Xilinx Inc. and Subsidiaries - Page 14

         Scholes model (BS model), for purposes of measuring the value of             
         ESOs.  The BS model was originally designed to measure publicly              
         traded options and, as a result, fails to adequately take into               
         account numerous differences between ESOs and publicly traded                
         options.  For example, ESOs are nontransferable and have terms to            
         maturity that are usually longer than those of publicly traded               
         options.  The extended term of an ESO complicates the task of                
         estimating the volatility of the stock price, which is an                    
         essential input in the pricing of any option.  Furthermore, ESOs             
         cannot be traded, so they must be discounted to account for the              
         difference in value between tradeable and nontradeable options               
         (i.e., tradeable options are worth more than nontradeable                    
         options).  Yet, the appropriate discount is difficult to                     
         determine with reasonable accuracy because the discount is based             
         on the value of the ESO to an employee.  Moreover, an ESO’s value            
         is affected by whether an employee forfeits the option by failing            
         to exercise it or exercises the option prior to the expiration of            
         the ESO’s maximum life.  These employee decisions cannot be                  
         reliably modeled.  Thus, FAS 123 requires companies to make                  
         certain adjustments to take into account the differences between             
         ESOs and publicly traded options.  For example, to account for               
         option forfeiture, SFAS 123 requires that an ESO’s value be                  
         discounted to reflect the amount of forfeitures expected                     
         annually.  With respect to early exercise, the expected life of              

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Last modified: May 25, 2011