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EX-32.2 - EXHIBIT 32.2 - XILINX INCex322.htm
EX-32.1 - EXHIBIT 32.1 - XILINX INCex321.htm
EX-31.2 - EXHIBIT 31.2 - XILINX INCex312.htm
EX-31.1 - EXHIBIT 31.1 - XILINX INCex311.htm
EX-10.1 - EXHIBIT 10.1 - XILINX INCex101.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 July 1, 2017
or
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to _______ .
Commission File Number 000-18548
 ______________________________________________________________________________
Xilinx, Inc.
(Exact name of registrant as specified in its charter)
 ______________________________________________________________________________
 
Delaware
 
 
 
77-0188631
(State or other jurisdiction of
incorporation or organization)
 
 
 
(I.R.S. Employer
Identification No.)
 
 
 
 
 
2100 Logic Drive, San Jose, California
 
 
 
95124
(Address of principal executive offices)
 
 
 
(Zip Code)
(408) 559-7778
(Registrant’s telephone number, including area code)
N/A
(Former name, former address, and former fiscal year, if changed since last report)
 ______________________________________________________________________________
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer", "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer x
 
Accelerated filer o
 
Non-accelerated filer o
 
Smaller reporting company o
 
Emerging growth company o
 
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x
Shares outstanding of the registrant’s common stock:
Class
 
Shares Outstanding as of July 14, 2017
Common Stock, $0.01 par value
 
248,601,515




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)
July 1, 2017
 
July 2, 2016
Net revenues
$
615,446

 
$
574,981

Cost of revenues
192,095

 
168,297

Gross margin
423,351

 
406,684

Operating expenses:

 

Research and development
153,051

 
136,125

Selling, general and administrative
89,175

 
83,110

Amortization of acquisition-related intangibles
705

 
1,244

Total operating expenses
242,931

 
220,479

Operating income
180,420

 
186,205

Interest and other income (expense), net
1,839

 
(4,587
)
Income before income taxes
182,259

 
181,618

Provision for income taxes
15,014

 
18,569

Net income
$
167,245

 
$
163,049

Net income per common share:

 

Basic
$
0.67

 
$
0.64

Diluted
$
0.63

 
$
0.61

Cash dividends per common share
$
0.35

 
$
0.33

Shares used in per share calculations:

 

Basic
247,911

 
252,901

Diluted
265,797

 
266,206


See notes to condensed consolidated financial statements.



3


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

 
Three Months Ended
(In thousands)
July 1, 2017
 
July 2, 2016
Net income
$
167,245

 
$
163,049

Other comprehensive income (loss), net of tax:


 


Change in net unrealized gains on available-for-sale securities
5,250

 
3,726

Reclassification adjustment for gains on available-for-sale securities
(48
)
 
(48
)
Net change in unrealized gains (losses) on hedging transactions
1,425

 
(195
)
Reclassification adjustment for gains on hedging transactions
(338
)
 
(293
)
Cumulative translation adjustment, net
1,760

 
36

Other comprehensive income
8,049

 
3,226

Total comprehensive income
$
175,294

 
$
166,275


See notes to condensed consolidated financial statements.


4


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

 

Current assets:

 

Cash and cash equivalents
$
1,059,355

 
$
966,695

Short-term investments
2,588,207

 
2,354,762

Accounts receivable, net
268,257

 
243,915

Inventories
215,210

 
227,033

Prepaid expenses and other current assets
96,879

 
87,711

Total current assets
4,227,908

 
3,880,116

Property, plant and equipment, at cost
846,192

 
839,458

Accumulated depreciation and amortization
(542,982
)
 
(535,633
)
Net property, plant and equipment
303,210

 
303,825

Long-term investments
106,862

 
116,288

Goodwill
161,287

 
161,287

Acquisition-related intangibles, net
2,871

 
3,576

Other assets
284,924

 
275,440

Total Assets
$
5,087,062

 
$
4,740,532

LIABILITIES, TEMPORARY EQUITY AND STOCKHOLDERS’ EQUITY

 

Current liabilities:

 

Accounts payable
$
106,234

 
$
108,293

Accrued payroll and related liabilities
202,230

 
176,601

Income taxes payable
8,282

 
6,309

Deferred income on shipments to distributors
43,750

 
54,567

Other accrued liabilities
79,337

 
95,098

Current portion of long-term debt

 
456,328

Total current liabilities
439,833

 
897,196

Long-term debt
1,737,410

 
995,247

Deferred tax liabilities
346,566

 
317,639

Long-term income taxes payable
5,294

 
4,503

Other long-term liabilities
19,692

 
16,908

Commitments and contingencies

 

Temporary equity (Note 10)

 
1,406

Stockholders' equity:

 

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

 

Common stock, $.01 par value
2,481

 
2,480

Additional paid-in capital
808,821

 
803,522

Retained earnings
1,743,597

 
1,726,312

Accumulated other comprehensive loss
(16,632
)
 
(24,681
)
Total stockholders’ equity
2,538,267

 
2,507,633

Total Liabilities, Temporary Equity and Stockholders’ Equity
$
5,087,062

 
$
4,740,532


[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)
July 1, 2017
 
July 2, 2016
Cash flows from operating activities:
 
 
 
Net income
$
167,245

 
$
163,049

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation
11,232

 
11,625

Amortization
3,729

 
3,713

Stock-based compensation
32,036

 
29,404

Net gain on sale of available-for-sale securities
(446
)
 
(209
)
Amortization of debt discounts
1,676

 
3,016

Provision for deferred income taxes
26,058

 
(1,493
)
Changes in assets and liabilities:
 
 
 
Accounts receivable, net
(24,342
)
 
90,444

Inventories
11,691

 
(16,828
)
Prepaid expenses and other current assets
(5,023
)
 
3,044

Other assets
(8,690
)
 
(3,572
)
Accounts payable
(3,049
)
 
11,784

Accrued liabilities
2,519

 
6,633

Income taxes payable
(12,910
)
 
18,248

Deferred income on shipments to distributors
(10,818
)
 
19,778

Net cash provided by operating activities
190,908

 
338,636

Cash flows from investing activities:
 
 
 
Purchases of available-for-sale securities
(832,705
)
 
(891,186
)
Proceeds from sale and maturity of available-for-sale securities
613,396

 
827,689

Purchases of property, plant and equipment
(9,926
)
 
(20,637
)
Other investing activities
(3,008
)
 
(3,500
)
Net cash used in investing activities
(232,243
)
 
(87,634
)
Cash flows from financing activities:
 
 
 
Repurchases of common stock
(67,062
)
 
(100,154
)
Restricted stock units withholdings
(933
)
 
(626
)
Proceeds from issuance of common stock through various stock plans
2,003

 
11,923

Payment of dividends to stockholders
(87,303
)
 
(83,599
)
Repayment of convertible debt
(457,918
)
 

Proceeds from issuance of long-term debt, net
745,871

 

Other financing activities
(663
)
 

Net cash provided by (used in) financing activities
133,995

 
(172,456
)
Net increase in cash and cash equivalents
92,660

 
78,546

Cash and cash equivalents at beginning of period
966,695

 
503,816

Cash and cash equivalents at end of period
$
1,059,355

 
$
582,362

Supplemental disclosure of cash flow information:
 
 
 
Interest paid
$
5,795

 
$
7,875

Income taxes paid, net
$
1,873

 
$
1,832

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 1, 2017. The interim financial statements are unaudited, but reflect all adjustments which are, in the opinion of management, of a normal, recurring nature necessary to provide a fair statement of results for the interim periods presented. The results of operations for the interim periods shown in this report are not necessarily indicative of the results that may be expected for the fiscal year ending March 31, 2018 or any future period.

The Company uses a 52- to 53-week fiscal year ending on the Saturday nearest March 31. Fiscal year 2018 and fiscal year 2017 are both 52-week years ending on March 31, 2018 and April 1, 2017, respectively. The quarters ended July 1, 2017 and July 2, 2016 each consisted of 13 weeks.

Note 2.
Recent Accounting Changes and Accounting Pronouncements
 
In April 2014, the Financial Accounting Standard Board (FASB) issued the authoritative guidance, as amended, that outlines a new global revenue recognition standard that replaces virtually all existing U.S. GAAP guidance on contracts with customers and the related other assets and deferred costs. The authoritative guidance provides a five-step process for recognizing revenue that depicts the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The authoritative guidance also requires expanded qualitative and quantitative disclosures relating to the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. The new authoritative guidance is required to be applied retrospectively to each prior reporting period presented, or retrospectively with the cumulative effect of initially applying it recognized at the date of initial application. The Company is currently evaluating the full impact of this new authoritative guidance on its consolidated financial statements, including selection of the transition method.  However, assuming all other revenue recognition criteria have been met, it is expected that the new authoritative guidance would require the Company to recognize revenue and cost relating to distributor sales upon product delivery (Sell-In), subject to estimated allowance for distributor price adjustments and rights of return, rather than deferring the distributor sales upon product delivery and subsequently recognizing revenue when the product is sold by the distributor to the end customer (Sell-Through). Upon adoption, the Company currently expects that it will record the balance of the deferred revenue (subject to true-ups) under the Sell-Through to retained earnings, and the impact would be offset by the recognition of revenue on shipments post adoption under Sell-In. The Company continues to evaluate the impact to revenues and related disclosures related to the pending adoption of the new guidance and the preliminary assessments are subject to change. Depending on timing of customer orders, timing of shipment to distributors and to end customers, distributor inventory strategies and other factors that may be beyond the Company's control, the difference in revenue recognized under Sell-Through and Sell-In could be material in the future. The authoritative guidance will be effective for the Company beginning in fiscal year 2019 as the Company decided not to early adopt it in fiscal year 2018.

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

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

7


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

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

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

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

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 July 1, 2017 and April 1, 2017, Avnet accounted for 68% and 59% of the Company’s total net accounts receivable, respectively. Resale of product through Avnet accounted for 41% and 42% of the Company’s worldwide net revenues in the first quarter of fiscal years 2018 and 2017, respectively. While they may fluctuate quarter over quarter due to timing of shipment or cash collections, the percentage of accounts receivable due from Avnet and the percentage of worldwide net revenues from Avnet are consistent with historical ranges.

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 distributors.

No end customer accounted for more than 10% of the Company’s worldwide net revenues for the first quarter of fiscal years 2018 and 2017.

The Company mitigates concentrations of credit risk in its investments in debt securities by currently investing approximately 85% of its portfolio in AA (or its equivalent) or higher grade securities as rated by Standard & Poor’s or Moody’s Investors Service. The Company’s methods to arrive at investment decisions are not solely based on the rating agencies’ credit ratings. Xilinx also performs additional credit due diligence and conducts regular portfolio credit reviews, including a review of counterparty credit risk related to the Company’s forward currency exchange and interest rate swap contracts. Additionally, Xilinx limits its investments in the debt securities of a single issuer based upon the issuer’s credit rating and attempts to further mitigate credit risk by diversifying risk across geographies and type of issuer.

As of July 1, 2017, approximately 32% 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.


8


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.

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 year 2018 and the Company did not adjust or override any fair value measurements as of July 1, 2017.

Fair Value Hierarchy

The fair value framework requires the categorization of assets and liabilities into three levels based upon the assumptions (inputs) used to price the assets or liabilities. The guidance for fair value measurements requires that assets and liabilities carried at fair value be classified and disclosed in one of the following categories:

Level 1 — Quoted (unadjusted) prices in active markets for identical assets or liabilities.

The Company’s Level 1 assets consist of U.S. government securities and money market funds.

Level 2 — Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the asset or liability.

The Company’s Level 2 assets consist of financial institution securities, non-financial institution securities, U.S. agency securities, foreign government and agency securities, mortgage-backed securities, debt mutual funds, bank loans, asset-backed securities and commercial mortgage-backed securities. The Company’s Level 2 assets and liabilities also include foreign currency forward contracts and interest rate swap contracts.

Level 3 — Unobservable inputs to the valuation methodology that are supported by little or no market activity and that are significant to the measurement of the fair value of the assets or liabilities. Level 3 assets and liabilities include those whose fair value measurements are determined using pricing models, discounted cash flow methodologies or similar valuation techniques, as well as significant management judgment or estimation.

The Company has no Level 3 assets and liabilities.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

In instances where the inputs used to measure fair value fall into different levels of the fair value hierarchy, the fair value measurement 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 July 1, 2017 and April 1, 2017:


9


 
 
July 1, 2017
(In thousands)
 
Quoted
Prices in
Active
Markets for
Identical
Instruments
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
 
Total Fair
Value
Assets
 
 
 
 
 
 
 
 
Cash equivalents:
 
 
 
 
 
 
 
 
Money market funds
 
$
379,788

 
$

 
$

 
$
379,788

Financial institution securities
 

 
124,968

 

 
124,968

Non-financial institution securities
 

 
232,666

 

 
232,666

U.S. government and agency securities
 
24,995

 
64,466

 

 
89,461

Foreign government and agency securities
 

 
164,883

 


 
164,883

Short-term investments:
 
 
 
 
 
 
 
 
Financial institution securities
 

 
299,618

 

 
299,618

Non-financial institution securities
 

 
201,308

 

 
201,308

U.S. government and agency securities
 
26,311

 
41,483

 

 
67,794

Foreign government and agency securities
 

 
229,241

 

 
229,241

Mortgage-backed securities
 

 
1,139,975

 

 
1,139,975

Debt mutual funds
 

 
34,107

 

 
34,107

Bank loans
 

 
164,744

 

 
164,744

Asset-backed securities



221,225




221,225

Commercial mortgage-backed securities



230,195




230,195

Long-term investments:
 
 
 
 
 
 
 
 
Mortgage-backed securities
 

 
49,597

 

 
49,597

Debt mutual fund
 

 
55,790

 

 
55,790

Asset-backed securities



1,475




1,475

Total assets measured at fair value
 
$
431,094

 
$
3,255,741

 
$

 
$
3,686,835

Liabilities












Derivative financial instruments, net

$


$
501


$


$
501

Total liabilities measured at fair value

$


$
501


$


$
501

Net assets measured at fair value

$
431,094


$
3,255,240


$


$
3,686,334




10


 
April 1, 2017
(In thousands)
Quoted
Prices in
Active
Markets for
Identical
Instruments
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
 
Total Fair
Value
Assets
 
 
 
 
 
 
 
Cash equivalents:
 
 
 
 
 
 
 
Money market funds
$
298,307

 
$

 
$

 
$
298,307

Financial institution securities


158,962




158,962

Non-financial institution securities

 
205,322

 

 
205,322

U.S. government and agency securities
2,998

 
50,984

 

 
53,982

Foreign government and agency securities

 
177,310

 

 
177,310

Short-term investments:

 

 

 


Financial institution securities

 
189,835

 

 
189,835

Non-financial institution securities

 
203,938

 

 
203,938

U.S. government and agency securities
31,732

 
44,820

 

 
76,552

Foreign government and agency securities

 
144,811

 

 
144,811

Mortgage-backed securities

 
1,115,403

 

 
1,115,403

Debt mutual fund

 
34,068

 

 
34,068

Bank loans

 
154,014

 

 
154,014

Asset-backed securities

 
218,170

 

 
218,170

Commercial mortgage-backed securities

 
217,971

 

 
217,971

Long-term investments:

 
 
 

 


Mortgage-backed securities

 
60,099

 

 
60,099

Debt mutual fund

 
54,608

 

 
54,608

Asset-backed securities

 
1,581

 

 
1,581

Derivative financial instruments, net

 
1,661

 

 
1,661

Total assets measured at fair value
$
333,037

 
$
3,033,557

 
$

 
$
3,366,594


Changes in Level 3 Instruments Measured at Fair Value on a Recurring Basis

The following table is a reconciliation of all assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3): 
 
 
Three Months Ended
(In thousands)
July 1, 2017
 
July 2, 2016
Balance as of beginning of period
$

 
$
9,977

Total realized and unrealized gains (losses):

 

Included in other comprehensive income

 
91

Balance as of end of period
$

 
$
10,068


As of July 1, 2017, the Company held no marketable securities measured at fair value using Level 3 inputs.

Financial Instruments Not Recorded at Fair Value on a Recurring Basis

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

11


2024 (2024 Notes) are measured at fair value on a quarterly basis for disclosure purposes. The fair values of the 2019 Notes, 2021 Notes and 2024 Notes as of July 1, 2017 were approximately $502.1 million, $511.4 million and $752.5 million, respectively, based on the last trading price for the period (classified as Level 2 in fair value hierarchy due to relatively low trading volume).

Note 5.
Financial Instruments

The following is a summary of cash equivalents and available-for-sale securities as of the end of the periods presented:

 
July 1, 2017
 
 
April 1, 2017
(In thousands)
Amortized Cost
 
Gross Unrealized Gains
 
Gross Unrealized Losses
 
Estimated Fair Value
 
 
Amortized Cost
 
Gross Unrealized Gains
 
Gross Unrealized Losses
 
Estimated Fair Value
Money market funds
$
379,788

 
$

 
$

 
$
379,788

 
 
$
298,307

 
$

 
$

 
$
298,307

Financial institution


 


 


 


 
 


 


 


 


securities
424,586

 

 

 
424,586

 
 
348,797

 

 

 
348,797

Non-financial institution


 


 


 


 
 


 


 


 


securities
433,609

 
700

 
(335
)
 
433,974

 
 
409,109

 
647

 
(496
)
 
409,260

U.S. government and

 

 

 

 
 

 

 

 

agency securities
157,433

 
4

 
(182
)
 
157,255

 
 
130,749

 
8

 
(223
)
 
130,534

Foreign government and

 

 

 

 
 

 

 

 

agency securities
394,121

 
3

 

 
394,124

 
 
322,172

 

 
(51
)
 
322,121

Mortgage-backed securities
1,194,714

 
5,407

 
(10,549
)
 
1,189,572

 
 
1,186,732

 
3,527

 
(14,757
)
 
1,175,502

Asset-backed securities
222,552

 
589

 
(441
)
 
222,700

 
 
220,033

 
404

 
(686
)
 
219,751

Debt mutual funds
101,350

 

 
(11,453
)
 
89,897

 
 
101,350

 

 
(12,674
)
 
88,676

Bank loans
164,300

 
604

 
(160
)
 
164,744

 
 
153,281

 
839

 
(106
)
 
154,014

Commercial mortgage-
























backed securities
233,242


246


(3,293
)

230,195



221,504


146


(3,679
)

217,971

 
$
3,705,695

 
$
7,553

 
$
(26,413
)
 
$
3,686,835

 
 
$
3,392,034

 
$
5,571

 
$
(32,672
)
 
$
3,364,933


The following tables show the fair values and gross unrealized losses of the Company’s investments, aggregated by investment category, for individual securities that have been in a continuous unrealized loss position for the length of time specified, as of July 1, 2017 and April 1, 2017:

 
July 1, 2017
 
Less Than 12 Months
 
12 Months or Greater
 
Total
(In thousands)
Fair Value
 
Gross Unrealized Losses
 
Fair Value
 
Gross Unrealized Losses
 
Fair Value
 
Gross Unrealized Losses
Non-financial institution securities
$
73,844

 
$
(334
)
 
$
1,018

 
$
(1
)
 
$
74,862

 
$
(335
)
U.S. government and

 

 

 

 


 


    agency securities
53,539

 
(178
)
 
4,596

 
(4
)
 
58,135

 
(182
)
Mortgage-backed securities
809,678

 
(9,098
)
 
95,890

 
(1,451
)
 
905,568

 
(10,549
)
Asset-backed securities
125,635


(418
)

5,858


(23
)

131,493


(441
)
Debt mutual fund

 

 
89,897

 
(11,453
)
 
89,897

 
(11,453
)
Bank loans
35,556

 
(160
)


 

 
35,556

 
(160
)
Commercial mortgage-











backed securities
150,751


(1,216
)

24,435


(2,077
)

175,186


(3,293
)
 
$
1,249,003

 
$
(11,404
)
 
$
221,694

 
$
(15,009
)
 
$
1,470,697

 
$
(26,413
)


12


 
April 1, 2017
 
Less Than 12 Months
 
12 Months or Greater
 
Total
(In thousands)
Fair Value
 
Gross Unrealized Losses
 
Fair Value
 
Gross Unrealized Losses
 
Fair Value
 
Gross Unrealized Losses
Non-financial institution securities
$
68,850

 
$
(492
)
 
$
1,022

 
$
(4
)
 
$
69,872

 
$
(496
)
U.S. government and

 

 

 

 

 

    agency securities
64,895

 
(223
)
 

 

 
64,895

 
(223
)
Mortgage-backed securities
811,058

 
(11,872
)
 
139,931

 
(2,885
)
 
950,989

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

 
(651
)
 
4,689

 
(35
)
 
124,534


(686
)
Debt mutual funds

 

 
88,676

 
(12,674
)
 
88,676

 
(12,674
)
Bank loans
15,139

 
(106
)
 

 

 
15,139


(106
)
Foreign government and







 

 

    agency securities
64,857


(51
)




 
64,857

 
(51
)
Commercial mortgage-
 
 
 
 
 
 
 
 
 
 
 
    backed securities
165,393

 
(1,706
)
 
24,362

 
(1,973
)
 
189,755

 
(3,679
)
 
$
1,310,037

 
$
(15,101
)
 
$
258,680

 
$
(17,571
)
 
$
1,568,717

 
$
(32,672
)

As of July 1, 2017, the gross unrealized losses that had been outstanding for less than twelve months were primarily related to mortgage-backed securities due to the general rising of the interest-rate environment, although the percentage of such losses to the total estimated fair value of the mortgage-backed securities was relatively insignificant. The gross unrealized losses that had been outstanding for more than twelve months were primarily related to debt mutual funds, commercial mortgage-backed securities 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 July 1, 2017 and April 1, 2017 were temporary in nature as evidenced by the fluctuations in the gross unrealized losses within the investment categories. These investments are highly rated by the credit rating agencies, there have been no defaults on any of these securities and we have received interest payments as they become due. Therefore, the Company believes that it will be able to collect both principal and interest amount due to the Company. Additionally, in the past several years a portion of the Company's investment in the mortgage-backed securities were redeemed or prepaid by the debtors at par. Furthermore, the aggregate of individual unrealized losses that had been outstanding for twelve months or more was not significant as of July 1, 2017 and April 1, 2017, the majority of which were related to debt mutual funds due to foreign currency and interest rate fluctuations. The Company neither intends to sell these investments nor concludes that it is more-likely-than-not that it will have to sell them until recovery of their carrying values.

The amortized cost and estimated fair value of marketable debt securities (financial institution securities, non-financial institution securities, U.S. and foreign government and agency securities, asset-backed securities, bank loans, mortgage-backed securities and commercial mortgage-backed securities), by contractual maturity, are shown in the table below. Actual maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations without call or prepayment penalties.

 
July 1, 2017
(In thousands)
Amortized
Cost
 
Estimated
Fair Value
Due in one year or less
$
1,224,751

 
$
1,224,739

Due after one year through five years
477,162

 
475,193

Due after five years through ten years
319,892

 
319,444

Due after ten years
1,202,752

 
1,197,774


$
3,224,557

 
$
3,217,150



13


As of July 1, 2017, $1.98 billion of marketable debt securities with contractual maturities of greater than one year were classified as short-term investments. Additionally, the above table does not include investments in money market and debt 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)
July 1, 2017
 
July 2, 2016
Proceeds from sale of available-for-sale securities
$
119,922

 
$
99,474

Gross realized gains on sale of available-for-sale securities
$
832

 
$
721

Gross realized losses on sale of available-for-sale securities
(386
)
 
(512
)
Net realized gains on sale of available-for-sale securities
$
446

 
$
209

Amortization of premiums on available-for-sale securities
$
5,522

 
$
6,762


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 July 1, 2017 and April 1, 2017, the Company had the following outstanding forward currency exchange contracts (in notional amount), which were derivative financial instruments:
 
(In thousands and U.S. dollars)
July 1, 2017
 
April 1, 2017
Singapore Dollar
$
21,884

 
$
22,012

Euro
20,073

 
18,553

Indian Rupee
33,175

 
31,121

British Pound
9,896

 
10,813

Japanese Yen
3,759

 
3,757

 
$
88,787

 
$
86,256


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 May 2019. The 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 July 1, 2017, 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 July 1, 2017 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

14


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 entered into interest rate swap contracts with certain independent financial institutions to manage interest rate risks related to fixed interest rate expenses from its 2024 Notes and floating interest rate income from its investments in marketable debt securities. See “Note 10. Debt and Credit Facility” for more discussion related to interest rate swap contracts. The interest rate swap contracts were designated and qualified as fair value hedges of the 2024 Notes, and were separately accounted for as a derivative. The interest rate swap contracts and the 2024 Notes were initially measured at fair value. Any subsequent changes in fair values of the interest rate swap contracts and the 2024 Notes will be recorded in the Company’s consolidated balance sheets. During the three months ended July 1, 2017, the net change in fair values of the interest rate swap contracts and the underlying 2024 Notes was $3.5 million, which was recorded as a derivative liability for the interest rate swap contacts and also a reduction from the carrying amount of 2024 Notes. There was no ineffectiveness during all periods presented.

The Company had the following derivative instruments as of July 1, 2017 and April 1, 2017, located on the condensed consolidated balance sheets, utilized for risk management purposes detailed above:

 
Foreign Exchange Contracts and Interest Rate Swap Contracts
 
Asset Derivatives
 
Liability Derivatives
(In thousands)
Balance Sheet Location
Fair Value
 
Balance Sheet Location
Fair Value
July 1, 2017
Prepaid expenses and other current assets
$
3,167

 
Other accrued liabilities
$
174

 
Other assets
$


Other long-term liabilities
$
3,494

April 1, 2017
Prepaid expenses and other current assets
$
2,424

 
Other accrued liabilities
$
763

 
Other assets
$


Other long-term liabilities
$


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 sheets 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 years 2018 and 2017:

 
Three Months Ended
(In thousands)
July 1, 2017
 
July 2, 2016
Amount of gains (losses) recognized in other comprehensive income on derivative (effective portion of cash flow hedging)
$
1,086

 
$
(488
)

 
 
 
Amount of gains (losses) reclassified from accumulated other comprehensive income into income (effective portion) *
$
357

 
$
(293
)

 
 
 
Amount of gains (losses) recorded (ineffective portion) *
$
(19
)
 
$
8


*
Recorded in interest and other income (expense), net 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.


15


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
(In thousands)
July 1, 2017
 
July 2, 2016
Stock-based compensation included in:

 

Cost of revenues
$
2,150

 
$
2,119

Research and development
17,466

 
15,120

Selling, general and administrative
12,420

 
12,165

 
$
32,036

 
$
29,404


Employee Stock Option Plans

The types of awards allowed under the 2007 Equity Incentive Plan (2007 Equity Plan) include incentive stock options, non-qualified stock options, restricted stock units (RSUs), restricted stock and stock appreciation rights. To date, the Company has issued a mix of non-qualified stock options and RSUs under the 2007 Equity Plan; however, there was no issuance of stock options during the first quarter of fiscal year 2018 and the entire fiscal year 2017. The Company's stock-based compensation expenses related to options during the first quarter of fiscal year 2018 and the number of options outstanding as of July 1, 2017 were not material. As of July 1, 2017, 12.2 million shares remained available for grant under the 2007 Equity Plan.

The total pre-tax intrinsic value of options exercised during the three months ended July 1, 2017 and July 2, 2016 was $2.8 million and $12.6 million, respectively. This intrinsic value represents the difference between the exercise price and the fair market value of the Company’s common stock on the date of exercise.

RSU Awards

A summary of the Company’s RSU activity and related information is as follows:
 
 
RSUs Outstanding
(Shares in thousands)
Number of Shares
 
Weighted-Average Grant-Date Fair Value Per Share
April 2, 2016
6,619

 
$
40.74

Granted
3,398

 
$
44.38

Vested
(2,619
)
 
$
39.49

Cancelled
(410
)
 
$
41.63

April 1, 2017
6,988

 
$
42.93

Granted
317

 
$
57.99

Vested
(1,439
)
 
$
41.45

Cancelled
(95
)
 
$
44.14

July 1, 2017
5,771

 
$
43.66



16


The estimated fair values of RSUs 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 2018 was $57.99 ($42.52 for the first quarter of fiscal 2017), which were calculated based on estimates at the date of grant using the following weighted-average assumptions: 

 
Three Months Ended

July 1, 2017

July 2, 2016
Risk-free interest rate
1.7
%
 
1.0
%
Dividend yield
2.3
%
 
2.8
%

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 three months of fiscal years 2018 and 2017, we withheld $25.6 million and $26.7 million worth of RSU awards, respectively, to satisfy the employees’ tax obligations.

During the first three months of fiscal years 2018 and 2017, the Company realized tax benefits of $11.6 million and $6.8 million, respectively, in the condensed consolidated statement of income as a component of the provision for income taxes.

Employee Stock Purchase Plan

The fair values of stock purchase plan rights under the Company’s ESPP were estimated using the Black-Scholes option pricing model. Under the Company’s ESPP, shares are only issued during the second and fourth quarters of each fiscal year. Therefore, no shares were issued during the first quarter of fiscal years 2018 or 2017. The next scheduled purchase under the ESPP is in the second quarter of fiscal year 2018. As of July 1, 2017, 8.2 million shares were available for future issuance under the Company's ESPP.

Note 8.
Net Income Per Common Share

The computation of basic net income per common share for all periods presented is derived from information on the condensed consolidated statements of income, and there are no reconciling items in the numerator used to compute the 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)
July 1, 2017
 
July 2, 2016
Net income available to common stockholders
$
167,245

 
$
163,049

Weighted average common shares outstanding-basic
247,911

 
252,901

Dilutive effect of employee equity incentive plans
3,817

 
3,064

Dilutive effect of 2017 Convertible Notes and warrants
14,069

 
10,241

Weighted average common shares outstanding-diluted
265,797

 
266,206

Basic net income per common share
$
0.67

 
$
0.64

Diluted net income per common share
$
0.63

 
$
0.61


The total shares used in the denominator of the diluted net income per common share calculation include potentially dilutive common equivalent shares outstanding that are not included in basic net income per common share calculation. The diluted shares were calculated by applying the treasury stock method to the impact of the equity incentive plans, the incremental shares issuable assuming conversion of the Company's $600.0 million principal amount of 2.625% convertible notes issued in June 2010 (2017 Convertible Notes), before its maturity on June 15, 2017, and exercise of warrants on a weighted-average outstanding basis. The 2017 Convertible Notes matured during the quarter, and the Company exercised its call options to neutralize the dilutive effect of the incremental shares from the 2017 Convertible Notes. Because the number of diluted shares in the above table for the three months ended July 1, 2017 was calculated based on a weighted-average outstanding basis, it included approximately 6.0 million shares of dilutive impact from the 2017 Convertible Notes through the maturity date. Such impact will no longer be applicable in future periods. See "Note 10. Debt and Credit Facility" for more discussion of the Company's debt, call options and warrants.

Outstanding stock options and RSUs under the Company's stock award plans to purchase approximately 152 thousand and 297 thousand shares for the first quarter of fiscal years 2018 and 2017, respectively, were excluded from the diluted net income per

17


common share calculation 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.

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)
July 1, 2017
 
April 1, 2017
Raw materials
$
14,208

 
$
14,517

Work-in-process
152,820

 
161,120

Finished goods
48,182

 
51,396

 
$
215,210

 
$
227,033


Note 10.
Debt and Credit Facility
 
2017 Convertible Notes

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

The carrying values of the liabilities and equity components of the 2017 Convertible Notes are reflected in the Company's condensed consolidated balance sheets as follows:

(In thousands)
July 1, 2017
 
April 1, 2017
Liability component:
 
 
 
   Principal amount of the 2017 Convertible Notes
$

 
$
457,918

   Unamortized discount of liability component

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

 
571

   Unamortized debt issuance costs associated with 2017 Convertible Notes

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

 
$
456,328

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

 
$
50,688


Prior to the conversion, interest expense related to the 2017 Convertible Notes was included in interest and other income (expense), net on the consolidated statements of income, and was recognized as follows:

 
Three Months Ended
(In thousands)
July 1, 2017
 
July 2, 2016
Contractual coupon interest
$
2,300

 
$
3,938

Amortization of debt issuance costs
184

 
362

Amortization of debt discount, net
1,406

 
2,763

Total interest expense related to the 2017 Convertible Notes
$
3,890

 
$
7,063


To reduce the hedging costs of purchasing the call options on its common stock as described above, the Company, under separate transactions, sold warrants to independent counterparties, which give the counterparties the right to purchase up to 21.1 million

18


shares of the Company's common stock at $40.38 per share. These warrants expire on a gradual basis over a specified period starting on September 13, 2017 through November 7, 2017.

2019 and 2021 Notes

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

The Company received net proceeds of $990.1 million from issuance of the 2019 Notes and 2021 Notes, after the debt discount and deduction of debt issuance costs. The debt discounts and issuance costs are amortized to interest expense over the terms of the 2019 Notes and 2021 Notes. As of July 1, 2017, the remaining term of the 2019 Notes and 2021 Notes are 1.7 years and 3.7 years respectively.

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


$
500,000

Unamortized discount of the 2019 Notes
(904
)

(1,037
)
Unamortized debt issuance costs associated with 2019 Notes
(569
)

(654
)
Principal amount of the 2021 Notes
500,000


500,000

Unamortized discount of the 2021 Notes
(1,979
)

(2,107
)
Unamortized debt issuance costs associated with 2021 Notes
(895
)

(955
)
Total carrying value
$
995,653

 
$
995,247


Interest expense related to the 2019 Notes and 2021 Notes was included in interest and other income (expense), net on the condensed consolidated statements of income as follows:
 
Three Months Ended
(In thousands)
July 1, 2017
 
July 2, 2016
Contractual coupon interest
$
6,406

 
$
6,406

Amortization of debt issuance costs
146

 
146

Amortization of debt discount, net
260

 
253

Total interest expense related to the 2019 Notes and 2021 Notes
$
6,812

 
$
6,805


2024 Notes

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

The Company received $745.2 million from the issuance of the 2024 Notes, after the debt discount and deduction of debt issuance costs. The debt discounts and issuance costs are amortized to interest expense over the term of the 2024 Notes. As of July 1, 2017, the remaining term of the 2024 Notes is approximately 6.9 years.

In relation to the issuance of the 2024 Notes, the Company entered into interest rate swap contracts with certain independent financial institutions, whereby the Company pays on a semi-annual basis, a variable interest rate equal to the three-month London Interbank Offered Rate (LIBOR) plus 91.43 bps, and receives on a semi-annual basis, interest income at a fixed interest rate of 2.950%. For the three months ended July 1, 2017, the Company earned a net interest amount of $643 thousand from the interest rate swap contracts, which was included in interest and other income (expense), net on the condensed consolidated statements of income as a reduction to interest expense. As of July 1, 2017, the fair value of the interest rate swap contracts was $3.5 million, which was recorded in other long-term liabilities.


19


The following table summarizes the carrying value of the 2024 Notes as of July 1, 2017 and April 1, 2017:

(In thousands)
July 1, 2017

April 1, 2017
Principal amount of the 2024 Notes
$
750,000


$

Unamortized discount of the 2024 Notes
(838
)


Unamortized debt issuance costs associated with 2024 Notes
(3,911
)


Carrying Value of the 2024 Notes
$
745,251


$

Fair value hedge adjustment — interest rate swap contracts
(3,494
)


Net carrying value of the 2024 Notes
$
741,757


$


Interest expense related to the 2024 Notes was included in interest and other income (expense), net on the condensed consolidated statements of income as follows:
 
Three Months Ended
(In thousands)
July 1, 2017

July 2, 2016
Contractual coupon interest
$
1,322


$

Amortization of debt issuance costs
47



Amortization of debt discount, net
10



Total interest expense related to the 2024 Notes
$
1,379


$


Revolving Credit Facility

On December 7, 2016, the Company entered into a $400.0 million senior unsecured revolving credit facility that, upon certain conditions, may be extended by an additional $150.0 million, with a syndicate of banks (expiring in December 2021). Borrowings under the credit facility will bear interest at a benchmark rate plus an applicable margin based upon the Company’s credit rating. In connection with the credit facility, the Company is required to maintain certain financial and nonfinancial covenants. As of July 1, 2017, the Company had made no borrowings under this credit facility and was not in violation of any of the covenants.

Note 11. Common Stock Repurchase Program

The Board of Directors (Board) has approved stock repurchase programs enabling the Company to repurchase its common stock in the open market or through negotiated transactions with independent financial institutions. On May 16, 2016, the Board authorized the repurchase of up to $1.00 billion of the Company's common stock and debentures (2016 Repurchase Program). The 2016 Repurchase Program has no stated expiration date.

Through July 1, 2017, the Company had used $384.9 million of the $1.00 billion authorized under the 2016 Repurchase Program, leaving $615.1 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 July 1, 2017 and April 1, 2017.

During the first quarter of fiscal year 2018, the Company repurchased 1.0 million shares of common stock for a total of $67.1 million and during the first quarter of fiscal year 2017, the Company repurchased 2.2 million shares of common stock for a total of $100.2 million.

Note 12.
Interest and Other Income (Expense), Net

The components of interest and other income (expense), net are as follows: 
 
Three Months Ended
(In thousands)
July 1, 2017
 
July 2, 2016
Interest income
$
13,414

 
$
11,466

Interest expense
(12,081
)
 
(13,868
)
Other income (expense), net
506

 
(2,185
)
   Total interest and other income (expense), net
$
1,839

 
$
(4,587
)


20


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 the Company's accumulated other comprehensive loss are as follows:
 
(In thousands)
July 1, 2017
 
April 1, 2017
Accumulated unrealized losses on available-for-sale securities, net of tax
$
(11,888
)
 
$
(17,091
)
Accumulated unrealized gains on hedging transactions, net of tax
1,747

 
661

Accumulated cumulative translation adjustment, net of tax
(6,491
)
 
(8,251
)
Total accumulated other comprehensive loss
$
(16,632
)
 
$
(24,681
)

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

Note 14.
Income Taxes

The Company recorded a tax provision of $15.0 million for the first quarter of fiscal year 2018 as compared to $18.6 million in the same prior year period, representing effective tax rates of 8% and 10%, 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 July 1, 2017, determined in accordance with FASB authoritative guidance for measuring uncertain tax positions, increased by $90.0 million in the first quarter of fiscal year 2018 to $120.4 million. This increase was primarily attributable to a tax deduction to be claimed on an amended federal income tax return. The total amount of unrecognized tax benefits that, if realized in a future period, would favorably affect the effective tax rate was $13.2 million as of July 1, 2017. 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 through fiscal year 2013, U.S. state audits through fiscal year 2010 and tax audits in Ireland through fiscal year 2011.

Note 15.
Commitments

Xilinx leases some of its facilities and office buildings under non-cancelable operating leases that expire at various dates through December 2025. 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:


21


Fiscal Year
(In thousands)
2018 (remaining nine months)
$
4,523

2019
4,772

2020
3,667

2021
2,398

2022
2,398

Thereafter
485

Total
$
18,243


Aggregate future rental income to be received, which includes rents from both owned and leased property, totaled $2.6 million as of July 1, 2017. Rent expense, net of rental income, under all operating leases was $1.2 million and $1.3 million for the three months ended July 1, 2017 and July 2, 2016, respectively. Rental income was not material for the first quarter of fiscal years 2018 or 2017.

Other commitments as of July 1, 2017 totaled $119.9 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. Additionally, as of July 1, 2017, the Company also had $44.1 million of non-cancelable license obligations to providers of electronic design automation software and hardware/software maintenance expiring at various dates through December 2019.

Note 16.
Product Warranty and Indemnification

The Company generally sells products with a limited warranty for product quality. The Company provides an accrual for known product issues if a loss is probable and can be reasonably estimated. As of the end of the first quarter of fiscal year 2018 and the end of fiscal year 2017, the accrual balances of the product warranty liability were 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 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. On April 12, 2017, the U.S. Court of Appeals for the Federal Circuit (Federal Circuit) affirmed the lower court’s dismissal. In the California Action, on July 9, 2015, the Court granted Papst's motion to dismiss for lack of personal jurisdiction, and the California Action was dismissed. The Company appealed the decision, and, on February 15, 2017 the Federal Circuit reversed the lower court decision. On April 21, 2017, Papst granted Xilinx a covenant not to sue for infringement

22


of the patents-in-suit and Xilinx voluntarily dismissed the California Action without prejudice. On April 24, 2017, the California Action was dismissed without prejudice.

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

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

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

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

Other Matters

On June 11, 2015, John P. Neblett, as Chapter 7 Trustee of Valley Forge Composite Technologies, Inc., filed a complaint against Xilinx and others in the U.S. Bankruptcy Court for the Middle District of Pennsylvania (Bankruptcy No. 1:13-bk-05253-JJT). The complaint alleges causes of actions against Xilinx for negligence and civil conspiracy relating to alleged violations of U.S. export laws. It seeks at least $50.0 million in damages, together with punitive damages, from the defendants. On September 21, 2015, the action was withdrawn from the U.S. Bankruptcy Court for the Middle District of Pennsylvania and transferred to the U.S. District Court for the Eastern District of Kentucky. On November 2, 2015, Xilinx, along with other defendants, filed a motion to dismiss the complaint. On November 3, 2015, Xilinx filed a motion for sanctions pursuant to Federal Rule of Civil Procedure 11. On June 27, 2016, the Court denied both motions. The Company intends to vigorously defend the case and is unable to estimate its range of possible loss, if any, in this matter at this time.

On April 4, 2017, Mountjoy Chilton Medley, LLP filed a third-party complaint against Xilinx and others in the United States District Court for the Middle District of Pennsylvania (Case No. 4:15-cv-01622-MWB).  The complaint alleges that to the extent the third-party plaintiff is found liable, that the actions or inactions of Xilinx and others entitles the third-party plaintiff to apportionment of damages based on the allegations against Xilinx in the case filed by the Chapter 7 Trustee of Valley Forge Composite Technologies, Inc. The parties have stipulated to extensions of time and therefore Xilinx has not yet responded to the third-party complaint. 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.


23


Note 18.
Goodwill and Acquisition-Related Intangibles

As of July 1, 2017 and April 1, 2017, the gross and net amounts of goodwill and of acquisition-related intangibles for all acquisitions were as follows:
 



 


 
Weighted-Average
(In thousands)
July 1, 2017
 
April 1, 2017
 
Amortization Life
Goodwill
$
161,287

 
$
161,287

 

Core technology, gross
79,981

 
79,981

 

Less accumulated amortization
(77,197
)
 
(76,512
)
 

Core technology, net
2,784

 
3,469

 
5.6 years
Other intangibles, gross
46,766

 
46,766

 

Less accumulated amortization
(46,679
)
 
(46,659
)
 

Other intangibles, net
87

 
107

 
2.6 years
Total acquisition-related intangibles, gross
126,747

 
126,747

 

Less accumulated amortization
(123,876
)
 
(123,171
)
 

Total acquisition-related intangibles, net
$
2,871

 
$
3,576

 


Amortization expense for acquisition-related intangibles for the three months ended July 1, 2017 and July 2, 2016 was $0.7 million and $1.2 million, respectively. Based on the carrying value of acquisition-related intangibles recorded as of July 1, 2017, and assuming no subsequent acquisition or impairment of the underlying assets, the annual amortization expense for acquisition-related intangibles is expected to be as follows:
 
Fiscal Year
(In thousands)
2018 (remaining nine months)
$
1,218

2019
561

2020
468

2021
468

2022
156

Total
$
2,871


Note 19.
Subsequent Events

On July 25, 2017, the Company’s Board of Directors declared a cash dividend of $0.35 per common share for the second quarter of fiscal year 2018. The dividend is payable on August 30, 2017 to stockholders of record on August 10, 2017.


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 April 1, 2017 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 year 2018 compared to the first quarter of fiscal year 2017

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

 
Three Months Ended

July 1, 2017

 
July 2, 2016

Net revenues
100.0
%
 
100.0
%
Cost of revenues
31.2

 
29.3

Gross margin
68.8

 
70.7

Operating expenses:


 

Research and development
24.9

 
23.7

Selling, general and administrative
14.5

 
14.4

Amortization of acquisition-related intangibles
0.1

 
0.2

Total operating expenses
39.5

 
38.3

Operating income
29.3

 
32.4

Interest and other income (expense), net
0.3

 
(0.8
)
Income before income taxes
29.6

 
31.6

Provision for income taxes
2.4

 
3.2

Net income
27.2
%
 
28.4
%
 
Net Revenues

We sell our products to global manufacturers of electronic products in end markets such as Communications & Data Center, Industrial, Aerospace & Defense, and Broadcast, Consumer & Automotive. The vast majority of our net revenues is generated by

25


sales of our semiconductor products, but we also generate sales from support products. We classify our product offerings into two categories: Advanced Products and Core Products:

Advanced Products include our most recent product offerings and consist of the UltraScale+, UltraScale and 7-series product families.

Core Products consist of all other product families.

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

Net revenues of $615.4 million in the first three months of fiscal year 2018 represented a 7% increase from the comparable prior year period of $575.0 million. Net revenues from Advanced Products increased in the first three months of fiscal year 2018 versus the comparable prior year period, but the increase was partially offset by the decline from our Core Products. No end customer accounted for more than 10% of our net revenues for the first quarter of fiscal year 2018.

For the first three months of fiscal years 2018 and 2017, approximately 51% and 50%, respectively, of our net revenues were from products sold to distributors for subsequent resale to their customers. As of July 1, 2017, we had $62.1 million of deferred revenue and $18.3 million of deferred cost of revenues recognized as a net $43.8 million of deferred income on shipments to distributors. As of April 1, 2017, we had $74.2 million of deferred revenue and $19.6 million of deferred cost of revenues recognized as a net $54.6 million of deferred income on shipments to distributors. The deferred income on shipments to distributors that will ultimately be recognized in our condensed consolidated 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 years 2018 and 2017 were as follows:
 
 
Three Months Ended
(In millions)
July 1, 2017
 
% of Total
 
% Change
 
July 2, 2016
 
% of Total
Advanced Products
$
322.1

 
52

 
33

 
$
242.2

 
42

Core Products
293.3

 
48

 
(12
)
 
332.8

 
58

Total net revenues
$
615.4

 
100

 
7

 
$
575.0

 
100


Net revenues from Advanced Products increased in the first three months of fiscal year 2018 compared to the comparable prior year period. The increase was a result of sales growth from our 28nm, 20nm and 16nm product families. We expect sales of Advanced Products to continue to grow as more customer programs enter into volume production with our 28nm, 20nm and 16nm products.

Net revenues from Core Products decreased in the first three months of fiscal year 2018 from the comparable prior year period. The decrease was largely due to the decline in sales of our Virtex-5, Virtex-6 and few other older product families. Core Products are relatively mature products and as a result their sales are expected to decline over time.

Net Revenues by End Markets

Our end market revenue data is derived from our understanding of our end customers’ primary markets. Net revenues by end markets are 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.


26


Net revenues by end markets for the first quarter of fiscal years 2018 and 2017 were as follows:
 
 
Three Months Ended
(% of total net revenues)
July 1, 2017
 
% Change in Dollars
 
July 2, 2016
Communications & Data Center
41
%
 
(1
)
 
44
%
Industrial, Aerospace & Defense
42

 
17

 
39

Broadcast, Consumer & Automotive
17

 
6

 
17

Total net revenues
100
%
 
7

 
100
%

Net revenues from Communications & Data Center decreased in the first quarter of fiscal year 2018 from the comparable prior year period. The decrease was primarily due to lower sales from wireline and data center, but was partially offset by an increase in sales from wireless.

Net revenues from Industrial, Aerospace & Defense increased in the first quarter of fiscal year 2018 from the comparable prior year period. The increase was driven by higher sales from all sub-segments, primarily from test and measurement and industrial, scientific & medical.

Net revenues from Broadcast, Consumer & Automotive increased in the first three months of fiscal year 2018 from the comparable prior year period. The increase was primarily due to higher sales from audio, video and broadcast, and to a lesser extent from consumer.

Net Revenues by Geography

Geographic revenue information reflects the geographic location of the distributors, original equipment manufacturers (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 years 2018 and 2017 were as follows:
 
 
Three Months Ended
(In millions)
July 1, 2017
 
% of Total
 
% Change
 
July 2, 2016
 
% of Total
North America
$
175.3

 
29

 
(6
)
 
$
186.3

 
32

Asia Pacific
267.0

 
43

 
16

 
229.5

 
40

Europe
118.9

 
19

 
9

 
109.4

 
19

Japan
54.2

 
9

 
9

 
49.8

 
9

Total net revenues
$
615.4

 
100

 
7

 
$
575.0

 
100


Net revenues in North America decreased in the first quarter of fiscal year 2018 from the comparable prior year period. The decrease was primarily due to decline in sales from Communications & Data Center.

Net revenues in Asia Pacific increased in the first quarter of fiscal year 2018 from the comparable prior year period. The increase was primarily due to higher sales from Broadcast, Consumer & Automotive and Industrial, Aerospace & Defense.

Net revenues in Europe increased in the first quarter of fiscal year 2018 from the comparable prior year period. The increase was primarily due to higher sales from Industrial, Aerospace & Defense, primarily in test and measurement.

Net revenues in Japan increased in the first quarter of fiscal year 2018 from the comparable prior year period. The increase was due to higher sales from Communications & Data Center and Industrial, Aerospace & Defense.


27


Gross Margin
 
Three Months Ended
(In millions)
July 1, 2017
 
Change
 
July 2, 2016
Gross margin
$
423.4

 
4
%
 
$
406.7

Percentage of net revenues
68.8
%
 

 
70.7
%

Gross margin was lower by 1.9 percentage points in the first quarter of fiscal year 2018 from the comparable prior year period. The decrease in gross margin was driven primarily by customer and product mix, in particular sales from wireless (with relatively lower margin), which increased year over year.

Gross margin may be affected in the future due to multiple factors, including but not limited to those set forth in Item 1A. "Risk Factors," included in Part II of this Form 10-Q, shifts in the mix of customers and products, competitive-pricing pressure, manufacturing-yield issues and wafer pricing. We expect to mitigate any adverse impacts from these factors by continuing to improve yields on our Advanced Products, improve manufacturing efficiencies, and improve average selling price management. The average selling prices of our products generally decline as the products mature. We seek to offset the decrease in selling prices through yield improvement, manufacturing cost reductions and increased unit sales. We also continue to develop higher value products or product features that increase, or slow the decline of, the average selling price of our products. However, there is no guarantee that our ongoing efforts will be successful or that they will keep pace with the decline in selling prices of our products, which could ultimately lead to a decline in revenues and have a negative effect on our gross margins.

Research and Development

 
Three Months Ended
(In millions)
July 1, 2017
 
Change
 
July 2, 2016
Research and development
$
153.1

 
12
%