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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 27, 2014
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 17, 2014
Common Stock, $.01 par value
 
264,455,283




TABLE OF CONTENTS
 

2


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 27, 2014
 
September 28, 2013
 
September 27, 2014
 
September 28, 2013
Net revenues
$
604,262

 
$
598,937

 
$
1,216,895

 
$
1,177,892

Cost of revenues
169,617

 
182,816

 
358,806

 
362,516

Gross margin
434,645

 
416,121

 
858,089

 
815,376

Operating expenses:

 

 

 

Research and development
138,335

 
125,002

 
260,348

 
236,543

Selling, general and administrative
93,883

 
96,339

 
186,396

 
188,726

Amortization of acquisition-related intangibles
2,378

 
2,418

 
4,796

 
4,836

Litigation and contingencies

 
28,600

 

 
28,600

Total operating expenses
234,596

 
252,359

 
451,540

 
458,705

Operating income
200,049

 
163,762

 
406,549

 
356,671

Interest and other expense, net
5,731

 
10,997

 
11,953

 
20,927

Income before income taxes
194,318

 
152,765

 
394,596

 
335,744

Provision for income taxes
22,802

 
11,304

 
49,469

 
37,260

Net income
$
171,516

 
$
141,461

 
$
345,127

 
$
298,484

Net income per common share:

 

 

 

Basic
$
0.64

 
$
0.53

 
$
1.29

 
$
1.12

Diluted
$
0.62

 
$
0.49

 
$
1.24

 
$
1.05

Cash dividends per common share
$
0.29

 
$
0.25

 
$
0.58

 
$
0.50

Shares used in per share calculations:

 

 

 

Basic
265,942

 
268,478

 
267,098

 
265,350

Diluted
275,800

 
290,685

 
278,784

 
284,270


See notes to condensed consolidated financial statements.



3


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

 
Three Months Ended
 
Six Months Ended
(In thousands)
September 27, 2014
 
September 28, 2013
 
September 27, 2014
 
September 28, 2013
Net income
$
171,516

 
$
141,461

 
$
345,127

 
$
298,484

Other comprehensive income (loss), net of tax:


 


 


 


Change in net unrealized gains (losses) on available-for-sale securities
(3,728
)
 
2,995

 
4,231

 
(13,930
)
Reclassification adjustment for (gains) losses on available-for-sale securities
(927
)
 
155

 
(1,318
)
 
(167
)
Change in net unrealized gains (losses) on hedging transactions
(3,602
)
 
1,353

 
(3,060
)
 
(155
)
Reclassification adjustment for (gains) losses on hedging transactions
(211
)
 
1,389

 
(1,018
)
 
2,095

Cumulative translation adjustment, net
(578
)
 
(371
)
 
(407
)
 
(1,064
)
Other comprehensive income (loss)
(9,046
)
 
5,521

 
(1,572
)
 
(13,221
)
Total comprehensive income
$
162,470

 
$
146,982

 
$
343,555

 
$
285,263


See notes to condensed consolidated financial statements.


4


XILINX, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
 
(In thousands, except par value amounts)
September 27, 2014
 
March 29,
2014 [1]
 
(unaudited)
 
 
ASSETS

 

Current assets:

 

Cash and cash equivalents
$
714,699

 
$
973,677

Short-term investments
1,881,147

 
1,483,644

Accounts receivable, net
290,629

 
267,833

Inventories
262,669

 
233,999

Deferred tax assets
73,545

 
56,166

Prepaid expenses and other current assets
81,288

 
51,828

Total current assets
3,303,977

 
3,067,147

Property, plant and equipment, at cost
825,653

 
810,030

Accumulated depreciation and amortization
(480,168
)
 
(454,941
)
Net property, plant and equipment
345,485

 
355,089

Long-term investments
950,827

 
1,190,775

Goodwill
159,296

 
159,296

Acquisition-related intangibles, net
24,070

 
28,867

Other assets
233,647

 
236,175

Total Assets
$
5,017,302

 
$
5,037,349

 
 
 
 
LIABILITIES, TEMPORARY EQUITY AND STOCKHOLDERS’ EQUITY

 

Current liabilities:

 

Accounts payable
$
105,689

 
$
149,695

Accrued payroll and related liabilities
162,854

 
157,373

Income taxes payable
2,170

 
12,936

Deferred income on shipments to distributors
60,850

 
55,099

Other accrued liabilities
68,559

 
49,256

Current portion of long-term debt
570,527

 
565,001

Total current liabilities
970,649

 
989,360

Long-term debt
994,352

 
993,870

Deferred tax liabilities
295,641

 
253,433

Long-term income taxes payable
11,635

 
11,470

Other long-term liabilities
1,591

 
1,535

Commitments and contingencies

 

Temporary equity (Note 10)
29,473

 
34,999

Stockholders' equity:

 

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

 

Common stock, $.01 par value
2,644

 
2,686

Additional paid-in capital
736,252

 
805,073

Retained earnings
1,977,185

 
1,945,471

Accumulated other comprehensive loss
(2,120
)
 
(548
)
Total stockholders’ equity
2,713,961

 
2,752,682

Total Liabilities, Temporary Equity and Stockholders’ Equity
$
5,017,302

 
$
5,037,349

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

5


XILINX, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 
Six Months Ended
(In thousands)
September 27, 2014
 
September 28, 2013
Cash flows from operating activities:
 
 
 
Net income
$
345,127

 
$
298,484

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation
27,146

 
28,009

Amortization
10,508

 
9,770

Stock-based compensation
50,846

 
44,014

Net (gain) loss on sale of available-for-sale securities
(2,412
)
 
148

Amortization of debt discounts
6,008

 
8,073

Provision for deferred income taxes
26,304

 
43,754

Excess tax benefit from stock-based compensation
(13,775
)
 
(18,914
)
Others

 
(691
)
Changes in assets and liabilities:
 
 
 
Accounts receivable, net
(22,796
)
 
(48,364
)
Inventories
(28,409
)
 
17,634

Prepaid expenses and other current assets
(13,250
)
 
(6,667
)
Other assets
(2,871
)
 
(7,016
)
Accounts payable
(44,006
)
 
16,181

Accrued liabilities
7,066

 
71,660

Income taxes payable
(17,237
)
 
(72,380
)
Deferred income on shipments to distributors
5,751

 
15,457

Net cash provided by operating activities
334,000

 
399,152

Cash flows from investing activities:
 
 
 
Purchases of available-for-sale securities
(1,566,289
)
 
(2,178,565
)
Proceeds from sale and maturity of available-for-sale securities
1,432,191

 
1,767,178

Purchases of property, plant and equipment
(17,543
)
 
(19,742
)
Other investing activities
(5,251
)
 
37,217

Net cash used in investing activities
(156,892
)
 
(393,912
)
Cash flows from financing activities:
 
 
 
Repurchases of common stock
(301,015
)
 
(69,981
)
Proceeds from issuance of common stock through various stock plans, net
5,532

 
125,968

Payment of dividends to stockholders
(154,378
)
 
(133,205
)
Excess tax benefit from stock-based compensation
13,775

 
18,914

Net cash used in financing activities
(436,086
)
 
(58,304
)
Net decrease in cash and cash equivalents
(258,978
)
 
(53,064
)
Cash and cash equivalents at beginning of period
973,677

 
623,558

Cash and cash equivalents at end of period
$
714,699

 
$
570,494

Supplemental disclosure of cash flow information:
 
 
 
Interest paid
$
20,901

 
$
18,651

Income taxes paid, net
$
40,139

 
$
65,903

See notes to condensed consolidated financial statements.

6


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 29, 2014. 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 28, 2015 or any future period.
The Company uses a 52- to 53-week fiscal year ending on the Saturday nearest March 31. Fiscal 2015 and 2014 are 52-week year ending on March 28, 2015 and March 29, 2014, respectively. The quarters ended September 27, 2014 and September 28, 2013 each included 13 weeks.

Note 2.
Recent Accounting Changes and Accounting Pronouncements

In April 2014, the Financial Accounting Standards Board (FASB) issued the authoritative guidance that outlines a new global revenue recognition standard that replaces virtually all existing US GAAP and IFRS guidance on contracts with customers and the related other assets and deferred costs. The guidance provides a five-step process for recognizing revenue that depicts the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The standard also requires expanded qualitative and quantitative disclosures relating to the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. The standard is effective for Xilinx beginning in fiscal year 2018, with no option to early adopt under US GAAP. The new standard is required to be applied retrospectively to each prior reporting period presented or retrospectively with the cumulative effect of initially applying it recognized at the date of initial application. The Company is currently evaluating the impact of this new guidance on its consolidated financial statements, including selection of the transition method.

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 27, 2014 and March 29, 2014, Avnet accounted for 63% and 55% of the Company’s total net accounts receivable, respectively. Resale of product through Avnet accounted for 43% of the Company’s worldwide net revenues for both the second quarter and the first six months of fiscal 2015. For the second quarter and the first six months of fiscal 2014, resale of product through Avnet accounted for 47% and 48% of the Company’s worldwide net revenues, respectively. The percentage of worldwide net revenues from Avnet is consistent with historical patterns. While the percentage of accounts receivable due from Avnet increased as of September 27, 2014 compared to as of March 29, 2014 due to timing, it is also 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 the second quarter as well as the first six months of fiscal 2015 and 2014.
The Company mitigates concentrations of credit risk in its investments in debt securities by currently investing approximately 80% 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.

7


As of September 27, 2014, approximately 36% 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.

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 analysis. 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 2015 and the Company did not adjust or override any fair value measurements as of September 27, 2014.
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 financial institution securities, non-financial institution securities, municipal bonds, U.S. government and agency securities, foreign government and agency securities, mortgage-backed securities, asset-backed securities, bank loans and debt mutual funds. 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.
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

8


assessment of the significance of a particular item to the fair value measurement in its entirety requires judgment, including the consideration of inputs specific to the asset or liability. The following tables present information about the Company’s assets and liabilities measured at fair value on a recurring basis as of September 27, 2014 and March 29, 2014:

 
 
September 27, 2014
(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
 
$
322,088

 
$

 
$

 
$
322,088

Financial institution securities
 

 
24,999

 

 
24,999

Non-financial institution securities
 

 
37,498

 

 
37,498

U.S. government and agency securities
 
25,000

 
19,997

 

 
44,997

Foreign government and agency securities
 

 
55,997

 

 
55,997

Short-term investments:
 

 

 

 

Financial institution securities
 

 
74,989

 

 
74,989

Non-financial institution securities
 

 
292,807

 

 
292,807

Municipal bonds
 

 
24,181

 

 
24,181

U.S. government and agency securities
 
275,816

 
93,772

 

 
369,588

Foreign government and agency securities
 

 
353,918

 

 
353,918

Asset-backed securities
 

 
95,488

 

 
95,488

Mortgage-backed securities
 

 
532,629

 

 
532,629

Debt mutual funds
 

 
40,819

 

 
40,819

Bank loans
 

 
96,728

 

 
96,728

Long-term investments:
 

 

 

 

Non-financial institution securities
 

 
170,643

 

 
170,643

Auction rate securities
 

 

 
20,608

 
20,608

Asset-backed securities
 

 
11,820

 

 
11,820

Municipal bonds
 

 
15,136

 

 
15,136

U.S. government and agency securities
 
2,826

 
14,377

 

 
17,203

Mortgage-backed securities
 

 
656,516

 

 
656,516

Debt mutual fund
 

 
58,901

 

 
58,901

Total assets measured at fair value
 
$
625,730

 
$
2,671,215

 
$
20,608

 
$
3,317,553

 
 
 
 
 
 
 
 
 
Liabilities
 
 
 
 
 
 
 
 
Derivative financial instruments, net
 
$

 
$
3,528

 
$

 
$
3,528

Total liabilities measured at fair value
 
$

 
$
3,528

 
$

 
$
3,528

Net assets measured at fair value
 
$
625,730

 
$
2,667,687

 
$
20,608

 
$
3,314,025






9


 
March 29, 2014
(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
$
213,988

 
$

 
$

 
$
213,988

Financial institution securities

 
131,990

 

 
131,990

Non-financial institution securities

 
319,970

 

 
319,970

U.S. government and agency securities
69,998

 

 

 
69,998

Foreign government and agency securities

 
194,984

 

 
194,984

Short-term investments:

 

 

 


Financial institution securities

 
234,916

 

 
234,916

Non-financial institution securities

 
226,828

 

 
226,828

Municipal Bonds

 
15,780

 

 
15,780

U.S. government and agency securities
349,023

 
89,422

 

 
438,445

Foreign government and agency securities

 
159,951

 

 
159,951

Mortgage-backed securities

 
387,508

 

 
387,508

Debt mutual fund

 
20,216

 

 
20,216

Long-term investments:

 

 

 


Non-financial institution securities

 
209,274

 

 
209,274

Auction rate securities

 

 
20,160

 
20,160

Municipal bonds

 
15,986

 

 
15,986

U.S. government and agency securities
4,950

 
36,126

 

 
41,076

Mortgage-backed securities

 
847,581

 

 
847,581

Debt mutual fund

 
56,698

 

 
56,698

Derivative financial instruments, net

 
1,713

 

 
1,713

Total assets measured at fair value
$
637,959

 
$
2,948,943

 
$
20,160

 
$
3,607,062


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): 
 
 
Three Months Ended
 
Six Months Ended
(In thousands)
September 27, 2014
 
September 28, 2013
 
September 27, 2014
 
September 28, 2013
Balance as of beginning of period
$
20,704

 
$
28,081

 
$
20,160

 
$
27,610

Total realized and unrealized gains (losses):

 

 

 

Included in interest and other expense, net

 
758

 

 
683

Included in other comprehensive income
(96
)
 
(260
)
 
448

 
586

Sales and settlements, net (1)

 
(6,350
)
 

 
(6,650
)
Balance as of end of period
$
20,608

 
$
22,229

 
$
20,608

 
$
22,229


(1)
During the first six months of fiscal 2014, the Company redeemed $6.7 million of student loan auction rate securities for cash at par value. There was no redemption during the first six months of fiscal 2015.

10


The amount of total losses included in net income attributable to the change in unrealized losses relating to assets and liabilities still held as of the end of the period are summarized as follows:
 
Three Months Ended
 
Six Months Ended
(In thousands)
September 27, 2014
 
September 28, 2013
 
September 27, 2014
 
September 28, 2013
Included in interest and other expense, net
$

 
$
758

 
$

 
$
683


As of September 27, 2014, marketable securities measured at fair value using Level 3 inputs were comprised of $20.6 million of student loan auction rate securities. There was no material change to the input assumptions of the pricing model for these student loan auction securities.

The 3.125% Junior Convertible Debentures due March 15, 2037 (2037 Convertible Notes), which were fully redeemed on March 12, 2014, included embedded features that qualify as an embedded derivative, and was separately accounted for as a discount on the 2037 Convertible Notes. Its fair value was established at the inception of the 2037 Convertible Notes. Prior to the redemption, each quarter, the change in the fair value of the embedded derivative, if any, was recorded in the consolidated statements of income. The Company used a derivative valuation model to derive the value of the embedded derivative. Key inputs into this valuation model were the Company’s current stock price, risk-free interest rates, the stock dividend yield, the stock volatility and the 2037 Convertible Notes’ credit spread over London Interbank Offered Rate. The first three inputs were based on observable market data and were considered Level 2 inputs while the last two inputs required management judgment and were Level 3 inputs.

Financial Instruments Not Recorded at Fair Value on a Recurring Basis

The Company’s 2.625% Senior Convertible Debentures due June 15, 2017 (2017 Convertible Notes), 2.125% Notes due 2019(2019 Notes) and 3.000% Notes due 2021 (2021 Notes) are measured at fair value on a quarterly basis for disclosure purposes. The fair values of the 2017 Convertible Notes, 2019 Notes and 2021 Notes as of September 27, 2014 were approximately $906.0 million, $494.1 million and $499.1 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).


11


Note 5.
Financial Instruments
The following is a summary of cash equivalents and available-for-sale securities as of the end of the periods presented:
 
September 27, 2014
 
 
March 29, 2014
(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
$
322,088

 
$

 
$

 
$
322,088

 
 
$
213,988

 
$

 
$

 
$
213,988

Financial institution


 


 


 


 
 


 


 


 


securities
99,988

 

 

 
99,988

 
 
366,906

 

 

 
366,906

Non-financial institution


 


 


 


 
 


 


 


 


securities
498,447

 
3,086

 
(585
)
 
500,948

 
 
753,888

 
3,428

 
(1,244
)
 
756,072

Auction rate securities
21,500

 

 
(892
)
 
20,608

 
 
21,500

 

 
(1,340
)
 
20,160

Municipal bonds
38,863

 
663

 
(209
)
 
39,317

 
 
31,367

 
604

 
(205
)
 
31,766

U.S. government and

 

 

 

 
 

 

 

 

agency securities
431,726

 
172

 
(110
)
 
431,788

 
 
548,568

 
1,135

 
(184
)
 
549,519

Foreign government and

 

 

 

 
 

 

 

 

agency securities
409,937

 

 
(22
)
 
409,915

 
 
354,935

 

 

 
354,935

Mortgage-backed securities
1,186,084

 
11,441

 
(8,380
)
 
1,189,145

 
 
1,234,237

 
11,380

 
(10,528
)
 
1,235,089

Asset-backed securities
106,522

 
944

 
(158
)
 
107,308

 
 

 

 

 

Debt mutual funds
101,350

 
818

 
(2,448
)
 
99,720

 
 
81,350

 
216

 
(4,652
)
 
76,914

Bank loans
97,816

 
28

 
(1,116
)
 
96,728

 
 

 

 

 

 
$
3,314,321

 
$
17,152

 
$
(13,920
)
 
$
3,317,553

 
 
$
3,606,739

 
$
16,763

 
$
(18,153
)
 
$
3,605,349

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 27, 2014 and March 29, 2014:

 
September 27, 2014
 
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
Non-financial institution securities
$
85,731

 
$
(330
)
 
$
15,538

 
$
(255
)
 
$
101,269

 
$
(585
)
Auction rate securities

 

 
20,608

 
(892
)
 
20,608

 
(892
)
Municipal bonds
5,653

 
(82
)
 
4,626

 
(127
)
 
10,279

 
(209
)
U.S. government and

 

 

 

 


 


    agency securities
58,067

 
(64
)
 
3,320

 
(46
)
 
61,387

 
(110
)
Foreign government and

 

 

 

 


 


agency securities
74,975

 
(22
)
 

 

 
74,975

 
(22
)
Mortgage-backed securities
354,808

 
(3,365
)
 
220,041

 
(5,015
)
 
574,849

 
(8,380
)
Asset-backed securities
52,987

 
(158
)
 

 

 
52,987

 
(158
)
Debt mutual fund

 

 
58,901

 
(2,448
)
 
58,901

 
(2,448
)
Bank loans
87,525

 
(1,116
)


 

 
87,525

 
(1,116
)
 
$
719,746

 
$
(5,137
)
 
$
323,034

 
$
(8,783
)
 
$
1,042,780

 
$
(13,920
)


12


 
March 29, 2014
 
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
Non-financial institution securities
$
112,470

 
$
(1,167
)
 
$
4,488

 
$
(77
)
 
$
116,958

 
$
(1,244
)
Auction rate securities

 

 
20,160

 
(1,340
)
 
20,160

 
(1,340
)
Municipal bonds
5,917

 
(166
)
 
1,743

 
(39
)
 
7,660

 
(205
)
U.S. government and

 

 

 

 

 

    agency securities
118,125

 
(184
)
 

 

 
118,125

 
(184
)
Mortgage-backed securities
457,903

 
(7,225
)
 
132,376

 
(3,303
)
 
590,279

 
(10,528
)
Debt mutual fund
56,698

 
(4,652
)
 

 

 
56,698

 
(4,652
)
 
$
751,113

 
$
(13,394
)
 
$
158,767

 
$
(4,759
)
 
$
909,880

 
$
(18,153
)

As of September 27, 2014, the gross unrealized losses that had been outstanding for less than twelve months were primarily related to mortgage-backed securities due to the general rising of the interest-rate environment, 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 mortgage-backed securities and debt mutual fund, which were primarily due to the general rising of the interest-rate environment.

The Company reviewed the investment portfolio and determined that the gross unrealized losses on these investments as of September 27, 2014 and March 29, 2014 were temporary in nature as evidenced by the fluctuations in the gross unrealized losses within the investment categories. These investments are highly rated by the credit rating agencies and there have been no defaults on any of these securities, and we have received interest payments as they become due. Additionally, in the past several years a portion of the Company's investment in the auction rate securities and the mortgage-backed securities were redeemed or prepaid by the debtors at par. Furthermore, the aggregate of individual unrealized losses that had been outstanding for twelve months or more was not significant as of September 27, 2014 and March 29, 2014. 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 (financial institution securities, non-financial institution securities, auction rate securities, municipal bonds, U.S. and foreign government and agency securities, mortgage-backed securities, asset-backed securities and bank loans), 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 27, 2014
(In thousands)
Amortized
Cost
 
Estimated
Fair Value
Due in one year or less
$
1,051,147

 
$
1,051,360

Due after one year through five years
537,228

 
539,677

Due after five years through ten years
345,232

 
345,386

Due after ten years
957,276

 
959,322


$
2,890,883

 
$
2,895,745

As of September 27, 2014, $993.3 million of marketable debt securities with contractual maturities of greater than one year were 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:

13


 
Three Months Ended
 
Six Months Ended
(In thousands)
September 27, 2014
 
September 28, 2013
 
September 27, 2014
 
September 28, 2013
Proceeds from sale of available-for-sale securities
$
236,263

 
$
104,021

 
$
295,844

 
$
199,160

Gross realized gains on sale of available-for-sale securities
$
2,243

 
$
266

 
3,080

 
1,367

Gross realized losses on sale of available-for-sale securities
(501
)
 
(521
)
 
(668
)
 
(1,515
)
Net realized gains (losses) on sale of available-for-sale securities
$
1,742

 
$
(255
)
 
$
2,412

 
$
(148
)
Amortization of premiums on available-for-sale securities
$
6,413

 
$
6,904

 
$
12,646

 
$
14,063


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.
As of September 27, 2014 and March 29, 2014, the Company had the following outstanding forward currency exchange contracts (in notional amount), which were derivative financial instruments:
 
(In thousands and U.S. dollars)
September 27, 2014
 
March 29, 2014
Singapore Dollar
$
57,116

 
$
60,551

Euro
45,718

 
46,062

Indian Rupee
22,504

 
18,631

British Pound
13,842

 
12,056

Japanese Yen
9,295

 
9,273

 
$
148,475

 
$
146,573


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 through August 2016. The net unrealized gains, which approximate the fair market value of the outstanding forward currency exchange contracts, are expected to be realized into net income within the next two years.
As of September 27, 2014, 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 (loss) 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 27, 2014 that is expected to be reclassified into earnings 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 consolidated statements of income as they are incurred.
The Company had the following derivative instruments as of September 27, 2014 and March 29, 2014, located on the condensed consolidated balance sheet, utilized for risk management purposes detailed above:

14


 
Foreign Exchange Contracts
 
Asset Derivatives
 
Liability Derivatives
(In thousands)
Balance Sheet Location
Fair Value
 
Balance Sheet Location
Fair Value
September 27, 2014
Prepaid expenses and other current assets
$
643

 
Other accrued liabilities
$
4,170

March 29, 2014
Prepaid expenses and other current assets
$
2,648

 
Other accrued liabilities
$
935

 
The Company does not offset or net the fair value amounts of derivative financial instruments in its condensed consolidated balance sheets. The potential effect of rights of set-off associated with the derivative financial instruments was not material to the Company's condensed consolidated balance sheet for all periods presented.

The following table summarizes the effect of derivative instruments on the condensed consolidated statements of income for the second quarter and the first six months of fiscal 2015 and 2014:

 
Three Months Ended
 
Six Months Ended
(In thousands)
September 27, 2014
 
September 28, 2013
 
September 27, 2014
 
September 28, 2013
Amount of gains (losses) recognized in other comprehensive income on derivative (effective portion of cash flow hedging)
$
(3,838
)
 
$
2,742

 
$
(4,123
)
 
$
1,940


 
 
 
 

 

Amount of (gains) losses reclassified from accumulated other comprehensive income into income (effective portion) *
$
(211
)
 
$
1,389

 
$
(1,018
)
 
$
2,095


 
 
 
 

 

Amount of gains (losses) recorded (ineffective portion) *
$
(43
)
 
$
24

 
$
(13
)
 
$
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 Employee Stock Purchase Plan (ESPP):
 
Three Months Ended
 
Six Months Ended
(In thousands)
September 27, 2014
 
September 28, 2013
 
September 27, 2014
 
September 28, 2013
Stock-based compensation included in:

 

 

 

Cost of revenues
$
2,077

 
$
1,858

 
$
4,069

 
$
3,662

Research and development
14,831

 
11,343

 
25,336

 
21,562

Selling, general and administrative
11,832

 
9,859

 
21,441

 
18,790

 
$
28,740

 
$
23,060

 
$
50,846

 
$
44,014


During the first six months of fiscal 2015 and 2014, the tax benefits realized for the tax deduction from option exercises and other awards credited to additional paid-in capital were $9.9 million and $16.4 million, respectively.

15


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 Company's stock-based compensation expense relating to options granted during the first six months of fiscal 2015 and 2014 was not material.

The estimated fair values of restricted stock unit (RSU) awards were calculated based on the market price of Xilinx common stock on the date of grant, reduced by the present value of dividends expected to be paid on Xilinx common stock prior to vesting. The per share weighted-average fair value of RSUs granted during the second quarter of fiscal 2015 was $44.40 ($37.81 for the second quarter of fiscal 2014), and for the first six months of fiscal 2015 was $43.84 ($37.63 for the first six months of fiscal 2014), which were calculated based on estimates at the date of grant using the following weighted-average assumptions: 
 
Three Months Ended
 
Six Months Ended

September 27, 2014
 
September 28, 2013
 
September 27, 2014
 
September 28, 2013
Risk-free interest rate
0.7
%
 
0.7
%
 
0.7
%
 
0.7
%
Dividend yield
2.4
%
 
2.5
%
 
2.4
%
 
2.5
%

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 30, 2013
12,753

 
$
28.01

Granted
8

 
$
41.08

Exercised
(7,421
)
 
$
29.95

Forfeited/cancelled/expired
(60
)
 
$
35.61

March 29, 2014
5,280

 
$
25.22

Granted

 
$

Exercised
(801
)
 
$
26.88

Forfeited/cancelled/expired
(13
)
 
$
32.63

September 27, 2014
4,466

 
$
24.90

Options exercisable at:

 

September 27, 2014
4,329

 
$
24.62

March 29, 2014
4,935

 
$
24.87

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. As of September 27, 2014, 15.5 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 27, 2014 was $4.8 million and $15.9 million, respectively. 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.
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.


16


RSU Awards
A summary of the Company’s RSU activity and related information is as follows:
 
 
RSUs Outstanding
(Shares in thousands)
Number of Shares
 
Weighted-Average Grant-Date Fair Value Per Share
March 30, 2013
5,996

 
$
30.83

Granted
3,297

 
$
38.90

Vested
(2,066
)
 
$
29.25

Cancelled
(326
)
 
$
32.28

March 29, 2014
6,901

 
$
35.08

Granted
2,682

 
$
43.84

Vested
(2,141
)
 
$
33.57

Cancelled
(173
)
 
$
35.96

September 27, 2014
7,269

 
$
38.74

For the majority of restricted stock units granted, the number of shares of common stock issued on the date the RSU awards vest is net of the minimum statutory withholding requirements that we pay in cash to the appropriate taxing authorities on behalf of our employees. In the condensed consolidated statement of cash flows, these amounts have been included as a reduction in the cash proceeds from issuance of common stock under our various stock plans. During the first six months of fiscal 2015 and 2014, we withheld $31.7 million and $16.8 million worth of RSU awards, respectively, to satisfy the employees’ tax obligations.
Employee Stock Purchase Plan
Under the ESPP, shares are only issued during the second and fourth quarters of each fiscal year. Employees purchased 446 thousand shares for $14.9 million during the second quarter of fiscal 2015 and 529 thousand shares for $14.6 million in the second quarter of fiscal 2014. The per-share weighted-average fair value of stock purchase rights granted under the ESPP during the second quarter of fiscal 2015 and 2014 was $14.12 and $11.24, respectively. The fair values of stock purchase plan rights granted in the second quarter of fiscal 2015 and 2014 were estimated at the date of grant using the following assumptions:

2015
 
2014
Expected life of options (years)
1.25

 
1.25

Expected stock price volatility
0.25

 
0.23

Risk-free interest rate
0.2
%
 
0.2
%
Dividend yield
2.8
%
 
2.1
%
The next scheduled purchase under the ESPP is in the fourth quarter of fiscal 2015. On August 13, 2014, 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 27, 2014, 11.3 million shares were available for future issuance out of 52.5 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 following table summarizes the computation of basic and diluted net income per common share:

17


 
Three Months Ended
 
Six Months Ended
(In thousands, except per share amounts)
September 27, 2014
 
September 28, 2013
 
September 27, 2014
 
September 28, 2013
Net income available to common stockholders
$
171,516

 
$
141,461

 
$
345,127

 
$
298,484

Weighted average common shares outstanding-basic
265,942

 
268,478

 
267,098

 
265,350

Dilutive effect of employee equity incentive plans
3,155

 
4,919

 
3,653

 
4,715

Dilutive effect of 2017 Convertible Notes and warrants
6,703

 
8,702

 
8,033

 
6,790

Dilutive effect of 2037 Convertible Notes

 
8,586

 

 
7,415

Weighted average common shares outstanding-diluted
275,800

 
290,685

 
278,784

 
284,270

Basic earnings per common share
$
0.64

 
$
0.53

 
$
1.29

 
$
1.12

Diluted earnings per common share
$
0.62

 
$
0.49

 
$
1.24

 
$
1.05


The total shares used in the denominator of the diluted net income per common share calculation includes potentially dilutive common equivalent shares outstanding that are not included in basic net income per common share by applying the treasury stock method to the impact of the equity incentive plans and to the incremental shares issuable assuming conversion of the Company's convertible debt and warrants (see "Note 10. Debt and Credit Facility" for more discussion of the Company's debt and warrants).
Outstanding stock options and RSUs under the Company's stock award plans to purchase approximately 3.8 million and 2.5 million shares, for the second quarter and the first six months of fiscal 2015, respectively, 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 2017 Convertible Notes, the Company also purchased call options on its common stock from the hedge counter-parties. The call options give the Company the right to purchase up to 20.2 million shares of its common stock at $29.64 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 2017 Convertible Notes 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 27, 2014
 
March 29, 2014
Raw materials
$
15,752

 
$
15,306

Work-in-process
208,407

 
192,067

Finished goods
38,510

 
26,626

 
$
262,669

 
$
233,999


Note 10.
Debt and Credit Facility
2017 Convertible Notes
As of September 27, 2014, the Company had $600.0 million principal amount of 2017 Convertible Notes outstanding. The 2017 Convertible Notes 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 2017 Convertible Notes, and are ranked equally with all of our other existing and future unsecured senior indebtedness, including the 2019 and 2021 Notes discussed below. The Company may not redeem the 2017 Convertible Notes prior to maturity.
The 2017 Convertible Notes are convertible, subject to certain conditions, into shares of Xilinx common stock at a conversion rate of 33.7391 shares of common stock per $1 thousand principal amount of the 2017 Convertible Notes, representing an effective conversion price of approximately $29.64 per share of common stock. The conversion rate is subject to adjustment for certain events as outlined in the indenture governing the 2017 Convertible Notes, but will not be adjusted for accrued interest. One of the

18


conditions allowing holders of the 2017 Convertible Notes 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 27, 2014 and as a result, the 2017 Convertible Notes were convertible at the option of the holders. As of September 27, 2014, the 2017 Convertible Notes 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 2017 Convertible Notes 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 2017 Convertible Notes.
Upon conversion, the Company would pay the holders of the 2017 Convertible Notes cash up to the aggregate principal amount of the 2017 Convertible Notes. If the conversion value exceeds the principal amount, the Company would deliver shares of its common stock in respect to the remainder of its conversion obligation in excess of the aggregate principal amount (conversion spread). Accordingly, there is no adjustment to the numerator in the net income per common share computation for the cash settled portion of the 2017 Convertible Notes, as that portion of the debt liability will always be settled in cash. The conversion spread is included in the denominator for the computation of diluted net income per common share, using the treasury stock method.
The carrying values of the liability and equity components of the 2017 Convertible Notes are reflected in the Company’s condensed consolidated balance sheets as follows:
(In thousands)
September 27, 2014
 
March 29, 2014
Liability component:

 

   Principal amount of the 2017 Convertible Notes
$
600,000

 
$
600,000

   Unamortized discount of liability component
(41,451
)
 
(49,223
)
   Hedge accounting adjustment – sale of interest rate swap
11,978

 
14,224

   Net carrying value of the 2017 Convertible Notes
$
570,527

 
$
565,001




 


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

 
$
66,415

The remaining unamortized debt discount, net of the hedge accounting adjustment from the previous sale of the interest rate swap, is being amortized as additional non-cash interest expense over the expected remaining term of the 2017 Convertible Notes. As of September 27, 2014, the remaining term of the 2017 Convertible Notes is 2.7 years. As of September 27, 2014, the if-converted the value of the 2017 Convertible Notes was $865.5 million.

Interest expense related to the 2017 Convertible Notes 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 27, 2014
 
September 28, 2013
 
September 27, 2014
 
September 28, 2013
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 2017 Convertible Notes
$
7,063

 
$
7,063

 
$
14,125

 
$
14,125

To hedge against potential dilution upon conversion of the 2017 Convertible Notes, the Company purchased call options on its common stock from the hedge counter parties. The call options give the Company the right to purchase up to 20.2 million shares of its common stock at $29.64 per share. The call options will terminate upon the earlier of the maturity of the 2017 Convertible Notes or the last day any of the 2017 Convertible Notes remain outstanding. To reduce the hedging cost, under separate transactions the Company sold warrants to the hedge counter parties, which give the hedge counter parties the right to purchase up to 20.2 million shares of the Company’s common stock at $41.99 per share. These warrants expire on a gradual basis over a specified period starting on September 13, 2017.

19


2019 and 2021 Notes
On March 12, 2014, the Company issued $500.0 million principal amount of 2019 Notes and $500.0 million principal amount of 2021 Notes with maturity dates of March 15, 2019 and March 15, 2021 respectively. The 2019 and 2021 Notes were offered to the public at a discounted price of 99.477% and 99.281% of par, respectively. Interest on the 2019 and 2021 Notes is payable semiannually on March 15 and September 15.
The Company received net proceeds of $990.1 million from issuance of the 2019 and 2021 Notes, after the debt discounts and deduction of debt issuance costs. The debt discounts and issuance costs are amortized to interest expense over the terms of the 2019 and 2021 Notes.
The following table summarizes the carrying value of the 2019 and 2021 Notes as of September 27, 2014 and March 29, 2014:
 
 
 
 
(In thousands)
September 27, 2014
 
March 29, 2014
Principal amount of the 2019 Notes
$
500,000

 
$
500,000

Unamortized discount of the 2019 Notes
(2,324
)
 
(2,574
)
Principal amount of the 2021 Notes
500,000

 
500,000

Unamortized discount of the 2021 Notes
(3,324
)
 
(3,556
)
Total carrying value
$
994,352

 
$
993,870


Interest expense related to the 2019 and 2021 Notes 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 27, 2014
 
September 28, 2013
 
September 27, 2014
 
September 28, 2013
Contractual coupon interest
$
6,406

 
$

 
$
12,813

 
$

Amortization of debt issuance costs
134

 

 
290

 

Amortization of debt discount, net
242

 

 
482

 

Total interest expense related to the 2019 and 2021 Notes
$
6,782

 
$

 
$
13,585

 
$

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 27, 2014, 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. The last approval was the 2012 Repurchase Program, which was authorized by the Board in August 2012 to repurchase $750.0 million of the Company’s common stock. The 2012 Repurchase Program has no stated expiration date.
Through September 27, 2014, the Company has used $552.7 million of the $750.0 million authorized under the 2012 Repurchase Program, leaving $197.3 million available for future repurchases. The Company’s current policy is to retire all repurchased shares, and consequently, no treasury shares were held as of September 27, 2014 and March 29, 2014.

During the first six months of fiscal 2015, the Company repurchased 7.0 million shares of common stock in the open market for a total of $300.0 million. 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.

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

20


 
Three Months Ended
 
Six Months Ended
(In thousands)
September 27, 2014
 
September 28, 2013
 
September 27, 2014
 
September 28, 2013
Interest income
$
8,392

 
$
5,363

 
$
16,893

 
$
10,966

Interest expense
(13,845
)
 
(13,047
)
 
(27,710
)
 
(26,906
)
Other expense, net
(278
)
 
(3,313
)
 
(1,136
)
 
(4,987
)

$
(5,731
)
 
$
(10,997
)
 
$
(11,953
)
 
$
(20,927
)

Note 13.
Accumulated Other Comprehensive Loss
Comprehensive loss is defined as the change in equity of a company during a period from transactions and other events and circumstances from non-owner sources. The components of accumulated other comprehensive loss are as follows:
 
(In thousands)
September 27, 2014
 
March 29, 2014
Accumulated unrealized gains (losses) on available-for-sale securities, net of tax
$
2,024

 
$
(889
)
Accumulated unrealized gains (losses) on hedging transactions, net of tax
(3,280
)
 
798

Accumulated cumulative translation adjustment, net of tax
(864
)
 
(457
)
Accumulated other comprehensive loss
$
(2,120
)
 
$
(548
)

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

Note 14.
Income Taxes
The Company recorded tax provisions of $22.8 million and $49.5 million for the second quarter and the first six months of fiscal 2015, respectively, representing effective tax rates of 12% and 13%, respectively. 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 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 September 27, 2014, determined in accordance with FASB authoritative guidance for measuring uncertain tax positions, was $26.4 million. The total amount of unrecognized tax benefits that, if realized in a future period, would favorably affect the effective tax rate was $11.0 million as of September 27, 2014. 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 2010. The Company is no longer subject to U.S. state audits for years through fiscal 2008, except for fiscal years 1997, 1998 and 2005, which are still open for audit purposes. The Company is no longer subject to tax audits in Ireland for years through fiscal 2009.


21


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)
2015 (remaining six months)
$
2,827

2016
4,004

2017
2,324

2018
2,087

2019
1,690

Thereafter
3,600

Total
$
16,532

Aggregate future rental income to be received, which includes rents from both owned and leased property, totaled $3.2 million as of September 27, 2014. Rent expense, net of rental income, under all operating leases was $697 thousand and $1.6 million for the three and six months ended September 27, 2014, respectively. Rent expense, net of rental income, under all operating leases was $725 thousand and $1.5 million for the three and six months ended September 28, 2013, respectively. Rental income was not material for the second quarter and the first six months of fiscal 2015 and 2014.
Other commitments as of September 27, 2014 totaled $115.5 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 27, 2014, the Company also had $37.7 million of non-cancelable license obligations to providers of electronic design automation software and hardware/software maintenance expiring at various dates through May 2017.

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 2015 and the end of fiscal 2014, the accrual balance of the product warranty liability was immaterial.

The Company offers, subject to certain terms and conditions, to indemnify 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 17.
Contingencies

Patent Litigation

On July 17, 2014, a patent infringement lawsuit was filed by PLL Technologies, Inc. (PTI) against the Company in the U.S. District Court for the District of Delaware (PLL Technologies, Inc. v. Xilinx, Inc., Case No. 1:14-CV-00945).  The lawsuit pertains to one patent and PTI seeks unspecified damages, interest and costs.  The Company is unable to estimate its range of possible loss, if any, in this matter at this time.


22


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 18.
Goodwill and Acquisition-Related Intangibles
As of September 27, 2014 and March 29, 2014, the gross and net amounts of goodwill and of acquisition-related intangibles for all acquisitions were as follows:
 



 


 
Weighted-Average
(In thousands)
September 27, 2014
 
March 29, 2014
 
Amortization Life
Goodwill
$
159,296

 
$
159,296

 

Core technology, gross
91,860