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EX-32.1 - EXHIBIT 32.1 - XILINX INCxlnx06272015ex321.htm
EX-31.2 - EXHIBIT 31.2 - XILINX INCxlnx06272015ex312.htm
EX-31.1 - EXHIBIT 31.1 - XILINX INCxlnx06272015ex311.htm
EX-32.2 - EXHIBIT 32.2 - XILINX INCxlnx06272015ex322.htm


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 June 27, 2015
or
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ________ to _______ .
Commission File Number 000-18548
 ______________________________________________________________________________
Xilinx, Inc.
(Exact name of registrant as specified in its charter)
 ______________________________________________________________________________
 
Delaware
 
 
 
77-0188631
(State or other jurisdiction of
incorporation or organization)
 
 
 
(I.R.S. Employer
Identification No.)
 
 
 
 
 
2100 Logic Drive, San Jose, California
 
 
 
95124
(Address of principal executive offices)
 
 
 
(Zip Code)
(408) 559-7778
(Registrant’s telephone number, including area code)
N/A
(Former name, former address, and former fiscal year, if changed since last report)
 ______________________________________________________________________________
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer
 
x
  
Accelerated filer
 
¨
 
 
 
 
 
 
 
Non-accelerated filer
 
¨
  
Smaller reporting company
 
¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x
Shares outstanding of the registrant’s common stock:
Class
 
Shares Outstanding as of July 17, 2015
Common Stock, $.01 par value
 
258,657,885




TABLE OF CONTENTS
 

2


PART I.
FINANCIAL INFORMATION

Item 1.
Financial Statements
XILINX, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
 
 
Three Months Ended
(In thousands, except per share amounts)
June 27, 2015
 
June 28, 2014
Net revenues
$
549,008

 
$
612,633

Cost of revenues
159,954

 
189,189

Gross margin
389,054

 
423,444

Operating expenses:

 

Research and development
126,648

 
122,013

Selling, general and administrative
82,143

 
92,513

Amortization of acquisition-related intangibles
1,769

 
2,418

Total operating expenses
210,560

 
216,944

Operating income
178,494

 
206,500

Interest and other expense, net
10,527

 
6,222

Income before income taxes
167,967

 
200,278

Provision for income taxes
20,252

 
26,667

Net income
$
147,715

 
$
173,611

Net income per common share:

 

Basic
$
0.57

 
$
0.65

Diluted
$
0.55

 
$
0.62

Cash dividends per common share
$
0.31

 
$
0.29

Shares used in per share calculations:

 

Basic
258,021

 
267,648

Diluted
270,730

 
281,579


See notes to condensed consolidated financial statements.



3


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

 
Three Months Ended
(In thousands)
June 27, 2015
 
June 28, 2014
Net income
$
147,715

 
$
173,611

Other comprehensive income (loss), net of tax:


 


Change in net unrealized gains (losses) on available-for-sale securities
(5,282
)
 
7,959

Reclassification adjustment for (gains) losses on available-for-sale securities
178

 
(391
)
Net change in unrealized gains on hedging transactions
2,118

 
542

Reclassification adjustment for (gains) losses on hedging transactions
1,873

 
(807
)
Cumulative translation adjustment, net
(924
)
 
171

Other comprehensive income (loss)
(2,037
)
 
7,474

Total comprehensive income
$
145,678

 
$
181,085


See notes to condensed consolidated financial statements.


4


XILINX, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
 
(In thousands, except par value amounts)
June 27, 2015
 
March 28, 2015
[1]
 
(unaudited)
 
 
ASSETS

 

Current assets:

 

Cash and cash equivalents
$
666,338

 
$
892,572

Short-term investments
2,666,087

 
2,410,489

Accounts receivable, net
251,988

 
246,615

Inventories
222,013

 
231,328

Deferred tax assets
90,716

 
79,519

Prepaid expenses and other current assets
82,584

 
74,528

Total current assets
3,979,726

 
3,935,051

Property, plant and equipment, at cost:
806,728

 
804,623

Accumulated depreciation and amortization
(512,241
)
 
(503,585
)
Net property, plant and equipment
294,487

 
301,038

Long-term investments
248,431

 
266,902

Goodwill
159,296

 
159,296

Acquisition-related intangibles, net
10,983

 
12,752

Other assets
222,626

 
223,026

Total Assets
$
4,915,549

 
$
4,898,065

LIABILITIES, TEMPORARY EQUITY AND STOCKHOLDERS’ EQUITY

 

Current liabilities:

 

Accounts payable
$
81,897

 
$
80,113

Accrued payroll and related liabilities
140,184

 
156,600

Income taxes payable
17,916

 
19,693

Deferred income on shipments to distributors
55,731

 
66,071

Other accrued liabilities
82,619

 
64,676

Current portion of long-term debt
578,816

 
576,053

Total current liabilities
957,163

 
963,206

Long-term debt
995,086

 
994,839

Deferred tax liabilities
301,130

 
289,868

Long-term income taxes payable
13,022

 
13,245

Other long-term liabilities
1,335

 
1,366

Commitments and contingencies

 

Temporary equity (Note 10)
21,183

 
23,947

Stockholders' equity:

 

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

 

Common stock, $.01 par value
2,570

 
2,583

Additional paid-in capital
678,209

 
653,882

Retained earnings
1,959,037

 
1,966,278

Accumulated other comprehensive loss
(13,186
)
 
(11,149
)
Total stockholders’ equity
2,626,630

 
2,611,594

Total Liabilities, Temporary Equity and Stockholders’ Equity
$
4,915,549

 
$
4,898,065

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

5


XILINX, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 
Three Months Ended
(In thousands)
June 27, 2015
 
June 28, 2014
Cash flows from operating activities:
 
 
 
Net income
$
147,715

 
$
173,611

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation
13,253

 
13,468

Amortization
4,354

 
5,205

Stock-based compensation
26,320

 
22,106

Net gain on sale of available-for-sale securities
(230
)
 
(670
)
Amortization of debt discounts
3,010

 
3,003

Provision for deferred income taxes
2,013

 
5,789

Excess tax benefit from stock-based compensation
(3,839
)
 
(2,660
)
Changes in assets and liabilities:
 
 
 
Accounts receivable, net
(5,373
)
 
(13,501
)
Inventories
9,112

 
(22,879
)
Prepaid expenses and other current assets
(347
)
 
(4,751
)
Other assets
(2,843
)
 
(5,188
)
Accounts payable
1,784

 
(50,123
)
Accrued liabilities
277

 
(12,389
)
Income taxes payable
(1,713
)
 
4,939

Deferred income on shipments to distributors
(10,340
)
 
14,159

Net cash provided by operating activities
183,153

 
130,119

Cash flows from investing activities:
 
 
 
Purchases of available-for-sale securities
(704,899
)
 
(874,367
)
Proceeds from sale and maturity of available-for-sale securities
460,791

 
570,043

Purchases of property, plant and equipment
(7,689
)
 
(9,116
)
Other investing activities
333

 
(3,742
)
Net cash used in investing activities
(251,464
)
 
(317,182
)
Cash flows from financing activities:
 
 
 
Repurchases of common stock
(100,000
)
 
(101,016
)
Proceeds from issuance of common stock, net of withholding taxes
18,444

 
14,195

Payment of dividends to stockholders
(80,206
)
 
(77,421
)
Excess tax benefit from stock-based compensation
3,839

 
2,660

Net cash used in financing activities
(157,923
)
 
(161,582
)
Net decrease in cash and cash equivalents
(226,234
)
 
(348,645
)
Cash and cash equivalents at beginning of period
892,572

 
973,677

Cash and cash equivalents at end of period
$
666,338

 
$
625,032

Supplemental disclosure of cash flow information:
 
 
 
Interest paid
$
7,875

 
$
7,875

Income taxes paid, net
$
19,721

 
$
15,856

See notes to condensed consolidated financial statements.

6


XILINX, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Note 1.
Basis of Presentation
The accompanying interim condensed consolidated financial statements have been prepared in conformity with United States (U.S.) generally accepted accounting principles (GAAP) for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X, and should be read in conjunction with the Xilinx, Inc. (Xilinx or the Company) consolidated financial statements filed with the U.S. Securities and Exchange Commission (SEC) on Form 10-K for the fiscal year ended March 28, 2015. 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 April 2, 2016 or any future period.
The Company uses a 52- to 53-week fiscal year ending on the Saturday nearest March 31. Fiscal 2016 will be a 53-week year ending on April 2, 2016, while fiscal 2015 was a 52-week year ended on March 28, 2015. Accordingly, the third quarter of fiscal 2016 will be a 14-week quarter ending on January 2, 2016. The quarters ended June 27, 2015 and June 28, 2014 each included 13 weeks.

Note 2.
Recent Accounting Changes and Accounting Pronouncements

In April 2014, the Financial Accounting Standards Board (FASB) issued the authoritative guidance that outlines a new global revenue recognition standard that replaces virtually all existing US GAAP guidance on contracts with customers and the related other assets and deferred costs. The guidance provides a five-step process for recognizing revenue that depicts the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The standard also requires expanded qualitative and quantitative disclosures relating to the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. In July 2015, FASB approved the deferral of the effective date of this guidance by one year. As a result, this guidance will be effective for the Company beginning in fiscal year 2019, with an option to early adopt. The new standard is required to be applied retrospectively to each prior reporting period presented, or retrospectively with the cumulative effect of initially applying it recognized at the date of initial application. The Company is currently evaluating the impact of this new guidance on its consolidated financial statements, including selection of the transition method and the adoption date.

In May 2015, the FASB issued the authoritative guidance that eliminates current requirement to categorize within the fair value hierarchy investments whose fair values are measured at net asset value using the practical expedient approach. Instead, entities will be required to disclose the fair values of such investments so that financial statement users can reconcile amounts reported in the fair value hierarchy table and the amounts reported on the balance sheet. This guidance is effective for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015, which for Xilinx is for the first quarter of fiscal year 2017 and should be applied using a retrospective approach. Earlier adoption is permitted. This guidance does not affect the underlying accounting for such investments.

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 June 27, 2015 and March 28, 2015, Avnet accounted for 67% of the Company’s total net accounts receivable for both periods. Resale of product through Avnet accounted for 51% and 42% of the Company’s worldwide net revenues in the first quarter of fiscal 2016 and 2015, respectively. The percentage of accounts receivable due from Avnet and the percentage of worldwide net revenues from Avnet are consistent with historical patterns.
Xilinx is subject to concentrations of credit risk primarily in its trade accounts receivable and investments in debt securities to the extent of the amounts recorded on the consolidated balance sheet. The Company attempts to mitigate the concentration of credit risk in its trade receivables through its credit evaluation process, collection terms, distributor sales to diverse end customers and through geographical dispersion of sales. Xilinx generally does not require collateral for receivables from its end customers or from distributors.
No end customer accounted for more than 10% of the Company’s worldwide net revenues for the first quarter of fiscal 2016 and 2015.

7


The Company mitigates concentrations of credit risk in its investments in debt securities by currently investing more than 89% of its portfolio in AA or higher grade securities as rated by Standard & Poor’s or Moody’s Investors Service. The Company’s methods to arrive at investment decisions are not solely based on the rating agencies’ credit ratings. Xilinx also performs additional credit due diligence and conducts regular portfolio credit reviews, including a review of counterparty credit risk related to the Company’s forward currency exchange contracts. Additionally, Xilinx limits its investments in the debt securities of a single issuer based upon the issuer’s credit rating and attempts to further mitigate credit risk by diversifying risk across geographies and type of issuer.
As of June 27, 2015, approximately 31% of the portfolio consisted of mortgage-backed securities. All of the mortgage-backed securities in the investment portfolio were issued by U.S. government-sponsored enterprises and agencies and are rated AA+ by Standard & Poor’s and AAA by Moody’s Investors Service.

Note 4.
Fair Value Measurements
The guidance for fair value measurements established by the FASB defines fair value as the exchange price that would be received from selling an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required or permitted to be recorded at fair value, the Company considers the principal or most advantageous market in which Xilinx would transact and also considers assumptions that market participants would use when pricing the asset or liability, such as inherent risk, transfer restrictions and risk of nonperformance.
The Company determines the fair value for marketable debt securities using industry standard pricing services, data providers and other third-party sources and by internally performing valuation testing and analysis. The Company primarily uses a consensus price or weighted-average price for its fair value assessment. The Company determines the consensus price using market prices from a variety of industry standard pricing services, data providers, security master files from large financial institutions and other third party sources and uses those multiple prices as inputs into a distribution-curve-based algorithm to determine the daily market value. The pricing services use multiple inputs to determine market prices, including reportable trades, benchmark yield curves, credit spreads and broker/dealer quotes as well as other industry and economic events. For certain securities with short maturities, such as discount commercial paper and certificates of deposit, the security is accreted from purchase price to face value at maturity. If a subsequent transaction on the same security is observed in the marketplace, the price on the subsequent transaction is used as the current daily market price and the security will be accreted to face value based on the revised price. For certain other securities, such as student loan auction rate securities, the Company performs its own valuation analysis using a discounted cash flow pricing model.
The Company validates the consensus prices by taking random samples from each asset type and corroborating those prices using reported trade activity, benchmark yield curves, binding broker/dealer quotes or other relevant price information. There have not been any changes to the Company’s fair value methodology during the first quarter of fiscal 2016 and the Company did not adjust or override any fair value measurements as of June 27, 2015.
Fair Value Hierarchy
The fair value framework requires the categorization of assets and liabilities into three levels based upon the assumptions (inputs) used to price the assets or liabilities. The guidance for fair value measurements requires that assets and liabilities carried at fair value be classified and disclosed in one of the following categories:
Level 1 — Quoted (unadjusted) prices in active markets for identical assets or liabilities.
The Company’s Level 1 assets consist of U.S. government and agency securities and money market funds.
Level 2 — Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the asset or liability.
The Company’s Level 2 assets consist of financial institution securities, non-financial institution securities, municipal bonds, U.S. government and agency securities, foreign government and agency securities, mortgage-backed securities, 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 commodity swap contracts.

8


Level 3 — Unobservable inputs to the valuation methodology that are supported by little or no market activity and that are significant to the measurement of the fair value of the assets or liabilities. Level 3 assets and liabilities include those whose fair value measurements are determined using pricing models, discounted cash flow methodologies or similar valuation techniques, as well as significant management judgment or estimation.
The Company’s Level 3 assets and liabilities include student loan auction rate securities.
Assets and Liabilities Measured at Fair Value on a Recurring Basis
In instances where the inputs used to measure fair value fall into different levels of the fair value hierarchy, the fair value measurement has been determined based on the lowest level input that is significant to the fair value measurement in its entirety. The Company’s 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 27, 2015 and March 28, 2015:

9


 
 
June 27, 2015
(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
 
$
304,935

 
$

 
$

 
$
304,935

Financial institution securities
 

 
65,000

 

 
65,000

Non-financial institution securities
 

 
84,987

 

 
84,987

U.S. government and agency securities
 

 
33,999

 

 
33,999

Municipal bonds



475




475

Foreign government and agency securities
 

 
64,996

 

 
64,996

Short-term investments:
 
 
 
 
 
 
 
 
Financial institution securities
 

 
225,000

 

 
225,000

Non-financial institution securities
 

 
340,390

 

 
340,390

Municipal bonds
 

 
46,056

 

 
46,056

U.S. government and agency securities
 
239,443

 
302,521

 

 
541,964

Foreign government and agency securities
 

 
136,049

 

 
136,049

Mortgage-backed securities
 

 
921,391

 

 
921,391

Debt mutual funds
 

 
38,569

 

 
38,569

Bank loans
 

 
99,835

 

 
99,835

Asset-backed securities



212,691




212,691

Commercial mortgage-backed securities



104,142




104,142

Long-term investments:
 
 
 
 
 
 
 
 
Auction rate securities
 

 

 
10,409

 
10,409

Municipal bonds
 

 
7,522

 

 
7,522

Mortgage-backed securities
 

 
166,558

 

 
166,558

Debt mutual fund
 

 
55,779

 

 
55,779

Asset-backed securities



7,618




7,618

Commercial mortgage-backed securities



545




545

Total assets measured at fair value
 
$
544,378

 
$
2,914,123

 
$
10,409

 
$
3,468,910

Liabilities












Derivative financial instruments, net

$


$
4,084


$


$
4,084

Total liabilities measured at fair value

$


$
4,084


$


$
4,084

Net assets measured at fair value

$
544,378


$
2,910,039


$
10,409


$
3,464,826




10


 
March 28, 2015
(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
$
235,583

 
$

 
$

 
$
235,583

Financial institution securities

 
229,999

 

 
229,999

Non-financial institution securities

 
89,995

 

 
89,995

U.S. government and agency securities

 
200,392

 

 
200,392

Foreign government and agency securities

 
37,996

 

 
37,996

Short-term investments:

 

 

 


Financial institution securities

 
75,000

 

 
75,000

Non-financial institution securities

 
339,029

 

 
339,029

Municipal Bonds

 
40,006

 

 
40,006

U.S. government and agency securities
256,514

 
301,010

 

 
557,524

Foreign government and agency securities

 
159,936

 

 
159,936

Mortgage-backed securities

 
897,776

 

 
897,776

Debt mutual fund

 
38,608

 

 
38,608

Bank loans

 
98,100

 

 
98,100

Asset-backed securities

 
204,510

 

 
204,510

Long-term investments:

 

 

 


Auction rate securities

 

 
10,312

 
10,312

Municipal bonds

 
9,650

 

 
9,650

Mortgage-backed securities

 
182,400

 

 
182,400

Debt mutual fund

 
56,592

 

 
56,592

Asset-backed securities

 
7,948

 

 
7,948

Total assets measured at fair value
$
492,097

 
$
2,968,947

 
$
10,312

 
$
3,471,356

Liabilities
 
 
 
 
 
 
 
Derivative financial instruments, net
$

 
$
9,251

 
$

 
$
9,251

Total liabilities measured at fair value
$

 
$
9,251

 
$

 
$
9,251

Net assets measured at fair value
$
492,097

 
$
2,959,696

 
$
10,312

 
$
3,462,105


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 27, 2015
 
June 28, 2014
Balance as of beginning of period
$
10,312

 
$
20,160

Total realized and unrealized gains (losses):

 

Included in other comprehensive income
97

 
544

Balance as of end of period
$
10,409

 
$
20,704


11




As of June 27, 2015, marketable securities measured at fair value using Level 3 inputs were comprised of $10.4 million of student loan auction rate securities. There was no material change to the input assumptions of the pricing model for these student loan auction securities.


Financial Instruments Not Recorded at Fair Value on a Recurring Basis

The Company’s 2017 Convertible Notes, 2019 Notes and 2021 Notes are measured at fair value on a quarterly basis for disclosure purposes. The fair values of the 2017 Convertible Notes, 2019 Notes and 2021 Notes as of June 27, 2015 were approximately $922.8 million, $496.7 million and $505.2 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).

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:
 
June 27, 2015
 
 
March 28, 2015
(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
$
304,935

 
$

 
$

 
$
304,935

 
 
$
235,583

 
$

 
$

 
$
235,583

Financial institution


 


 


 


 
 


 


 


 


securities
290,000

 

 

 
290,000

 
 
304,999

 

 

 
304,999

Non-financial institution


 


 


 


 
 


 


 


 


securities
425,413

 
44

 
(80
)
 
425,377

 
 
429,005

 
25

 
(6
)
 
429,024

Auction rate securities
10,500

 

 
(91
)
 
10,409

 
 
10,500

 

 
(188
)
 
10,312

Municipal bonds
53,839

 
552

 
(338
)
 
54,053

 
 
49,064

 
744

 
(152
)
 
49,656

U.S. government and

 

 

 

 
 

 

 

 

agency securities
575,867

 
142

 
(46
)
 
575,963

 
 
757,954

 
91

 
(129
)
 
757,916

Foreign government and

 

 

 

 
 

 

 

 

agency securities
201,045

 

 

 
201,045

 
 
197,932

 

 

 
197,932

Mortgage-backed securities
1,091,058

 
6,358

 
(9,467
)
 
1,087,949

 
 
1,075,730

 
8,942

 
(4,496
)
 
1,080,176

Asset-backed securities
219,682

 
958

 
(331
)
 
220,309

 
 
211,487

 
1,130

 
(159
)
 
212,458

Debt mutual funds
101,350

 

 
(7,002
)
 
94,348

 
 
101,350

 

 
(6,150
)
 
95,200

Bank loans
98,564

 
1,350

 
(79
)
 
99,835

 
 
98,131

 
29

 
(60
)
 
98,100

Commercial mortgage-
























backed securities
105,119


178


(610
)

104,687










 
$
3,477,372

 
$
9,582

 
$
(18,044
)
 
$
3,468,910

 
 
$
3,471,735

 
$
10,961

 
$
(11,340
)
 
$
3,471,356

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 June 27, 2015 and March 28, 2015:


12


 
June 27, 2015
 
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
$
31,065

 
$
(80
)
 
$

 
$

 
$
31,065

 
$
(80
)
Auction rate securities

 

 
10,409

 
(91
)
 
10,409

 
(91
)
Municipal bonds
21,356

 
(266
)
 
1,852

 
(72
)
 
23,208

 
(338
)
U.S. government and

 

 

 

 


 


    agency securities
66,802

 
(46
)
 

 

 
66,802

 
(46
)
Mortgage-backed securities
734,577

 
(8,275
)
 
43,349

 
(1,192
)
 
777,926

 
(9,467
)
Asset-backed securities
84,268


(331
)





84,268


(331
)
Debt mutual fund
38,569

 
(1,431
)
 
55,779

 
(5,571
)
 
94,348

 
(7,002
)
Bank loans
56,551

 
(69
)

10,293

 
(10
)
 
66,844

 
(79
)
Commercial mortgage-











backed securities
45,045


(579
)

545


(31
)

45,590


(610
)
 
$
1,078,233

 
$
(11,077
)
 
$
122,227

 
$
(6,967
)
 
$
1,200,460

 
$
(18,044
)

 
March 28, 2015
 
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
$
7,190

 
$
(6
)
 
$

 
$

 
$
7,190

 
$
(6
)
Auction rate securities

 

 
10,312

 
(188
)
 
10,312

 
(188
)
Municipal bonds
10,014

 
(94
)
 
1,931

 
(58
)
 
11,945

 
(152
)
U.S. government and

 

 

 

 

 

    agency securities
451,296

 
(129
)
 

 

 
451,296

 
(129
)
Mortgage-backed securities
448,770

 
(3,169
)
 
49,207

 
(1,327
)
 
497,977

 
(4,496
)
Asset-backed securities
75,009

 
(159
)
 

 

 
75,009


(159
)
Debt mutual funds
38,608

 
(1,392
)
 
56,592

 
(4,758
)
 
95,200

 
(6,150
)
Bank loans
65,085

 
(60
)
 

 

 
65,085


(60
)
 
$
1,095,972

 
$
(5,009
)
 
$
118,042

 
$
(6,331
)
 
$
1,214,014

 
$
(11,340
)

As of June 27, 2015, the gross unrealized losses that had been outstanding for less than twelve months were primarily related to mortgage-backed securities and debt mutual funds due to the general rising of the interest-rate environment and foreign currency movement, although the percentage of such losses to the total estimated fair value of the mortgage-backed securities and debt mutual funds was relatively insignificant. The gross unrealized losses that had been outstanding for more than twelve months were primarily related to debt mutual funds and 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 June 27, 2015 and March 28, 2015 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. 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 was not significant as of June 27, 2015 and March 28, 2015. The Company neither intends to sell these investments nor concludes that it is more-likely-than-not that it will have to sell them until recovery of their carrying values. The Company also believes that it will be able to collect both principal and interest amounts due to the Company at maturity, given the high credit quality of these investments and any related underlying collateral.

13


The amortized cost and estimated fair value of marketable debt securities (financial institution securities, non-financial institution securities, auction rate securities, municipal bonds, U.S. and foreign government and agency securities, asset-backed securities, bank loans, mortgage-backed securities and commercial mortgage-backed securities), by contractual maturity, are shown below. Actual maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations without call or prepayment penalties.
 
June 27, 2015
(In thousands)
Amortized
Cost
 
Estimated
Fair Value
Due in one year or less
$
1,373,464

 
$
1,373,607

Due after one year through five years
367,169

 
367,111

Due after five years through ten years
300,178

 
300,357

Due after ten years
1,030,276

 
1,028,552


$
3,071,087

 
$
3,069,627

As of June 27, 2015, $1.54 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.
Certain information related to available-for-sale securities is as follows:
 
Three Months Ended
(In thousands)
June 27, 2015
 
June 28, 2014
Proceeds from sale of available-for-sale securities
$
66,041

 
$
59,581

Gross realized gains on sale of available-for-sale securities
$
359

 
$
837

Gross realized losses on sale of available-for-sale securities
(129
)
 
(167
)
Net realized gains on sale of available-for-sale securities
$
230

 
$
670

Amortization of premiums on available-for-sale securities
$
6,468

 
$
6,233


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

Note 6.
Derivative Financial Instruments
The Company’s primary objective for holding derivative financial instruments is to manage foreign currency exchange rate risk and interest rate risk. As a result of the use of derivative financial instruments, the Company is exposed to the risk that counterparties to derivative contracts may fail to meet their contractual obligations. The Company manages counterparty credit risk in derivative contracts by reviewing counterparty creditworthiness on a regular basis, establishing collateral requirement and limiting exposure to any single counterparty. The right of set-off that exists with certain transactions enables the Company to net amounts due to and from the counterparty, reducing the maximum loss from credit risk in the event of counterparty default.
As of June 27, 2015 and March 28, 2015, the Company had the following outstanding forward currency exchange contracts (in notional amount), which were derivative financial instruments:
 
(In thousands and U.S. dollars)
June 27, 2015
 
March 28, 2015
Singapore Dollar
$
36,912

 
$
43,901

Euro
23,074

 
29,973

Indian Rupee
21,204

 
22,228

British Pound
11,794

 
12,946

Japanese Yen
3,681

 
4,994

 
$
96,665

 
$
114,042



14


As part of the Company’s strategy to reduce volatility of operating expenses due to foreign exchange rate fluctuations, the Company employs a hedging program with a forward outlook of up to two years for major foreign-currency-denominated operating expenses. The outstanding forward currency exchange contracts expire at various dates through November 2016. The net unrealized losses, which approximate the fair market value of the outstanding forward currency exchange contracts, are expected to be realized into net income within the next two years.
As of June 27, 2015, all of the forward foreign currency exchange contracts were designated and qualified as cash flow hedges and the effective portion of the gain or loss on the forward contracts was reported as a component of other comprehensive income (loss) and reclassified into net income in the same period during which the hedged transaction affects earnings. The estimated amount of such gains or losses as of June 27, 2015 that is expected to be reclassified into earnings was not material. The ineffective portion of the gains or losses on the forward contracts was immaterial and included in the net income for all periods presented.
The Company may enter into forward foreign currency exchange contracts to hedge firm commitments such as acquisitions and capital expenditures. Gains and losses on foreign currency forward contracts that are designated as hedges of anticipated transactions, for which a firm commitment has been attained and the hedged relationship has been effective, are deferred and included in income or expenses in the same period that the underlying transaction is settled. Gains and losses on any instruments not meeting the above criteria are recognized in income or expenses in the consolidated statements of income as they are incurred.
The Company had the following derivative instruments as of June 27, 2015 and March 28, 2015, located on the condensed consolidated balance sheet, utilized for risk management purposes detailed above:
 
Foreign Exchange Contracts
 
Asset Derivatives
 
Liability Derivatives
(In thousands)
Balance Sheet Location
Fair Value
 
Balance Sheet Location
Fair Value
June 27, 2015
Prepaid expenses and other current assets
$
436

 
Other accrued liabilities
$
4,520

March 28, 2015
Prepaid expenses and other current assets
$

 
Other accrued liabilities
$
9,320

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

The following table summarizes the effect of derivative instruments on the condensed consolidated statements of income for the first quarter of fiscal 2016 and 2015:

 
Three Months Ended
(In thousands)
June 27, 2015
 
June 28, 2014
Amount of losses recognized in other comprehensive income on derivative (effective portion of cash flow hedging)
$
(3,990
)
 
$
(265
)

 
 
 
Amount of gains (losses) reclassified from accumulated other comprehensive income into income (effective portion) *
$
(1,873
)
 
$
807


 
 
 
Amount of gains (losses) recorded (ineffective portion) *
$
(29
)
 
$
30


*
Recorded in Interest and Other Expense location within the condensed consolidated statements of income.

Note 7.
Stock-Based Compensation Plans
The Company’s equity incentive plans are broad-based, long-term retention programs that cover employees, consultants and non-employee directors of the Company. These plans are intended to attract and retain talented employees, consultants and non-employee directors and to provide such persons with a proprietary interest in the Company.
Stock-Based Compensation


15


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
(In thousands)
June 27, 2015
 
June 28, 2014
Stock-based compensation included in:

 

Cost of revenues
$
1,964

 
$
1,992

Research and development
14,692

 
10,505

Selling, general and administrative
9,664

 
9,609

 
$
26,320

 
$
22,106


During the first quarter of fiscal 2016 and 2015, the tax benefits realized for the tax deduction from option exercises and other awards credited to additional paid-in capital were $2.2 million and $2.0 million, respectively.
The fair values of stock purchase plan rights under the Company’s ESPP were estimated using the Black-Scholes option pricing model.

The estimated fair values of restricted stock unit (RSU) awards were calculated based on the market price of Xilinx common stock on the date of grant, reduced by the present value of dividends expected to be paid on Xilinx common stock prior to vesting. The per share weighted-average fair value of RSUs granted during the first quarter of fiscal 2016 was $42.45 ($40.69 for the first quarter of fiscal 2015), which were calculated based on estimates at the date of grant using the following weighted-average assumptions: 
 
Three Months Ended

June 27, 2015


June 28, 2014

Risk-free interest rate
1.3
%
 
0.9
%
Dividend yield
2.7
%
 
2.5
%

Employee Stock Option Plans

A summary of the Company’s option plans activity and related information is as follows:
 
 
Options Outstanding
(Shares in thousands)
Number of Shares
 
Weighted-Average Exercise Price Per Share
March 29, 2014
5,280

 
$
25.22

Exercised
(2,009
)
 
$
25.80

Forfeited/cancelled/expired
(24
)
 
$
32.22

March 28, 2015
3,247

 
$
24.81

Exercised
(787
)
 
$
25.16

Forfeited/cancelled/expired
(9
)
 
$
34.08

June 27, 2015
2,451

 
$
24.66

Options exercisable at:

 

June 27, 2015
2,402

 
$
24.46

March 28, 2015
3,173

 
$
24.59

The types of awards allowed under the 2007 Equity Incentive Plan (2007 Equity Plan) include incentive stock options, non-qualified stock options, RSUs, restricted stock and stock appreciation rights. To date, the Company has issued a mix of non-qualified stock options and RSUs under the 2007 Equity Plan, but there was no issuance of stock options during the first quarter of fiscal 2016 and the entire fiscal 2015. As of June 27, 2015, 15.5 million shares remained available for grant under the 2007 Equity Plan.

16


The total pre-tax intrinsic value of options exercised during the three months ended June 27, 2015 and June 28, 2014 was $15.8 million and $11.1 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
March 29, 2014
6,901

 
$
35.08

Granted
3,201

 
$
43.11

Vested
(2,698
)
 
$
33.82

Cancelled
(531
)
 
$
32.91

March 28, 2015
6,873

 
$
39.07

Granted
118

 
$
42.45

Vested
(92
)
 
$
37.84

Cancelled
(289
)
 
$
39.62

June 27, 2015
6,610

 
$
39.13


Employee Stock Purchase Plan
Under the Company’s ESPP, no shares were issued during the first quarter of fiscal 2016 or 2015. The next scheduled purchase under the ESPP is in the second quarter of fiscal 2016. As of June 27, 2015, 10.5 million shares were available for future issuance.

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:
(In thousands, except per share amounts)
June 27, 2015
 
June 28, 2014
Net income available to common stockholders
$
147,715

 
$
173,611

Weighted average common shares outstanding-basic
258,021

 
267,648

Dilutive effect of employee equity incentive plans
3,388

 
4,568

Dilutive effect of 2017 Convertible Notes and warrants
9,321

 
9,363

Weighted average common shares outstanding-diluted
270,730

 
281,579

Basic earnings per common share
$
0.57

 
$
0.65

Diluted earnings per common share
$
0.55

 
$
0.62


The total shares used in the denominator of the diluted net income per common share calculation includes potentially dilutive common equivalent shares outstanding that are not included in basic net income per common share by applying the treasury stock method to the impact of the equity incentive plans and to the incremental shares issuable assuming conversion of the Company's convertible debt and warrants (see "Note 10. Debt and Credit Facility" for more discussion of the Company's debt and warrants).
Outstanding stock options and RSUs under the Company's stock award plans to purchase approximately 319 thousand and 206 thousand shares, for the first quarter of fiscal 2016 and 2015, respectively, were excluded from diluted net income per common share by applying the treasury stock method, as their inclusion would have been antidilutive. 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.

17


To hedge against potential dilution upon conversion of the 2017 Convertible Notes, the Company also purchased call options on its common stock from the hedge counterparties. The call options give the Company the right to purchase up to 20.5 million shares of its common stock at $29.26 per share. These call options are not considered for purposes of calculating the total shares outstanding under the basic and diluted net income per share, as their effect would be anti-dilutive. Upon exercise, the call options would serve to neutralize the dilutive effect of the 2017 Convertible Notes and potentially reduce the weighted number of diluted shares used in per share calculations.

Note 9.
Inventories
Inventories are stated at the lower of actual cost (determined using the first-in, first-out method), or market (estimated net realizable value) and are comprised of the following:
(In thousands)
June 27, 2015
 
March 28, 2015
Raw materials
$
16,013

 
$
14,174

Work-in-process
179,261

 
183,472

Finished goods
26,739

 
33,682

 
$
222,013

 
$
231,328


Note 10.
Debt and Credit Facility
2017 Convertible Notes
As of June 27, 2015, the Company had $600.0 million principal amount of 2017 Convertible Notes outstanding. The 2017 Convertible Notes are senior in right of payment to the Company’s existing and future unsecured indebtedness that is expressly subordinated in right of payment to the 2017 Convertible Notes, and are ranked equally with all of our other existing and future unsecured senior indebtedness, including the 2019 and 2021 Notes discussed below. The Company may not redeem the 2017 Convertible Notes prior to maturity.
The 2017 Convertible Notes are convertible, subject to certain conditions, into shares of Xilinx common stock at a conversion rate of 34.1754 shares of common stock per $1 thousand principal amount of the 2017 Convertible Notes, representing an effective conversion price of approximately $29.26 per share of common stock. The conversion rate is subject to adjustment for certain events as outlined in the indenture governing the 2017 Convertible Notes, but will not be adjusted for accrued interest. One of the conditions allowing holders of the 2017 Convertible Notes to convert during any fiscal quarter is if the last reported sale price of the Company's common stock for at least 20 trading days during a period of 30 consecutive trading days ending on the last trading day of the preceding fiscal quarter is greater than or equal to 130% of the conversion price on each applicable trading day. This condition was met as of June 27, 2015 and as a result, the 2017 Convertible Notes were convertible at the option of the holders. As of June 27, 2015, the 2017 Convertible Notes were classified as a current liability on the Company's condensed consolidated balance sheet. Additionally, a portion of the equity component attributable to the conversion feature of the 2017 Convertible Notes was classified in temporary stockholders' equity. The amount classified as temporary equity was equal to the difference between the principal amount and carrying value of the 2017 Convertible Notes.
Upon conversion, the Company would pay the holders of the 2017 Convertible Notes cash up to the aggregate principal amount of the 2017 Convertible Notes. If the conversion value exceeds the principal amount, the Company would deliver shares of its common stock in respect to the remainder of its conversion obligation in excess of the aggregate principal amount (conversion spread). Accordingly, there would be no adjustment to the numerator in the net income per common share computation for the cash settled portion of the 2017 Convertible Notes, as that portion of the debt liability will always be settled in cash. The conversion spread will be included in the denominator for the computation of diluted net income per common share, using the treasury stock method.
The carrying values of the liability and equity components of the 2017 Convertible Notes are reflected in the Company’s condensed consolidated balance sheets as follows:

18


(In thousands)
June 27, 2015

 
March 28, 2015
Liability component:

 

   Principal amount of the 2017 Convertible Notes
$
600,000

 
$
600,000

   Unamortized discount of liability component
(29,793
)
 
(33,679
)
   Hedge accounting adjustment – sale of interest rate swap
8,609

 
9,732

   Net carrying value of the 2017 Convertible Notes
$
578,816

 
$
576,053




 


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

 
$
66,415

The remaining unamortized debt discount, net of the hedge accounting adjustment from the previous sale of the interest rate swap, is being amortized as additional non-cash interest expense over the expected remaining term of the 2017 Convertible Notes. As of June 27, 2015, the remaining term of the 2017 Convertible Notes is 1.9 years. As of June 27, 2015, the if-converted value of the 2017 Convertible Notes was $960.1 million.

Interest expense related to the 2017 Convertible Notes was included in interest and other expense, net on the condensed consolidated statements of income as follows:
 
Three Months Ended
(In thousands)
June 27, 2015
 
June 28, 2014
Contractual coupon interest
$
3,938

 
$
3,938

Amortization of debt issuance costs
362

 
362

Amortization of debt discount, net
2,763

 
2,763

Total interest expense related to the 2017 Convertible Notes
$
7,063

 
$
7,063

To hedge against potential dilution upon conversion of the 2017 Convertible Notes, the Company purchased call options on its common stock from the hedge counterparties. The call options give the Company the right to purchase up to 20.5 million shares of its common stock at $29.26 per share. The call options will terminate upon the earlier of the maturity of the 2017 Convertible Notes or the last day any of the 2017 Convertible Notes remain outstanding. To reduce the hedging cost, under separate transactions the Company sold warrants to the hedge counterparties, which give the hedge counterparties the right to purchase up to 20.5 million shares of the Company’s common stock at $41.45 per share. These warrants expire on a gradual basis over a specified period starting on September 13, 2017.
2019 and 2021 Notes
On March 12, 2014, the Company issued $500.0 million principal amount of 2019 Notes and $500.0 million principal amount of 2021 Notes with maturity dates of March 15, 2019 and March 15, 2021 respectively. The 2019 and 2021 Notes were offered to the public at a discounted price of 99.477% and 99.281% of par, respectively. Interest on the 2019 and 2021 Notes is payable semi-annually on March 15 and September 15.
The Company received net proceeds of $990.1 million from issuance of the 2019 and 2021 Notes, after the debt discounts and deduction of debt issuance costs. The debt discounts and issuance costs are amortized to interest expense over the terms of the 2019 and 2021 Notes.
The following table summarizes the carrying value of the 2019 and 2021 Notes as of June 27, 2015 and March 28, 2015:
 
 
 
 
(In thousands)
June 27, 2015
 
March 28, 2015
Principal amount of the 2019 Notes
$
500,000

 
$
500,000

Unamortized discount of the 2019 Notes
(1,946
)
 
(2,073
)
Principal amount of the 2021 Notes
500,000

 
500,000

Unamortized discount of the 2021 Notes
(2,968
)
 
(3,088
)
Total carrying value
$
995,086

 
$
994,839

Interest expense related to the 2019 and 2021 Notes was included in interest and other expense, net on the condensed consolidated statements of income as follows:

19


 
Three Months Ended
(In thousands)
June 27, 2015
 
June 28, 2014
Contractual coupon interest
$
6,406

 
$
6,406

Amortization of debt issuance costs
146

 
156

Amortization of debt discount, net
247

 
240

Total interest expense related to the 2019 and 2021 Notes
$
6,799

 
$
6,802

Revolving Credit Facility

On December 7, 2011, the Company entered into a $250.0 million senior unsecured revolving credit facility with a syndicate of banks (expiring in December 2016). Borrowings under the credit facility will bear interest at a benchmark rate plus an applicable margin based upon the Company’s credit rating. In connection with the credit facility, the Company is required to maintain certain financial and nonfinancial covenants. As of June 27, 2015, 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 November 17, 2014, the Board authorized the repurchase of $800.0 million of the Company's common stock (2014 Repurchase Program). The 2014 Repurchase Program has no stated expiration date.
Through June 27, 2015, the Company had used $252.6 million of the $800.0 million authorized under the 2014 Repurchase Program, leaving $547.4 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 June 27, 2015 and March 28, 2015.

During the first quarter of fiscal 2016, the Company repurchased 2.2 million shares of common stock for a total of $100.0 million. During the first quarter of fiscal 2015, the Company repurchased 2.1 million shares of common stock for a total of $100.0 million.

Note 12.
Interest and Other Expense, Net
The components of interest and other expense, net are as follows: 
 
Three Months Ended
(In thousands)
June 27, 2015
 
June 28, 2014
Interest income
$
7,975

 
$
8,501

Interest expense
(13,862
)
 
(13,865
)
Other expense, net
(4,640
)
 
(858
)

$
(10,527
)
 
$
(6,222
)

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)
June 27, 2015
 
March 28, 2015
Accumulated unrealized losses on available-for-sale securities, net of tax
$
(5,342
)
 
$
(238
)
Accumulated unrealized losses on hedging transactions, net of tax
(3,532
)
 
(7,523
)
Accumulated cumulative translation adjustment, net of tax
(4,312
)
 
(3,388
)
Accumulated other comprehensive loss
$
(13,186
)
 
$
(11,149
)

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


20


Note 14.
Income Taxes
The Company recorded a tax provision of $20.3 million for the first quarter of fiscal 2016 as compared to $26.7 million in the same prior year period, representing effective tax rates of 12% and 13%, respectively.
The difference between the U.S. federal statutory tax rate of 35% and the Company’s effective tax rate in all periods is primarily due to income earned in lower tax rate jurisdictions, for which no U.S. income tax has been provided, as the Company intends to permanently reinvest these earnings outside of the U.S.
The Company’s total gross unrecognized tax benefits as of June 27, 2015, determined in accordance with FASB authoritative guidance for measuring uncertain tax positions, was $30.0 million. The total amount of unrecognized tax benefits that, if realized in a future period, would favorably affect the effective tax rate was $12.4 million as of June 27, 2015. It is reasonably possible that changes to our unrecognized tax benefits could be significant in the next twelve months due to tax audit settlements and lapses of statutes of limitation. As a result of uncertainties regarding tax audit settlements and their possible outcomes, an estimate of the range of increase or decrease that could occur in the next twelve months cannot be made.
The Company’s policy is to include interest and penalties related to income tax liabilities within the provision for income taxes on the condensed consolidated statements of income. The balance of accrued interest and penalties recorded in the condensed consolidated balance sheets and the amounts of interest and penalties included in the Company's provision for income taxes were not material for all periods presented.
The Company is no longer subject to U.S. federal audits by taxing authorities for years through fiscal 2011. The Company is no longer subject to U.S. state audits for years through fiscal 2009. The Company is no longer subject to tax audits in Ireland for years through fiscal 2010.
The Company is currently under examination by the IRS for fiscal years 2012 through 2014. We believe our allowances for income tax contingencies are adequate and we do not anticipate a significant change in our income tax contingencies as a result of the IRS audit.

Note 15.
Commitments
Xilinx leases some of its facilities and office buildings under non-cancelable operating leases that expire at various dates through October 2021. Additionally, Xilinx entered into a land lease in conjunction with the Company’s building in Singapore, which will expire in November 2035 and the lease cost was settled in an up-front payment in June 2006. Some of the operating leases for facilities and office buildings require payment of operating costs, including property taxes, repairs, maintenance and insurance. Most of the Company’s leases contain renewal options for varying terms. Approximate future minimum lease payments under non-cancelable operating leases are as follows:

Fiscal
(In thousands)
2016 (remaining nine months)
$
4,069

2017
3,957

2018
2,797

2019
2,483

2020
1,663

Thereafter
2,149

Total
$
17,118

Aggregate future rental income to be received, which includes rents from both owned and leased property, totaled $3.3 million as of June 27, 2015. Rent expense, net of rental income, under all operating leases was $756 thousand and $911 thousand for the three months ended June 27, 2015 and June 28, 2014, respectively. Rental income was not material for the first quarter of fiscal 2016 or 2015.
Other commitments as of June 27, 2015 totaled $120.6 million and consisted of purchases of inventory and other non-cancelable purchase obligations related to subcontractors that manufacture silicon wafers and provide assembly and some test services. The Company expects to receive and pay for these materials and services in the next three to six months, as the products meet delivery and quality specifications. As of June 27, 2015, the Company also had $32.3 million of non-cancelable license obligations to providers of electronic design automation software and hardware/software maintenance expiring at various dates through June 2017.


21


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 first quarter of fiscal 2016 and the end of fiscal 2015, 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 November 7, 2014, the Company filed a complaint for declaratory judgment against Papst Licensing GmbH & Co., KG (Papst)in the U.S. District Court for the Northern District of California (Xilinx, Inc. v. Papst Licensing GmbH & Co., KG, Case No. 3:14-CV-04963) (the California Action). On the same date, a patent infringement lawsuit was filed by Papst against the Company in the U.S. District Court for the District of Delaware (Papst Licensing GmbH & Co., KG v. Xilinx, Inc., Case No. 1:14-CV-01376) (the Delaware Action).  Both the California Action and the Delaware Action pertain to the same two patents. . In the Delaware Action, Papst seeks unspecified damages, interest and costs.   On July 9, 2015, the Court in the California Action granted Papst’s motion to dismiss for lack of personal jurisdiction and the California Action was dismissed.  The Company is unable to estimate its range of possible loss, if any, in this matter at this time.

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 United States Patent Trial and Appeal Board 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. The lawsuit pertains to one patent and PTI seeks unspecified damages, interest and costs.  The Company is unable to estimate its range of possible loss, if any, in this matter at this time.

On May 22, 2015, a patent infringement lawsuit was filed by QuickCompile IP, LLC (QuickCompile) against the Company in the U.S. District Court for the Eastern District of Texas (QuickCompile IP, LLC v. Xilinx, Inc., Case No. 2:15-CV-00820).  The lawsuit pertains to two patents and QuickCompile seeks unspecified damages, interest and costs.  The Company is unable to estimate its range of possible loss, if any, in this matter at this time.

The Company intends to continue to protect and defend our Intellectual Property (IP) vigorously.

Other Matters

On January 31, 2014, Evan Levine and Keith McClellan filed an action on behalf of the United States in the United States District Court for the Eastern District of Kentucky (United States of America, ex. rel. Evan Levine and Keith McClellan v. Avnet Inc., et. al., Case No. 14-cv-00017). The matter alleges violations of the False Claims Act, 31 U.S.C. Section 3729 et seq. and was filed under seal pursuant to 31 U.S.C. Section 3730(b)(2). The lawsuit seeks to recover, on behalf of the United States, $11 thousand for each unspecified, allegedly false and fraudulent claim, plus treble damages. The government investigated the allegations in the complaint and on September 12, 2014, filed a Notice of Election to Decline Intervention. On September 22, 2014, the District Court unsealed the complaint and ordered it to be served on the defendants. On November 21, 2014, the government moved to dismiss the complaint with prejudice. That same day, Mr. McClellan filed a notice of dismissal, leaving Mr. Levine as the only remaining relator. The Company was served with the complaint on December 11, 2014. On April 1, 2015, the District Court granted the government’s motion, dismissing the matter with prejudice. The District Court also entered judgment in favor of the defendants including the Company. On April 27, 2015, Mr. Levine, proceeding without counsel, filed a notice of appeal to the United States Court of Appeals for the Sixth Circuit from the District Court's order and judgment. Based on currently available

22


information, the Company does not believe the resolution of this matter will have a material adverse effect on its business, financial position or future results of operations.

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. The Company is unable to estimate its range of possible loss, if any, in this matter at this time.

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 June 27, 2015 and March 28, 2015, the gross and net amounts of goodwill and of acquisition-related intangibles for all acquisitions were as follows:
 



 


 
Weighted-Average
(In thousands)
June 27, 2015
 
March 28, 2015
 
Amortization Life
Goodwill
$
159,296

 
$
159,296

 

Core technology, gross
77,640

 
77,640

 
5.6 years
Less accumulated amortization
(66,740
)
 
(64,988
)
 

Core technology, net
10,900

 
12,652

 

Other intangibles, gross
46,606

 
46,606

 
2.7 years
Less accumulated amortization
(46,523
)
 
(46,506
)
 

Other intangibles, net
83

 
100

 

Total acquisition-related intangibles, gross
124,246

 
124,246

 

Less accumulated amortization
(113,263
)
 
(111,494
)
 

Total acquisition-related intangibles, net
$
10,983

 
$
12,752

 

Amortization expense for acquisition-related intangibles for the three months ended June 27, 2015 and June 28, 2014 was $1.8 million and $2.4 million, respectively. Based on the carrying value of acquisition-related intangibles recorded as of June 27, 2015, and assuming no subsequent impairment of the underlying assets, the annual amortization expense for acquisition-related intangibles is expected to be as follows:
 
Fiscal
(In thousands)
2016 (remaining nine months)
$
4,781

2017
4,761

2018
1,374

2019
67

Total
$
10,983


Note 19.
Restructuring Charges

During the fourth quarter of fiscal 2015, the Company announced restructuring measures designed to realign resources and drive overall operating efficiencies. These measures impacted approximately 120 positions, or 3% of the Company's global workforce, in various geographies and functions worldwide. The reorganization plan was substantially completed by the end of the first quarter of fiscal 2016.


23


The Company recorded total restructuring charges of $24.5 million in the fourth quarter of fiscal 2015, primarily related to severance pay expenses and write-offs of acquisition-related intangibles. As of the end of the first quarter of fiscal 2016, the balance of the restructuring accrual was $5.6 million, which is expected to be paid within the next few quarters.

Note 20.
Subsequent Events
On July 21, 2015, the Company’s Board of Directors declared a cash dividend of $0.31 per common share for the second quarter of fiscal 2016. The dividend is payable on August 26, 2015 to stockholders of record on August 6, 2015.


24



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 sheet; 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 March 28, 2015 filed with the SEC. 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: first quarter of fiscal 2016 compared to the first quarter of fiscal 2015
The following table sets forth statement of income data as a percentage of net revenues for the periods indicated:
 
Three Months Ended

June 27, 2015

 
June 28, 2014

Net revenues
100.0
%
 
100.0
%
Cost of revenues
29.1

 
30.9

Gross margin
70.9

 
69.1

Operating expenses:


 

Research and development
23.1

 
19.9

Selling, general and administrative
15.0

 
15.1

Amortization of acquisition-related intangibles
0.3

 
0.4

Total operating expenses
38.4

 
35.4

Operating income
32.5

 
33.7

Interest and other expense, net
1.9

 
1.0

Income before income taxes
30.6

 
32.7

Provision for income taxes
3.7

 
4.4

Net income
26.9
%
 
28.3
%
 
Net Revenues
We sell our products to global manufacturers of electronic products in end markets such as wired and wireless communications, aerospace and defense, industrial, scientific and medical and audio, video and broadcast. The vast majority of our net revenues are generated by sales of our semiconductor products, but we also generate sales from support products. We classify our product offerings into four categories: New, Mainstream, Base and Support Products. The composition of each product category is as follows:

25


New Products include our most recent product offerings and include the Virtex® UltraScaleTM, Kintex® UltraScale, Virtex-7, Kintex-7, Artix®-7, Zynq®-7000 and Spartan®-6 product families.
Mainstream Products include the Virtex-6, Virtex-5 and CoolRunnerTM-II product families.
Base Products consist of our older product families including the Virtex-4, Virtex-II, Virtex-E, Virtex, Spartan-3, Spartan-II, Spartan, CoolRunner and XC9500 products.
Support Products include configuration solutions, HardWire, software and support/services.
These product categories, except for Support Products, 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 March 29, 2015, which was the beginning of our fiscal 2016. The amounts for the prior periods presented have been reclassified to conform to the new categorization. New Products include our most recent product offerings and are typically designed into our customers’ latest generation of electronic systems. Mainstream Products are generally several years old and designed into customer programs that are currently shipping in full production. Base Products are older than Mainstream Products with demand generated generally by the customers’ older systems still in production. Support Products are generally products or services sold in conjunction with our semiconductor devices to aid customers in the design process.
Net revenues of $549.0 million in the first three months of fiscal 2016 represented a 10% decrease from the comparable prior year period of $612.6 million. While net revenues from New Products, and to a lesser extent Base Products, increased in the first three months of fiscal 2016 versus the comparable prior year period, the decline from our Mainstream products more than offset the increases. No end customer accounted for more than 10% of our net revenues for the first quarter of fiscal 2016.
For the first three months of fiscal 2016, approximately 62% of our net revenues were from products sold to distributors for subsequent resale to original equipment manufacturers (OEMs) or their subcontract manufacturers. As of June 27, 2015, we had $76.4 million of deferred revenue and $20.7 million of deferred cost of revenues recognized as a net $55.7 million of deferred income on shipments to distributors. As of March 28, 2015, we had $87.7 million of deferred revenue and $21.6 million of deferred cost of revenues recognized as a net $66.1 million of deferred income on shipments to distributors. The deferred income on shipments to distributors that will ultimately be recognized in our condensed consolidated statement of income will be different than the amount shown on the condensed consolidated balance sheet 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 first quarter of fiscal 2016 and 2015 were as follows:
 
 
Three Months Ended
(In millions)
June 27, 2015
 
% of Total
 
% Change
 
June 28, 2014
 
% of Total
New Products
$
206.8

 
38

 
10

 
$
188.4

 
31

Mainstream Products
137.1

 
25

 
(40
)
 
227.3

 
37

Base Products
186.5

 
34

 
5

 
177.4

 
29

Support Products
18.6

 
3

 
(5
)
 
19.5

 
3

Total net revenues
$
549.0

 
100

 
(10
)
 
$
612.6

 
100


Net revenues from New Products increased in the first three months of fiscal 2016 compared to the comparable prior year period. The increase was a result of sales growth from our 28nm and 20nm product families. We expect sales of New Products to continue to grow as more customer programs enter into volume production with our 28nm and 20nm products.
Net revenues from Mainstream Products decreased in the first three months of fiscal 2016 from the comparable prior year period. The decrease was largely due to the decline in sales of our Virtex-6 and Virtex-5 product families.
Net revenues from Base Products increased in the first three months of fiscal 2016 from the comparable prior year period. The increase was due to higher sales from our Virtex-2 as well as Spartan-3 product families. While the revenue from Base Products increased this quarter, these are mature products and as a result their sales are expected to decline over time.
Net revenues from Support Products decreased in the first three months of fiscal 2016 compared to the comparable prior year period. The decrease was primarily due to a decline in sales from our programmable read-only memory (PROM) products.


26


Net Revenues by End Markets

Our end market revenue data is derived from our understanding of our end customers’ primary markets. On March 29, 2015, we modified our end market categories by combining the Other category, which was previously a stand-alone category, into the Communications and Data Center. Amounts for prior period presented have been reclassified accordingly. As such, net revenues by end markets are now classified into the following three categories: Communications & Data Center; Industrial, Aerospace & Defense and Broadcast, Consumer & Automotive. The percentage change calculation in the table below represents the year-to-year dollar change in each end market.
Net revenues by end markets for the first quarter of fiscal 2016 and 2015 were as follows:
 
 
Three Months Ended
(% of total net revenues)
June 27, 2015
 
% Change in Dollars
 
June 28, 2014
Communications & Data Center
38
%
 
(36
)
 
53
%
Industrial, Aerospace & Defense
44

 
27

 
31

Broadcast, Consumer & Automotive
18

 
2

 
16

Total net revenues
100
%
 
(10
)
 
100
%
Net revenues from Communications & Data Center decreased in the first quarter of fiscal 2016 from the comparable prior year period. The decrease was primarily due to weaker sales from both wireline and wireless communications, with wireless communications, primarily in China, driving most of the decrease.
Net revenues from Industrial, Aerospace & Defense increased in the first quarter of fiscal 2016 from the comparable prior year period. The increase was driven by all sub-segments within Industrial, Aerospace & Defense, with aerospace & defense applications driving the most growth.
Net revenues from Broadcast, Consumer & Automotive increased slightly in the first three months of fiscal 2016 from the comparable prior year period. The increase was due to an increase in automotive applications, which more than offset the decreases in all other applications within Broadcast, Consumer & Automotive.
Net Revenues by Geography
Geographic revenue information reflects the geographic location of the distributors, OEMs or contract manufacturers who purchased our products. This may differ from the geographic location of the end customers. Net revenues by geography for the first quarter of fiscal 2016 and 2015 were as follows:
 
 
Three Months Ended
(In millions)
June 27, 2015
 
% of Total
 
% Change
 
June 28, 2014
 
% of Total
North America
$
188.6

 
34

 
18

 
$
160.4

 
26

Asia Pacific
197.8

 
36

 
(24
)
 
261.4

 
43

Europe
104.1

 
19

 
(19
)
 
129.2

 
21

Japan
58.5

 
11

 
(5
)
 
61.6

 
10

Total net revenues
$
549.0

 
100

 
(10
)
 
$
612.6