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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 30, 2017
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, a smaller reporting company or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer", "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer x
 
Accelerated filer o
 
Non-accelerated filer o
 
Smaller reporting company o
 
Emerging growth company o
 
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
 
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 13, 2017
Common Stock, $.01 par value
 
250,952,891


Table of Contents

TABLE OF CONTENTS
 
 
 
 
 

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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 30, 2017
 
October 1, 2016
 
September 30, 2017
 
October 1, 2016
Net revenues
$
619,503

 
$
579,209

 
$
1,234,949

 
$
1,154,190

Cost of revenues
184,786

 
175,875

 
376,881

 
344,172

Gross margin
434,717

 
403,334

 
858,068

 
810,018

Operating expenses:

 

 

 

Research and development
157,985

 
141,814

 
311,036

 
277,939

Selling, general and administrative
91,053

 
83,463

 
180,228

 
166,573

Amortization of acquisition-related intangibles
510

 
1,244

 
1,215

 
2,488

Total operating expenses
249,548

 
226,521

 
492,479

 
447,000

Operating income
185,169

 
176,813

 
365,589

 
363,018

Interest and other income (expense), net
1,831

 
(1,151
)
 
3,669

 
(5,738
)
Income before income taxes
187,000

 
175,662

 
369,258

 
357,280

Provision for income taxes
19,468

 
11,470

 
34,481

 
30,039

Net income
$
167,532

 
$
164,192

 
$
334,777

 
$
327,241

Net income per common share:

 

 

 

Basic
$
0.68

 
$
0.65

 
$
1.35

 
$
1.29

Diluted
$
0.65

 
$
0.61

 
$
1.28

 
$
1.22

Cash dividends per common share
$
0.35

 
$
0.33

 
$
0.70

 
$
0.66

Shares used in per share calculations:

 

 

 

Basic
248,094

 
253,466

 
247,960

 
253,056

Diluted
258,217

 
270,373

 
261,739

 
267,885


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 30, 2017
 
October 1, 2016
 
September 30, 2017
 
October 1, 2016
Net income
$
167,532

 
$
164,192

 
$
334,777

 
$
327,241

Other comprehensive income (loss), net of tax:


 


 


 


Change in net unrealized gains (losses) on available-for-sale securities
763

 
(1,496
)
 
5,935

 
2,230

Reclassification adjustment for gains on available-for-sale securities
(135
)
 
(368
)
 
(105
)
 
(416
)
Change in net unrealized gains (losses) on hedging transactions
756

 
99

 
2,198

 
(683
)
Reclassification adjustment for (gains) losses on hedging transactions
(1,648
)
 
345

 
(2,004
)
 
638

Cumulative translation adjustment, net
678

 
(384
)
 
2,438

 
(347
)
Other comprehensive income (loss)
414

 
(1,804
)
 
8,462

 
1,422

Total comprehensive income
$
167,946

 
$
162,388

 
$
343,239

 
$
328,663


See notes to condensed consolidated financial statements.


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XILINX, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
 
(In thousands, except par value amounts)
September 30, 2017
 
April 1, 2017 [1]
 
(unaudited)
 
 
ASSETS

 

Current assets:

 

Cash and cash equivalents
$
1,070,193

 
$
966,695

Short-term investments
2,490,027

 
2,354,762

Accounts receivable, net
286,855

 
243,915

Inventories
215,397

 
227,033

Prepaid expenses and other current assets
109,758

 
87,711

Total current assets
4,172,230

 
3,880,116

Property, plant and equipment, at cost
855,019

 
839,458

Accumulated depreciation and amortization
(550,901
)
 
(535,633
)
Net property, plant and equipment
304,118

 
303,825

Long-term investments
99,862

 
116,288

Goodwill
161,287

 
161,287

Acquisition-related intangibles, net
2,361

 
3,576

Other assets
290,992

 
275,440

Total Assets
$
5,030,850

 
$
4,740,532

 
 
 
 
LIABILITIES, TEMPORARY EQUITY AND STOCKHOLDERS’ EQUITY

 

Current liabilities:

 

Accounts payable
$
88,341

 
$
108,293

Accrued payroll and related liabilities
192,120

 
176,601

Income taxes payable
6,766

 
6,309

Deferred income on shipments to distributors
50,966

 
54,567

Other accrued liabilities
85,028

 
95,098

Current portion of long-term debt
—

 
456,328

Total current liabilities
423,221

 
897,196

Long-term debt
1,738,666

 
995,247

Deferred tax liabilities
359,323

 
317,639

Long-term income taxes payable
5,291

 
4,503

Other long-term liabilities
18,266

 
16,908

Commitments and contingencies
—

 
—

Temporary equity
—

 
1,406

Stockholders' equity:

 

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

 
—

Common stock, $.01 par value
2,486

 
2,480

Additional paid-in capital
823,958

 
803,522

Retained earnings
1,675,858

 
1,726,312

Accumulated other comprehensive loss
(16,219
)
 
(24,681
)
Total stockholders’ equity
2,486,083

 
2,507,633

Total Liabilities, Temporary Equity and Stockholders’ Equity
$
5,030,850

 
$
4,740,532


[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 30, 2017
 
October 1, 2016
Cash flows from operating activities:
 
 
 
Net income
$
334,777

 
$
327,241

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation
22,964

 
22,807

Amortization
7,161

 
7,714

Stock-based compensation
68,408

 
59,206

Net gain on sale of available-for-sale securities
(756
)
 
(823
)
Amortization of debt discounts
1,964

 
6,034

Provision for deferred income taxes
38,206

 
32,607

Other
1,500

 
—

Changes in assets and liabilities:
 
 
 
Accounts receivable, net
(42,940
)
 
79,700

Inventories
11,504

 
(18,409
)
Prepaid expenses and other current assets
(18,383
)
 
(3,765
)
Other assets
(12,645
)
 
(5,037
)
Accounts payable
(20,585
)
 
1,701

Accrued liabilities
23,434

 
19,046

Income taxes payable
(17,960
)
 
(11,439
)
Deferred income on shipments to distributors
(3,601
)
 
5,646

Net cash provided by operating activities
393,048

 
522,229

Cash flows from investing activities:
 
 
 
Purchases of available-for-sale securities
(1,367,972
)
 
(1,952,967
)
Proceeds from sale and maturity of available-for-sale securities
1,257,571

 
2,023,314

Purchases of property, plant and equipment
(22,149
)
 
(31,950
)
Other investing activities
(8,461
)
 
(15,849
)
Net cash provided by (used in) investing activities
(141,011
)
 
22,548

Cash flows from financing activities:
 
 
 
Repurchases of common stock
(237,516
)
 
(200,139
)
Restricted stock units withholdings
(42,053
)
 
(28,352
)
Proceeds from issuance of common stock through various stock plans
19,358

 
37,865

Payment of dividends to stockholders
(174,260
)
 
(167,477
)
Repayment of convertible debt
(457,918
)
 
—

Proceeds from issuance of long-term debt, net
745,175

 
—

Other financing activities
(1,325
)
 
—

Net cash used in financing activities
(148,539
)
 
(358,103
)
Net increase in cash and cash equivalents
103,498

 
186,674

Cash and cash equivalents at beginning of period
966,695

 
503,816

Cash and cash equivalents at end of period
$
1,070,193

 
$
690,490

Supplemental disclosure of cash flow information:
 
 
 
Interest paid
$
18,608

 
$
20,688

Income taxes paid, net
$
14,789

 
$
9,118


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 April 1, 2017. 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 31, 2018 or any future period.
The Company uses a 52- to 53-week fiscal year ending on the Saturday nearest March 31. Fiscal year 2018 and fiscal year 2017 are both 52-week years ending on March 31, 2018 and April 1, 2017, respectively. The quarters ended on September 30, 2017 and October 1, 2016 each consisted of 13 weeks.

Note 2.
Recent Accounting Changes and Accounting Pronouncements

In April 2014, the Financial Accounting Standards Board (FASB) issued the authoritative guidance, as amended, that outlines a new global revenue recognition standard that replaces virtually all existing U.S. GAAP guidance on contracts with customers and the related other assets and deferred costs. The authoritative 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 authoritative guidance 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 new authoritative guidance 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 full impact of this new authoritative guidance on its consolidated financial statements, including selection of the transition method. However, assuming all other revenue recognition criteria have been met, it is expected that the new authoritative guidance would require the Company to recognize revenue and cost relating to distributor sales upon product delivery (Sell-In), subject to estimated allowance for distributor price adjustments and rights of return, rather than deferring the distributor sales upon product delivery and subsequently recognizing revenue when the product is sold by the distributor to the end customer (Sell-Through). Upon adoption, the Company currently expects that it will record the balance of the deferred revenue (subject to true-ups) under Sell-Through to retained earnings, and the impact would be offset by the recognition of revenue on shipments post adoption under Sell-In. The Company continues to evaluate the impact to revenues and related disclosures related to the pending adoption of the new guidance and the preliminary assessments are subject to change. Depending on timing of customer orders, timing of shipment to distributors and to end customers, distributor inventory strategies and other factors that may be beyond the Company's control, the difference in revenue recognized under Sell-Through and Sell-In could be material in the future. The authoritative guidance will be effective for the Company beginning in fiscal year 2019 as the Company decided not to early adopt it in fiscal year 2018.

In January 2016, the FASB issued the final authoritative guidance regarding how companies measure equity investments that do not result in consolidation and are not accounted for under the equity method and how they present changes in the fair value of financial liabilities measured under the fair value option. The new authoritative guidance also changes certain disclosure requirements and other aspects of current U.S. GAAP. It does not change the guidance for classifying and measuring investments in debt securities and loans. The authoritative guidance is effective for public business entities for annual periods beginning after December 15, 2017, and interim periods within those annual periods, which for Xilinx would be the first quarter of fiscal year 2019. Upon adoption, the Company would record all of the unrealized gains or losses from its investment in mutual funds to retained earnings, and subsequent changes in fair value from such investments will be recorded under its consolidated statements of income.

In February 2016, the FASB issued the authoritative guidance on leases. The new authoritative guidance requires the recognition of assets and liabilities arising from lease transactions on the balance sheet and will also require significant additional disclosures about the amount, timing and uncertainty of cash flows from leases. Accordingly, a lessee will recognize a lease asset for its right to use the underlying asset and a lease liability for the corresponding lease obligation. The new authoritative guidance is effective for public business entities for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years, which for Xilinx would be the first quarter of fiscal year 2020. Early adoption is permitted. The new authoritative guidance must be adopted using a modified retrospective transition, and provides for certain practical expedients. In addition, the transition will

7

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require application of the new authoritative guidance at the beginning of the earliest comparative period presented. The Company is currently evaluating the impact of this new authoritative guidance on its consolidated financial statements.

In August 2016, the FASB issued authoritative guidance for cash flow classification. The new authoritative guidance is intended to reduce diversity in practice in how cash receipts and cash payments are classified in the statement of cash flows. The new authoritative guidance will be effective for public business entities in fiscal years beginning after December 15, 2017, including interim periods within those years, which for Xilinx would be the first quarter of fiscal year 2019. Early adoption is permitted. The Company is currently evaluating the impact of this new authoritative guidance on its consolidated financial statements.

In October 2016, the FASB issued authoritative guidance for accounting for income taxes which eliminates the deferred tax effects of intra-entity asset transfers other than inventory. As a result, a reporting entity would recognize the tax expense from the sale of an asset in the seller’s tax jurisdiction when the transfer occurs, even though the pre-tax effects of that transaction are eliminated in consolidation. The new authoritative guidance will be effective for public business entities in fiscal years beginning after December 15, 2017, which for Xilinx would be the first quarter of fiscal year 2019. Early adoption is permitted as of the beginning of the annual period. The authoritative guidance will be effective for the Company beginning in fiscal year 2019 as the Company decided not to early adopt it in fiscal year 2018. The Company is currently evaluating the impact of this new authoritative guidance on its consolidated financial statements.

In May 2017, the FASB issued authoritative guidance that clarifies the scope of modification accounting for share-based compensation. Under the new guidance, modification accounting is required only if the fair value, the vesting conditions, or the classification of the award (as equity or liability) changes as a result of the change in terms or conditions. The new guidance will reduce diversity in practice and result in fewer changes to the terms of an award being accounted for as modifications. The new authoritative guidance will be effective for public business entities in fiscal years beginning after December 15, 2017, which for Xilinx would be the first quarter of fiscal year 2019. Early adoption is permitted as of the beginning of the annual period. The authoritative guidance will be effective for the Company beginning in fiscal year 2019 as the Company decided not to early adopt it in fiscal year 2018. The Company is currently evaluating the impact of this new authoritative guidance on its consolidated financial statements.

In August 2017, the FASB issued authoritative guidance that amended the accounting for hedging activities. The guidance permits more hedging strategies to be eligible for hedge accounting and simplifies the application of hedge accounting guidance in areas where practice issues exist. The new authoritative guidance will be effective for public business entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2018, which for Xilinx would be the first quarter of fiscal year 2020. Early adoption is permitted, including adoption in any interim periods after issuance of the authoritative guidance. The Company is currently evaluating the impact of this new authoritative guidance on its consolidated financial statements.

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 30, 2017 and April 1, 2017, Avnet accounted for 67% and 59% of the Company’s total net accounts receivable, respectively. For the second quarter and first six months of fiscal year 2018, resale of product through Avnet accounted for 44% and 42% of the Company’s worldwide net revenues, respectively. For the second quarter and the first six months of fiscal year 2017, resale of product through Avnet accounted for 43% and 50% of the Company’s worldwide net revenues, respectively.

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 years 2018 and 2017.

The Company mitigates concentrations of credit risk in its investments in debt securities by currently investing approximately 84% of its portfolio in AA (or its equivalent) 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 and interest rate swap 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.

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As of September 30, 2017, approximately 33% 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 authoritative 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.

The Company validates the consensus prices by taking random samples from each asset type and corroborating those prices using reported trade activities, 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 year 2018 and the Company did not adjust or override any fair value measurements as of September 30, 2017.

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 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, U.S. agency securities, foreign government and agency securities, mortgage-backed securities, debt mutual funds, bank loans, asset-backed securities and commercial mortgage-backed securities. The Company’s Level 2 assets and liabilities also include foreign currency forward contracts and interest rate 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 has no Level 3 assets and liabilities.

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

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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 September 30, 2017 and April 1, 2017:

 
 
September 30, 2017
(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
 
$
323,034

 
$
—

 
$
—

 
$
323,034

Financial institution securities
 
—

 
255,864

 
—

 
255,864

Non-financial institution securities
 
—

 
192,800

 
—

 
192,800

U.S. government and agency securities
 
13,880

 
31,528

 
—

 
45,408

Foreign government and agency securities
 
—

 
184,868

 
—

 
184,868

Short-term investments:
 

 

 

 

Financial institution securities
 
—

 
324,853

 
—

 
324,853

Non-financial institution securities
 
—

 
226,546

 
—

 
226,546

U.S. government and agency securities
 
27,098

 
23,158

 
—

 
50,256

Foreign government and agency securities
 
—

 
79,920

 
—

 
79,920

Asset-backed securities
 
—

 
217,827

 
—

 
217,827

Mortgage-backed securities
 
—

 
1,154,680

 
—

 
1,154,680

Debt mutual fund
 
—

 
34,029

 
—

 
34,029

Bank loans
 
—

 
157,899

 
—

 
157,899

Commercial mortgage-backed securities

—


244,017


—


244,017

Long-term investments:
 

 

 

 

Asset-backed securities
 
—

 
1,430

 
—

 
1,430

Mortgage-backed securities
 
—

 
41,971

 
—

 
41,971

Debt mutual fund
 
—

 
56,461

 
—

 
56,461

Total assets measured at fair value
 
$
364,012

 
$
3,227,851

 
$
—

 
$
3,591,863

Liabilities
 
 
 
 
 
 
 
 
Derivative financial instruments, net
 
$
—

 
$
1,462

 
$
—

 
$
1,462

Total liabilities measured at fair value
 
$
—

 
$
1,462

 
$
—

 
$
1,462

Net assets measured at fair value
 
$
364,012

 
$
3,226,389

 
$
—

 
$
3,590,401






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April 1, 2017
(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
$
298,307

 
$
—

 
$
—

 
$
298,307

Non-financial institution securities
—

 
205,322

 
—

 
205,322

Foreign government and agency securities
—

 
177,310

 
—

 
177,310

Financial institution securities
—

 
158,962

 
—

 
158,962

U.S government and agency securities
2,998

 
50,984

 
—

 
53,982

Short-term investments:

 

 

 


Financial institution securities
—

 
189,835

 
—

 
189,835

Non-financial institution securities
—

 
203,938

 
—

 
203,938

U.S. government and agency securities
31,732

 
44,820

 
—

 
76,552

Foreign government and agency securities
—

 
144,811

 
—

 
144,811

Mortgage-backed securities
—

 
1,115,403

 
—

 
1,115,403

Debt mutual fund
—

 
34,068

 
—

 
34,068

Bank loans
—

 
154,014

 
—

 
154,014

Asset-backed securities
—

 
218,170

 
—

 
218,170

Commercial mortgage-backed securities
—


217,971


—


217,971

Long-term investments:

 

 

 


Mortgage-backed securities
—

 
60,099

 
—

 
60,099

Debt mutual fund
—

 
54,608

 
—

 
54,608

Asset-backed securities
—


1,581


—


1,581

Derivative financial instruments, net
—


1,661


—


1,661

Total assets measured at fair value
$
333,037

 
$
3,033,557

 
$
—

 
$
3,366,594


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 30, 2017
 
October 1, 2016
 
September 30, 2017
 
October 1, 2016
Balance as of beginning of period
$
—

 
$
10,068

 
$
—

 
$
9,977

Total unrealized gains (losses):

 

 

 

Included in other comprehensive income (loss)
—

 
92

 
—

 
183

Balance as of end of period
$
—

 
$
10,160

 
$
—

 
$
10,160


As of September 30, 2017, the Company held no marketable securities measured at fair value using Level 3 inputs.

Financial Instruments Not Recorded at Fair Value on a Recurring Basis

The Company's $500.0 million principal amount of 2.125% notes due March 15, 2019 (2019 Notes), $500.0 million principal amount of 3.000% notes due March 15, 2021 (2021 Notes) and $750.0 million principal amount of 2.950% senior notes due June 1,

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2024 (2024 Notes) are measured at fair value on a quarterly basis for disclosure purposes. The fair values of the 2019 Notes, 2021 Notes and 2024 Notes as of September 30, 2017 were approximately $501.3 million, $509.6 million and $750.1 million, respectively, based on the last trading price 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:
 
September 30, 2017
 
 
April 1, 2017
(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
$
323,034

 
$
—

 
$
—

 
$
323,034

 
 
$
298,307

 
$
—

 
$
—

 
$
298,307

Financial institution


 


 


 


 
 


 


 


 


securities
580,717

 
—

 
—

 
580,717

 
 
348,797

 
—

 
—

 
348,797

Non-financial institution


 


 


 


 
 


 


 


 


securities
418,879

 
744

 
(277
)
 
419,346

 
 
409,109

 
647

 
(496
)
 
409,260

U.S. government and
—

 

 

 

 
 

 

 

 

agency securities
95,793

 
5

 
(134
)
 
95,664

 
 
130,749

 
8

 
(223
)
 
130,534

Foreign government and
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
agency securities
264,788

 
—

 
—

 
264,788

 
 
322,172

 
—

 
(51
)
 
322,121

Mortgage-backed securities
1,201,005

 
5,409

 
(9,763
)
 
1,196,651

 
 
1,186,732

 
3,527

 
(14,757
)
 
1,175,502

Asset-backed securities
219,255

 
480

 
(478
)
 
219,257

 
 
220,033

 
404

 
(686
)
 
219,751

Debt mutual funds
101,350

 
—

 
(10,860
)
 
90,490

 
 
101,350

 
—

 
(12,674
)
 
88,676

Bank loans
157,510

 
643

 
(254
)
 
157,899

 
 
153,281

 
839

 
(106
)
 
154,014

Commercial mortgage-
























backed securities
247,390


199


(3,572
)

244,017


 
221,504


146


(3,679
)

217,971

 
$
3,609,721

 
$
7,480

 
$
(25,338
)
 
$
3,591,863

 
 
$
3,392,034

 
$
5,571

 
$
(32,672
)
 
$
3,364,933


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 30, 2017 and April 1, 2017:

 
September 30, 2017
 
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
$
62,033

 
$
(210
)
 
$
5,606

 
$
(67
)
 
$
67,639

 
$
(277
)
U.S. government and

 

 

 

 


 


    agency securities
34,015

 
(125
)
 
5,130

 
(9
)
 
39,145

 
(134
)
Mortgage-backed securities
730,974

 
(6,516
)
 
157,026

 
(3,247
)
 
888,000

 
(9,763
)
Asset-backed securities
135,560

 
(464
)
 
4,757

 
(14
)
 
140,317

 
(478
)
Debt mutual funds
—

 
—

 
90,490

 
(10,860
)
 
90,490

 
(10,860
)
Bank loans
30,107

 
(254
)

—

 
—

 
30,107

 
(254
)
Commercial mortgage-













backed securities
119,843


(893
)

60,028


(2,679
)

179,871


(3,572
)
 
$
1,112,532

 
$
(8,462
)
 
$
323,037

 
$
(16,876
)
 
$
1,435,569

 
$
(25,338
)


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Table of Contents

 
April 1, 2017
 
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
$
68,850

 
$
(492
)
 
$
1,022

 
$
(4
)
 
$
69,872

 
$
(496
)
U.S. government and

 

 

 

 

 

    agency securities
64,895

 
(223
)
 
—

 
—

 
64,895

 
(223
)
Mortgage-backed securities
811,058

 
(11,872
)
 
139,931

 
(2,885
)
 
950,989

 
(14,757
)
Asset-backed securities
119,845

 
(651
)
 
4,689

 
(35
)
 
124,534

 
(686
)
Debt mutual funds
—

 
—

 
88,676

 
(12,674
)
 
88,676

 
(12,674
)
Bank loans
15,139


(106
)

—


—


15,139


(106
)
Foreign government and
 
 
 
 
 
 
 
 
 
 
 
    agency securities
64,857

 
(51
)
 
—

 
—

 
64,857

 
(51
)
Commercial mortgage-

















 backed securities
165,393


(1,706
)
 
24,362


(1,973
)

189,755


(3,679
)
 
$
1,310,037

 
$
(15,101
)
 
$
258,680

 
$
(17,571
)
 
$
1,568,717

 
$
(32,672
)

As of September 30, 2017, 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 debt mutual funds, mortgage-backed securities and commercial mortgage-backed securities, which were primarily due to the general rising of the interest-rate environment and foreign currency movement.

The Company reviewed the investment portfolio and determined that the gross unrealized losses on these investments as of September 30, 2017 and April 1, 2017 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, there have been no defaults on any of these securities and we have received interest payments as they become due. Therefore, the Company believes that it will be able to collect both principal and interest amount due to the Company. Additionally, in the past several years a portion of the Company's investment in 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 were not significant as of September 30, 2017 and April 1, 2017, the majority of which were related to debt mutual funds due to foreign currency and interest rate fluctuations. 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 amortized cost and estimated fair value of marketable debt securities (financial institution securities, non-financial institution securities, U.S. and foreign government and agency securities, asset-backed securities, bank loans, mortgage-backed securities and commercial mortgage-backed securities), by contractual maturity, are shown in the table 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 30, 2017
(In thousands)
Amortized
Cost
 
Estimated
Fair Value
Due in one year or less
$
1,200,344

 
$
1,200,345

Due after one year through five years
469,451

 
467,424

Due after five years through ten years
312,956

 
312,503

Due after ten years
1,202,586

 
1,198,067


$
3,185,337

 
$
3,178,339

As of September 30, 2017, $1.93 billion 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.

13

Table of Contents

Certain information related to available-for-sale securities is as follows:
 
Three Months Ended
 
Six Months Ended
(In thousands)
September 30, 2017
 
October 1, 2016
 
September 30, 2017
 
October 1, 2016
Proceeds from sale of available-for-sale securities
$
149,497

 
$
153,871

 
$
269,419

 
$
253,345

Gross realized gains on sale of available-for-sale securities
$
519

 
$
762

 
$
1,351

 
$
1,427

Gross realized losses on sale of available-for-sale securities
(209
)
 
(92
)
 
(595
)
 
(604
)
Net realized gains on sale of available-for-sale securities
$
310

 
$
670

 
$
756

 
$
823

Amortization of premiums on available-for-sale securities
$
4,691

 
$
7,414

 
$
10,213

 
$
14,175


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

Note 6.
Derivative Financial Instruments

The Company entered into interest rate swap contracts with certain independent financial institutions to manage interest rate risks related to fixed interest rate expenses from its 2024 Notes and floating interest rate income from its investments in marketable debt securities. See “Note 10. Debt and Credit Facility” for more discussion related to interest rate swap contracts. The interest rate swap contracts were designated and qualified as fair value hedges of the 2024 Notes, and were separately accounted for as a derivative. The interest rate swap contracts and the 2024 Notes were initially measured at fair value. Any subsequent changes in fair values of the interest rate swap contracts and the 2024 Notes will be recorded in the Company’s consolidated balance sheets. During the six months ended September 30, 2017, the net change in fair values of the interest rate swap contracts and the underlying 2024 Notes was $2.8 million, which was recorded as a derivative liability for the interest rate swap contacts (as a component of other long-term liabilities on the condensed consolidated balance sheets) and also a reduction from the carrying amount of 2024 Notes. There was no ineffectiveness during all periods presented. Other than this arrangement, there have been no material changes to the Company's derivative financial instruments since April 1, 2017.

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 30, 2017
 
October 1, 2016
 
September 30, 2017
 
October 1, 2016
Stock-based compensation included in:

 

 

 

Cost of revenues
$
2,147

 
$
1,930

 
$
4,297

 
$
4,049

Research and development
20,096

 
16,529

 
37,562

 
31,649

Selling, general and administrative
14,129

 
11,343

 
26,549

 
23,508

 
$
36,372

 
$
29,802

 
$
68,408

 
$
59,206


Employee Stock Option Plans

The types of awards allowed under the 2007 Equity Incentive Plan (2007 Equity Plan) include incentive stock options, non-qualified stock options, restricted stock units (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; however, there was no issuance of stock options during the first six months of fiscal year 2018 and the entire fiscal year 2017. The Company's stock-based compensation expenses related to options during the first six months of fiscal year 2018 and the number of options outstanding as of September 30, 2017 were not material. On August 9, 2017, the stockholders approved an amendment to increase the authorized number of shares

14

Table of Contents

reserved for issuance under the 2007 Equity Plan by 1.9 million shares. As of September 30, 2017, 11.4 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 30, 2017 was $465 thousand and $3.2 million, respectively. The total pre-tax intrinsic value of options exercised during the three and six months ended October 1, 2016 was $8.8 million and $21.4 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:
 
 
RSUs Outstanding
(Shares in thousands)
Number of Shares
 
Weighted-Average Grant-Date Fair Value Per Share
April 2, 2016
6,619

 
$
40.74

Granted
3,398

 
$
44.38

Vested
(2,619
)
 
$
39.49

Cancelled
(410
)
 
$
41.63

April 1, 2017
6,988

 
$
42.93

Granted
3,262

 
$
59.89

Vested
(2,288
)
 
$
41.99

Cancelled
(314
)
 
$
46.76

September 30, 2017
7,648

 
$
49.91


The estimated fair values of 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 year 2018 was $59.99 ($42.89 for the second quarter of fiscal year 2017), and for the first six months of fiscal year 2018 was $59.89 ($42.87 for the first six months of fiscal year 2017), which were calculated based on estimates at the date of grant using the following weighted-average assumptions: 
 
Three Months Ended
 
Six Months Ended

September 30, 2017
 
October 1, 2016
 
September 30, 2017
 
October 1, 2016
Risk-free interest rate
1.7
%
 
0.8
%
 
1.7
%
 
0.8
%
Dividend yield
2.2
%
 
2.9
%
 
2.2
%
 
2.9
%

For the majority of RSUs 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 the Company pays in cash to the appropriate taxing authorities on behalf of its employees.

During the second quarter and the first six months of fiscal year 2018, the Company realized excess tax benefits of $6.3 million and $17.9 million, respectively. During the second quarter and the first six months of fiscal year 2017, the Company realized excess tax benefits of $2.9 million and $9.7 million, respectively. These benefits were recorded in the condensed consolidated statements of income as a component of the provision for income taxes.

Employee Stock Purchase Plan

Under the ESPP, shares are only issued during the second and fourth quarters of each fiscal year. Employees purchased 355 thousand shares for $16.9 million during the second quarter of fiscal year 2018 and 446 thousand shares for $15.0 million during the second quarter of fiscal year 2017. The per-share weighted-average fair value of stock purchase rights granted under the ESPP during the second quarter of fiscal years 2018 and 2017 was $16.46 and $11.64, respectively. The fair values of stock purchase plan rights granted in the second quarter of fiscal years 2018 and 2017 were estimated using the Black-Scholes option pricing model at the date of grant using the following assumptions:

15

Table of Contents


2018
 
2017
Expected life of options (years)
1.25

 
1.25

Expected stock price volatility
0.28

 
0.23

Risk-free interest rate
1.3
%
 
0.5
%
Dividend yield
2.2
%
 
2.6
%

The next scheduled purchase under the ESPP is in the fourth quarter of fiscal year 2018. On August 9, 2017, 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 30, 2017, 9.9 million shares were available for future issuance under the ESPP.

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:
 
Three Months Ended
 
Six Months Ended
(In thousands, except per share amounts)
September 30, 2017
 
October 1, 2016
 
September 30, 2017
 
October 1, 2016
Net income available to common stockholders
$
167,532

 
$
164,192

 
$
334,777

 
$
327,241

Weighted average common shares outstanding-basic
248,094

 
253,466

 
247,960

 
253,056

Dilutive effect of employee equity incentive plans
2,532

 
2,126

 
2,949

 
2,319

Dilutive effect of 2017 Convertible Notes
—

 
9,587

 
2,986

 
8,736

Dilutive effect of warrants
7,591

 
5,194

 
7,844

 
3,774

Weighted average common shares outstanding-diluted
258,217

 
270,373

 
261,739

 
267,885

Basic earnings per common share
$
0.68

 
$
0.65

 
$
1.35

 
$
1.29

Diluted earnings per common share
$
0.65

 
$
0.61

 
$
1.28

 
$
1.22


The total shares used in the denominator of the diluted net income per common share calculation include potentially dilutive common equivalent shares outstanding that are not included in basic net income per common share calculation. The diluted shares were calculated by applying the treasury stock method to the impact of the equity incentive plans, the incremental shares issuable assuming conversion of the Company's $600.0 million principal amount of 2.625% convertible notes issued in June 2010 (2017 Convertible Notes), before its maturity on June 15, 2017, and exercise of warrants on a weighted-average outstanding basis. The 2017 Convertible Notes matured during the first quarter of fiscal year 2018, and the Company exercised its call options to neutralize the dilutive effect of the incremental shares from the 2017 Convertible Notes. Because the number of diluted shares in the above table for the six months ended September 30, 2017 was calculated based on a weighted-average outstanding basis, it included approximately 3.0 million shares of dilutive impact from the 2017 Convertible Notes through the maturity date. See "Note 10. Debt and Credit Facility" for more discussion of the Company's debt, call options and warrants.

Outstanding stock options and RSUs under the Company's stock award plans to purchase approximately 1.0 million and 3.2 million shares, for the second quarter and the first six months of fiscal year 2018, 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.    


16

Table of Contents

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 30, 2017
 
April 1, 2017
Raw materials
$
16,699

 
$
14,517

Work-in-process
152,252

 
161,120

Finished goods
46,446

 
51,396

 
$
215,397

 
$
227,033


Note 10.
Debt and Credit Facility
2017 Convertible Notes
During the first quarter of fiscal year 2018, the Company received conversion requests from the remaining holders of the 2017 Convertible Notes. Upon settlement, the holders received a cash payment equal to the par value of the 2017 Convertible Notes of $457.9 million, as well as 9.0 million shares of the Company's common stock. In conjunction with the settlement, the Company exercised its call options on its shares of common stock that it purchased to hedge against the dilution from the conversion of the 2017 Convertible Notes, and received 9.0 million shares from the hedge counterparties. As of the end of the first quarter of fiscal year 2018, the 2017 Convertible Notes were no longer outstanding.
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 30, 2017
 
April 1, 2017
Liability component:

 

   Principal amount of the 2017 Convertible Notes
$
—

 
$
457,918

   Unamortized discount of liability component
—

 
(1,977
)
   Hedge accounting adjustment – sale of interest rate swap
—

 
571

   Unamortized debt issuance costs associated with 2017 Convertible Notes
—

 
(184
)
   Net carrying value of the 2017 Convertible Notes
$
—

 
$
456,328




 


Equity component (including temporary equity) – net carrying value
$
—

 
$
50,688


Prior to the conversion, interest expense related to the 2017 Convertible Notes was included in interest and other income (expense), net on the condensed consolidated statements of income, and was recognized as follows:
 
Three Months Ended
 
Six Months Ended
(In thousands)
September 30, 2017
 
October 1, 2016
 
September 30, 2017
 
October 1, 2016
Contractual coupon interest
$
—

 
$
3,938

 
$
2,300

 
$
7,875

Amortization of debt issuance costs
—

 
362

 
184

 
724

Amortization of debt discount, net
—

 
2,763

 
1,406

 
5,526

Total interest expense related to the 2017 Convertible Notes
$
—

 
$
7,063

 
$
3,890

 
$
14,125

To reduce the hedging costs of purchasing the call options on its common stock as described above, the Company, under separate transactions, sold warrants to independent counterparties, which give the counterparties the right to purchase up to 21.1 million shares of the Company's common stock at $40.26 per share. Portions of the warrants were exercised during the quarter ended September 30, 2017 and the Company issued 2.2 million shares of its common stock as part of the settlement. The remainder of the warrants will expire and settle on a gradual basis through November 2017. Subsequent to the quarter-end, as of October 26, 2017, the Company issued 2.3 million shares of its common stock as part of the settlement of additional warrant exercises.

17

Table of Contents

2019 Notes and 2021 Notes

On March 12, 2014, the Company issued the 2019 Notes and 2021 Notes at a discounted price of 99.477% and 99.281% of par, respectively. Interest on the 2019 Notes and 2021 Notes is payable semi-annually on March 15 and September 15.

The Company received net proceeds of $990.1 million from issuance of the 2019 Notes and 2021 Notes, after the debt discount and deduction of debt issuance costs. The debt discounts and issuance costs are amortized to interest expense over the terms of the 2019 Notes and 2021 Notes. As of September 30, 2017, the remaining term of the 2019 Notes and 2021 Notes are 1.5 years and 3.5 years, respectively.

The following table summarizes the carrying value of the 2019 Notes and 2021 Notes as of September 30, 2017 and April 1, 2017:
(In thousands)
September 30, 2017
 
April 1, 2017
Principal amount of the 2019 Notes
$
500,000

 
$
500,000

Unamortized discount of the 2019 Notes
(770
)
 
(1,037
)
Unamortized debt issuance costs associated with the 2019 Notes
(484
)
 
(654
)
Principal amount of the 2021 Notes
500,000

 
500,000

Unamortized discount of the 2021 Notes
(1,852
)
 
(2,107
)
Unamortized debt issuance costs associated with the 2021 Notes
(833
)
 
(955
)
Total carrying value
$
996,061

 
$
995,247


Interest expense related to the 2019 Notes and 2021 Notes was included in interest and other income (expense), net on the condensed consolidated statements of income as follows:
 
Three Months Ended
 
Six Months Ended
(In thousands)
September 30, 2017
 
October 1, 2016
 
September 30, 2017
 
October 1, 2016
Contractual coupon interest
$
6,406

 
$
6,406

 
$
12,813

 
$
12,813

Amortization of debt issuance costs
146

 
146

 
293

 
293

Amortization of debt discount, net
262

 
255

 
520

 
507

Total interest expense related to the 2019 Notes and 2021 Notes
$
6,814

 
$
6,807

 
$
13,626

 
$
13,613


2024 Notes

On May 30, 2017, the Company issued the 2024 Notes at a discounted price of 99.887% of par. Interest on the 2024 Notes is payable semi-annually on June 1 and December 1.

The Company received $745.2 million from the issuance of the 2024 Notes, after the debt discount and deduction of debt issuance costs. The debt discounts and issuance costs are amortized to interest expense over the term of the 2024 Notes. As of September 30, 2017, the remaining term of the 2024 Notes is approximately 6.7 years.

In relation to the issuance of the 2024 Notes, the Company entered into interest rate swap contracts with certain independent financial institutions, whereby the Company pays on a semi-annual basis, a variable interest rate equal to the three-month London Interbank Offered Rate (LIBOR) plus 91.43 bps, and receives on a semi-annual basis, interest income at a fixed interest rate of 2.950%. The Company earned a net interest income of $1.5 million and $2.1 million during the three and six months ended September 30, 2017, respectively, from the interest rate swap contracts, which was included in interest and other income (expense), net on the condensed consolidated statements of income as a reduction to interest expense. As of September 30, 2017, the fair value of the interest rate swap contracts was $2.8 million, which was recorded in other long-term liabilities on the condensed consolidated balance sheets.

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The following table summarizes the carrying value of the 2024 Notes as of September 30, 2017 and April 1, 2017:
(In thousands)
September 30, 2017
 
April 1, 2017
Principal amount of the 2024 Notes
$
750,000

 
$
—

Unamortized discount of the 2024 Notes
(810
)
 
—

Unamortized debt issuance costs associated with 2024 Notes
(3,789
)
 
—

Carrying value of the 2024 Notes
$
745,401

 
$
—

Fair value hedge adjustment - interest rate swap contracts
(2,796
)
 
—

Net carrying value of the 2024 Notes
$
742,605

 
$
—


Interest expense related to the 2024 Notes was included in interest and other income (expense), net on the condensed consolidated statements of income as follows:
 
Three Months Ended
 
Six Months Ended
(In thousands)
September 30, 2017
 
October 1, 2016
 
September 30, 2017
 
October 1, 2016
Contractual coupon interest
$
4,046

 
$
—

 
$
5,368

 
$
—

Amortization of debt issuance costs
142

 
—

 
189

 
—

Amortization of debt discount, net
27

 
—

 
37

 
—

Total interest expense related to the 2024 Notes
$
4,215

 
$
—

 
$
5,594

 
$
—


Revolving Credit Facility

On December 7, 2016, the Company entered into a $400.0 million senior unsecured revolving credit facility that, upon certain conditions, may be extended by an additional $150.0 million, with a syndicate of banks (expiring in December 2021). 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 30, 2017, 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. On May 16, 2016, the Board authorized the repurchase of up to $1.00 billion of the Company's common stock and debentures (2016 Repurchase Program). The 2016 Repurchase Program has no stated expiration date.
Through September 30, 2017, the Company had used $555.4 million of the $1.00 billion authorized under the 2016 Repurchase Program, leaving $444.6 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 30, 2017 and April 1, 2017.

During the first six months of fiscal year 2018, the Company repurchased 3.7 million shares of common stock in the open market and through an accelerated share repurchase agreement with an independent financial institution for a total of $237.5 million. During the first six months of fiscal year 2017, the Company repurchased 4.1 million shares of common stock in the open market for a total of $200.1 million.


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Note 12.
Interest and Other Income (Expense), Net
The components of interest and other income (expense), net are as follows: 
 
Three Months Ended
 
Six Months Ended
(In thousands)
September 30, 2017
 
October 1, 2016
 
September 30, 2017
 
October 1, 2016
Interest income
$
13,832

 
$
12,098

 
$
27,246

 
$
23,564

Interest expense
(11,029
)
 
(13,870
)
 
(23,110
)
 
(27,738
)
Other income (expense), net
(972
)
 
621

 
(467
)
 
(1,564
)
Interest and other income (expense), net
$
1,831

 
$
(1,151
)
 
$
3,669

 
$
(5,738
)

Note 13.
Accumulated Other Comprehensive Loss
Comprehensive income (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 30, 2017
 
April 1, 2017
Accumulated unrealized losses on available-for-sale securities, net of tax
$
(11,260
)
 
$
(17,091
)
Accumulated unrealized gains on hedging transactions, net of tax
854

 
661

Accumulated cumulative translation adjustment, net of tax
(5,813
)
 
(8,251
)
Accumulated other comprehensive loss
$
(16,219
)
 
$
(24,681
)

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 $19.5 million and $34.5 million for the second quarter and the first six months of fiscal year 2018, respectively, representing an effective tax rate of 10% and 9%, respectively. The Company recorded tax provisions of $11.5 million and $30.0 million for the second quarter and the first six months of fiscal year 2017, respectively, representing an effective tax rate of 7% and 8%, respectively.
The difference between the U.S. federal statutory tax rate of 35% and the Company’s effective tax rate in all periods was 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 30, 2017 increased by $90.6 million in the first six months of fiscal year 2018 to $121.0 million. The increase is primarily attributable to an additional deduction claimed on federal and state amended returns for repurchase premium paid in connection with the early redemption of the Company’s 3.125% Junior Convertible debenture due March 15, 2037 (2037 Convertible Notes) in fiscal year 2014.  As of September 30, 2017, the total amount of unrecognized tax benefits that, if realized in a future period, would favorably affect the effective tax rate is $13.7 million. Another $85.5 million related to the 2037 Convertible Notes would increase additional paid-in capital.  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 determined at this time.
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 year 2013, U.S. state audits for years through fiscal year 2010 and tax audits in Ireland for years through fiscal year 2011.


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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 April 2029. 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)
2018 (remaining six months)
$
2,916

2019
4,856

2020
6,680

2021
5,659

2022
5,696

Thereafter
29,444

Total
$
55,251

Aggregate future rental income to be received from owned property totaled $9.2 million as of September 30, 2017. Rent expense, net of rental income, under all operating leases was $900 thousand and $2.1 million for the three and six months ended September 30, 2017, respectively. Rent expense, net of rental income, under all operating leases was $1.3 million and $2.5 million for the three and six months ended October 1, 2016, respectively. Rental income was not material for the second quarter and the first six months of fiscal years 2018 and 2017.
Other commitments as of September 30, 2017 totaled $127.1 million and consisted of purchases of inventory and other non-cancelable purchase obligations related to subcontractors that manufacture silicon wafers and provide assembly and 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 30, 2017, the Company had $35.3 million of non-cancelable license obligations to providers of electronic design automation software and hardware/software maintenance expiring at various dates through December 2019.

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 year 2018 and the end of fiscal year 2017, 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). On April 28, 2015, the U.S. Patent Trial and Appeal Board (PTAB) granted Xilinx's request for inter partes review (IPR) with respect to all claims in the litigation. On May 5, 2015, the Court ordered the litigation be stayed pending final resolution of the IPR. On April 18, 2016, the PTAB issued a final written decision in which all of the asserted claims were found unpatentable. On June 14, 2016, PTI filed

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notice of appeal from the final written decision. On June 13, 2017, the Federal Circuit affirmed the PTAB’s findings of invalidity. On July 19, 2017, the U.S. District Court case was dismissed with prejudice.

On February 1, 2017, a patent infringement lawsuit was filed by Godo Kaisha IP Bridge 1 (IP Bridge) against the Company in the U.S. District Court for the Eastern District of Texas (Godo Kaisha IP Bridge 1 v. Xilinx, Inc., Case. No. 2:17-cv-00100).  The lawsuit pertains to two patents and IP Bridge seeks unspecified damages, interest, attorneys’ fees, costs, and a permanent injunction or an on-going royalty.  On the same date, the Company filed a complaint for declaratory judgment of patent non-infringement against IP Bridge in the U.S. District Court for the Northern District of California (Xilinx, Inc. v. Godo Kaisha IP Bridge 1, Case No. 5:17-cv-00509). The complaint filed by the Company pertained to twelve other patents and sought judgment of non-infringement by Xilinx, as well as costs, expenses and attorneys’ fees.  On June 15, 2017, IP Bridge granted Xilinx a royalty-free covenant not to sue for infringement of those twelve patents, and on June 16, 2017, the parties filed a stipulated dismissal without prejudice of the declaratory judgment action in California. The Company is unable to estimate its range of possible loss, if any, in the remaining action in Texas at this time.

On March 17, 2017, a patent infringement lawsuit was filed by Anza Technology, Inc. (Anza) against the Company in the U.S. District Court for the District of Colorado (Anza Technology, Inc. v. Xilinx, Inc., Case No. 1:17-cv-00687).  The lawsuit pertains to three patents and Anza seeks unspecified damages, attorney fees, interest, costs, and expenses.  The Company is unable to estimate its range of possible loss, if any, in this matter at this time.

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

Other Matters

On June 11, 2015, John P. Neblett, as Chapter 7 Trustee of Valley Forge Composite Technologies, Inc., filed a complaint against Xilinx and others in the U.S. Bankruptcy Court for the Middle District of Pennsylvania (Bankruptcy No. 1:13-bk-05253-JJT). The complaint alleges causes of actions against Xilinx for negligence and civil conspiracy relating to alleged violations of U.S. export laws. It seeks at least $50.0 million in damages, together with punitive damages, from the defendants. On September 21, 2015, the action was withdrawn from the U.S. Bankruptcy Court for the Middle District of Pennsylvania and transferred to the U.S. District Court for the Eastern District of Kentucky. On November 2, 2015, Xilinx, along with other defendants, filed a motion to dismiss the complaint. On November 3, 2015, Xilinx filed a motion for sanctions pursuant to Federal Rule of Civil Procedure 11. On June 27, 2016, the Court denied both motions. On September 11, 2017, Xilinx, along with other defendants, filed motions for summary judgment seeking to dispose of the action in its entirety.  The motions are not yet fully briefed and the Court has therefore not ruled on them. The Company intends to vigorously defend the case and is unable to estimate its range of possible loss, if any, in this matter at this time.

On April 4, 2017, Mountjoy Chilton Medley, LLP filed a third-party complaint against Xilinx and others in the U.S. District Court for the Middle District of Pennsylvania (Case No. 4:15-cv-01622-MWB).  The complaint alleges that to the extent the third-party plaintiff is found liable, that the actions or inactions of Xilinx and others entitles the third-party plaintiff to apportionment of damages based on the allegations against Xilinx in the case filed by the Chapter 7 Trustee of Valley Forge Composite Technologies, Inc. On August 28, 2017, Xilinx, along with other third party defendants, filed a motion to dismiss the complaint. On October 10, 2017, the Court granted the motion to dismiss.

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 30, 2017, there have been no material changes to the Company's goodwill and acquisition-related intangibles since April 1, 2017.
 
Note 19.
Subsequent Events

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On October 24, 2017, the Company’s Board of Directors declared a cash dividend of $0.35 per common share for the third quarter of fiscal year 2018. The dividend is payable on December 6, 2017 to stockholders of record on November 15, 2017.


23

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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, 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 sheets; 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 April 1, 2017. 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 year 2018 compared to the second quarter and first six months of fiscal year 2017

The following table sets forth statement of income data as a percentage of net revenues for the periods indicated:

 
Three Months Ended
 
Six Months Ended

September 30, 2017
 
October 1, 2016
 
September 30, 2017
 
October 1, 2016
Net revenues
100.0
%
 
100.0
%
 
100.0
%
 
100.0
%
Cost of revenues
29.8

 
30.4

 
30.5

 
29.8

Gross margin
70.2

 
69.6

 
69.5

 
70.2

Operating expenses:


 

 
 
 
 
Research and development
25.5

 
24.5

 
25.2

 
24.1

Selling, general and administrative
14.7

 
14.4

 
14.6

 
14.4

Amortization of acquisition-related intangibles
0.1

 
0.2

 
0.1

 
0.2

Total operating expenses
40.3

 
39.1

 
39.9

 
38.7

Operating income
29.9

 
30.5

 
29.6

 
31.5

Interest and other income (expense), net
0.3

 
(0.2
)
 
0.3

 
(0.5
)
Income before income taxes
30.2

 
30.3

 
29.9

 
31.0

Provision for income taxes
3.1

 
2.0

 
2.8

 
2.6

Net income
27.1
%
 
28.3
%
 
27.1
%
 
28.4
%
 

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Net Revenues

We sell our products to global manufacturers of electronic products in end markets such as wireline and wireless communications, aerospace and defense, industrial, scientific and medical, audio, video and broadcast, and automotive. The vast majority of our net revenues are generated by sales of our semiconductor products, but we also generate sales from support products, which include configuration solutions, software and support/services. We classify our product offerings into two categories: Advanced Products and Core Products:

•
Advanced Products include our most recent product offerings and include the UltraScale+, UltraScale and 7-series product families.
•
Core Products include all other product families.

These product categories are modified on a periodic basis to better reflect the maturity of the products and advances in technology. The most recent modification was made on April 3, 2016, which was the beginning of our fiscal year 2017, whereby we reclassified our product categories to be consistent with how these categories are analyzed and reviewed internally.  Specifically, we grouped the products manufactured at the 28nm, 20nm and 16nm nodes into a category named Advanced Products while all other products are included in a category named Core Products.

Net revenues of $619.5 million in the second quarter of fiscal year 2018 represented a 7% increase from the comparable prior year period of $579.2 million. Net revenues from Advanced Products increased 21% in the second quarter of fiscal year 2018 versus the comparable prior year period, but the declines from our Core Products partially offset the increase. No end customer accounted for more than 10% of our net revenues for the second quarter and the first six months of fiscal years 2018 and 2017.

For the first six months of fiscal year 2018, approximately 52% of our net revenues were from products sold to distributors for subsequent resale to original equipment manufacturers (OEMs) or their subcontract manufacturers. As of September 30, 2017, we had $70.2 million of deferred revenue and $19.2 million of deferred cost of revenues recognized as a net $51.0 million of deferred income on shipments to distributors. As of April 1, 2017, we had $74.2 million of deferred revenue and $19.6 million of deferred cost of revenues recognized as a net $54.6 million of deferred income on shipments to distributors. The deferred income on shipments to distributors that will ultimately be recognized in our condensed consolidated statements of income will be different than the amount shown on the condensed consolidated balance sheets due to actual price adjustments issued to the distributors when the product is sold to their end customers.

Net Revenues by Product

Net revenues by product categories for the second quarter and the first six months of fiscal years 2018 and 2017 were as follows:
 
 
Three Months Ended
 
Six Months Ended
(In millions)
September 30, 2017
 
%
Change
 
October 1, 2016
 
September 30, 2017
 
%
Change
 
October 1, 2016
Advanced Products
$
324.2

 
21

 
$
267.3

 
$
646.4

 
27

 
$
509.5

Core Products
295.3

 
(5
)
 
311.9

 
588.5

 
(9
)
 
644.7

Total net revenues
$
619.5

 
7

 
$
579.2

 
$
1,234.9

 
7