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EX-31.1 - EXHIBIT 31.1 - XILINX INCxlnx12302017ex311.htm
EX-32.2 - EXHIBIT 32.2 - XILINX INCxlnx12302017ex322.htm
EX-32.1 - EXHIBIT 32.1 - XILINX INCxlnx12302017ex321.htm
EX-31.2 - EXHIBIT 31.2 - XILINX INCxlnx12302017ex312.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 December 30, 2017
or
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to _______ .
Commission File Number 000-18548
 ______________________________________________________________________________
Xilinx, Inc.
(Exact name of registrant as specified in its charter)
 ______________________________________________________________________________
 
Delaware
 
 
 
77-0188631
(State or other jurisdiction of
incorporation or organization)
 
 
 
(I.R.S. Employer
Identification No.)
 
 
 
 
 
2100 Logic Drive, San Jose, California
 
 
 
95124
(Address of principal executive offices)
 
 
 
(Zip Code)
(408) 559-7778
(Registrant’s telephone number, including area code)
N/A
(Former name, former address, and former fiscal year, if changed since last report)
 ______________________________________________________________________________
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer", "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer x
 
Accelerated filer o
 
Non-accelerated filer o
 
Smaller reporting company o
 
Emerging growth company o
 
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x
Shares outstanding of the registrant’s common stock:
Class
 
Shares Outstanding as of January 12, 2018
Common Stock, $.01 par value
 
254,815,224




TABLE OF CONTENTS
 

2


PART I.
FINANCIAL INFORMATION

Item 1.
Financial Statements
XILINX, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
 
 
Three Months Ended
 
Nine Months Ended
(In thousands, except per share amounts)
December 30, 2017
 
December 31, 2016
 
December 30, 2017
 
December 31, 2016
Net revenues
$
631,193

 
$
585,688

 
$
1,866,142

 
$
1,739,877

Cost of revenues
182,156

 
178,233

 
559,037

 
522,404

Gross margin
449,037

 
407,455

 
1,307,105

 
1,217,473

Operating expenses:

 

 

 

Research and development
166,231

 
159,248

 
477,267

 
437,187

Selling, general and administrative
92,753

 
83,780

 
272,981

 
250,353

Amortization of acquisition-related intangibles
353

 
1,455

 
1,568

 
3,943

Total operating expenses
259,337

 
244,483

 
751,816

 
691,483

Operating income
189,700

 
162,972

 
555,289

 
525,990

Interest and other income (expense), net
5,469

 
(392
)
 
9,138

 
(6,130
)
Income before income taxes
195,169

 
162,580

 
564,427

 
519,860

Provision for income taxes
183,224

 
20,734

 
217,705

 
50,773

Net income
$
11,945

 
$
141,846

 
$
346,722

 
$
469,087

Net income per common share:

 

 

 

Basic
$
0.05

 
$
0.57

 
$
1.39

 
$
1.86

Diluted
$
0.05

 
$
0.52

 
$
1.34

 
$
1.74

Cash dividends per common share
$
0.35

 
$
0.33

 
$
1.05

 
$
0.99

Shares used in per share calculations:

 

 

 

Basic
254,089

 
250,982

 
248,671

 
252,811

Diluted
258,108

 
270,781

 
258,995

 
269,182


See notes to condensed consolidated financial statements.



3


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

 
Three Months Ended
 
Nine Months Ended
(In thousands)
December 30, 2017
 
December 31, 2016
 
December 30, 2017
 
December 31, 2016
Net income
$
11,945

 
$
141,846

 
$
346,722

 
$
469,087

Other comprehensive income (loss), net of tax:


 


 


 


Change in net unrealized losses on available-for-sale securities
(7,502
)
 
(20,030
)
 
(1,566
)
 
(17,799
)
Reclassification adjustment for (gains) losses on available-for-sale securities
1,259

 
(170
)
 
1,154

 
(587
)
Change in net unrealized gains (losses) on hedging transactions
1,583

 
(3,059
)
 
3,781

 
(3,742
)
Reclassification adjustment for (gains) losses on hedging transactions
(1,018
)
 
875

 
(3,022
)
 
1,513

Cumulative translation adjustment, net
394

 
(2,848
)
 
2,831

 
(3,195
)
Other comprehensive income (loss)
(5,284
)
 
(25,232
)
 
3,178

 
(23,810
)
Total comprehensive income
$
6,661

 
$
116,614

 
$
349,900

 
$
445,277


See notes to condensed consolidated financial statements.


4


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

 

Current assets:

 

Cash and cash equivalents
$
911,461

 
$
966,695

Short-term investments
2,630,115

 
2,354,762

Accounts receivable, net
348,464

 
243,915

Inventories
226,533

 
227,033

Prepaid expenses and other current assets
81,310

 
87,711

Total current assets
4,197,883

 
3,880,116

Property, plant and equipment, at cost
862,147

 
839,458

Accumulated depreciation and amortization
(558,163
)
 
(535,633
)
Net property, plant and equipment
303,984

 
303,825

Long-term investments
102,375

 
116,288

Goodwill
162,421

 
161,287

Acquisition-related intangibles, net
4,708

 
3,576

Other assets
348,248

 
275,440

Total Assets
$
5,119,619

 
$
4,740,532

 
 
 
 
LIABILITIES, TEMPORARY EQUITY AND STOCKHOLDERS’ EQUITY

 

Current liabilities:

 

Accounts payable
$
94,588

 
$
108,293

Accrued payroll and related liabilities
209,055

 
176,601

Income taxes payable
37,281

 
6,309

Deferred income on shipments to distributors
32,974

 
54,567

Other accrued liabilities
88,497

 
95,098

Current portion of long-term debt

 
456,328

Total current liabilities
462,395

 
897,196

Long-term debt
1,730,211

 
995,247

Deferred tax liabilities
110

 
317,639

Long-term income taxes payable
531,522

 
4,503

Other long-term liabilities
30,747

 
16,908

Commitments and contingencies

 

Temporary equity

 
1,406

Stockholders' equity:

 

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

 

Common stock, $.01 par value
2,547

 
2,480

Additional paid-in capital
855,197

 
803,522

Retained earnings
1,528,393

 
1,726,312

Accumulated other comprehensive loss
(21,503
)
 
(24,681
)
Total stockholders’ equity
2,364,634

 
2,507,633

Total Liabilities, Temporary Equity and Stockholders’ Equity
$
5,119,619

 
$
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)
 
Nine Months Ended
(In thousands)
December 30, 2017
 
December 31, 2016
Cash flows from operating activities:
 
 
 
Net income
$
346,722

 
$
469,087

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation
34,416

 
33,917

Amortization
12,619

 
12,601

Stock-based compensation
105,209

 
90,073

Net loss (gain) on sale of available-for-sale securities
1,358

 
(771
)
Amortization of debt discounts
2,254

 
9,053

Provision (benefit) for deferred income taxes
(362,969
)
 
74,617

Other
1,500

 

Changes in assets and liabilities:
 
 
 
Accounts receivable, net
(108,934
)
 
(33,395
)
Inventories
367

 
(27,295
)
Prepaid expenses and other current assets
(8,656
)
 
(8,619
)
Other assets
(27,292
)
 
(11,160
)
Accounts payable
(18,966
)
 
14,754

Accrued liabilities
58,522

 
29,019

Income taxes payable
563,178

 
(25,936
)
Deferred income on shipments to distributors
(21,594
)
 
1,868

Net cash provided by operating activities
577,734

 
627,813

Cash flows from investing activities:
 
 
 
Purchases of available-for-sale securities
(2,211,372
)
 
(2,250,810
)
Proceeds from sale and maturity of available-for-sale securities
1,939,245

 
2,685,977

Purchases of property, plant and equipment
(28,940
)
 
(51,825
)
Other investing activities
(17,787
)
 
(20,754
)
Net cash provided by (used in) investing activities
(318,854
)
 
362,588

Cash flows from financing activities:
 
 
 
Repurchases of common stock
(310,806
)
 
(413,983
)
Restricted stock units withholdings
(44,428
)
 
(29,874
)
Proceeds from issuance of common stock through various stock plans
19,602

 
40,582

Payment of dividends to stockholders
(263,751
)
 
(250,733
)
Repayment of convertible debt
(457,918
)
 

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

 

Other financing activities
(1,988
)
 
(663
)
Net cash used in financing activities
(314,114
)
 
(654,671
)
Net increase (decrease) in cash and cash equivalents
(55,234
)
 
335,730

Cash and cash equivalents at beginning of period
966,695

 
503,816

Cash and cash equivalents at end of period
$
911,461

 
$
839,546

Supplemental disclosure of cash flow information:
 
 
 
Interest paid
$
38,115

 
$
28,563

Income taxes paid, net
$
18,093

 
$
2,156


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 on December 30, 2017 and December 31, 2016 each consisted of 13 weeks.

Note 2.
Recent Accounting Changes and Accounting Pronouncements

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

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

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

7


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

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

Note 3.
Significant Customers and Concentrations of Credit Risk

Avnet, Inc. (Avnet), one of the Company’s distributors, distributes the Company’s products worldwide. As of December 30, 2017 and April 1, 2017, Avnet accounted for 64% and 59% of the Company’s total net accounts receivable, respectively. For the third quarter and first nine months of fiscal year 2018, resale of product through Avnet accounted for 42% and 45% of the Company’s worldwide net revenues, respectively. For the third quarter and the first nine months of fiscal year 2017, resale of product through Avnet accounted for 42% and 43% 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 third quarter as well as the first nine months 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 December 30, 2017, approximately 33% of the portfolio consisted of mortgage-backed securities. All of the mortgage-backed securities in the investment portfolio were issued by U.S. government-sponsored enterprises and agencies and are rated AA+ by Standard & Poor’s and Aaa by Moody’s Investors Service.
 
Note 4.
Fair Value Measurements

The authoritative guidance for fair value measurements established by the FASB defines fair value as the exchange price that would be received from selling an asset or paid to transfer a liability (an exit price) in an orderly transaction between market

8


participants at the measurement date. When determining the fair value measurements for assets and liabilities required or permitted to be recorded at fair value, the Company considers the principal or most advantageous market in which Xilinx would transact and also considers assumptions that market participants would use when pricing the asset or liability, such as inherent risk, transfer restrictions and risk of nonperformance.

The Company determines the fair value for marketable debt securities using industry standard pricing services, data providers and other third-party sources and by internally performing valuation testing and analysis. The Company primarily uses a consensus price or weighted-average price for its fair value assessment. The Company determines the consensus price using market prices from a variety of industry standard pricing services, data providers, security master files from large financial institutions and other third party sources and uses those multiple prices as inputs into a distribution-curve-based algorithm to determine the daily market value. The pricing services use multiple inputs to determine market prices, including reportable trades, benchmark yield curves, credit spreads and broker/dealer quotes as well as other industry and economic events. For certain securities with short maturities, such as discount commercial paper and certificates of deposit, the security is accreted from purchase price to face value at maturity. If a subsequent transaction on the same security is observed in the marketplace, the price on the subsequent transaction is used as the current daily market price and the security will be accreted to face value based on the revised price.

The Company validates the consensus prices by taking random samples from each asset type and corroborating those prices using reported trade activities, benchmark yield curves, binding broker/dealer quotes or other relevant price information. There have not been any changes to the Company’s fair value methodology during the first nine months of fiscal year 2018 and the Company did not adjust or override any fair value measurements as of December 30, 2017.

Fair Value Hierarchy

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

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

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

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 December 30, 2017 and April 1, 2017:

9



 
 
December 30, 2017
(In thousands)
 
Quoted
Prices in
Active
Markets for
Identical
Instruments
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
 
Total Fair
Value
Assets
 
 
 
 
 
 
 
 
Cash equivalents:
 
 
 
 
 
 
 
 
Money market funds
 
$
279,946

 
$

 
$

 
$
279,946

Financial institution securities
 

 
225,128

 

 
225,128

Non-financial institution securities
 

 
122,390

 

 
122,390

U.S. government and agency securities
 
92,662

 
49,951

 

 
142,613

Foreign government and agency securities
 

 
76,152

 

 
76,152

Short-term investments:
 

 

 

 

Financial institution securities
 


274,868




274,868

Non-financial institution securities
 


272,874




272,874

U.S. government and agency securities
 
29,506


26,084




55,590

Foreign government and agency securities
 


224,624




224,624

Mortgage-backed securities
 


1,142,982




1,142,982

Debt mutual fund
 


34,068




34,068

Bank loans
 


163,673




163,673

Asset-backed securities
 


222,363




222,363

Commercial mortgage-backed securities



239,073




239,073

Long-term investments:
 

 

 

 

Mortgage-backed securities
 

 
39,344

 

 
39,344

Debt mutual fund
 

 
55,843

 

 
55,843

Asset-backed securities
 

 
1,252

 

 
1,252

Equity securities

5,936






5,936

Total assets measured at fair value
 
$
408,050

 
$
3,170,669

 
$

 
$
3,578,719

Liabilities
 
 
 
 
 
 
 
 
Derivative financial instruments, net
 
$

 
$
9,043

 
$

 
$
9,043

Total liabilities measured at fair value
 
$

 
$
9,043

 
$

 
$
9,043

Net assets measured at fair value
 
$
408,050

 
$
3,161,626

 
$

 
$
3,569,676






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
 
Nine Months Ended
(In thousands)
December 30, 2017
 
December 31, 2016
 
December 30, 2017
 
December 31, 2016
Balance as of beginning of period
$

 
$
10,160

 
$

 
$
9,977

Total unrealized gains (losses):

 

 

 

Included in other comprehensive income (loss)

 
67

 

 
250

Balance as of end of period
$

 
$
10,227

 
$

 
$
10,227


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

Financial Instruments Not Recorded at Fair Value on a Recurring Basis

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

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 December 30, 2017 were approximately $499.2 million, $504.7 million and $746.4 million, respectively, based on the last trading price for the period (classified as Level 2 in the 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:
 
December 30, 2017
 
 
April 1, 2017
(In thousands)
Amortized Cost
 
Gross Unrealized Gains
 
Gross Unrealized Losses
 
Estimated Fair Value
 
 
Amortized Cost
 
Gross Unrealized Gains
 
Gross Unrealized Losses
 
Estimated Fair Value
Money market funds
$
279,946

 
$

 
$

 
$
279,946

 
 
$
298,307

 
$

 
$

 
$
298,307

Financial institution


 


 


 


 
 


 


 


 


securities
499,996

 

 

 
499,996

 
 
348,797

 

 

 
348,797

Non-financial institution


 


 


 


 
 


 


 


 


securities
395,795

 
259

 
(790
)
 
395,264

 
 
409,109

 
647

 
(496
)
 
409,260

U.S. government and

 

 

 

 
 

 

 

 

agency securities
198,416

 
13

 
(226
)
 
198,203

 
 
130,749

 
8

 
(223
)
 
130,534

Foreign government and
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
agency securities
300,776

 

 

 
300,776

 
 
322,172

 

 
(51
)
 
322,121

Mortgage-backed securities
1,193,776

 
3,874

 
(15,324
)
 
1,182,326

 
 
1,186,732

 
3,527

 
(14,757
)
 
1,175,502

Asset-backed securities
224,276

 
346

 
(1,007
)
 
223,615

 
 
220,033

 
404

 
(686
)
 
219,751

Debt mutual funds
101,350

 

 
(11,439
)
 
89,911

 
 
101,350

 

 
(12,674
)
 
88,676

Bank loans
163,230

 
631

 
(188
)
 
163,673

 
 
153,281

 
839

 
(106
)
 
154,014

Commercial mortgage-











 
 











backed securities
241,539


68


(2,534
)

239,073

 
 
221,504


146


(3,679
)

217,971

Equity securities
7,500




(1,564
)

5,936

 
 

 

 

 

 
$
3,606,600

 
$
5,191

 
$
(33,072
)
 
$
3,578,719

 
 
$
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 December 30, 2017 and April 1, 2017:

 
December 30, 2017
 
Less Than 12 Months
 
12 Months or Greater
 
Total
(In thousands)
Fair Value
 
Gross Unrealized Losses
 
Fair Value
 
Gross Unrealized Losses
 
Fair Value
 
Gross Unrealized Losses
Non-financial institution securities
$
123,647

 
$
(580
)
 
$
15,312

 
$
(210
)
 
$
138,959

 
$
(790
)
U.S. government and

 

 

 

 


 


    agency securities
36,918

 
(164
)
 
7,076

 
(62
)
 
43,994

 
(226
)
Mortgage-backed securities
644,939

 
(6,632
)
 
352,193

 
(8,692
)
 
997,132

 
(15,324
)
Asset-backed securities
136,281

 
(596
)
 
48,739

 
(411
)
 
185,020

 
(1,007
)
Debt mutual funds

 

 
89,911

 
(11,439
)
 
89,911

 
(11,439
)
Bank loans
29,161

 
(183
)

500

 
(5
)
 
29,661

 
(188
)
Commercial mortgage-













backed securities
134,826


(1,111
)

80,826


(1,423
)

215,652


(2,534
)
Equity securities
5,936


(1,564
)


 


5,936


(1,564
)
 
$
1,111,708

 
$
(10,830
)
 
$
594,557

 
$
(22,242
)
 
$
1,706,265

 
$
(33,072
)


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 December 30, 2017, the gross unrealized losses that had been outstanding for less than twelve months were primarily related to mortgage-backed securities due to the general rising of the interest-rate environment. However, 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 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 December 30, 2017 and April 1, 2017 were temporary in nature as evidenced by the fluctuations in the gross unrealized losses within the investment categories. These investments are highly rated by the credit rating agencies, there have been no defaults on any of these securities and we have received interest payments as they become due. Therefore, the Company believes that it will be able to collect both principal and interest amount due to the Company. Additionally, in the past several years a portion of the Company's investment in the mortgage-backed securities were redeemed or prepaid by the debtors at par. Furthermore, the aggregate of individual unrealized losses that had been outstanding for twelve months or more were not significant as of December 30, 2017 and April 1, 2017, the majority of which were related to debt mutual funds due to foreign currency and interest rate fluctuations. The Company neither intends to sell these investments nor concludes that it is more-likely-than-not that it will have to sell them until recovery of their carrying values.

The amortized cost and estimated fair value of marketable debt securities (financial institution securities, non-financial institution securities, U.S. and foreign government and agency securities, asset-backed securities, bank loans, mortgage-backed securities and commercial mortgage-backed securities), by contractual maturity, are shown in the table below. Actual maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations without call or prepayment penalties.
 
December 30, 2017
(In thousands)
Amortized
Cost
 
Estimated
Fair Value
Due in one year or less
$
1,215,851

 
$
1,215,796

Due after one year through five years
477,119

 
475,244

Due after five years through ten years
328,437

 
326,893

Due after ten years
1,196,397

 
1,184,993


$
3,217,804

 
$
3,202,926

As of December 30, 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 did not include investments in money market funds, mutual funds and equity securities because these securities do not have specific contractual maturities.

13


Certain information related to available-for-sale securities is as follows:
 
Three Months Ended
 
Nine Months Ended
(In thousands)
December 30, 2017
 
December 31, 2016
 
December 30, 2017
 
December 31, 2016
Proceeds from sale of available-for-sale securities
$
124,857

 
$
130,891

 
$
394,276

 
$
384,236

Gross realized gains on sale of available-for-sale securities
$
153

 
$
624

 
$
1,504

 
$
2,051

Gross realized losses on sale of available-for-sale securities
(2,267
)
 
(679
)
 
(2,862
)
 
(1,280
)
Net realized gains (losses) on sale of available-for-sale securities
$
(2,114
)
 
$
(55
)
 
$
(1,358
)
 
$
771

Amortization of premiums on available-for-sale securities
$
4,225

 
$
8,034

 
$
14,437

 
$
22,209


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

Note 6.
Derivative Financial Instruments

The Company entered into interest rate swap contracts with certain independent financial institutions to manage interest rate risks related to fixed interest rate expenses from its 2024 Notes and floating interest rate income from its investments in marketable debt securities. See “Note 10. Debt and Credit Facility” for more discussion related to interest rate swap contracts. The interest rate swap contracts were designated and qualified as fair value hedges of the 2024 Notes, and were separately accounted for as a derivative. The interest rate swap contracts and the 2024 Notes were initially measured at fair value. Any subsequent changes in fair values of the interest rate swap contracts and the 2024 Notes will be recorded in the Company’s consolidated balance sheets. During the nine months ended December 30, 2017, the net change in fair values of the interest rate swap contracts and the underlying 2024 Notes was $11.8 million, which was recorded as a derivative liability for the interest rate swap contacts (as a component of other long-term liabilities on the condensed consolidated balance sheets) and also a reduction from the carrying amount of 2024 Notes. There was no ineffectiveness during all periods presented. Other than this arrangement, there have been no material changes to the Company's derivative financial instruments since April 1, 2017.

Note 7.
Stock-Based Compensation Plans

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

Stock-Based Compensation

The following table summarizes stock-based compensation expense related to stock awards granted under the Company’s equity incentive plans and rights to acquire stock granted under the Company’s Employee Stock Purchase Plan (ESPP):
 
Three Months Ended
 
Nine Months Ended
(In thousands)
December 30, 2017
 
December 31, 2016
 
December 30, 2017
 
December 31, 2016
Stock-based compensation included in:

 

 

 

Cost of revenues
$
2,188

 
$
1,945

 
$
6,486

 
$
5,994

Research and development
20,217

 
17,154

 
57,779

 
48,803

Selling, general and administrative
14,396

 
11,768

 
40,944

 
35,276

 
$
36,801

 
$
30,867

 
$
105,209

 
$
90,073


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 nine months of fiscal year 2018 and the entire fiscal year 2017. The Company's stock-based compensation expenses related to options during the first nine months of fiscal year 2018 and the number of options outstanding as of December 30, 2017

14


were not material. On August 9, 2017, the stockholders approved an amendment to increase the authorized number of shares reserved for issuance under the 2007 Equity Plan by 1.9 million shares. As of December 30, 2017, 11.3 million shares remained available for grant under the 2007 Equity Plan.

The total pre-tax intrinsic value of options exercised during the three and nine months ended December 30, 2017 was $303 thousand and $3.5 million, respectively. The total pre-tax intrinsic value of options exercised during the three and nine months ended December 31, 2016 was $2.8 million and $24.2 million, respectively. This intrinsic value represents the difference between the exercise price and the fair market value of the Company’s common stock on the date of exercise.

RSU Awards

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

 
$
40.74

Granted
3,398

 
$
44.38

Vested
(2,619
)
 
$
39.49

Cancelled
(410
)
 
$
41.63

April 1, 2017
6,988

 
$
42.93

Granted
3,468

 
$
60.36

Vested
(2,426
)
 
$
42.18

Cancelled
(416
)
 
$
46.94

December 30, 2017
7,614

 
$
50.48


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 third quarter of fiscal year 2018 was $67.40 ($49.50 for the third quarter of fiscal year 2017), and for the first nine months of fiscal year 2018 was $60.36 ($43.40 for the first nine months of fiscal year 2017), which were calculated based on estimates at the date of grant using the following weighted-average assumptions: 
 
Three Months Ended
 
Nine Months Ended

December 30, 2017
 
December 31, 2016
 
December 30, 2017
 
December 31, 2016
Risk-free interest rate
1.9
%
 
1.4
%
 
1.8
%
 
0.9
%
Dividend yield
2.0
%
 
2.5
%
 
2.2
%
 
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 the Company pays in cash to the appropriate taxing authorities on behalf of its employees.

During the third quarter of fiscal year 2018, the Company realized an immaterial amount of excess tax benefits after adjusting for the impact of the decrease in the tax rate from 35% to 31.5% due to the enactment of the Tax Cuts and Jobs Act as detailed in “Note 14. Income Taxes” to our condensed consolidated financial statements, included in “Part I. Financial Information.” During the first nine months of fiscal year 2018, the Company realized excess tax benefits of $17.5 million. During the third quarter and the first nine months of fiscal year 2017, the Company realized excess tax benefits of $1.2 million and $10.9 million, respectively. These benefits were recorded in the condensed consolidated statements of income as a component of the provision for income taxes.

Employee Stock Purchase Plan

Under the ESPP, shares are only issued during the second and fourth quarters of each fiscal year. Employees purchased 355 thousand shares for $16.9 million during the second quarter of fiscal year 2018 and 446 thousand shares for $15.0 million during

15


the second quarter of fiscal year 2017. The per-share weighted-average fair value of stock purchase rights granted under the ESPP during the second quarter of fiscal years 2018 and 2017 was $16.46 and $11.64, respectively. The fair values of stock purchase plan rights granted in the second quarter of fiscal years 2018 and 2017 were estimated using the Black-Scholes option pricing model at the date of grant using the following assumptions:

2018
 
2017
Expected life of options (years)
1.25

 
1.25

Expected stock price volatility
0.28

 
0.23

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

The next scheduled purchase under the ESPP is in the fourth quarter of fiscal year 2018. On August 9, 2017, the stockholders approved an amendment to increase the authorized number of shares reserved for issuance under the ESPP by 2.0 million shares. As of December 30, 2017, 9.9 million shares were available for future issuance under the ESPP.

Note 8.
Net Income Per Common Share

The computation of basic net income per common share for all periods presented is derived from the information on the condensed consolidated statements of income, and there are no reconciling items in the numerator used to compute diluted net income per common share. The following table summarizes the computation of basic and diluted net income per common share:
 
Three Months Ended
 
Nine Months Ended
(In thousands, except per share amounts)
December 30, 2017
 
December 31, 2016
 
December 30, 2017
 
December 31, 2016
Net income available to common stockholders
$
11,945

 
$
141,846

 
$
346,722

 
$
469,087

Weighted average common shares outstanding-basic
254,089

 
250,982

 
248,671

 
252,811

Dilutive effect of employee equity incentive plans
3,235

 
2,907

 
2,843

 
2,400

Dilutive effect of 2017 Convertible Notes

 
10,165

 
1,990

 
9,212

Dilutive effect of warrants
784

 
6,727

 
5,491

 
4,759

Weighted average common shares outstanding-diluted
258,108

 
270,781

 
258,995

 
269,182

Basic earnings per common share
$
0.05

 
$
0.57

 
$
1.39

 
$
1.86

Diluted earnings per common share
$
0.05

 
$
0.52

 
$
1.34

 
$
1.74


The total shares used in the denominator of the diluted net income per common share calculation include potentially dilutive common equivalent shares outstanding that are not included in basic net income per common share calculation. The diluted shares were calculated by applying the treasury stock method to the impact of the equity incentive plans, the incremental shares issuable assuming conversion of the Company's $600.0 million principal amount of 2.625% convertible notes issued in June 2010 (2017 Convertible Notes), before its maturity on June 15, 2017, and exercise of warrants on a weighted-average outstanding basis. The 2017 Convertible Notes matured during the first quarter of fiscal year 2018, and the Company exercised its call options to neutralize the dilutive effect of the incremental shares from the 2017 Convertible Notes. The warrants were fully settled during the third quarter of fiscal year 2018. Because the number of diluted shares in the above table for the nine months ended December 30, 2017 was calculated based on a weighted-average outstanding basis, it included approximately 2.0 million shares of dilutive impact from the 2017 Convertible Notes through the maturity date and 5.5 million shares of dilutive impact from warrants before the settlement. 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 248 thousand and 3.4 million shares, for the third quarter and the first nine months of fiscal year 2018, respectively, were excluded from diluted net income per common share by applying the treasury stock method, as their inclusion would have been anti-dilutive. These options and RSUs could be dilutive in the future if the Company’s average share price increases and is greater than the combined exercise prices and the unamortized fair values of these options and RSUs.    


16


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)
December 30, 2017
 
April 1, 2017
Raw materials
$
16,807

 
$
14,517

Work-in-process
164,609

 
161,120

Finished goods
45,117

 
51,396

 
$
226,533

 
$
227,033


Note 10.
Debt and Credit Facility
2017 Convertible Notes
During the first quarter of fiscal year 2018, the Company received conversion requests from the remaining holders of the 2017 Convertible Notes. Upon settlement, the holders received a cash payment equal to the par value of the 2017 Convertible Notes of $457.9 million, as well as 9.0 million shares of the Company's common stock. In conjunction with the settlement, the Company exercised its call options on its shares of common stock that it purchased to hedge against the dilution from the conversion of the 2017 Convertible Notes, and received 9.0 million shares from the hedge counterparties. As of the end of the first quarter of fiscal year 2018, the 2017 Convertible Notes were no longer outstanding.
The carrying values of the liability and equity components of the 2017 Convertible Notes are reflected in the Company’s condensed consolidated balance sheets as follows:
(In thousands)
December 30, 2017
 
April 1, 2017
Liability component:

 

   Principal amount of the 2017 Convertible Notes
$

 
$
457,918

   Unamortized discount of liability component

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

 
571

   Unamortized debt issuance costs associated with 2017 Convertible Notes

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

 
$
456,328




 


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

 
$
50,688


Prior to the conversion, interest expense related to the 2017 Convertible Notes was included in interest and other income (expense), net on the condensed consolidated statements of income, and was recognized as follows:
 
Three Months Ended
 
Nine Months Ended
(In thousands)
December 30, 2017
 
December 31, 2016
 
December 30, 2017
 
December 31, 2016
Contractual coupon interest
$

 
$
3,938

 
$
2,300

 
$
11,813

Amortization of debt issuance costs

 
362

 
184

 
1,086

Amortization of debt discount, net

 
2,763

 
1,406

 
8,289

Total interest expense related to the 2017 Convertible Notes
$

 
$
7,063

 
$
3,890

 
$
21,188

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 gave the counterparties the right to purchase up to 21.1 million shares of the Company's common stock at $40.26 per share. All of the warrants were exercised as of December 30, 2017 and the Company issued 9.2 million shares of its common stock for the settlement.

17


2019 Notes and 2021 Notes

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

The Company received net proceeds of $990.1 million from issuance of the 2019 Notes and 2021 Notes, after the debt discount and deduction of debt issuance costs. The debt discounts and issuance costs are amortized to interest expense over the terms of the 2019 Notes and 2021 Notes. As of December 30, 2017, the remaining term of the 2019 Notes and 2021 Notes are 1.2 years and 3.2 years, respectively.

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

 
$
500,000

Unamortized discount of the 2019 Notes
(636
)
 
(1,037
)
Unamortized debt issuance costs associated with the 2019 Notes
(398
)
 
(654
)
Principal amount of the 2021 Notes
500,000

 
500,000

Unamortized discount of the 2021 Notes
(1,723
)
 
(2,107
)
Unamortized debt issuance costs associated with the 2021 Notes
(773
)
 
(955
)
Total carrying value
$
996,470

 
$
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
 
Nine Months Ended
(In thousands)
December 30, 2017
 
December 31, 2016
 
December 30, 2017
 
December 31, 2016
Contractual coupon interest
$
6,406

 
$
6,406

 
$
19,219

 
$
19,219

Amortization of debt issuance costs
146

 
146

 
439

 
439

Amortization of debt discount, net
265

 
257

 
785

 
764

Total interest expense related to the 2019 Notes and 2021 Notes
$
6,817

 
$
6,809

 
$
20,443

 
$
20,422


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 net proceeds of $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 December 30, 2017, the remaining term of the 2024 Notes is approximately 6.5 years.

In relation to the issuance of the 2024 Notes, the Company entered into interest rate swap contracts with certain independent financial institutions, whereby the Company pays on a semi-annual basis, a variable interest rate equal to the three-month London Interbank Offered Rate (LIBOR) plus 91.43 bps, and receives on a semi-annual basis, interest income at a fixed interest rate of 2.950%. The Company earned a net interest income of $1.3 million and $3.4 million during the three and nine months ended December 30, 2017, respectively, from the interest rate swap contracts, which was included in interest and other income (expense), net on the condensed consolidated statements of income as a reduction to interest expense. As of December 30, 2017, the fair value of the interest rate swap contracts was $11.8 million, which was recorded in other long-term liabilities on the condensed consolidated balance sheets.

18



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

 
$

Unamortized discount of the 2024 Notes
(783
)
 

Unamortized debt issuance costs associated with 2024 Notes
(3,642
)
 

Carrying value of the 2024 Notes
$
745,575

 
$

Fair value hedge adjustment - interest rate swap contracts
(11,834
)
 

Net carrying value of the 2024 Notes
$
733,741

 
$


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
 
Nine Months Ended
(In thousands)
December 30, 2017
 
December 31, 2016
 
December 30, 2017
 
December 31, 2016
Contractual coupon interest
$
4,238

 
$

 
$
9,604

 
$

Amortization of debt issuance costs
142

 

 
331

 

Amortization of debt discount, net
27

 

 
65

 

Total interest expense related to the 2024 Notes
$
4,407

 
$

 
$
10,000

 
$


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 December 30, 2017, the Company had made no borrowings under this credit facility and was not in violation of any of the covenants.

Note 11. Common Stock Repurchase Program
The Board of Directors has approved stock repurchase programs enabling the Company to repurchase its common stock in the open market or through negotiated transactions with independent financial institutions. On May 16, 2016, the Board authorized the repurchase of up to $1.00 billion of the Company's common stock and debentures (2016 Repurchase Program). The 2016 Repurchase Program has no stated expiration date.
Through December 30, 2017, the Company had used $628.7 million of the $1.00 billion authorized under the 2016 Repurchase Program, leaving $371.3 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 December 30, 2017 and April 1, 2017.

During the first nine months of fiscal year 2018, the Company repurchased 4.7 million shares of common stock in the open market and through accelerated share repurchase agreements with multiple independent financial institutions for a total of $310.8 million. During the first nine months of fiscal year 2017, the Company repurchased 8.0 million shares of common stock in the open market for a total of $414.0 million.


19


Note 12.
Interest and Other Income (Expense), Net
The components of interest and other income (expense), net are as follows: 
 
Three Months Ended
 
Nine Months Ended
(In thousands)
December 30, 2017
 
December 31, 2016
 
December 30, 2017
 
December 31, 2016
Interest income
$
17,738

 
$
14,504

 
$
44,984

 
$
38,068

Interest expense
(11,224
)
 
(13,872
)
 
(34,333
)
 
(41,610
)
Other expense, net
(1,045
)
 
(1,024
)
 
(1,513
)
 
(2,588
)
Interest and other income (expense), net
$
5,469

 
$
(392
)
 
$
9,138

 
$
(6,130
)

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)
December 30, 2017
 
April 1, 2017
Accumulated unrealized losses on available-for-sale securities, net of tax
$
(17,503
)
 
$
(17,091
)
Accumulated unrealized gains on hedging transactions, net of tax
1,419

 
661

Accumulated cumulative translation adjustment, net of tax
(5,419
)
 
(8,251
)
Accumulated other comprehensive loss
$
(21,503
)
 
$
(24,681
)

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

Note 14.
Income Taxes
The Company recorded tax provisions of $183.2 million and $217.7 million for the third quarter and the first nine months of fiscal year 2018, respectively, representing an effective tax rate of 94% and 39%, respectively. The Company recorded tax provisions of $20.7 million and $50.8 million for the third quarter and the first nine months of fiscal year 2017, respectively, representing an effective tax rate of 13% and 10%, respectively.
On December 22, 2017, the Tax Cuts and Jobs Act (TCJA) was enacted into law. The TCJA provides for numerous significant tax law changes and modifications including the reduction of the U.S. federal corporate income tax rate from 35% to 21%, the requirement for companies to pay a one-time transition tax on earnings of certain foreign subsidiaries that were previously tax deferred and the creation of new taxes on certain foreign-sourced earnings. As a fiscal year-end taxpayer, certain provisions of the TCJA began to impact the Company in the third quarter of fiscal year 2018, while other provisions will impact the Company beginning in fiscal year 2019.
The corporate tax rate reduction is effective as of January 1, 2018. Since the Company has a fiscal year rather than a calendar year, it is subject to rules relating to transitional tax rates. As a result, the Company’s fiscal year 2018 federal statutory rate will be a blended rate of 31.5%. The change in the statutory tax rate from 35% to 31.5% for the Company's fiscal year 2018 does not have a significant impact on the effective tax rate.
Accounting Standards Codification (ASC) 740, Income Taxes, requires companies to recognize the effect of the tax law changes in the period of enactment. However, the SEC staff issued Staff Accounting Bulletin 118 which will allow companies to record provisional amounts during a measurement period that is similar to the measurement period used when accounting for business combinations. As of December 30, 2017, the Company has made a reasonable estimate of the effects on its existing deferred tax balances and the one-time transition tax. The Company recognized a provisional amount of $183.2 million, which was included as a component of income tax expense from continuing operations. The Company will continue to assess the impact of the recently enacted tax law (and expected further guidance from federal and state tax authorities as well as further guidance for the associated income tax accounting) on its business and consolidated financial statements.
The one-time transition tax is based on the Company’s total post-1986 earnings and profits (E&P) of its foreign subsidiaries. The Company had previously accrued deferred taxes on a portion of these same earnings. The larger balance was permanently reinvested outside the U.S. The Company recorded provisional U.S. federal and state amounts for its one-time transition tax liabilities,

20


resulting in an increase in income tax expense of $582.8 million. In addition, the Company released the related deferred tax liabilities, resulting in a decrease in income tax expense of $424.3 million. The net increase to tax expense is $158.5 million.
The Company has not yet completed its calculation of the total post-1986 E&P for its foreign subsidiaries. In addition, the one-time transition tax is based in part on the amount of those earnings held in cash and other specified assets either as of the end of fiscal year 2018 or the average of the year-end balances for fiscal years 2016 and 2017. The Company's calculation of this amount will change with further analysis, fourth quarter activities, and further guidance from the U.S. federal and state tax authorities about the application of these new rules. The Company will continue to evaluate the impact of the tax law change as it relates to the accounting for the outside basis difference of its foreign entities.
As a result of the reduction of the corporate income tax rate to 21%, U.S. GAAP requires companies to remeasure their deferred tax assets and liabilities as of the date of enactment, with resulting tax effects accounted for in the reporting period of enactment. The Company remeasured deferred tax assets and liabilities based on the rates at which they are expected to reverse in the future. The provisional amount recorded for the remeasurement and resulting write-down of the Company's deferred tax balance was $26.2 million. The Company’s actual write-down may vary materially from the provisional amount because the final analysis will be based on balances as of March 31, 2018 and actual activities of the fourth quarter of fiscal year 2018.

The difference between the blended U.S. federal statutory tax rate of 31.5% and the Company's effective tax rate in all periods of fiscal year 2018 was primarily due to the one-time transition tax net of the reversal of the related deferred tax liabilities.
The difference between the U.S. federal statutory tax rate of 35% and the Company’s effective tax rate in all periods of fiscal year 2017 was primarily due to income earned in lower tax rate jurisdictions, for which no U.S. income tax had been provided, as the Company intended to permanently reinvest the earnings outside of the U.S.
The Company’s total gross unrecognized tax benefits as of December 30, 2017 increased by $91.1 million in the first nine months of fiscal year 2018 to $121.5 million. The increase is primarily attributable to an additional deduction claimed on federal and state amended tax returns for repurchase premium paid in connection with the early redemption of the Company’s 3.125% Junior Convertible debenture due March 15, 2037 (2037 Convertible Notes) in fiscal year 2014.  As of December 30, 2017, the total amount of unrecognized tax benefits that, if realized in a future period, would favorably affect the effective tax rate was $14.5 million. Another $85.5 million related to the 2037 Convertible Notes would increase additional paid-in capital.  It is reasonably possible that changes to our unrecognized tax benefits could be significant in the next twelve months due to tax audit settlements and lapses of statutes of limitation. As a result of uncertainties regarding tax audit settlements and their possible outcomes, an estimate of the range of increase or decrease that could occur in the next twelve months cannot be determined at this time.
The Company’s policy is to include interest and penalties related to income tax liabilities within the provision for income taxes on the condensed consolidated statements of income. The balance of accrued interest and penalties recorded in the condensed consolidated balance sheets and the amounts of interest and penalties included in the Company's provision for income taxes were not material for all periods presented.
The statutes of limitations have closed for U.S. federal income tax purposes for years through fiscal year 2014, for U.S. state income tax purposes for years through fiscal year 2010, and for Ireland income tax purposes for years through fiscal year 2012.

Note 15.
Commitments
Xilinx leases some of its facilities and office buildings under non-cancelable operating leases that expire at various dates through April 2029. Additionally, Xilinx entered into a land lease in conjunction with the Company’s building in Singapore, which will expire in November 2035 and the lease cost was settled in an up-front payment in June 2006. Some of the operating leases for facilities and office buildings require payment of operating costs, including property taxes, repairs, maintenance and insurance. Most of the Company’s leases contain renewal options for varying terms. Approximate future minimum lease payments under non-cancelable operating leases are as follows:


21


Fiscal Years
(In thousands)
2018 (remaining three months)
$
1,751

2019
6,453

2020
7,752

2021
5,735

2022
5,756

Thereafter
29,284

Total
$
56,731

Aggregate future rental income to be received from owned property totaled $8.4 million as of December 30, 2017. Rent expense, net of rental income, under all operating leases was $0.9 million and $3.0 million for the three and nine months ended December 30, 2017, respectively. Rent expense, net of rental income, under all operating leases was $1.3 million and $3.8 million for the three and nine months ended December 31, 2016, respectively. Rental income was not material for the third quarter and the first nine months of fiscal years 2018 and 2017.
Other commitments as of December 30, 2017 totaled $157.5 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 December 30, 2017, the Company had $27.2 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 third quarter of fiscal year 2018 and the end of fiscal year 2017, the accrual balance of the product warranty liability was immaterial.

The Company offers, subject to certain terms and conditions, to indemnify customers and distributors for costs and damages awarded against these parties in the event the Company’s hardware products are found to infringe third-party intellectual property rights, including patents, copyrights or trademarks, and to compensate certain customers for limited specified costs they actually incur in the event our hardware products experience epidemic failure.  To a lesser extent, the Company may from time-to-time offer limited indemnification with respect to its software products.  The terms and conditions of these indemnity obligations are limited by contract, which obligations are typically perpetual from the effective date of the agreement. The Company has historically received only a limited number of requests for indemnification under these provisions and has not made any significant payments pursuant to these provisions. The Company cannot estimate the maximum amount of potential future payments, if any, that the Company may be required to make as a result of these obligations due to the limited history of indemnification claims and the unique facts and circumstances that are likely to be involved in each particular claim and indemnification provision. However, there can be no assurances that the Company will not incur any financial liabilities in the future as a result of these obligations.

Note 17.
Contingencies

Patent Litigation

On July 17, 2014, a patent infringement lawsuit was filed by PLL Technologies, Inc. (PTI) against the Company in the U.S. District Court for the District of Delaware (PLL Technologies, Inc. v. Xilinx, Inc., Case No. 1:14-CV-00945). On April 28, 2015, the U.S. Patent Trial and Appeal Board (PTAB) granted Xilinx's request for inter partes review (IPR) with respect to all claims in the litigation. On May 5, 2015, the Court ordered the litigation be stayed pending final resolution of the IPR. On April 18, 2016, the PTAB issued a final written decision in which all of the asserted claims were found unpatentable. On June 14, 2016, PTI filed 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 September 14, 2017, the court granted the Company’s motion to transfer venue and the matter is now pending before the U.S. District Court for the Northern District of California. On February 1, 2017, the Company filed a complaint for declaratory judgment of patent non-infringement against IP Bridge in the U.S. District Court for

22


the Northern District of California (Xilinx, Inc. v. Godo Kaisha IP Bridge 1, Case No. 5:17-cv-00509). The complaint filed by the Company pertained to twelve other patents and sought judgment of non-infringement by Xilinx, as well as costs, expenses and attorneys’ fees.  On June 15, 2017, IP Bridge granted Xilinx a royalty-free covenant not to sue for infringement of those twelve patents, and on June 16, 2017, the parties filed a stipulated dismissal without prejudice of the declaratory judgment action in California. The Company is unable to estimate its range of possible loss, if any, in the remaining action 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. On October 27, 2017, the court granted the Company’s motion to transfer venue and the matter is now pending before the U.S. District Court for the Northern District of California. The Company is unable to estimate its range of possible loss, if any, in this matter at this time.

On December 11, 2017, a patent infringement lawsuit was filed by Lucio Development LLC (Lucio) against the Company in the U.S. District Court for the Eastern District of Texas (Lucio Development LLC v. Xilinx, Inc., Case No. 6:17-cv-00688). The lawsuit pertains to a single patent and Lucio seeks injunctive relief, unspecified damages, interest, and costs. The Company is unable to estimate its range of possible loss, if any, in this matter at this time.

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

Other Matters

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

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

From time to time, the Company is involved in various disputes and litigation matters that arise in the ordinary course of its business. These include disputes and lawsuits related to intellectual property, mergers and acquisitions, licensing, contract law, tax, regulatory, distribution arrangements, employee relations and other matters. Periodically, the Company reviews the status of each matter and assesses its potential financial exposure. If the potential loss from any claim or legal proceeding is considered probable and a range of possible losses can be estimated, the Company accrues a liability for the estimated loss. Legal proceedings are subject to uncertainties, and the outcomes are difficult to predict. Because of such uncertainties, accruals are based only on the best information available at the time. As additional information becomes available, the Company continues to reassess the potential liability related to pending claims and litigation and may revise estimates.
 
Note 18.
Goodwill and Acquisition-Related Intangibles

As of December 30, 2017, there have been no material changes to the Company's goodwill and acquisition-related intangibles since April 1, 2017.
 

23


Note 19.
Subsequent Events

On January 23, 2018, the Company’s Board of Directors declared a cash dividend of $0.35 per common share for the fourth quarter of fiscal year 2018. The dividend is payable on February 22, 2018 to stockholders of record on February 7, 2018.

As previously disclosed by the Company on a Form 8-K filed with the SEC on January 5, 2018, Victor Peng will succeed Moshe Gavrielov as the Company’s President and Chief Executive Officer effective January 29, 2018. In relation to the CEO transition, as well as other executive transitions in the fourth quarter of fiscal year 2018, the Company expects to record a one-time charge of approximately $30.0 million to operating expenses in the fourth quarter of fiscal year 2018.

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 sheets; and valuation and recognition of stock-based compensation, which impacts gross margin, research and development (R&D) expenses, and selling, general and administrative (SG&A) expenses. For more discussion please refer to "Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations" included in our Form 10-K for the year ended April 1, 2017. For more discussion specific to the accounting for income taxes and the impacts from the enactment of the TCJA, please refer to “Note 14. Income Taxes” to our condensed consolidated financial statements, included in “Part I. Financial Information.” 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: third quarter and first nine months of fiscal year 2018 compared to the third quarter and first nine months of fiscal year 2017

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

 
Three Months Ended
 
Nine Months Ended

December 30, 2017
 
December 31, 2016
 
December 30, 2017
 
December 31, 2016
Net revenues
100.0
%
 
100.0
%
 
100.0
%
 
100.0
%
Cost of revenues
28.9

 
30.4

 
30.0

 
30.0

Gross margin
71.1

 
69.6

 
70.0

 
70.0

Operating expenses: