Xilinx, Inc.—Stock-based Compensation
Xilinx, Inc. designs, develops, and markets complete programmable logic solutions, including advanced integrated circuits, software design tools, predefined system functions delivered as intellectual property cores, customer training, field engineering and technical support. Customers are electronic equipment manufacturers primarily in the telecommunications, networking, computing, industrial, and consumer markets. Products are sold globally through a direct sales management organization and through franchised domestic and foreign distributors. (Source: Company 2007 Form 10-K)
Learning Objectives • Discuss the economic and corporate issues surrounding stock-based compensation. • Understand how to account for stock-based compensation and how the activity is presented in the financial statements. • Read and understand footnotes to the financial statements concerning stock-based compensation. • Explain the financial statement tax effects of stock-based compensation. Refer to the 2007 financial statements of Xilinx, Inc., and Note 3, Stock-Based Compensation. Note: following Xilinx’s convention, the case refers to the year ended March 31, 2007, as “fiscal 2007” and to the year ended April 1, 2006, as “fiscal 2006.” Concepts a. Consider the information on Employee Stock Option Plans (beginning on page 50 of Xilinx’s annual report). i. ii. Explain, in your own words, how this plan works. What incentives does this plan provide for Xilinx employees? Explain briefly the following terms used in Note 3: grant date, exercise price, vesting period, expiration date, options granted, options exercised, and options forfeited.
b. Note 3 (page 47 of Xilinx’s annual report) indicates that in fiscal 2007, Xilinx adopted a new accounting method for its stock options and other stock-based compensation as required by SFAS 123R. How does Xilinx now account for stock options? How does this differ from the method Xilinx used before adopting SFAS 123R? c. In 2007, Xilinx used the modified-prospective method when it adopted SFAS 123R. Note 3 discloses that, “.. under the modified-prospective method the compensation cost recognized by the Company beginning in fiscal 2007 includes … compensation cost for all stock-based awards granted prior to, but not yet vested as of April 1, 2006.” Before adopting the new standard, what actions could Xilinx have taken to minimize compensation cost for these unvested options at April 1, 2006? d. Consider the information on Employee Qualified Stock Purchase Plan (page 52 of Xilinx’s annual report). Explain, in your own words, how this plan works. What incentives does this plan provide for Xilinx employees? How do these incentives differ from the incentives created under the Employee Stock Option Plans? Process e. The table at the bottom of page 50 of Xilinx’s annual report explains changes in the number of outstanding (unexercised) options during the year. i. How many options did Xilinx grant during fiscal 2007? What was the per-share average exercise (strike) price of these new options? Compare this price to the per-share average exercise price of grants in 2006 and 2005. What can we conclude from this comparison? Xilinx, Inc.—Stock-based Compensation 1
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How many options did employees exercise during the year? Approximately how much cash did Xilinx receive from the exercise of these options? Where does this cash appear on the statement of cash flows? Hint: it is included with other share activity and not shown as its own separate cash-flow line item. How many options did employees forfeit during the year? Why would employees not exercise all the options they held?
Consider Xilinx’s 2007 Statement of Income, Statement of Cash...
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