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EX-32.2 - EXHIBIT 32.2 - XILINX INCex322q2fy19.htm
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EX-10.1 - EXHIBIT 10.1 - XILINX INCex101q2fy19.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 September 29, 2018
or
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to _______ .
Commission File Number 000-18548
 ______________________________________________________________________________
Xilinx, Inc.
(Exact name of registrant as specified in its charter)
 ______________________________________________________________________________
 
Delaware
 
 
 
77-0188631
(State or other jurisdiction of
incorporation or organization)
 
 
 
(I.R.S. Employer
Identification No.)
 
 
 
 
 
2100 Logic Drive, San Jose, California
 
 
 
95124
(Address of principal executive offices)
 
 
 
(Zip Code)
(408) 559-7778
(Registrant’s telephone number, including area code)
N/A
(Former name, former address, and former fiscal year, if changed since last report)
 ______________________________________________________________________________
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer x
 
Accelerated filer o
 
Non-accelerated filer o
 
Smaller reporting company o
 
Emerging growth company o
 
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x
Shares outstanding of the registrant’s common stock:
Class
 
Shares Outstanding as of October 12, 2018
Common Stock, $0.01 par value
 
253,043,435




TABLE OF CONTENTS
 

2


PART I.
FINANCIAL INFORMATION

Item 1.
Financial Statements
XILINX, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
 
 
Three Months Ended
 
Six Months Ended
(In thousands, except per share amounts)
September 29, 2018
 
September 30, 2017 [1]
 
September 29, 2018
 
September 30, 2017 [1]
Net revenues
$
746,252

 
$
627,419

 
$
1,430,622

 
$
1,230,229

Cost of revenues
231,620

 
185,685

 
438,508

 
376,509

Gross margin
514,632

 
441,734

 
992,114

 
853,720

Operating expenses:
 
 
 
 

 

Research and development
183,372

 
157,985

 
354,198

 
311,036

Selling, general and administrative
97,685

 
91,053

 
188,217

 
180,228

Amortization of acquisition-related intangibles
839

 
510

 
1,199

 
1,215

Total operating expenses
281,896

 
249,548

 
543,614

 
492,479

Operating income
232,736

 
192,186

 
448,500

 
361,241

Interest and other income, net
6,408

 
1,831

 
3,561

 
3,669

Income before income taxes
239,144

 
194,017

 
452,061

 
364,910

Provision for income taxes
23,432

 
20,266

 
46,311

 
33,915

Net income
$
215,712

 
$
173,751

 
$
405,750

 
$
330,995

Net income per common share:
 
 
 
 

 

Basic
$
0.85

 
$
0.70

 
$
1.61

 
$
1.33

Diluted
$
0.84

 
$
0.67

 
$
1.59

 
$
1.26

Cash dividends per common share
$
0.36

 
$
0.35

 
$
0.72

 
$
0.70

Shares used in per share calculations:
 
 
 
 

 

Basic
252,988

 
248,094

 
252,541

 
247,960

Diluted
255,522

 
258,217

 
255,057

 
261,739


[1] Prior year balances have been restated to reflect the retrospective application of the new revenue recognition accounting standard. Please refer to "Note 2. Recent Accounting Changes and Accounting Pronouncements."

See notes to condensed consolidated financial statements.



3


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

 
Three Months Ended
 
Six Months Ended
(In thousands)
September 29, 2018
 
September 30, 2017 [1]
 
September 29, 2018
 
September 30, 2017 [1]
Net income
$
215,712

 
$
173,751

 
$
405,750

 
$
330,995

Other comprehensive income (loss), net of tax:
 
 
 
 
 
 
 
Change in net unrealized gains (losses) on available-for-sale securities
(2,125
)
 
763

 
(3,785
)
 
5,935

Reclassification adjustment for (gains) losses on available-for-sale securities
1

 
(135
)
 
(50
)
 
(105
)
Net change in unrealized gains (losses) on hedging transactions
1,190

 
756

 
(4,430
)
 
2,198

Reclassification adjustment for gains on hedging transactions
(1,730
)
 
(1,648
)
 
(2,171
)
 
(2,004
)
Cumulative translation adjustment, net
(2,142
)
 
678

 
(4,192
)
 
2,438

Other comprehensive (loss) income
(4,806
)
 
414

 
(14,628
)
 
8,462

Total comprehensive income
$
210,906

 
$
174,165

 
$
391,122

 
$
339,457


[1] Prior year balances have been restated to reflect the retrospective application of the new revenue recognition accounting standard. Please refer to "Note 2. Recent Accounting Changes and Accounting Pronouncements."

See notes to condensed consolidated financial statements.


4


XILINX, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
 
(In thousands, except par value amounts)
September 29, 2018
 
March 31, 2018 [1]
 
(unaudited)
 
 
ASSETS

 

Current assets:

 

Cash and cash equivalents
$
1,974,638

 
$
2,179,328

Short-term investments
1,305,922

 
1,268,242

Accounts receivable, net
372,983

 
382,246

Inventories
243,642

 
236,077

Prepaid expenses and other current assets
68,098

 
88,695

Total current assets
3,965,283

 
4,154,588

Property, plant and equipment, at cost
867,175

 
855,023

Accumulated depreciation and amortization
(554,365
)
 
(550,906
)
Net property, plant and equipment
312,810

 
304,117

Long-term investments
91,627

 
97,896

Goodwill
342,456

 
162,421

Acquisition-related intangibles, net
84,455

 
4,123

Other assets
350,905

 
337,402

Total Assets
$
5,147,536

 
$
5,060,547

 
 
 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY

 

Current liabilities:

 

Accounts payable
$
107,099

 
$
98,999

Accrued payroll and related liabilities
232,410

 
206,367

Income taxes payable
31,435

 
47,713

Other accrued liabilities
60,965

 
59,680

Current portion of long-term debt
499,629

 
499,186

Total current liabilities
931,538

 
911,945

Long-term debt
1,201,884

 
1,214,440

Long-term income taxes payable
493,655

 
523,864

Other long-term liabilities
75,573

 
49,945

Commitments and contingencies (Note 17)

 

Stockholders' equity:

 

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

 

Common stock, $.01 par value
2,530

 
2,534

Additional paid-in capital
906,618

 
878,672

Retained earnings
1,576,476

 
1,513,656

Accumulated other comprehensive loss
(40,738
)
 
(34,509
)
Total stockholders’ equity
2,444,886

 
2,360,353

Total Liabilities and Stockholders’ Equity
$
5,147,536

 
$
5,060,547


[1] Prior year balances have been restated to reflect the retrospective application of the new revenue recognition accounting standard. Please refer to "Note 2. Recent Accounting Changes and Accounting Pronouncements."

See notes to condensed consolidated financial statements.

5


XILINX, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 
Six Months Ended
(In thousands)
September 29, 2018
 
September 30, 2017 [1]
Cash flows from operating activities:
 
 
 
Net income
$
405,750

 
$
330,995

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation
31,123

 
22,964

Amortization
15,477

 
7,161

Stock-based compensation
70,553

 
68,408

Amortization of debt discounts
591

 
1,964

Provision for deferred income taxes
4,825

 
37,640

Others
1,884


744

Changes in assets and liabilities:
 
 
 
Accounts receivable, net
9,263

 
(42,105
)
Inventories
(6,887
)
 
11,504

Prepaid expenses and other current assets
(5,744
)
 
(18,383
)
Other assets
(17,616
)
 
(12,645
)
Accounts payable
4,525

 
(20,585
)
Accrued liabilities
13,116

 
23,346

Income taxes payable
(37,569
)
 
(17,960
)
Net cash provided by operating activities
489,291

 
393,048

Cash flows from investing activities:
 
 
 
Purchases of available-for-sale securities
(819,512
)
 
(1,367,972
)
Proceeds from sale and maturity of available-for-sale securities
780,567

 
1,257,571

Purchases of property, plant and equipment and other intangibles
(40,533
)
 
(22,149
)
Acquisition of business, net of cash acquired
(223,535
)
 

Other investing activities
(25,277
)
 
(8,461
)
Net cash used in investing activities
(328,290
)
 
(141,011
)
Cash flows from financing activities:
 
 
 
Repurchases of common stock
(160,536
)
 
(237,516
)
Taxes paid related to net share settlements of restricted stock units
(39,494
)
 
(42,053
)
Proceeds from issuance of common stock through various stock plans
18,416

 
19,358

Payment of dividends to stockholders
(181,752
)
 
(174,260
)
Repayment of convertible debt

 
(457,918
)
Proceeds from issuance of long-term debt, net

 
745,175

Other financing activities
(2,325
)
 
(1,325
)
Net cash used in financing activities
(365,691
)
 
(148,539
)
Net (decrease) increase in cash and cash equivalents
(204,690
)
 
103,498

Cash and cash equivalents at beginning of period
2,179,328

 
966,695

Cash and cash equivalents at end of period
$
1,974,638

 
$
1,070,193

Supplemental disclosure of cash flow information:
 
 
 
Interest paid
$
33,986

 
$
18,608

Income taxes paid, net
$
78,948

 
$
14,789


[1] Prior year balances have been restated to reflect the retrospective application of the new revenue recognition accounting standard. Please refer to "Note 2. Recent Accounting Changes and Accounting Pronouncements."

See notes to condensed consolidated financial statements.

6


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

Note 1.
Basis of Presentation

The accompanying interim condensed consolidated financial statements have been prepared in conformity with United States (U.S.) generally accepted accounting principles (GAAP) for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X, and should be read in conjunction with the Xilinx, Inc. (Xilinx or the Company) consolidated financial statements filed with the U.S. Securities and Exchange Commission (SEC) on Form 10-K for the fiscal year ended March 31, 2018. 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 30, 2019 or any future period.

The Company uses a 52- to 53-week fiscal year ending on the Saturday nearest March 31. Fiscal 2019 and fiscal 2018 are both 52-week years ending on March 30, 2019 and March 31, 2018, respectively. The quarters ended September 29, 2018 and September 30, 2017 each consisted of 13 weeks.

Note 2.
Recent Accounting Changes and Accounting Pronouncements
 
Recent Accounting Pronouncements Adopted

Revenue Recognition

In April 2014, the Financial Accounting Standards Board (FASB) issued the authoritative guidance, as amended, that outlines a new 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 new 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 guidance is required to be applied retrospectively to each prior reporting period presented (Full Retrospective), or retrospectively with the cumulative effect of initially applying it recognized at the date of initial application. The Company adopted the new guidance on April 1, 2018, using the Full Retrospective method and restated the comparative prior periods. The Company implemented internal controls and certain system functionality to enable the preparation of financial information on adoption.
As a result of the adoption of the authoritative guidance, the Company changed its accounting policy for revenue recognition and the details of the significant changes and quantitative impact of the changes are disclosed below:
Revenue from sales to the Company's distributors is recognized upon shipment of the product to the distributors (sell-in) and is reduced by estimated allowances for distributor price adjustments and rights of return. Previously, revenue was recognized upon reported resale of the product by the distributors to their customers (sell-through) as reduced by actual allowances for distributor price adjustments. Revenue from software license agreements, software license renewals, and other contracts are recognized at point of sales, whereas previously these were deferred and recognized over the contractual term before the implementation of the authoritative guidance. Revenue recognition related to the Company's other revenue streams, such as direct customers, remains unchanged.
The adoption of this authoritative guidance has an impact on the Company’s condensed consolidated statements of income and balance sheets, but has no impact on net cash provided by or used in operating, financing, or investing activities on the condensed consolidated statements of cash flows.
The impact on the Company's previously reported condensed consolidated statement of income resulting from the adoption of the authoritative guidance is as follows:

7


 
Three Months Ended September 30, 2017
Six Months Ended September 30, 2017
(In thousands, except per share amounts)
As Reported
Adjustment
As Adjusted
As Reported
Adjustment
As Adjusted
Net revenues
$
619,503

$
7,916

$
627,419

$
1,234,949

$
(4,720
)
$
1,230,229

Cost of revenues
184,786

899

185,685

376,881

(372
)
376,509

Gross margin
434,717

7,017

441,734

858,068

(4,348
)
853,720

Operating expenses:
 
 
 
 
 
 
Research and development
157,985


157,985

311,036


311,036

Selling, general and administrative
91,053


91,053

180,228


180,228

Amortization of acquisition-related intangibles
510


510

1,215


1,215

Total operating expenses
249,548


249,548

492,479


492,479

Operating income
185,169

7,017

192,186

365,589

(4,348
)
361,241

Interest and other income, net
1,831


1,831

3,669


3,669

Income before income taxes
187,000

7,017

194,017

369,258

(4,348
)
364,910

Provision for income taxes
19,468

798

20,266

34,481

(566
)
33,915

Net income
$
167,532

$
6,219

$
173,751

$
334,777

$
(3,782
)
$
330,995

Net income per common share:
 
 
 
 
 
 
Basic
$
0.68

$
(0.02
)
$
0.70

$
1.35

$
(0.02
)
$
1.33

Diluted
$
0.65

$
(0.02
)
$
0.67

$
1.28

$
(0.02
)
$
1.26

Shares used in per share calculations:
 
 
 
 
 
 
Basic
248,094

 
248,094

247,960

 
247,960

Diluted
258,217

 
258,217

261,739

 
261,739

The impact on the Company's previously reported condensed consolidated balance sheet line items affected by the adoption of the authoritative guidance is as follows:
 
March 31, 2018
(In thousands)
As Reported
Adjustment
As Adjusted
Accounts receivable
$
372,144

$
10,102

$
382,246

Other assets
342,644

(5,242
)
337,402

Deferred income on shipments to distributors
25,166

(25,166
)

Other accrued liabilities
59,772

(92
)
59,680

Retained earnings
1,483,538

30,118

1,513,656


Financial Instruments

In January 2016, the FASB issued 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 that are attributable to their own credit. The authoritative guidance also changes certain disclosure requirements and other aspects of current U.S. GAAP on this matter. The authoritative guidance 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. The Company adopted this authoritative guidance on April 1, 2018 and recorded the balance of the unrealized losses of $11.0 million as of the end of fiscal 2018 from its investment in debt mutual funds and equity securities to retained earnings, less the related deferred taxes of $2.6 million. Subsequent changes in fair value from such investments are recorded in the condensed consolidated statements of income.


8


Income Taxes

In October 2016, the FASB issued authoritative guidance on 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 authoritative guidance is effective for public business entities in fiscal years beginning after December 15, 2017 and requires the adoption be applied on a modified retrospective basis through a cumulative-effect adjustment to retained earnings. The Company adopted this authoritative guidance on April 1, 2018. Accordingly, $13.8 million of prepaid taxes associated with prior period intra-entity asset transfers was reclassified to retained earnings.

Recent Accounting Pronouncements Not Yet Adopted

Leases

In February 2016, the FASB issued 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 2020. Early adoption is permitted. The new authoritative guidance must be adopted using a modified retrospective transition with application of the new authoritative guidance for leases that existed at or are entered after the beginning of the earliest comparative period presented. To help with the transition to the new guidance, certain practical expedients are provided. The Company is currently evaluating the impact of this new authoritative guidance on its condensed consolidated financial statements.

On July 30, 2018, The FASB provided entities with an additional (and optional) transition method to adopt the new lease requirements by allowing entities to initially apply the requirements by recognizing a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. Consequently, an entity’s reporting for the comparative periods presented in the financial statements in which the entity adopts the new lease requirements would continue to be in accordance with current GAAP. An entity electing this additional (and optional) transition method must provide the required disclosures for all periods that continue to be in accordance with current GAAP. The amendments do not change the existing disclosure requirements in current GAAP. The amendments have the same effective date as the new leases standard, which for Xilinx would be the first quarter of fiscal 2020. The Company is currently evaluating the impact of this new authoritative guidance on its condensed consolidated financial statements.

Cloud Computing Arrangements

On August 29, 2018, the FASB issued new guidance requiring a customer in a cloud computing arrangement (i.e., hosting arrangement) that is a service contract to follow the internal-use software guidance to determine which implementation costs to capitalize as assets or expense as incurred. Capitalized implementation costs related to a hosting arrangement that is a service contract will be amortized over the term of the hosting arrangement, beginning when the module or component of the hosting arrangement is ready for its intended use. Entities will need to maintain appropriate records to capture the portion of their costs that qualify for capitalization. For public entities, the guidance is effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years, which for Xilinx would be the first quarter of fiscal 2021. Early adoption is permitted, including adoption in any interim period. Entities have the option to apply the guidance prospectively to all implementation costs incurred after the date of adoption or retrospectively. The Company is currently evaluating the impact of this new authoritative guidance on its condensed consolidated financial statements.

Note 3.
Significant Customers and Concentrations of Credit Risk

Avnet, Inc. (Avnet), one of the Company’s distributors, distributes the Company’s products worldwide. As of September 29, 2018 and March 31, 2018, Avnet accounted for 50% and 61% of the Company’s total net accounts receivable, respectively. The Company expects its accounts receivable to fluctuate as the Company partners with its distributors to manage their inventory requirements.
For the second quarter and first six months of fiscal 2019, resale of product through Avnet accounted for 46% and 48% of the Company's worldwide net revenues, respectively. For the second quarter and first six months of fiscal 2018, resale of product through Avnet accounted for 46% 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 condensed consolidated balance sheet. The Company attempts to mitigate the concentration

9


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 second quarter and first six months of fiscal 2019 and 2018.

The Company mitigates concentrations of credit risk in its investments in debt securities by currently investing approximately 91% 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 September 29, 2018, approximately 23% of the portfolio consisted of mortgage-backed securities. All of the mortgage-backed securities in the investment portfolio were issued by U.S. government-sponsored enterprises and agencies and are rated AA+ by Standard & Poor’s and Aaa by Moody’s Investors Service.

Note 4.
Fair Value Measurements

The authoritative guidance for fair value measurements established by the FASB defines fair value as the exchange price that would be received from selling an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required or permitted to be recorded at fair value, the Company considers the principal or most advantageous market in which Xilinx would transact. The Company 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 second quarter and first six months of fiscal 2019 and the Company did not adjust or override any fair value measurements as of September 29, 2018.

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 marketable 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.


10


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, 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 measured at fair value on a recurring basis.

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 September 29, 2018 and March 31, 2018:

 
 
September 29, 2018
(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
 
$
376,673

 
$

 
$

 
$
376,673

Financial institution securities
 

 
403,980

 

 
403,980

Non-financial institution securities
 

 
476,957

 

 
476,957

U.S. government and agency securities
 
114,891

 
162,887

 

 
277,778

Foreign government and agency securities
 

 
370,791

 

 
370,791

Short-term investments:
 
 
 
 
 
 
 
 
Financial institution securities
 

 
225,000

 

 
225,000

Non-financial institution securities
 

 
96,379

 

 
96,379

U.S. government and agency securities
 
2,663

 
12,844

 

 
15,507

Mortgage-backed securities
 

 
749,426

 

 
749,426

Asset-backed securities
 

 
85,421

 

 
85,421

Commercial mortgage-backed securities
 

 
134,189

 

 
134,189

Long-term investments:
 
 
 
 
 
 
 
 
Debt mutual funds
 

 
84,926

 

 
84,926

Marketable equity securities
 
6,701

 

 

 
6,701

Total assets measured at fair value
 
$
500,928

 
$
2,802,800

 
$

 
$
3,303,728

Liabilities
 


 


 


 


Derivative financial instruments, net
 
$

 
$
47,791

 
$

 
$
47,791

Total liabilities measured at fair value
 
$

 
$
47,791

 
$

 
$
47,791

Net assets measured at fair value
 
$
500,928

 
$
2,755,009

 
$

 
$
3,255,937




11


 
March 31, 2018
(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
$
1,291,891

 
$

 
$

 
$
1,291,891

Financial institution securities

 
359,901

 

 
359,901

Non-financial institution securities

 
242,904

 

 
242,904

U.S. government and agency securities
996

 
34,999

 

 
35,995

Foreign government and agency securities

 
179,957

 

 
179,957

Short-term investments:

 

 

 


Financial institution securities

 
75,000

 

 
75,000

Non-financial institution securities

 
81,939

 

 
81,939

U.S. government and agency securities
3,639

 
19,008

 

 
22,647

Mortgage-backed securities

 
844,397

 

 
844,397

Asset-backed securities

 
91,389

 

 
91,389

Commercial mortgage-backed securities

 
152,870

 

 
152,870

Long-term investments:

 
 
 

 


Debt mutual funds

 
89,670

 

 
89,670

Marketable equity securities
8,226

 


 

 
8,226

Total assets measured at fair value
$
1,304,752

 
$
2,172,034

 
$

 
$
3,476,786

Liabilities
 
 
 
 
 
 
 
Derivative financial instruments, net
$

 
$
26,091

 
$

 
$
26,091

Total liabilities measured at fair value
$

 
$
26,091

 
$

 
$
26,091

Net assets measured at fair value
$
1,304,752

 
$
2,145,943

 
$

 
$
3,450,695


For certain of the Company’s financial instruments, including cash held in banks, accounts receivable and accounts payable, the carrying amounts approximate fair value due to their short maturities, and are therefore excluded from the fair value tables above.
 
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) and $500.0 million principal amount of 3.000% notes due March 15, 2021 (2021 Notes) are measured at fair value on a quarterly basis for disclosure purposes. The fair values of the 2019 Notes and 2021 Notes as of September 29, 2018 were approximately $498.7 million and $495.2 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).

Assets and Liabilities Measured at Fair Value on a Non-Recurring Basis

As of September 29, 2018, the Company had non-marketable equity securities in private companies of $53.8 million, which were classified as Level 3 assets. The Company’s investments in non-marketable securities of private companies, together with its non-financial assets such as property, plant and equipment, goodwill and acquisition-related intangibles, are recorded at fair value only if the Company recognizes an impairment. The Company’s investments in non-marketable securities of private companies are also recorded at fair value if the Company recognizes an observable price adjustments. Such impairment losses or observable price adjustments were not material during all periods presented.

Note 5.
Financial Instruments


12


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

 
September 29, 2018
 
 
March 31, 2018
(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
$
376,673

 
$

 
$

 
$
376,673

 
 
$
1,291,891

 
$

 
$

 
$
1,291,891

Financial institution


 


 


 


 
 


 


 


 


securities
628,965

 
15

 

 
628,980

 
 
434,901

 

 

 
434,901

Non-financial institution


 


 


 


 
 


 


 


 


securities
574,630

 

 
(1,294
)
 
573,336

 
 
326,219

 

 
(1,376
)
 
324,843

U.S. government and

 

 

 

 
 

 

 

 

agency securities
293,600

 
22

 
(337
)
 
293,285

 
 
58,913

 
1

 
(272
)
 
58,642

Foreign government and

 

 

 

 
 

 

 

 

agency securities
370,788

 
3

 

 
370,791

 
 
179,957

 

 

 
179,957

Mortgage-backed securities
775,806

 
476

 
(26,856
)
 
749,426

 
 
866,048

 
660

 
(22,311
)
 
844,397

Asset-backed securities
86,664

 
9

 
(1,252
)
 
85,421

 
 
92,751

 
16

 
(1,378
)
 
91,389

Debt mutual funds
101,350

 

 
(16,424
)
 
84,926

 
 
101,350

 

 
(11,680
)
 
89,670

Commercial mortgage-


 


 


 


 
 


 


 


 


backed securities
137,767

 
1

 
(3,579
)
 
134,189

 
 
156,296

 
1

 
(3,427
)
 
152,870

Marketable equity securities
7,500

 

 
(799
)
 
6,701

 
 
7,500

 
726

 

 
8,226

 
$
3,353,743

 
$
526

 
$
(50,541
)
 
$
3,303,728

 
 
$
3,515,826

 
$
1,404

 
$
(40,444
)
 
$
3,476,786


Financial institution securities include securities issued or managed by financial institutions in various forms, such as commercial paper and time deposits. Substantially all time deposits were issued by institutions outside the U.S. as of September 29, 2018 and March 31, 2018.


The following tables show the fair values and gross unrealized losses of the Company’s investments, aggregated by investment category, for individual securities that have been in a continuous unrealized loss position for the length of time specified, as of September 29, 2018 and March 31, 2018:

 
September 29, 2018
 
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
$
44,067

 
$
(748
)
 
$
19,640

 
$
(546
)
 
$
63,707

 
$
(1,294
)
U.S. government and

 

 

 

 


 


    agency securities

 

 
15,507

 
(337
)
 
15,507

 
(337
)
Mortgage-backed securities
222,604

 
(5,996
)
 
497,433

 
(20,860
)
 
720,037

 
(26,856
)
Asset-backed securities
18,472

 
(278
)
 
65,425

 
(974
)
 
83,897

 
(1,252
)
Debt mutual funds

 

 
84,926

 
(16,424
)
 
84,926

 
(16,424
)
Commercial mortgage-

 

 

 

 
 
 
 
backed securities
44,231

 
(950
)
 
88,823

 
(2,629
)
 
133,054

 
(3,579
)
Marketable equity securities
6,701

 
(799
)
 

 

 
6,701

 
(799
)
 
$
336,075

 
$
(8,771
)
 
$
771,754

 
$
(41,770
)
 
$
1,107,829

 
$
(50,541
)


13


 
March 31, 2018
 
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
$
69,780

 
$
(1,146
)
 
$
8,344

 
$
(230
)
 
$
78,124

 
$
(1,376
)
U.S. government and

 

 

 

 

 

    agency securities
13,471

 
(176
)
 
9,176

 
(96
)
 
22,647

 
(272
)
Mortgage-backed securities
510,988

 
(11,048
)
 
299,663

 
(11,263
)
 
810,651

 
(22,311
)
Asset-backed securities
57,128

 
(876
)
 
32,696

 
(502
)
 
89,824


(1,378
)
Debt mutual funds

 

 
89,670

 
(11,680
)
 
89,670

 
(11,680
)
Commercial mortgage-
 
 
 
 
 
 
 
 
 
 
 
    backed securities
95,435

 
(1,760
)
 
56,051

 
(1,667
)
 
151,486

 
(3,427
)
 
$
746,802

 
$
(15,006
)
 
$
495,600

 
$
(25,438
)
 
$
1,242,402

 
$
(40,444
)

As of September 29, 2018, 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 and mortgage-backed securities, which were primarily due to the general rising of the interest-rate environment and foreign currency movement.

Starting April 1, 2018, the Company records the change in the fair value of its investment in debt mutual funds and marketable equity securities as part of its interest and other income, net. This change in fair value was a net decrease of $73 thousand and $6.3 million for the three and six months ended September 29, 2018, respectively, and resulted in an expense within interest and other income, net for the period.
 
The Company reviewed the investment portfolio and determined that the gross unrealized losses on these investments as of September 29, 2018 and March 31, 2018 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 the company has 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 was 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 September 29, 2018 and March 31, 2018. 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, mortgage-backed securities and commercial mortgage-backed securities), by contractual maturity, are shown in the table below. Actual maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations without call or prepayment penalties.

 
September 29, 2018
(In thousands)
Amortized
Cost
 
Estimated
Fair Value
Due in one year or less
$
1,825,385

 
$
1,825,113

Due after one year through five years
162,134

 
158,928

Due after five years through ten years
139,922

 
135,283

Due after ten years
740,779

 
716,104


$
2,868,220

 
$
2,835,428


As of September 29, 2018, $1.01 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, debt mutual funds and marketable equity securities because these investments do not have specific contractual maturities.

14



Certain information related to available-for-sale securities is as follows:

 
Three Months Ended
 
Six Months Ended
(In thousands)
September 29, 2018
 
September 30, 2017
 
September 29, 2018
 
September 30, 2017
Proceeds from sale of available-for-sale securities
$
7

 
$
149,497

 
$
903

 
$
269,419

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

 
$
519

 
$
96

 
$
1,351

Gross realized losses on sale of available-for-sale securities
(1
)
 
(209
)
 
(48
)
 
(595
)
Net realized gains (losses) on sale of available-for-sale securities
$
(1
)
 
$
310

 
$
48

 
$
756

Amortization of premiums on available-for-sale securities
$
2,645

 
$
4,691

 
$
5,136

 
$
10,213


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.

The Company entered into interest rate swap contracts with certain independent financial institutions to manage interest rate risks related to fixed interest rate expenses from its 2024 Notes and floating interest rate income from its investments in marketable debt securities. See “Note 10. Debt and Credit Facility” for more discussion related to interest rate swap contracts. The interest rate swap contracts were designated and qualified as fair value hedges of the 2024 Notes and were separately accounted for as a derivative. The interest rate swap contracts and the 2024 Notes were initially measured at fair value. Any subsequent changes in fair values of the interest rate swap contracts and the 2024 Notes will be recorded in the Company’s consolidated balance sheets. During the six months ended September 29, 2018, the net change in fair values of the interest rate swap contracts and the underlying 2024 Notes was $13.3 million, which was recorded as a derivative liability for the interest rate swap contacts and as a reduction from the carrying amount of the 2024 Notes. There was no ineffectiveness during all periods presented.

Note 7.
Stock-Based Compensation Plans

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

Stock-Based Compensation

The following table summarizes stock-based compensation expense related to stock awards granted under the Company’s equity incentive plans and rights to acquire stock granted under the Company’s Employee Stock Purchase Plan (ESPP):

 
Three Months Ended
 
Six Months Ended
(In thousands)
September 29, 2018
 
September 30, 2017
 
September 29, 2018
 
September 30, 2017
Stock-based compensation included in:
 
 
 
 

 

Cost of revenues
$
2,249

 
$
2,147

 
$
4,284

 
$
4,297

Research and development
20,047

 
20,096

 
40,977

 
37,562

Selling, general and administrative
12,649

 
14,129

 
25,292

 
26,549

 
$
34,945

 
$
36,372

 
$
70,553

 
$
68,408


15



Employee Stock Option Plans

The types of awards allowed under the 2007 Equity Incentive Plan (2007 Equity Plan) include incentive stock options, non-qualified stock options, restricted stock units (RSUs), restricted stock and stock appreciation rights. To date, the Company has issued a mix of non-qualified stock options and RSUs under the 2007 Equity Plan; however, there was no issuance of stock options during the first six months of fiscal 2019 and the entire fiscal 2018. The Company's stock-based compensation expenses related to options during the first six months of fiscal 2019 and the number of options outstanding as of September 29, 2018 were not material. On August 1, 2018, the stockholders approved an amendment to increase the authorized number of shares reserved for issuance under the 2007 Equity Plan by 3.0 million shares. As of September 29, 2018, 11.6 million shares remained available for grant under the 2007 Equity Plan.

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 1, 2017
6,988

 
$
42.93

Granted
3,718

 
$
60.18

Vested
(3,016
)
 
$
43.30

Cancelled
(701
)
 
$
48.16

March 31, 2018
6,989

 
$
51.39

Granted
2,964

 
$
63.00

Vested
(2,293
)
 
$
48.60

Cancelled
(251
)
 
$
52.20

September 29, 2018
7,409

 



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 second quarter of fiscal 2019 was $62.79 ($59.99 for the second quarter of fiscal 2018), and for the first six months of fiscal 2019 was $63.00 ($59.89 for the first six months of fiscal 2018), which were calculated based on estimates at the date of grant using the following weighted-average assumptions: 

 
Three Months Ended
 
Six Months Ended

September 29, 2018
 
September 30, 2017
 
September 29, 2018

September 30, 2017
Risk-free interest rate
2.7
%
 
1.7
%
 
2.7
%
 
1.7
%
Dividend yield
2.2
%
 
2.2
%
 
2.2
%
 
2.2
%

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 the Company's employees. During the first six months of fiscal 2019 and 2018, the Company withheld $39.5 million and $42.1 million worth of RSU awards, respectively, to satisfy the employees’ tax obligations.

During the second quarter and the first six months of fiscal 2019, the Company realized excess tax benefits of $7.8 million
and $8.7 million, respectively, primarily from RSU vesting. During the second quarter and the first six months of fiscal 2018, the Company realized excess tax benefits of $6.3 million and $17.9 million, respectively. These tax benefits were recorded in the condensed consolidated statements of income as a component of the provision for income taxes.

Employee Stock Purchase Plan


16


Under the ESPP, shares are only issued during the second and fourth quarters of each fiscal year. Employees purchased 359 thousand shares for $18.0 million during the second quarter of fiscal 2019 and 355 thousand shares for $16.9 million during the second quarter of fiscal 2018. The per-share weighted-average fair value of stock purchase rights granted under the ESPP during the second quarter of fiscal 2019 and 2018 was $19.06 and $16.46, respectively. The fair values of stock purchase plan rights granted in the second quarter of fiscal years 2019 and 2018 were estimated using the Black-Scholes option pricing model at the date of grant using the following assumptions:

 
2019
 
2018
Expected life of options (years)
1.25

 
1.25

Expected stock price volatility
0.29

 
0.28

Risk-free interest rate
2.5
%
 
1.3
%
Dividend yield
2.0
%
 
2.2
%

The next scheduled purchase under the ESPP is in the fourth quarter of fiscal 2019. On August 1, 2018, the stockholders approved an amendment to increase the authorized number of shares reserved for issuance under the ESPP by 3.0 million shares. As of September 29, 2018, 12.0 million shares were available for future issuance under the ESPP.

Note 8.
Net Income Per Common Share

The computation of basic net income per common share for all periods presented is derived from 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:

 
Three Months Ended
 
Six Months Ended
(In thousands, except per share amounts)
September 29, 2018
 
September 30, 2017
 
September 29, 2018
 
September 30, 2017
Net income available to common stockholders
$
215,712

 
$
173,751

 
$
405,750

 
$
330,995

Weighted average common shares outstanding-basic
252,988

 
248,094

 
252,541

 
247,960

Dilutive effect of employee equity incentive plans
2,534

 
2,532

 
2,516

 
2,949

Dilutive effect of 2017 Convertible Notes

 

 

 
2,986

Dilutive effect of warrants

 
7,591

 

 
7,844

Weighted average common shares outstanding-diluted
255,522

 
258,217

 
255,057

 
261,739

Basic net income per common share
$
0.85

 
$
0.70

 
$
1.61

 
$
1.33

Diluted net income per common share
$
0.84

 
$
0.67

 
$
1.59

 
$
1.26


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, before the final settlements during the third quarter of fiscal 2018. The 2017 Convertible Notes matured during the first quarter of fiscal 2018, and the Company exercised its call options to neutralize the dilutive effect of the incremental shares from the 2017 Convertible Notes. Because the number of diluted shares in the above table for the six months ended September 30, 2017 was calculated based on a weighted-average outstanding basis, it included approximately 3.0 million shares of dilutive impact from the 2017 Convertible Notes through the maturity date. Such impact will no longer be applicable in future periods.

Outstanding stock options and RSUs under the Company's stock award plans to purchase approximately 1.8 million and 3.0 million shares for the second quarter and first six months of fiscal 2019, respectively, were excluded from the diluted net income per 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.


17


Note 9.
Inventories

Inventories are stated at the lower of actual cost (determined using the first-in, first-out method), or market (estimated net realizable value) and are comprised of the following:

(In thousands)
September 29, 2018
 
March 31, 2018
Raw materials
$
21,296

 
$
14,674

Work-in-process
175,213

 
167,039

Finished goods
47,133

 
54,364

 
$
243,642

 
$
236,077


Note 10.
Debt and Credit Facility
 
2019 Notes and 2021 Notes

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

The Company received net proceeds of $990.1 million from issuance of the 2019 Notes and 2021 Notes, after the debt discount and deduction of debt issuance costs. The debt discounts and issuance costs are amortized to interest expense over the terms of the 2019 Notes and 2021 Notes. As of September 29, 2018, the remaining term of the 2019 Notes and 2021 Notes are 0.5 years and 2.5 years respectively.

The following table summarizes the carrying value of the 2019 Notes and 2021 Notes as of September 29, 2018 and March 31, 2018:
 
 
 
 
(In thousands)
September 29, 2018
 
March 31, 2018
Principal amount of the 2019 Notes
$
500,000


$
500,000

Unamortized discount of the 2019 Notes
(229
)

(501
)
Unamortized debt issuance costs associated with 2019 Notes
(142
)

(313
)
Carrying value of the 2019 Notes
499,629

 
499,186

Principal amount of the 2021 Notes
500,000


500,000

Unamortized discount of the 2021 Notes
(1,330
)

(1,593
)
Unamortized debt issuance costs associated with 2021 Notes
(590
)

(711
)
Carrying value of the 2021 Notes
$
498,080

 
$
497,696

Total carrying value
$
997,709

 
$
996,882


Interest expense related to the 2019 Notes and 2021 Notes was included in interest and other income, net on the condensed consolidated statements of income as follows:
 
Three Months Ended
 
Six Months Ended
(In thousands)
September 29, 2018
 
September 30, 2017
 
September 29, 2018
 
September 30, 2017
Contractual coupon interest
$
6,406

 
$
6,406

 
$
12,813

 
$
12,813

Amortization of debt issuance costs
146

 
146

 
292

 
293

Amortization of debt discount, net
269

 
262

 
535

 
520

Total interest expense related to the 2019 Notes and 2021 Notes
$
6,821

 
$
6,814

 
$
13,640

 
$
13,626


2024 Notes


18


On May 30, 2017, the Company issued the $750.0 million principal amount of 2.950% senior notes due June 1, 2024 (2024 Notes) at a discounted price of 99.887% of par. Interest on the 2024 Notes is payable semi-annually on June 1 and December 1.

The Company received $745.2 million from the issuance of the 2024 Notes, after the debt discount and deduction of debt issuance costs. The debt discounts and issuance costs are amortized to interest expense over the term of the 2024 Notes. As of September 29, 2018, the remaining term of the 2024 Notes is approximately 5.7 years.

In relation to the issuance of the 2024 Notes, the Company entered into interest rate swap contracts with certain independent financial institutions, whereby the Company pays on a semi-annual basis, a variable interest rate equal to the three-month London Interbank Offered Rate (LIBOR) plus 91.43 bps, and receives on a semi-annual basis, interest income at a fixed interest rate of 2.950%. The Company incurred a net interest expense of $642 thousand and $1.5 million for the three and six months ended September 29, 2018, respectively, from the interest rate swap contracts, which was included in interest and other income (expense), net on the condensed consolidated statements of income. Net interest income of $1.5 million and $2.1 million was earned on the contracts for the three and six months ended September 30, 2017, respectively. As of September 29, 2018, the fair value of the interest rate swap contracts was $42.3 million, which was recorded in other long-term liabilities.

The following table summarizes the carrying value of the 2024 Notes as of September 29, 2018 and March 31, 2018:

(In thousands)
 
September 29, 2018

March 31, 2018
Principal amount of the 2024 Notes
 
$
750,000


$
750,000

Unamortized discount of the 2024 Notes
 
(699
)

(755
)
Unamortized debt issuance costs associated with 2024 Notes
 
(3,216
)

(3,500
)
Carrying Value of the 2024 Notes
 
$
746,085


$
745,745

Fair value hedge adjustment — interest rate swap contracts
 
(42,281
)

(29,001
)
Net carrying value of the 2024 Notes
 
$
703,804


$
716,744


Interest expense related to the 2024 Notes was included in interest and other income (expense), net on the condensed consolidated statements of income as follows:
 
Three Months Ended
 
Six Months Ended
(In thousands)
September 29, 2018
 
September 30, 2017
 
September 29, 2018

September 30, 2017
Contractual coupon interest (including interest rate swap, net)
$
6,174

 
$
4,046

 
$
12,556


$
5,368

Amortization of debt issuance costs
142

 
142

 
284


189

Amortization of debt discount, net
27

 
27

 
56


37

Total interest expense related to the 2024 Notes
$
6,343

 
$
4,215

 
$
12,896


$
5,594



Revolving Credit Facility

On December 7, 2016, the Company entered into a $400.0 million senior unsecured revolving credit facility that, upon certain conditions, may be extended by an additional $150.0 million, with a syndicate of banks (expiring in December 2021). Borrowings under the credit facility will bear interest at a benchmark rate plus an applicable margin based upon the Company’s credit rating. In connection with the credit facility, the Company is required to maintain certain financial and nonfinancial covenants. As of September 29, 2018, 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. On May 16, 2018, the Board authorized the 2018 Repurchase Program to repurchase the Company's common stock and debentures up to $500.0 million (2018 Repurchase Program).

19



Through September 29, 2018, the Company had used $952.7 million of the $1.00 billion authorized under the 2016 Repurchase Program, leaving $47.3 million available for future repurchases. The Company has not used any of the amount authorized under the 2018 Repurchase Program. The Company’s current policy is to retire all repurchased shares, and consequently, no treasury shares were held as of September 29, 2018 and March 31, 2018.

During the first six months of fiscal 2019, the Company repurchased 2.4 million shares of common stock in the open market with independent financial institutions for a total of $160.0 million and during the first six months of fiscal 2018, the Company repurchased 3.7 million shares of common stock in the open market and through accelerated share repurchase agreements with an independent financial institution for a total of $237.5 million.

Note 12.
Interest and Other Income, Net

The components of interest and other income, net are as follows: 
 
Three Months Ended
 
Six Months Ended
(In thousands)
September 29, 2018
 
September 30, 2017
 
September 29, 2018
 
September 30, 2017
Interest income
$
17,350

 
$
13,832

 
$
34,748

 
$
27,246

Interest expense
(13,164
)
 
(11,029
)
 
(26,536
)
 
(23,110
)
Other income (expense), net
2,222

 
(972
)
 
(4,651
)
 
(467
)
   Total interest and other income, net
$
6,408

 
$
1,831

 
$
3,561

 
$
3,669


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)
September 29, 2018
 
March 31, 2018
Accumulated unrealized losses on available-for-sale securities, net of tax
$
(25,280
)
 
$
(29,844
)
Accumulated unrealized gains (losses) on hedging transactions, net of tax
(4,926
)
 
1,674

Accumulated cumulative translation adjustment, net of tax
(10,532
)
 
(6,339
)
Total accumulated other comprehensive loss
$
(40,738
)
 
$
(34,509
)

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 $23.4 million and $46.3 million for the second quarter and the first six months of fiscal 2019, respectively, representing effective tax rates of 9.8% and 10.2%, respectively. The Company recorded tax provisions of $20.3 million and $33.9 million for the second quarter and the first six months of fiscal 2018, respectively, representing effective tax rates of 10.4% and 9.3%, respectively. The prior year amounts have been restated to reflect the retrospective application of the current authoritative guidance for revenue recognition. Refer to "Note 2. Recent Accounting Changes and Accounting Pronouncements" for additional detail.

On December 22, 2017, the Tax Cuts and Jobs Act (TCJA) was enacted into law. The TCJA provides numerous significant tax law changes 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. Some provisions of the TCJA began to impact the Company in fiscal 2018, while other provisions impact the Company beginning in fiscal 2019.


20


In accordance with Staff Accounting Bulletin (SAB) 118, the Company has recorded provisional amounts recognizing the effect of the tax law changes in prior periods, but may adjust those provisional amounts during a measurement period that is similar to the measurement period used when accounting for business combinations. As a result of updated technical guidance related to the TCJA, the Company revised its provisional estimate recorded in prior periods. The application of this guidance resulted in an increase to tax expense of $9.4 million in the second quarter of fiscal 2019. The amount recorded for the one-time transition tax remains provisional as the Company has not yet finalized its calculation of the total post-1986 earnings and profits (E&P) for its foreign subsidiaries. Additionally, the Company will continue to evaluate the impact of the tax law change as it relates to providing U.S. taxes on its investments in foreign subsidiaries. Since U.S. federal taxes have been recognized through the one-time transition tax on all accumulated and previously untaxed foreign earnings through December 31, 2017, the Company does not intend to permanently reinvest those earnings.

The difference between the U.S. federal statutory tax rate of 21% and the Company's effective tax rate in the second quarter and the first six months of fiscal 2019 was primarily due to the favorable impact of income earned in lower tax rate jurisdictions, which was partially offset by the new tax on low-taxed income from foreign subsidiaries. The difference between the U.S. federal statutory tax rate of 35% and the Company’s effective tax rate in the second quarter and the first six months of fiscal 2018 was primarily due to income earned in lower tax rate jurisdictions, for which no U.S. income tax had been provided, as the Company had intended to permanently reinvest the earnings outside of the U.S.

The Company’s total gross unrecognized tax benefits for the second quarter and the first six months of fiscal 2019, determined in accordance with FASB authoritative guidance for measuring uncertain tax positions, increased by an immaterial amount to $126.1 million. The total amount of unrecognized tax benefits that, if realized in a future period, would favorably affect the effective tax rate was $16.1 million as of September 29, 2018. Another $85.5 million would increase additional paid-in capital. The $85.5 million relates to an additional deduction claimed on federal and state amended tax returns for fiscal 2014 for repurchase premium paid in that year in connection with the early redemption of the Company’s 3.125% Junior Convertible debenture due March 15, 2037. It is reasonably possible that changes to the Company's 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 statutes of limitations have closed for U.S. federal income tax purposes for years through fiscal 2014, for U.S. state income tax purposes for years through fiscal 2010, and for Ireland income tax purposes for years through fiscal 2013.

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. Xilinx also leases cars under non-cancelable operating leases that expire at various dates through May 2022. Approximate future minimum lease payments under non-cancelable operating leases are as follows:

Fiscal
(In thousands)
2019 (remaining six months)
$
4,613

2020
10,124

2021
7,231

2022
5,891

2023
4,699

Thereafter
30,708

Total
$
63,266



21


Aggregate future rental income to be received, which includes rents from both owned and leased property, totaled $11.0 million as of September 29, 2018. Rent expense, net of rental income, under all operating leases was $816 thousand and $1.8 million for the three and six months ended September 29, 2018, respectively. Rent expense, net of rental income, under all operating leases was $900 thousand and $2.1 million for the three and six months ended September 30, 2017, respectively. Rental income was not material for the second quarter and the first six months of fiscal 2019 or 2018.

Other commitments as of September 29, 2018 totaled $200.2 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 September 29, 2018, the Company also had $8.9 million of non-cancelable license obligations to providers of electronic design automation software and hardware/software maintenance and $25.1 million commitments primarily related to open purchase orders from ordinary operations. These commitments expire at various dates through December 2022.

Note 16.
Product Warranty and Indemnification

The Company generally sells products with a limited warranty for product quality. The Company provides an accrual for known product issues if a loss is probable and can be reasonably estimated. As of the end of the second quarter of fiscal 2019 and the end of fiscal 2018, 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 the Company's 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 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. The Company is unable to estimate its range of possible loss, if any, in this matter 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 to the U.S. District Court for the Northern District of California. The parties reached an agreement to settle the lawsuit and it was dismissed with prejudice on July 23, 2018. The amount of the settlement did not have a material impact on the Company's financial position or results of operations.

The Company intends to continue to protect and defend its 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,

22


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 all claims against them.  On July 3, 2018, the Court granted both of Xilinx’s Motions for Summary Judgment, disposing of all claims asserted against Xilinx. On August 1, 2018, the Trustee filed a Notice of Appeal.  On August 9, 2018, the Court of Appeals for the Sixth Circuit issued an Order to Show Cause requesting that the appellant address a possible jurisdictional defect.  On August 29, 2018, the appellant responded to the Order to Show Cause.  On September 10, 2018, the appellees, including Xilinx, filed a joint reply.  The Court of Appeals has not issued a further order. 

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 September 29, 2018 and March 31, 2018, the gross and net amounts of goodwill and of acquisition-related intangibles for all acquisitions were as follows:
 



 


 
Weighted-Average
(In thousands)
September 29, 2018
 
March 31, 2018
 
Amortization Life
Goodwill
$
342,456

 
$
162,421

 

Core technology, gross
107,250

 
82,480

 

Less accumulated amortization
(79,587
)
 
(78,562
)
 

Core technology, net
27,663

 
3,918

 
5.0 years
Other intangibles, gross
51,016

 
46,966

 
3.0 years
Less accumulated amortization
(46,934
)
 
(46,761
)
 

In-process research and development
52,710

 

 
N/A
Other intangibles, net
56,792

 
205

 

Total acquisition-related intangibles, gross
210,976

 
129,446

 

Less accumulated amortization
(126,521
)
 
(125,323
)
 

Total acquisition-related intangibles, net
$
84,455

 
$
4,123

 


Amortization expense for acquisition-related intangibles for the three and six months ended September 29, 2018 was $839 thousand and $1.2 million, respectively. Amortization expense for acquisition-related intangibles for the three and six months ended September 30, 2017 was $510 thousand and $1.2 million, respectively.

During the second quarter of fiscal 2019, the Company recorded $180.0 million of goodwill and $81.5 million of intangibles attributable to the acquisition of Deephi Technology Co., Ltd (Deephi Tech). See "Note 19. Business Combination" to our condensed consolidated financial statements.

Based on the carrying value of acquisition-related intangibles recorded as of September 29, 2018, assuming no subsequent acquisition or impairment of the underlying assets, and the expected timing of completion of in-process research and development, the annual amortization expense for acquisition-related intangibles is expected to be as follows: