibles is expected to be as follows:
 
Fiscal
(In thousands)
2014 (remaining six months)
$
4,707

2015
8,845

2016
8,244

2017
6,473

2018
2,347

Thereafter
603

Total
$
31,219


Note 19.
Subsequent Event
On October 15, 2013, the Company’s Board of Directors declared a cash dividend of $0.25 per common share for the third quarter of fiscal 2014. The dividend is payable on November 27, 2013 to stockholders of record on November 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 condensed 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 condensed 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 30, 2013 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 2014 compared to the second quarter and first six