Fair Value Measurements

3 Months Ended

Jun. 30, 2012

Fair Value Disclosures [Abstract]

Fair Value Measurements

Fair Value Measurements

The guidance for fair value measurements established by the Financial Accounting Standards Board (FASB) defines fair value as the exchange price that would be received from selling an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required or permitted to be recorded at fair value, the Company considers the principal or most advantageous market in which Xilinx would transact and also considers assumptions that market participants would use when pricing the asset or liability, such as inherent risk, transfer restrictions and risk of nonperformance.

The Company determines the fair value for marketable debt securities using industry standard pricing services, data providers and other third-party sources and by internally performing valuation testing and analyses. The Company primarily uses a consensus price or weighted-average price for its fair value assessment. The Company determines the consensus price using market prices from a variety of industry standard pricing services, data providers, security master files from large financial institutions and other third party sources and uses those multiple prices as inputs into a distribution-curve-based algorithm to determine the daily market value. The pricing services use multiple inputs to determine market prices, including reportable trades, benchmark yield curves, credit spreads and broker/dealer quotes as well as other industry and economic events. For certain securities with short maturities, such as discount commercial paper and certificates of deposit, the security is accreted from purchase price to face value at maturity. If a subsequent transaction on the same security is observed in the marketplace, the price on the subsequent transaction is used as the current daily market price and the security will be accreted to face value based on the revised price. For certain other securities, such as student loan auction rate securities, the Company performs its own valuation analysis using a discounted cash flow pricing model.

The Company validates the consensus prices by taking random samples from each asset type and corroborating those prices using reported trade activity, benchmark yield curves, binding broker/dealer quotes or other relevant price information. There have not been any changes to the Company's fair value methodology during the first quarter of fiscal 2013 and the Company did not adjust or override any fair value measurements as of June 30, 2012.

Fair Value Hierarchy

The fair value framework requires the categorization of assets and liabilities into three levels based upon the assumptions (inputs) used to price the assets or liabilities. The guidance for fair value measurements requires that assets and liabilities carried at fair value be classified and disclosed in one of the following categories:

Level 1 — Quoted (unadjusted) prices in active markets for identical assets or liabilities.

The Company's Level 1 assets consist of U.S. government and agency securities and money market funds.

Level 2 — Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the asset or liability.

The Company's Level 2 assets consist of bank certificates of deposit, commercial paper, corporate bonds, municipal bonds, U.S. agency securities, foreign government and agency securities, floating-rate notes, 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 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 June 30, 2012 and March 31, 2012:

	June 30, 2012
(In thousands)	Quoted Prices in Active Markets for Identical Instruments (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total Fair Value
Assets
Cash and cash equivalents:
Money market funds	$	174,888	$	—	$	—	$	174,888
Bank certificates of deposit	—		29,998		—		29,998
Commercial paper	—		159,983		—		159,983
U.S. government and agency securities	2,500		28,995		—		31,495
Foreign government and agency securities	—		63,990		—		63,990
Short-term investments:
Bank certificates of deposit	—		159,916		—		159,916
Commercial paper	—		329,843		—		329,843
Corporate bonds	—		25,768		—		25,768
Municipal bonds	—		3,503		—		3,503
U.S. government and agency securities	434,860		98,039		—		532,899
Foreign government and agency securities	—		164,958		—		164,958
Mortgage-backed securities	—		51		—		51
Long-term investments:
Corporate bonds	—		185,104		—		185,104
Auction rate securities	—		—		28,815		28,815
Municipal bonds	—		16,711		—		16,711
U.S. government and agency securities	44,982		59,673		—		104,655
Mortgage-backed securities	—		1,024,159		—		1,024,159
Debt mutual fund	—		40,240		—		40,240
Total assets measured at fair value	$	657,230	$	2,390,931	$	28,815	$	3,076,976
Liabilities
Derivative financial instruments, net	$	—	$	5,611	$	—	$	5,611
Convertible debentures — embedded derivative	—		—		1,545		1,545
Total liabilities measured at fair value	$	—	$	5,611	$	1,545	$	7,156
Net assets measured at fair value	$	657,230	$	2,385,320	$	27,270	$	3,069,820

	March 31, 2012
(In thousands)	Quoted Prices in Active Markets for Identical Instruments (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total Fair Value
Assets
Cash and cash equivalents:
Money market funds	$	232,017	$	—	$	—	$	232,017
Bank certificates of deposit	—		29,994		—		29,994
Commercial paper	—		233,980		—		233,980
U.S. government and agency securities	75,036		84,985		—		160,021
Foreign government and agency securities	—		68,993		—		68,993
Short-term investments:
Bank certificates of deposit	—		129,978		—		129,978
Commercial paper	—		360,887		—		360,887
Corporate bonds	—		14,257		—		14,257
U.S. government and agency securities	322,763		119,931		—		442,694
Foreign government and agency securities	—		180,958		—		180,958
Mortgage-backed securities	—		31		—		31
Long-term investments:
Corporate bonds	—		175,415		—		175,415
Auction rate securities	—		—		28,929		28,929
Municipal bonds	—		26,160		—		26,160
U.S. government and agency securities	17,539		48,659		—		66,198
Mortgage-backed securities	—		892,745		—		892,745
Debt mutual fund	—		19,781		—		19,781
Total assets measured at fair value	$	647,355	$	2,386,754	$	28,929	$	3,063,038
Liabilities
Derivative financial instruments, net	$	—	$	3,070	$	—	$	3,070
Convertible debentures — embedded derivative	—		—		931		931
Total liabilities measured at fair value	$	—	$	3,070	$	931	$	4,001
Net assets measured at fair value	$	647,355	$	2,383,684	$	27,998	$	3,059,037

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

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

	Three Months Ended
(In thousands)	June 30, 2012			July 2, 2011
Balance as of beginning of period	$	27,998		$	34,005
Total realized and unrealized gains (losses):
Included in interest and other expense, net	(614		)	373
Included in other comprehensive income	236			658
Sales and settlements, net (1)	(350		)	(4,400		)
Balance as of end of period	$	27,270		$	30,636

(1) During the three months ended June 30, 2012 and July 2, 2011, $350 thousand and $4.4 million of student loan auction rate securities, respectively, were redeemed for cash at par value.

The amount of total gains (losses) included in net income attributable to the change in unrealized gains (losses) relating to assets and liabilities still held as of the end of the period was as follows:

	Three Months Ended
(In thousands)	June 30, 2012			July 2, 2011
Interest and other expense, net	$	(614	)	$	373

As of June 30, 2012, marketable securities measured at fair value using Level 3 inputs were comprised of $28.8 million of student loan auction rate securities. Auction failures during the fourth quarter of fiscal 2008 and the lack of market activity and liquidity required that the Company's student loan auction rate securities be measured using observable market data and Level 3 inputs. The fair values of the Company's student loan auction rate securities were based on the Company's assessment of the underlying collateral and the creditworthiness of the issuers of the securities. Substantially all of the underlying assets that secure the student loan auction rate securities are pools of student loans originated under Federal Family Education Loan Program, which are substantially guaranteed by the U.S. Department of Education. The fair values of the Company's student loan auction rate securities were determined using a discounted cash flow pricing model that incorporated financial inputs such as projected cash flows, discount rates, expected interest rates to be paid to investors and an estimated liquidity discount. The most significant assumptions of the model are the weighted-average life over which cash flows were projected of 8 years (given the collateral composition of the securities) and the discount rates ranging from 2.51% to 3.23% that were applied to the pricing model (based on market data and information for comparable- or similar-term student loan asset-backed securities). A hypothetical 20% increase or decrease of the weighted-average life over which cash flows were projected and 100 basis points (one percentage point) increase or decrease in the discount rates would not have a material effect on the fair values of the Company's student loan auction rate securities. The Company does not intend to sell, nor does it believe it is more likely than not that it would be required to sell, the student loan auction rate securities before anticipated recovery, which could be at final maturity that ranges from December 2027 to May 2046.

In March 2007, the Company issued $1.00 billion principal amount of 3.125% junior convertible debentures due March 15, 2037 (3.125% Debentures) to an initial purchaser in a private offering. As a result of repurchases in fiscal 2009, the remaining principal amount of the 3.125% Debentures as of June 30, 2012 was $689.6 million. The 3.125% Debentures included embedded features that qualify as an embedded derivative, and was separately accounted for as a discount on the 3.125% Debentures. Its fair value was established at the inception of the 3.125% Debentures. Each quarter, the change in the fair value of the embedded derivative, if any, is recorded in the consolidated statements of income. The Company uses a derivative valuation model to derive the value of the embedded derivative. Key inputs into this valuation model are the Company’s current stock price, risk-free interest rates, the stock dividend yield, the stock volatility and the 3.125% Debenture’s credit spread over London Interbank Offered Rate (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 June 30, 2012 were approximately $766.5 million and $826.1 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).