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EX-32.2 - EXHIBIT 32.2 - XILINX INCxlnx1012016ex322.htm
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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 October 1, 2016
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 October 14, 2016
Common Stock, $.01 par value
 
252,511,321




TABLE OF CONTENTS
 

2


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)
October 1, 2016
 
September 26, 2015
 
October 1, 2016
 
September 26, 2015
Net revenues
$
579,209

 
$
527,572

 
$
1,154,190

 
$
1,076,580

Cost of revenues
175,875

 
157,640

 
344,172

 
317,594

Gross margin
403,334

 
369,932

 
810,018

 
758,986

Operating expenses:

 

 

 

Research and development
141,814

 
130,220

 
277,939

 
256,868

Selling, general and administrative
83,463

 
84,761

 
166,573

 
166,904

Amortization of acquisition-related intangibles
1,244

 
1,769

 
2,488

 
3,538

Total operating expenses
226,521

 
216,750

 
447,000

 
427,310

Operating income
176,813

 
153,182

 
363,018

 
331,676

Interest and other expense, net
1,151

 
9,213

 
5,738

 
19,740

Income before income taxes
175,662

 
143,969

 
357,280

 
311,936

Provision for income taxes
11,470

 
16,671

 
30,039

 
36,923

Net income
$
164,192

 
$
127,298

 
$
327,241

 
$
275,013

Net income per common share:

 

 

 

Basic
$
0.65

 
$
0.49

 
$
1.29

 
$
1.07

Diluted
$
0.61

 
$
0.48

 
$
1.22

 
$
1.03

Cash dividends per common share
$
0.33

 
$
0.31

 
$
0.66

 
$
0.62

Shares used in per share calculations:

 

 

 

Basic
253,466

 
257,640

 
253,056

 
257,744

Diluted
270,373

 
266,046

 
267,885

 
268,070


See notes to condensed consolidated financial statements.



3


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

 
Three Months Ended
 
Six Months Ended
(In thousands)
October 1, 2016
 
September 26, 2015
 
October 1, 2016
 
September 26, 2015
Net income
$
164,192

 
$
127,298

 
$
327,241

 
$
275,013

Other comprehensive income (loss), net of tax:


 


 


 


Change in net unrealized gains (losses) on available-for-sale securities
(1,496
)
 
(253
)
 
2,230

 
(5,180
)
Reclassification adjustment for gains on available-for-sale securities
(368
)
 
(18
)
 
(416
)
 
(196
)
Change in net unrealized gains (losses) on hedging transactions
99

 
(2,496
)
 
(683
)
 
(378
)
Reclassification adjustment for losses on hedging transactions
345

 
2,071

 
638

 
3,944

Cumulative translation adjustment, net
(384
)
 
(623
)
 
(347
)
 
(1,546
)
Other comprehensive income (loss)
(1,804
)
 
(1,319
)
 
1,422

 
(3,356
)
Total comprehensive income
$
162,388

 
$
125,979

 
$
328,663

 
$
271,657


See notes to condensed consolidated financial statements.


4


XILINX, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
 
(In thousands, except par value amounts)
October 1, 2016
 
April 2, 2016
 
(unaudited)
 
 
ASSETS

 

Current assets:

 

Cash and cash equivalents
$
690,490

 
$
503,816

Short-term investments
2,799,338

 
2,833,883

Accounts receivable, net
227,758

 
307,458

Inventories
196,922

 
178,550

Prepaid expenses and other current assets
104,686

 
92,951

Total current assets
4,019,194

 
3,916,658

Property, plant and equipment, at cost
834,312

 
810,582

Accumulated depreciation and amortization
(541,824
)
 
(527,236
)
Net property, plant and equipment
292,488

 
283,346

Long-term investments
198,545

 
220,807

Goodwill
161,287

 
159,296

Acquisition-related intangibles, net
6,123

 
6,202

Other assets
268,083

 
232,960

Total Assets
$
4,945,720

 
$
4,819,269

 
 
 
 
LIABILITIES, TEMPORARY EQUITY AND STOCKHOLDERS’ EQUITY

 

Current liabilities:

 

Accounts payable
$
103,236

 
$
101,534

Accrued payroll and related liabilities
171,388

 
154,294

Income taxes payable
8,233

 
6,286

Deferred income on shipments to distributors
57,404

 
51,758

Other accrued liabilities
65,891

 
45,108

Current portion of long-term debt
591,667

 
585,417

Total current liabilities
997,819

 
944,397

Long-term debt
994,439

 
993,639

Deferred tax liabilities
294,875

 
261,467

Long-term income taxes payable
7,778

 
15,889

Other long-term liabilities
18,294

 
1,090

Commitments and contingencies

 

Temporary equity (Note 10)
7,368

 
12,894

Stockholders' equity:

 

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

 

Common stock, $.01 par value
2,525

 
2,537

Additional paid-in capital
773,511

 
726,921

Retained earnings
1,854,320

 
1,867,066

Accumulated other comprehensive loss
(5,209
)
 
(6,631
)
Total stockholders’ equity
2,625,147

 
2,589,893

Total Liabilities, Temporary Equity and Stockholders’ Equity
$
4,945,720

 
$
4,819,269


See notes to condensed consolidated financial statements.

5


XILINX, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 
Six Months Ended
(In thousands)
October 1, 2016
 
September 26, 2015
Cash flows from operating activities:
 
 
 
Net income
$
327,241

 
$
275,013

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation
22,807

 
25,725

Amortization
7,714

 
8,708

Stock-based compensation
59,206

 
53,001

Net gain on sale of available-for-sale securities
(823
)
 
(618
)
Amortization of debt discounts
6,033

 
6,019

Provision for deferred income taxes
32,607

 
1,129

Changes in assets and liabilities:
 
 
 
Accounts receivable, net
79,700

 
(36,013
)
Inventories
(18,409
)
 
18,119

Prepaid expenses and other current assets
(3,765
)
 
(9,051
)
Other assets
(5,036
)
 
(3,106
)
Accounts payable
1,701

 
(4,834
)
Accrued liabilities
19,046

 
(11,909
)
Income taxes payable
(11,439
)
 
(10,481
)
Deferred income on shipments to distributors
5,646

 
15,636

Net cash provided by operating activities
522,229

 
327,338

Cash flows from investing activities:
 
 
 
Purchases of available-for-sale securities
(1,952,967
)
 
(1,349,852
)
Proceeds from sale and maturity of available-for-sale securities
2,023,314

 
1,248,939

Purchases of property, plant and equipment
(31,950
)
 
(13,051
)
Other investing activities
(15,849
)
 
242

Net cash provided by (used in) investing activities
22,548

 
(113,722
)
Cash flows from financing activities:
 
 
 
Repurchases of common stock
(200,139
)
 
(199,998
)
Proceeds from issuance of common stock, net of withholding taxes
9,513

 
14,823

Payment of dividends to stockholders
(167,477
)
 
(160,402
)
Net cash used in financing activities
(358,103
)
 
(345,577
)
Net increase (decrease) in cash and cash equivalents
186,674

 
(131,961
)
Cash and cash equivalents at beginning of period
503,816

 
892,572

Cash and cash equivalents at end of period
$
690,490

 
$
760,611

Supplemental disclosure of cash flow information:
 
 
 
Interest paid
$
20,688

 
$
20,688

Income taxes paid, net
$
9,118

 
$
46,121


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 April 2, 2016. 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 1, 2017 or any future period.
The Company uses a 52- to 53-week fiscal year ending on the Saturday nearest March 31. Fiscal 2017 will be a 52-week year ending on April 1, 2017, while fiscal 2016 was a 53-week year ended on April 2, 2016. The quarters ended October 1, 2016 and September 26, 2015 each includes 13 weeks.

Note 2.
Recent Accounting Changes and Accounting Pronouncements

Adoption of New Accounting Guidance

In the first quarter of fiscal 2017, the Company adopted an amended authoritative guidance simplifying the presentation of debt issuance costs as a direct deduction from the carrying value of the debt liability rather than showing the debt issuance costs as an asset. We have applied the amendment retrospectively to the comparable period presented and it did not have a significant impact on our financial statements.

In the first quarter of fiscal 2017, the Company early adopted the authoritative guidance that simplifies how share-based payments are accounted for and presented in the financial statements. Under the new guidance, excess tax benefits or tax deficiencies are recorded in the condensed consolidated statement of income when the awards vest or are settled. Previously, they were recorded in stockholders' equity of the condensed consolidated balance sheet. In addition, cash flows related to excess tax benefits or tax deficiencies are now classified as an operating activity, with prior periods adjusted accordingly. While the new guidance provides an accounting policy election to account for forfeitures as they occur, the Company elected to continue to estimate forfeitures to determine the amount of compensation cost to be recognized in each period. As a result of the adoption of this guidance, the condensed consolidated statement of cash flows for the six months ended September 26, 2015 was adjusted as follows: a $10.5 million increase to net cash provided by operating activities and a $10.5 million increase to the net cash used in financing activities. Additionally, the Company recorded excess tax benefits of $2.9 million and $9.7 million, resulting in an increase in net income per diluted share of $0.01 and $0.03 for the second quarter and first six months, respectively, of fiscal 2017 in the condensed consolidated statement of income as a component of the provision for income taxes.

Recent Accounting Pronouncements

In April 2014, the Financial Accounting Standards Board (FASB) issued a new global revenue recognition guidance 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 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. 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 in fiscal year 2018. The new 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 guidance on its consolidated financial statements, including selection of the transition method. However, assuming all other revenue recognition criteria have been met, it is likely that the new guidance would require the Company to recognize revenue and cost relating to distributor sales upon product delivery, subject to estimated allowance for distributor price adjustments and rights of return.

In February 2016, the FASB issued the authoritative guidance on leases. The new 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

7


underlying asset and a lease liability for the corresponding lease obligation. The new 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 guidance must be adopted using a modified retrospective transition and provides for certain practical expedients. In addition, the transition will require application of the new guidance at the beginning of the earliest comparative period presented. The Company is currently evaluating the impact of this new guidance on its consolidated financial statements.

In March 2016, the FASB finalized its amendments in the new revenue recognition guidance on assessing whether an entity is a principal or an agent in a revenue transaction. The amendments clarify how an entity should identify the unit of accounting for the principal versus agent evaluation, and how it should apply the control principle to certain types of arrangements, such as service transactions, by explaining what a principal controls before the specified good or service is transferred to the customer. The FASB also addressed how an entity acting as a principal would determine its transaction price when it does not know the price charged to its customer for its goods or services by an intermediary. The amendments have the same effective date and transition requirements as the new revenue recognition guidance, which for Xilinx would be the beginning of fiscal year 2019. The Company is currently evaluating the impact of this new guidance on its consolidated financial statements.

In April 2016, the FASB finalized amendments in the new revenue recognition guidance on identifying performance obligations and accounting for licenses of intellectual property. The amendments address implementation issues that were raised by stakeholders and discussed by the Revenue Recognition Transition Resource Group (TRG). The amendments have the same effective date and transition requirements as the new revenue recognition guidance, which for Xilinx would be the beginning of fiscal year 2019. The Company is currently evaluating the impact of this new guidance on its consolidated financial statements.

In May 2016, the FASB finalized amendments in the new revenue recognition guidance on collectability, noncash consideration, presentation of sales tax, and transition. The amendments are intended to address implementation issues that were raised by stakeholders and discussed by TRG, and provide additional practical expedients. The amendments have the same effective date and transition requirements as the new revenue recognition guidance, which for Xilinx would be the beginning of fiscal year 2019. The Company is currently evaluating the impact of this new guidance on its consolidated financial statements.

In June 2016, the FASB issued the authoritative guidance which introduces new guidance for the accounting for credit losses on instruments for both financial services and non-financial services entities. The new guidance introduces an approach based on expected losses to estimate credit losses on certain types of financial instruments. It also modifies the impairment model for available-for-sale debt securities and provides for a simplified accounting model for purchased financial assets with credit deterioration since their origination. The new guidance will be effective for public business entities in fiscal years beginning after December 15, 2019, including interim periods within those years, which for Xilinx would be the first quarter of fiscal year 2021. Early adoption is permitted. The Company is currently evaluating the impact of this new guidance on its consolidated financial statements.

In August 2016, the FASB issued authoritative guidance for cash flow classification. The new 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 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 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 October 1, 2016 and April 2, 2016, Avnet accounted for 49% and 75% of the Company’s total net accounts receivable, respectively. For the second quarter and first six months of fiscal 2017, resale of product through Avnet accounted for 43% and 43% of the Company’s worldwide net revenues, respectively. For the second quarter and the first six months of fiscal 2016, resale of product through Avnet accounted for 50% and 51% 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 2017 and 2016.

8


The Company mitigates concentrations of credit risk in its investments in debt securities by currently investing approximately 85% 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 October 1, 2016, approximately 36% 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 six months of fiscal 2017 and the Company did not adjust or override any fair value measurements as of October 1, 2016.
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.
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

9


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 October 1, 2016 and April 2, 2016:

 
 
October 1, 2016
(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
 
$
342,151

 
$

 
$

 
$
342,151

Financial institution securities
 

 
99,915

 

 
99,915

Non-financial institution securities
 

 
119,422

 

 
119,422

Foreign government and agency securities
 

 
59,972

 

 
59,972

Short-term investments:
 

 

 

 

Financial institution securities
 

 
504,900

 

 
504,900

Non-financial institution securities
 

 
356,263

 

 
356,263

Municipal bonds
 

 
48,892

 

 
48,892

U.S. government and agency securities
 
23,870

 
66,169

 

 
90,039

Foreign government and agency securities
 

 
64,969

 

 
64,969

Asset-backed securities
 

 
206,065

 

 
206,065

Mortgage-backed securities
 

 
1,167,370

 

 
1,167,370

Debt mutual funds
 

 
33,369

 

 
33,369

Bank loans
 

 
111,211

 

 
111,211

Commercial mortgage-backed securities



216,260




216,260

Long-term investments:
 

 

 

 

Auction rate securities
 

 

 
10,160

 
10,160

Asset-backed securities
 

 
5,771

 

 
5,771

Municipal bonds
 

 
4,790

 

 
4,790

Mortgage-backed securities
 

 
119,246

 

 
119,246

Debt mutual fund
 

 
58,578

 

 
58,578

Derivative financial instruments, net



861




861

Total assets measured at fair value
 
$
366,021

 
$
3,244,023

 
$
10,160

 
$
3,620,204






10


 
April 2, 2016
(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
$
232,698

 
$

 
$

 
$
232,698

Non-financial institution securities

 
104,964

 

 
104,964

Foreign government and agency securities

 
98,967

 

 
98,967

Municipal bonds

 
1,003

 

 
1,003

Short-term investments:

 

 

 


Financial institution securities

 
284,853

 

 
284,853

Non-financial institution securities

 
460,148

 

 
460,148

Municipal Bonds

 
61,579

 

 
61,579

U.S. government and agency securities
81,873

 
110,420

 

 
192,293

Foreign government and agency securities

 
214,201

 

 
214,201

Mortgage-backed securities

 
1,067,157

 

 
1,067,157

Debt mutual fund

 
35,116

 

 
35,116

Bank loans

 
102,015

 

 
102,015

Asset-backed securities

 
210,051

 

 
210,051

Commercial mortgage-backed securities


206,470




206,470

Long-term investments:

 

 

 


Auction rate securities

 

 
9,977

 
9,977

Municipal bonds

 
7,100

 

 
7,100

Mortgage-backed securities

 
140,382

 

 
140,382

Debt mutual fund

 
56,785

 

 
56,785

Asset-backed securities


6,563




6,563

Derivative financial instruments, net


744




744

Total assets measured at fair value
$
314,571

 
$
3,168,518

 
$
9,977

 
$
3,493,066


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)
October 1, 2016
 
September 26, 2015
 
October 1, 2016
 
September 26, 2015
Balance as of beginning of period
$
10,068

 
$
10,409

 
$
9,977

 
$
10,312

Total unrealized gains:

 

 

 

Included in other comprehensive income (loss)
92

 
4

 
183

 
101

Balance as of end of period
$
10,160

 
$
10,413

 
$
10,160

 
$
10,413


As of October 1, 2016, marketable securities measured at fair value using Level 3 inputs were comprised of $10.2 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.

11



Financial Instruments Not Recorded at Fair Value on a Recurring Basis

The Company’s 2.625% Senior Convertible Debentures due June 15, 2017 (2017 Convertible Notes), 2.125% Notes due 2019 (2019 Notes) and 3.000% Notes due 2021 (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 October 1, 2016 were approximately $1.12 billion, $506.5 million and $517.1 million, respectively, based on the last trading price of the respective debentures for the period (classified as Level 2 in fair value hierarchy due to relatively low trading volume).

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:
 
October 1, 2016
 
 
April 2, 2016
(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
$
342,151

 
$

 
$

 
$
342,151

 
 
$
232,698

 
$

 
$

 
$
232,698

Financial institution


 


 


 


 
 


 


 


 


securities
604,815

 

 

 
604,815

 
 
284,853

 

 

 
284,853

Non-financial institution


 


 


 


 
 


 


 


 


securities
474,036

 
1,684

 
(35
)
 
475,685

 
 
564,480

 
862

 
(230
)
 
565,112

Auction rate securities
10,500

 

 
(340
)
 
10,160

 
 
10,500

 

 
(523
)
 
9,977

Municipal bonds
53,077

 
707

 
(102
)
 
53,682

 
 
68,938

 
877

 
(133
)
 
69,682

U.S. government and

 

 

 

 
 

 

 

 

agency securities
90,128

 
27

 
(116
)
 
90,039

 
 
192,291

 
73

 
(71
)
 
192,293

Foreign government and
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
agency securities
124,968

 

 
(27
)
 
124,941

 
 
313,168

 

 

 
313,168

Mortgage-backed securities
1,278,476

 
15,213

 
(7,073
)
 
1,286,616

 
 
1,200,071

 
12,848

 
(5,380
)
 
1,207,539

Asset-backed securities
210,550

 
1,549

 
(263
)
 
211,836

 
 
216,068

 
1,151

 
(605
)
 
216,614

Debt mutual funds
101,350

 

 
(9,403
)
 
91,947

 
 
101,350

 

 
(9,449
)
 
91,901

Bank loans
110,671

 
647

 
(107
)
 
111,211

 
 
102,092

 
25

 
(102
)
 
102,015

Commercial mortgage-
























backed securities
217,669


786


(2,195
)

216,260


 
207,847


432


(1,809
)

206,470

 
$
3,618,391

 
$
20,613

 
$
(19,661
)
 
$
3,619,343

 
 
$
3,494,356

 
$
16,268

 
$
(18,302
)
 
$
3,492,322


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 October 1, 2016 and April 2, 2016:


12


 
October 1, 2016
 
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
$
24,403

 
$
(29
)
 
$
1,540

 
$
(6
)
 
$
25,943

 
$
(35
)
Auction rate securities

 

 
10,160

 
(340
)
 
10,160

 
(340
)
Municipal bonds
6,937

 
(80
)
 
1,751

 
(22
)
 
8,688

 
(102
)
U.S. government and

 

 

 

 


 


    agency securities
65,555

 
(116
)
 

 

 
65,555

 
(116
)
Foreign government and













agency securities
14,990


(27
)





14,990


(27
)
Mortgage-backed securities
333,147

 
(5,094
)
 
114,781

 
(1,979
)
 
447,928

 
(7,073
)
Asset-backed securities
10,975

 
(18
)
 
16,387

 
(245
)
 
27,362

 
(263
)
Debt mutual funds

 

 
91,947

 
(9,403
)
 
91,947

 
(9,403
)
Bank loans
17,728

 
(107
)


 

 
17,728

 
(107
)
Commercial mortgage-













backed securities
126,963


(873
)

7,864


(1,322
)

134,827


(2,195
)
 
$
600,698

 
$
(6,344
)
 
$
244,430

 
$
(13,317
)
 
$
845,128

 
$
(19,661
)

 
April 2, 2016
 
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
$
52,756

 
$
(230
)
 
$

 
$

 
$
52,756

 
$
(230
)
Auction rate securities

 

 
9,977

 
(523
)
 
9,977

 
(523
)
Municipal bonds
10,138

 
(44
)
 
3,867

 
(89
)
 
14,005

 
(133
)
U.S. government and

 

 

 

 

 

    agency securities
84,024

 
(71
)
 

 

 
84,024

 
(71
)
Mortgage-backed securities
346,560

 
(3,916
)
 
114,285

 
(1,464
)
 
460,845

 
(5,380
)
Asset-backed securities
81,038

 
(502
)
 
20,793

 
(103
)
 
101,831

 
(605
)
Debt mutual funds

 

 
91,901

 
(9,449
)
 
91,901

 
(9,449
)
Bank loans
34,358


(31
)

42,832


(71
)

77,190


(102
)
Commercial mortgage-

















 backed securities
141,761


(878
)
 
2,150


(931
)

143,911


(1,809
)
 
$
750,635

 
$
(5,672
)
 
$
285,805

 
$
(12,630
)
 
$
1,036,440

 
$
(18,302
)

As of October 1, 2016, 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 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 October 1, 2016 and April 2, 2016 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 and 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 October 1,

13


2016 and April 2, 2016. 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.
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, mortgage-backed securities, asset-backed securities, bank loans 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.
 
October 1, 2016
(In thousands)
Amortized
Cost
 
Estimated
Fair Value
Due in one year or less
$
1,087,110

 
$
1,087,208

Due after one year through five years
505,011

 
505,844

Due after five years through ten years
216,148

 
217,553

Due after ten years
1,366,621

 
1,374,640


$
3,174,890

 
$
3,185,245

As of October 1, 2016, $1.99 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
 
Six Months Ended
(In thousands)
October 1, 2016
 
September 26, 2015
 
October 1, 2016
 
September 26, 2015
Proceeds from sale of available-for-sale securities
$
153,871

 
$
54,989

 
$
253,345

 
$
121,030

Gross realized gains on sale of available-for-sale securities
$
762

 
$
476

 
$
1,427

 
$
836

Gross realized losses on sale of available-for-sale securities
(92
)
 
(88
)
 
(604
)
 
(218
)
Net realized gains on sale of available-for-sale securities
$
670

 
$
388

 
$
823

 
$
618

Amortization of premiums on available-for-sale securities
$
7,414

 
$
7,043

 
$
14,175

 
$
13,511


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.

14


As of October 1, 2016 and April 2, 2016, the Company had the following outstanding forward currency exchange contracts (in notional amount), which were derivative financial instruments:
 
(In thousands and U.S. dollars)
October 1, 2016
 
April 2, 2016
Singapore Dollar
$
27,640

 
$
26,978

Euro
18,757

 
19,123

Indian Rupee
29,823

 
23,302

British Pound
9,339

 
10,716

Japanese Yen
3,789

 
3,387

 
$
89,348

 
$
83,506


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 2017. The majority of net unrealized gains, 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 October 1, 2016, 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 October 1, 2016 that is expected to be reclassified into earnings was not material. The ineffective portion of the gains or losses on the forward contracts was 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 October 1, 2016 and April 2, 2016, 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
October 1, 2016
Prepaid expenses and other current assets
$
1,785

 
Other accrued liabilities
$
924

April 2, 2016
Prepaid expenses and other current assets
$
2,161

 
Other accrued liabilities
$
1,417

 
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.


15


The following table summarizes the effect of derivative instruments on the condensed consolidated statements of income for the second quarter and the first six months of fiscal 2017 and 2016:

 
Three Months Ended
 
Six Months Ended
(In thousands)
October 1, 2016
 
September 26, 2015
 
October 1, 2016
 
September 26, 2015
Amount of gains (losses) recognized in other comprehensive income on derivative (effective portion of cash flow hedging)
$
444

 
$
426

 
$
(45
)
 
$
(3,564
)

 
 
 
 

 

Amount of losses reclassified from accumulated other comprehensive income into income (effective portion) *
$
(345
)
 
$
(2,071
)
 
$
(638
)
 
$
(3,944
)

 
 
 
 

 

Amount of gains (losses) recorded (ineffective portion) *
$
1

 
$
7

 
$
8

 
$
(22
)

*
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

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)
October 1, 2016
 
September 26, 2015
 
October 1, 2016
 
September 26, 2015
Stock-based compensation included in:

 

 

 

Cost of revenues
$
1,930

 
$
1,763

 
$
4,049

 
$
3,727

Research and development
16,529

 
12,934

 
31,649

 
27,626

Selling, general and administrative
11,343

 
11,984

 
23,508

 
21,648

 
$
29,802

 
$
26,681

 
$
59,206

 
$
53,001


As a result of the early adoption of new guidance on accounting for share-based payments in the first quarter of fiscal 2017, during the second quarter and first six months of fiscal 2017 the Company recorded excess tax benefits realized for the tax deduction from option exercises and other awards of $2.9 million and $9.7 million, respectively, in the provision for income taxes. During the second quarter and first six months of fiscal 2016, the Company recorded excess tax benefits realized for the tax deduction from option exercises and other awards of $5.0 million and $7.3 million, respectively, in additional paid-in capital.


16


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
April 2, 2016
1,257

 
$
25.42

Exercised
(908
)
 
$
24.61

Forfeited/cancelled/expired
(3
)
 
$
24.81

October 1, 2016
346

 
$
27.54

Options exercisable at:

 

October 1, 2016
335

 
$
27.45

April 2, 2016
1,241

 
$
25.33

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. As of October 1, 2016, 12.8 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 October 1, 2016 was $8.8 million and $21.4 million, respectively. The total pre-tax intrinsic value of options exercised during the three and six months ended September 26, 2015 was $7.5 million and $23.3 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.

The Company's stock-based compensation expense relating to options during the first six months of fiscal 2017 and 2016 was not material.

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
6,678

 
$
40.74

Granted
2,882

 
$
42.87

Vested
(2,156
)
 
$
39.49

Cancelled
(298
)
 
$
40.91

October 1, 2016
7,106

 
$
41.97


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 2017 was $42.89 ($41.07 for the second quarter of fiscal 2016), and for the first six months of fiscal 2017 was $42.87 ($41.13 for the first six months of fiscal 2016), which were calculated based on estimates at the date of grant using the following weighted-average assumptions: 
 
Three Months Ended
 
Six Months Ended

October 1, 2016
 
September 26, 2015
 
October 1, 2016
 
September 26, 2015
Risk-free interest rate
0.8
%
 
1.3
%
 
0.8
%
 
1.3
%
Dividend yield
2.9
%
 
2.8
%
 
2.9
%
 
2.8
%

17


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 we pay in cash to the appropriate taxing authorities on behalf of our employees. In the condensed consolidated statement of cash flows, these amounts have been included as a reduction in the cash proceeds from issuance of common stock under our various stock plans. During the first six months of fiscal 2017 and 2016, we withheld $28.4 million and $28.6 million worth of RSU awards, respectively, to satisfy the employees’ tax obligations.
Employee Stock Purchase Plan
Under the ESPP, shares are only issued during the second and fourth quarters of each fiscal year. Employees purchased 446 thousand shares for $15.0 million during the second quarter of fiscal 2017 and 438 thousand shares for $14.5 million in the second quarter of fiscal 2016. The per-share weighted-average fair value of stock purchase rights granted under the ESPP during the second quarter of fiscal 2017 and 2016 was $11.64 and $9.78, respectively. The fair values of stock purchase plan rights granted in the second quarter of fiscal 2017 and 2016 were estimated using the Black-Scholes option pricing model at the date of grant using the following assumptions:

2017
 
2016
Expected life of options (years)
1.25

 
1.25

Expected stock price volatility
0.23

 
0.25

Risk-free interest rate
0.5
%
 
0.4
%
Dividend yield
2.6
%
 
3.0
%

The next scheduled purchase under the ESPP is in the fourth quarter of fiscal 2017. As of October 1, 2016, 9.0 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)
October 1, 2016
 
September 26, 2015
 
October 1, 2016
 
September 26, 2015
Net income available to common stockholders
$
164,192

 
$
127,298

 
$
327,241

 
$
275,013

Weighted average common shares outstanding-basic
253,466

 
257,640

 
253,056

 
257,744

Dilutive effect of employee equity incentive plans
2,126

 
1,920

 
2,319

 
2,423

Dilutive effect of 2017 Convertible Notes [1]
9,587

 
6,169

 
8,736

 
6,921

Dilutive effect of warrants
5,194

 
317

 
3,774

 
982

Weighted average common shares outstanding-diluted
270,373

 
266,046

 
267,885

 
268,070

Basic earnings per common share
$
0.65

 
$
0.49

 
$
1.29

 
$
1.07

Diluted earnings per common share
$
0.61

 
$
0.48

 
$
1.22

 
$
1.03


[1] To hedge against potential dilution upon conversion of the 2017 Convertible Notes, the Company purchased call options on its common stock from the hedge counter-parties. The call options give the Company the right to purchase up to 20.8 million shares of its common stock at $28.86 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.

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).

18


Outstanding stock options and RSUs under the Company's stock award plans to purchase approximately 320 thousand and 3.0 million shares, for the second quarter and the first six months of fiscal 2017, 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.    

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)
October 1, 2016
 
April 2, 2016
Raw materials
$
14,220

 
$
15,346

Work-in-process
149,761

 
123,675

Finished goods
32,941

 
39,529

 
$
196,922

 
$
178,550


Note 10.
Debt and Credit Facility
2017 Convertible Notes
As of October 1, 2016, 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 34.6495 shares of common stock per $1 thousand principal amount of the 2017 Convertible Notes, representing an effective conversion price of approximately $28.86 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 October 1, 2016 and as a result, the 2017 Convertible Notes were convertible at the option of the holders. As of October 1, 2016, 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 is 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 is included in the denominator for the computation of diluted net income per common share, using the treasury stock method.

19


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)
October 1, 2016
 
April 2, 2016
Liability component:

 

   Principal amount of the 2017 Convertible Notes (discount is based on imputed discount rate of 5.75%)
$
600,000

 
$
600,000

   Unamortized discount of liability component
(10,363
)
 
(18,135
)
   Hedge accounting adjustment – sale of interest rate swap
2,995

 
5,241

   Unamortized debt issuance costs associated with 2017 Convertible Notes
(965
)
 
(1,689
)
   Net carrying value of the 2017 Convertible Notes
$
591,667

 
$
585,417




 


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 October 1, 2016, the remaining term of the 2017 Convertible Notes is 0.7 years. As of October 1, 2016, the if-converted value of the 2017 Convertible Notes was $1.11 billion.

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
 
Six Months Ended
(In thousands)
October 1, 2016
 
September 26, 2015
 
October 1, 2016
 
September 26, 2015
Contractual coupon interest
$
3,938

 
$
3,938

 
$
7,875

 
$
7,875

Amortization of debt issuance costs
362

 
362

 
724

 
724

Amortization of debt discount, net
2,763

 
2,763

 
5,526

 
5,526

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

 
$
7,063

 
$
14,125

 
$
14,125

To hedge against potential dilution upon conversion of the 2017 Convertible Notes, the Company purchased call options on its common stock from the hedge counter parties. The call options give the Company the right to purchase up to 20.8 million shares of its common stock at $28.86 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 counter parties, which give the hedge counter parties the right to purchase up to 20.8 million shares of the Company’s common stock at $40.89 per share. These warrants expire on a gradual basis over a specified period starting on September 13, 2017.
2019 and 2021 Notes
As of October 1, 2016, the Company had $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 semiannually on March 15 and September 15.

As of October 1, 2016, the remaining term of the 2019 and 2021 Notes are 2.5 years and 4.5 years, respectively.


20


The following table summarizes the carrying value of the 2019 and 2021 Notes as of October 1, 2016 and April 2, 2016:
(In thousands)
October 1, 2016
 
April 2, 2016
Principal amount of the 2019 Notes (discount is based on imputed interest rate of 2.236%)
$
500,000

 
$
500,000

Unamortized discount of the 2019 Notes
(1,300
)
 
$
(1,560
)
Unamortized debt issuance costs associated with the 2019 Notes
(825
)
 
(996
)
Principal amount of the 2021 Notes (discount is based on imputed interest rate of 3.115%)
500,000

 
500,000

Unamortized discount of the 2021 Notes
(2,358
)
 
(2,605
)
Unamortized debt issuance costs associated with the 2021 Notes
(1,078
)
 
(1,200
)
Total carrying value
$
994,439

 
$
993,639


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:
 
Three Months Ended
 
Six Months Ended
(In thousands)
October 1, 2016
 
September 26, 2015
 
October 1, 2016
 
September 26, 2015
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
255

 
247

 
507

 
493

Total interest expense related to the 2019 and 2021 Notes
$
6,807

 
$
6,799

 
$
13,613

 
$
13,599

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 October 1, 2016, 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). 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 2014 and 2016 Repurchase Programs have no stated expiration date.
Through October 1, 2016, the Company had used $796.0 million of the $800.0 million authorized under the 2014 Repurchase Program and none of the $1.00 billion authorized under the 2016 Repurchase Program, leaving $1.00 billion available for future repurchases. The Company’s current policy is to retire all repurchased shares, and consequently, no treasury shares were held as of October 1, 2016 and April 2, 2016.

During the first six months of fiscal 2017, the Company repurchased 4.1 million shares of common stock in the open market for a total of $200.1 million. During the first six months of fiscal 2016, the Company repurchased 4.6 million shares of common stock in the open market for a total of $200.0 million.

Note 12.
Interest and Other Expense, Net
The components of interest and other expense, net are as follows: 

21


 
Three Months Ended
 
Six Months Ended
(In thousands)
October 1, 2016
 
September 26, 2015
 
October 1, 2016
 
September 26, 2015
Interest income
$
12,098

 
$
8,124

 
$
23,564

 
$
16,099

Interest expense
(13,870
)
 
(13,862
)
 
(27,738
)
 
(27,724
)
Other income (expense), net
621

 
(3,475
)
 
(1,564
)
 
(8,115
)

$
(1,151
)
 
$
(9,213
)
 
$
(5,738
)
 
$
(19,740
)

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)
October 1, 2016
 
April 2, 2016
Accumulated unrealized gains (losses) on available-for-sale securities, net of tax
$
554

 
$
(1,260
)
Accumulated unrealized gains on hedging transactions, net of tax
211

 
256

Accumulated cumulative translation adjustment, net of tax
(5,974
)
 
(5,627
)
Accumulated other comprehensive loss
$
(5,209
)
 
$
(6,631
)

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 $11.5 million and $30.0 million for the second quarter and the first six months of fiscal 2017, respectively, representing an effective tax rate of 7% and 8%, respectively. The Company recorded tax provisions of $16.7 million and $36.9 million for the second quarter and the first six months of fiscal 2016, respectively, representing an effective tax rate of 12% for both periods.
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 October 1, 2016, determined in accordance with FASB authoritative guidance for measuring uncertain tax positions, decreased by $8.9 million in the second quarter of fiscal 2017 to $26.0 million. The decrease was primarily attributable to the effective settlement of the IRS examination, as discussed below, which resulted in a tax benefit of $9.5 million. The total amount of unrecognized tax benefits that, if realized in a future period, would favorably affect the effective tax rate was $7.3 million as of October 1, 2016.
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 taxing authorities of the U.S. federal and Ireland governments can no longer audit years through fiscal 2011 since the statutes of limitation are closed.  Similarly, the taxing authorities of U.S. state governments can no longer audit years through 2010.
The Company had been subject to examination by the IRS for fiscal years 2012 through 2014. During the fourth quarter of fiscal 2016, the IRS completed its fieldwork and issued a Revenue Agent Report. The case was then moved forward to the Joint Committee on Taxation for review. On July 29, 2016, the Company received written notification that the Joint Committee had completed its review and had taken no exception to the conclusions reached by the IRS.

As a result of the early adoption of new guidance on accounting for share-based payments, the Company recorded excess tax benefits of $2.9 million and $9.7 million for the second quarter and first six months of fiscal 2017, respectively, in the condensed consolidated statement of income as a component of the provision for income taxes. Please refer to "Note 2. Recent Accounting Changes and Accounting Pronouncements" for more details regarding the adoption of the new guidance.

22



Note 15.
Commitments
Xilinx leases some of its facilities and office buildings under non-cancelable operating leases that expire at various dates through December 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)
2017 (remaining six months)
$
2,819

2018
3,527

2019
3,107

2020
2,169

2021
1,568

Thereafter
592

Total
$
13,782

Aggregate future rental income to be received from owned property, totaled $2.5 million as of October 1, 2016. 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. Rent expense, net of rental income, under all operating leases was $1.3 million and $2.1 million for the three and six months ended September 26, 2015, respectively. Rental income was not material for the second quarter and the first six months of fiscal 2017 and 2016.
Other commitments as of October 1, 2016 totaled $114.8 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 October 1, 2016, the Company had $38.3 million of non-cancelable license obligations to providers of electronic design automation software and hardware/software maintenance expiring at various dates through September 2018.

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 2017 and the end of fiscal 2016, 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.


23


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 has appealed the decision dismissing in the California Action.  On September 1, 2015, the Court in the Delaware Action granted the Company's motion to transfer the Delaware Action to the U.S. District Court for the Northern District of California (Papst Licensing GmbH & Co., KG v. Xilinx, Inc., Case No. 3:16-cv-00925-EDL).  On June 9, 2016, the Court in the transferred Delaware Action granted the Company’s motion for judgment on the pleadings, determining that each of the asserted claims is directed to a patent-ineligible abstract idea and dismissing Papst’s claims for infringement. On July 8, 2016, Papst filed a notice of appeal from the judgment in favor of the Company. The Company is unable to estimate is 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 (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 notice of appeal from the final written decision.  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 October 6, 2016, a patent infringement lawsuit was filed by Marking Object Virtualization Intelligence, LLC (“MOVI”) against the Company in the U.S. District Court for the Eastern District of Texas (Marking Object Virtualization Intelligence, LLC v. Xilinx, Inc., Case No. 2:16-cv-01109-JRG).  The lawsuit pertains to two patents, and MOVI seeks unspecified damages and attorneys’ fees.  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.  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.
 
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 October 1, 2016 and April 2, 2016, the gross and net amounts of goodwill and of acquisition-related intangibles for all acquisitions were as follows:
 

24





 


 
Weighted-Average
(In thousands)
October 1, 2016
 
April 2, 2016
 
Amortization Life
Goodwill
$