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EX-32.2 - EXHIBIT 32.2 - XILINX INCex322q3fy19.htm
EX-32.1 - EXHIBIT 32.1 - XILINX INCex321q3fy19.htm
EX-31.2 - EXHIBIT 31.2 - XILINX INCex312q3fy19.htm
EX-31.1 - EXHIBIT 31.1 - XILINX INCex311q3fy19.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 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 every Interactive Data File required to be submitted 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 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 11, 2019
Common Stock, $0.01 par value
 
253,163,895




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 29, 2018
 
December 30, 2017 [1]
 
December 29, 2018
 
December 30, 2017 [1]
Net revenues
$
800,057

 
$
598,603

 
$
2,230,678

 
$
1,828,832

Cost of revenues
247,903

 
177,969

 
686,411

 
554,478

Gross margin
552,154

 
420,634

 
1,544,267

 
1,274,354

Operating expenses:
 
 
 
 

 

Research and development
189,329

 
166,231

 
543,527

 
477,267

Selling, general and administrative
103,039

 
92,753

 
291,256

 
272,981

Amortization of acquisition-related intangibles
1,866

 
353

 
3,064

 
1,568

Total operating expenses
294,234

 
259,337

 
837,847

 
751,816

Operating income
257,920

 
161,297

 
706,420

 
522,538

Interest and other income (expense), net
(1,330
)
 
5,469

 
2,231

 
9,138

Income before income taxes
256,590

 
166,766

 
708,651

 
531,676

Provision for income taxes
17,230

 
179,251

 
63,542

 
213,166

Net income (loss)
$
239,360

 
$
(12,485
)
 
$
645,109

 
$
318,510

Net income (loss) per common share:
 
 
 
 

 

Basic
$
0.95

 
$
(0.05
)
 
$
2.55

 
$
1.28

Diluted
$
0.93

 
$
(0.05
)
 
$
2.53

 
$
1.23

Cash dividends per common share
$
0.36

 
$
0.35

 
$
1.08

 
$
1.05

Shares used in per share calculations:
 
 
 
 

 

Basic
253,060

 
254,089

 
252,634

 
248,671

Diluted
256,374

 
254,089

 
255,227

 
258,995


[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
 
Nine Months Ended
(In thousands)
December 29, 2018
 
December 30, 2017 [1]
 
December 29, 2018
 
December 30, 2017 [1]
Net income (loss)
$
239,360

 
$
(12,485
)
 
$
645,109

 
$
318,510

Other comprehensive income (loss), net of tax:
 
 
 
 
 
 
 
Change in net unrealized gains (losses) on available-for-sale securities
7,029

 
(7,502
)
 
3,244

 
(1,566
)
Reclassification adjustment for (gains) losses on available-for-sale securities
(131
)
 
1,259

 
(181
)
 
1,154

Net change in unrealized gains (losses) on hedging transactions
(480
)
 
1,583

 
(9,252
)
 
3,781

Reclassification adjustment for (gains) losses on hedging transactions
2,522

 
(1,018
)
 
4,693

 
(3,022
)
Cumulative translation adjustment, net
5

 
394

 
(4,188
)
 
2,831

Other comprehensive income (loss)
8,945

 
(5,284
)
 
(5,684
)
 
3,178

Total comprehensive income (loss)
$
248,305

 
$
(17,769
)
 
$
639,425

 
$
321,688


[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)
December 29, 2018
 
March 31, 2018 [1]
 
(unaudited)
 
 
ASSETS

 

Current assets:

 

Cash and cash equivalents
$
1,929,521

 
$
2,179,328

Short-term investments
1,540,131

 
1,268,242

Accounts receivable, net
359,367

 
382,246

Inventories
283,329

 
236,077

Prepaid expenses and other current assets
60,004

 
88,695

Total current assets
4,172,352

 
4,154,588

Property, plant and equipment, at cost
880,281

 
855,023

Accumulated depreciation and amortization
(563,021
)
 
(550,906
)
Net property, plant and equipment
317,260

 
304,117

Long-term investments
83,803

 
97,896

Goodwill
340,719

 
162,421

Acquisition-related intangibles, net
82,532

 
4,123

Other assets
358,098

 
337,402

Total Assets
$
5,354,764

 
$
5,060,547

 
 
 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY

 

Current liabilities:

 

Accounts payable
$
111,916

 
$
98,999

Accrued payroll and related liabilities
232,953

 
206,367

Income taxes payable
41,839

 
47,713

Other accrued liabilities
66,310

 
59,680

Current portion of long-term debt
499,851

 
499,186

Total current liabilities
952,869

 
911,945

Long-term debt
1,221,438

 
1,214,440

Long-term income taxes payable
489,411

 
523,864

Other long-term liabilities
53,851

 
49,945

Commitments and contingencies (Note 17)

 

Stockholders' equity:

 

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

 

Common stock, $.01 par value
2,531

 
2,534

Additional paid-in capital
942,744

 
878,672

Retained earnings
1,723,713

 
1,513,656

Accumulated other comprehensive loss
(31,793
)
 
(34,509
)
Total stockholders’ equity
2,637,195

 
2,360,353

Total Liabilities and Stockholders’ Equity
$
5,354,764

 
$
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)
 
Nine Months Ended
(In thousands)
December 29, 2018
 
December 30, 2017 [1]
Cash flows from operating activities:
 
 
 
Net income
$
645,109

 
$
318,510

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation
49,097

 
34,416

Amortization
23,461

 
12,619

Stock-based compensation
109,194

 
105,209

Amortization of debt discounts
890

 
2,254

Provision for deferred income taxes
(9,040
)
 
(367,508
)
Others
7,796


2,858

Changes in assets and liabilities:
 
 
 
Accounts receivable, net
22,879

 
(98,365
)
Inventories
(46,573
)
 
367

Prepaid expenses and other current assets
13,151

 
(8,656
)
Other assets
(25,141
)
 
(27,292
)
Accounts payable
11,013

 
(18,966
)
Accrued liabilities
30,652

 
59,110

Income taxes payable
(29,280
)
 
563,178

Net cash provided by operating activities
803,208

 
577,734

Cash flows from investing activities:
 
 
 
Purchases of available-for-sale securities
(1,340,057
)
 
(2,211,372
)
Proceeds from sale and maturity of available-for-sale securities
1,080,850

 
1,939,245

Purchases of property, plant and equipment and other intangibles
(60,803
)
 
(28,940
)
Acquisition of business, net of cash acquired
(233,941
)
 
(1,364
)
Other investing activities
(37,572
)
 
(16,423
)
Net cash used in investing activities
(591,523
)
 
(318,854
)
Cash flows from financing activities:
 
 
 
Repurchases of common stock
(161,551
)
 
(310,806
)
Taxes paid related to net share settlements of restricted stock units
(42,029
)
 
(44,428
)
Proceeds from issuance of common stock through various stock plans
18,436

 
19,602

Payment of dividends to stockholders
(272,860
)
 
(263,751
)
Repayment of convertible debt

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

 
745,175

Other financing activities
(3,488
)
 
(1,988
)
Net cash used in financing activities
(461,492
)
 
(314,114
)
Net (decrease) increase in cash and cash equivalents
(249,807
)
 
(55,234
)
Cash and cash equivalents at beginning of period
2,179,328

 
966,695

Cash and cash equivalents at end of period
$
1,929,521

 
$
911,461

Supplemental disclosure of cash flow information:
 
 
 
Interest paid
$
57,514

 
$
38,115

Income taxes paid, net
$
101,557

 
$
18,093


[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 December 29, 2018 and December 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 December 30, 2017
Nine Months Ended December 30, 2017
(In thousands, except per share amounts)
As Reported
As Adjusted
As Reported
As Adjusted
Net revenues
$
631,193

$
598,603

$
1,866,142

$
1,828,832

Cost of revenues
182,156

177,969

559,037

554,478

Gross margin
449,037

420,634

1,307,105

1,274,354

Operating expenses:
 
 
 
 
Research and development
166,231

166,231

477,267

477,267

Selling, general and administrative
92,753

92,753

272,981

272,981

Amortization of acquisition-related intangibles
353

353

1,568

1,568

Total operating expenses
259,337

259,337

751,816

751,816

Operating income
189,700

161,297

555,289

522,538

Interest and other income, net
5,469

5,469

9,138

9,138

Income before income taxes
195,169

166,766

564,427

531,676

Provision for income taxes
183,224

179,251

217,705

213,166

Net income (loss)
$
11,945

$
(12,485
)
$
346,722

$
318,510

Net income (loss) per common share:
 
 
 
 
Basic
$
0.05

$
(0.05
)
$
1.39

$
1.28

Diluted
$
0.05

$
(0.05
)
$
1.34

$
1.23

Shares used in per share calculations:
 
 
 
 
Basic
254,089

254,089

248,671

248,671

Diluted
258,108

254,089

258,995

258,995

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
As Adjusted
Accounts receivable
$
372,144

$
382,246

Other assets
342,644

337,402

Deferred income on shipments to distributors
25,166


Other accrued liabilities
59,772

59,680

Retained earnings
$
1,483,538

$
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. Even though early adoption is permitted, Xilinx has decided not to early adopt such authoritative guidance. This 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.

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 plans to adopt the new standard using the optional adoption method and apply the guidance to leases existing at, or entered into after, the beginning of the period of adoption, as well as certain practical expedients permitted under the transition guidance. The Company is currently evaluating the application of the new guidance and it believes the impact upon adoption will be the recognition of right-of-use assets and lease liabilities on the Company's consolidated balance sheets of an insignificant amount.

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 December 29, 2018 and March 31, 2018, Avnet accounted for 40% 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 third quarter and first nine months of fiscal 2019, Avnet's revenue accounted for 42% and 46% of the Company's worldwide

9


net revenues, respectively. For the third quarter and first nine months of fiscal 2018, Avnet's revenue accounted for 41% 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 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 third quarter and first nine months of fiscal 2019 and 2018.

The Company mitigates concentrations of credit risk in its investments in debt securities by currently investing approximately 93% 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 29, 2018, approximately 20% 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 third quarter and first nine months of fiscal 2019 and the Company did not adjust or override any fair value measurements as of December 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.


10


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, 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 December 29, 2018 and March 31, 2018:


11


 
 
December 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
 
$
408,025

 
$

 
$

 
$
408,025

Financial institution securities
 

 
399,368

 

 
399,368

Non-financial institution securities
 

 
390,622

 

 
390,622

U.S. government and agency securities
 
159,974

 
160,110

 

 
320,084

Foreign government and agency securities
 

 
325,996

 

 
325,996

Short-term investments:
 
 
 
 
 
 
 
 
Financial institution securities
 

 
225,000

 

 
225,000

Non-financial institution securities
 

 
232,463

 

 
232,463

U.S. government and agency securities
 
2,654

 
87,880

 

 
90,534

Foreign government and agency securities
 

 
74,959

 

 
74,959

Mortgage-backed securities
 

 
705,284

 

 
705,284

Asset-backed securities
 

 
83,005

 

 
83,005

Commercial mortgage-backed securities
 

 
124,820

 

 
124,820

Marketable equity securities
 
4,066

 

 

 
4,066

Long-term investments:
 
 
 
 
 
 
 
 
Debt mutual funds
 

 
83,803

 

 
83,803

Total assets measured at fair value
 
$
574,719

 
$
2,893,310

 
$

 
$
3,468,029

Liabilities
 


 


 


 


Derivative financial instruments, net
 
$

 
$
25,578

 
$

 
$
25,578

Total liabilities measured at fair value
 
$

 
$
25,578

 
$

 
$
25,578

Net assets measured at fair value
 
$
574,719

 
$
2,867,732

 
$

 
$
3,442,451




12


 
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), $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, 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 29, 2018 were approximately $498.7 million, $498.0 million and $716.0 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 December 29, 2018, the Company had non-marketable equity securities in private companies of $61.0 million, which were classified as Level 3 assets. The Company’s investments in 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 adjustment or an impairment. Such impairment losses or observable price adjustments were not material during all periods presented.

Note 5.
Financial Instruments

13



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

 
December 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
$
408,025

 
$

 
$

 
$
408,025

 
 
$
1,291,891

 
$

 
$

 
$
1,291,891

Financial institution


 


 


 


 
 


 


 


 


securities
624,368

 

 

 
624,368

 
 
434,901

 

 

 
434,901

Non-financial institution


 


 


 


 
 


 


 


 


securities
624,516

 

 
(1,431
)
 
623,085

 
 
326,219

 

 
(1,376
)
 
324,843

U.S. government and

 

 

 

 
 

 

 

 

agency securities
410,858

 
17

 
(257
)
 
410,618

 
 
58,913

 
1

 
(272
)
 
58,642

Foreign government and

 

 

 

 
 

 

 

 

agency securities
400,952

 
3

 

 
400,955

 
 
179,957

 

 

 
179,957

Mortgage-backed securities
723,874

 
457

 
(19,047
)
 
705,284

 
 
866,048

 
660

 
(22,311
)
 
844,397

Asset-backed securities
83,943

 
5

 
(943
)
 
83,005

 
 
92,751

 
16

 
(1,378
)
 
91,389

Debt mutual funds
101,350

 

 
(17,547
)
 
83,803

 
 
101,350

 

 
(11,680
)
 
89,670

Commercial mortgage-


 


 


 


 
 


 


 


 


backed securities
127,517

 

 
(2,697
)
 
124,820

 
 
156,296

 
1

 
(3,427
)
 
152,870

Marketable equity securities
6,713

 

 
(2,647
)
 
4,066

 
 
7,500

 
726

 

 
8,226

 
$
3,512,116

 
$
482

 
$
(44,569
)
 
$
3,468,029

 
 
$
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 December 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 December 29, 2018 and March 31, 2018:

 
December 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
$
8,973

 
$
(186
)
 
$
51,299

 
$
(1,245
)
 
$
60,272

 
$
(1,431
)
U.S. government and

 

 

 

 


 


    agency securities

 

 
15,588

 
(257
)
 
15,588

 
(257
)
Mortgage-backed securities
70,541

 
(962
)
 
612,871

 
(18,085
)
 
683,412

 
(19,047
)
Asset-backed securities
3,051

 
(5
)
 
78,664

 
(938
)
 
81,715

 
(943
)
Commercial mortgage-

 

 

 

 
 
 
 
backed securities
5,551

 
(74
)
 
119,268

 
(2,623
)
 
124,819

 
(2,697
)
 
$
88,116

 
$
(1,227
)
 
$
877,690

 
$
(23,148
)
 
$
965,806

 
$
(24,375
)


14


 
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 December 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. The gross unrealized losses that had been outstanding for more than twelve months were primarily related to mortgage-backed securities, which was primarily due to the general rising of the interest-rate environment.

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 $3.0 million and $9.2 million for the three and nine months ended December 29, 2018, respectively, and resulted in an expense within interest and other income (expense), net for the period in the condensed consolidated statements of income.
 
The Company reviewed the investment portfolio and determined that the gross unrealized losses on these investments as of December 29, 2018 and March 31, 2018 were temporary in nature as evidenced by the fluctuations in the gross unrealized losses within the investment categories. The 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) 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 December 29, 2018 and March 31, 2018. The Company neither intends to sell the marketable debt securities 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 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 29, 2018
(In thousands)
Amortized
Cost
 
Estimated
Fair Value
Due in one year or less
$
2,024,661

 
$
2,024,330

Due after one year through five years
147,426

 
144,688

Due after five years through ten years
136,684

 
133,375

Due after ten years
687,257

 
669,742


$
2,996,028

 
$
2,972,135


As of December 29, 2018, $947.4 million 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.

15



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

 
Three Months Ended
 
Nine Months Ended
(In thousands)
December 29, 2018
 
December 30, 2017
 
December 29, 2018
 
December 30, 2017
Proceeds from sale of available-for-sale securities
$
12,692

 
$
124,857

 
$
13,594

 
$
394,276

Gross realized gains on sale of available-for-sale securities
$
173

 
$
153

 
$
269

 
$
1,504

Gross realized losses on sale of available-for-sale securities
(114
)
 
(2,267
)
 
(162
)
 
(2,862
)
Net realized gains (losses) on sale of available-for-sale securities
$
59

 
$
(2,114
)
 
$
107

 
$
(1,358
)
Amortization of premiums on available-for-sale securities
$
1,403

 
$
4,225

 
$
6,539

 
$
14,437


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 nine months ended December 29, 2018, the net change in fair values of the interest rate swap contracts and the underlying 2024 Notes was $5.9 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
 
Nine Months Ended
(In thousands)
December 29, 2018
 
December 30, 2017
 
December 29, 2018
 
December 30, 2017
Stock-based compensation included in:
 
 
 
 

 

Cost of revenues
$
2,366

 
$
2,188

 
$
6,650

 
$
6,486

Research and development
22,352

 
20,217

 
63,329

 
57,779

Selling, general and administrative
13,923

 
14,396

 
39,215

 
40,944

 
$
38,641

 
$
36,801

 
$
109,194

 
$
105,209


16



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 2019 and the entire fiscal 2018. The Company's stock-based compensation expenses related to options during the first nine months of fiscal 2019 and the number of options outstanding as of December 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 December 29, 2018, 11.5 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
3,271

 
$
64.21

Vested
(2,433
)
 
$
48.90

Cancelled
(398
)
 
$
53.79

December 29, 2018
7,429

 
$
57.69


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 third quarter of fiscal 2019 was $75.72 ($67.40 for the third quarter of fiscal 2018), and for the first nine months of fiscal 2019 was $64.21 ($60.36 for the first nine months of fiscal 2018), which were calculated based on estimates at the date of grant using the following weighted-average assumptions: 

 
Three Months Ended
 
Nine Months Ended

December 29, 2018
 
December 30, 2017
 
December 29, 2018

December 30, 2017
Risk-free interest rate
3.0
%
 
1.9
%
 
2.7
%
 
1.8
%
Dividend yield
1.8
%
 
2.0
%
 
2.1
%
 
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 nine months of fiscal 2019 and 2018, the Company withheld $42.0 million and $44.4 million worth of RSU awards, respectively, to satisfy the employees’ tax obligations.

During the third quarter and the first nine months of fiscal 2019, the Company realized excess tax benefits of $1.5 million
and $10.2 million, respectively, primarily from RSU vesting. During the third quarter of fiscal 2018, the Company realized an immaterial amount of excess tax benefits. During the first nine months of fiscal 2018, the Company realized excess tax benefits of $17.5 million. 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


17


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 December 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
 
Nine Months Ended
(In thousands, except per share amounts)
December 29, 2018
 
December 30, 2017 [1]
 
December 29, 2018
 
December 30, 2017 [1]
Net income available to common stockholders
$
239,360

 
$
(12,485
)
 
$
645,109

 
$
318,510

Weighted average common shares outstanding-basic
253,060

 
254,089

 
252,634

 
248,671

Dilutive effect of employee equity incentive plans
3,314

 

 
2,593

 
2,843

Dilutive effect of 2017 Convertible Notes

 

 

 
1,990

Dilutive effect of warrants

 

 

 
5,491

Weighted average common shares outstanding-diluted
256,374

 
254,089

 
255,227

 
258,995

Basic net income per common share
$
0.95

 
$
(0.05
)
 
$
2.55

 
$
1.28

Diluted net income per common share
$
0.93

 
$
(0.05
)
 
$
2.53

 
$
1.23

[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."

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 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. 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 0 and 2,700 shares for the third quarter and first nine 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.

18



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 29, 2018
 
March 31, 2018
Raw materials
$
30,777

 
$
14,674

Work-in-process
197,791

 
167,039

Finished goods
54,761

 
54,364

 
$
283,329

 
$
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 December 29, 2018, the remaining term of the 2019 Notes and 2021 Notes are 0.2 years and 2.2 years respectively.

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


$
500,000

Unamortized discount of the 2019 Notes
(92
)

(501
)
Unamortized debt issuance costs associated with 2019 Notes
(57
)

(313
)
Carrying value of the 2019 Notes
499,851

 
499,186

Principal amount of the 2021 Notes
500,000


500,000

Unamortized discount of the 2021 Notes
(1,196
)

(1,593
)
Unamortized debt issuance costs associated with 2021 Notes
(529
)

(711
)
Carrying value of the 2021 Notes
498,275

 
497,696

Total carrying value
$
998,126

 
$
996,882


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 29, 2018
 
December 30, 2017
 
December 29, 2018
 
December 30, 2017
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
272

 
265

 
806

 
785

Total interest expense related to the 2019 Notes and 2021 Notes
$
6,824

 
$
6,817

 
$
20,464

 
$
20,443


2024 Notes


19


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 December 29, 2018, the remaining term of the 2024 Notes is approximately 5.5 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 incurred a net interest expense of $939 thousand and $2.4 million for the three and nine months ended December 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 $1.3 million and $3.4 million was earned on the contracts for the three and nine months ended December 30, 2017, respectively. As of December 29, 2018, the fair value of the interest rate swap contracts was $23.1 million, which was recorded in other long-term liabilities.

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

(In thousands)
 
December 29, 2018

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


$
750,000

Unamortized discount of the 2024 Notes
 
(671
)

(755
)
Unamortized debt issuance costs associated with 2024 Notes
 
(3,074
)

(3,500
)
Carrying Value of the 2024 Notes
 
$
746,255


$
745,745

Fair value hedge adjustment — interest rate swap contracts
 
(23,092
)

(29,001
)
Net carrying value of the 2024 Notes
 
$
723,163


$
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
 
Nine Months Ended
(In thousands)
December 29, 2018
 
December 30, 2017
 
December 29, 2018

December 30, 2017
Contractual coupon interest (including interest rate swap, net)
$
6,470

 
$
4,238

 
$
19,026


$
9,604

Amortization of debt issuance costs
142

 
142

 
426


331

Amortization of debt discount, net
28

 
27

 
84


65

Total interest expense related to the 2024 Notes
$
6,640

 
$
4,407

 
$
19,536


$
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 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).


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Through December 29, 2018, the Company had used $953.7 million of the $1.00 billion authorized under the 2016 Repurchase Program, leaving $46.3 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 December 29, 2018 and March 31, 2018.

During the first nine 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 $161.6 million and during the first nine months of fiscal 2018, the Company repurchased 4.7 million shares of common stock in the open market and through accelerated share repurchase agreements with an independent financial institution for a total of $310.8 million.

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 29, 2018
 
December 30, 2017
 
December 29, 2018
 
December 30, 2017
Interest income
$
21,610

 
$
17,738

 
$
56,358

 
$
44,984

Interest expense
(13,464
)
 
(11,224
)
 
(40,000
)
 
(34,333
)
Other expense, net
(9,476
)
 
(1,045
)
 
(14,127
)
 
(1,513
)
   Total interest and other income (expense), net
$
(1,330
)
 
$
5,469

 
$
2,231

 
$
9,138


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)
December 29, 2018
 
March 31, 2018
Accumulated unrealized losses on available-for-sale securities, net of tax
$
(18,382
)
 
$
(29,844
)
Accumulated unrealized gains (losses) on hedging transactions, net of tax
(2,884
)
 
1,674

Accumulated cumulative translation adjustment, net of tax
(10,527
)
 
(6,339
)
Total accumulated other comprehensive loss
$
(31,793
)
 
$
(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 tax provisions of $17.2 million and $63.5 million for the third quarter and the first nine months of fiscal 2019, respectively, representing effective tax rates of 6.7% and 9.0%, respectively. The Company recorded tax provisions of $179.3 million and $213.2 million for the third quarter and the first nine months of fiscal 2018, respectively, representing effective tax rates of 107.5% and 40.1%, 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.


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Staff Accounting Bulletin (SAB) 118 allowed companies to record provisional amounts and recognize the effect of the tax law changes during a measurement period. The measurement period ended in the third quarter of fiscal 2019. In the third quarter of fiscal 2019, the Company made an accounting policy election with respect to the TCJA provision designed to tax global intangible low-taxed income (GILTI) of foreign subsidiaries. Rather than treating the impact of taxes due on GILTI inclusions as a current-period expense when incurred, the Company elected to recognize deferred taxes for temporary basis differences that are expected to reverse in future years. As a result, a measurement period adjustment was made to recognize deferred tax assets in the amount of $6.9 million. This resulted in a reduction of tax expense by the same amount. During the third quarter of fiscal 2019, the Company did not make any other adjustments to the provisional estimates recorded in prior periods. Although the measurement period has closed, further technical guidance related to the TCJA, including final regulations on a broad range of topics, is expected to be issued. In accordance with Accounting Standards Codification (ASC) 740, the Company will recognize any effects of the guidance in the period that such guidance is issued.

The difference between the U.S. federal statutory tax rate of 21% and the Company's effective tax rate in the third quarter and the first nine 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 GILTI. The difference between the blended U.S. federal statutory tax rate of 31.5% and the Company's effective tax rate in the third quarter and the first nine months of fiscal 2018 was primarily due to the one-time transition tax net of the reversal of the related deferred tax liabilities.

The Company’s total gross unrecognized tax benefits for the third quarter and the first nine months of fiscal 2019, determined in accordance with FASB authoritative guidance for measuring uncertain tax positions, increased by an immaterial amount to $126.7 million. The total amount of unrecognized tax benefits that, if realized in a future period, would favorably affect the effective tax rate was $16.6 million as of December 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 three months)
$
2,343

2020
10,845

2021
7,968

2022
6,628

2023
5,352

Thereafter
35,117

Total
$
68,253



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Aggregate future rental income to be received, which includes rents from both owned and leased property, totaled $10.0 million as of December 29, 2018. Rent expense, net of rental income, under all operating leases was $1.3 million and $3.1 million for the three and nine months ended December 29, 2018, respectively. Rent expense, net of rental income, under all operating leases was $900 thousand and $3.0 million for the three and nine months ended December 30, 2017, respectively. Rental income was not material for the third quarter and the first nine months of fiscal 2019 or 2018.

Other commitments as of December 29, 2018 totaled $213.3 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 December 29, 2018, the Company also had $10.4 million of non-cancelable license obligations to providers of electronic design automation software and hardware/software maintenance, $13.1 million related to renovation of two of its properties and $34.1 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 third 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 to the U.S. District Court for the Northern District of California.  On December 21, 2018, the parties reached an agreement to settle the lawsuit, pursuant to which the parties entered into a patent license agreement dated as of the same date. The patent license agreement does not have a material impact on the Company's financial position or results of operations.

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

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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 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.  On January 7, 2019, the Court of Appeals issued an order dismissing the appeal for lack of jurisdiction.
 
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.


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Note 18.
Goodwill and Acquisition-Related Intangibles

As of December 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)
December 29, 2018
 
March 31, 2018
 
Amortization Life
Goodwill
$
340,719

 
$
162,421

 

Core technology, gross
107,193

 
82,480

 

Less accumulated amortization
(81,099
)
 
(78,562
)
 

Core technology, net
26,094

 
3,918

 
5.0 years
Other intangibles, gross
51,016

 
46,966

 
3.0 years
Less accumulated amortization
(47,288
)
 
(46,761
)
 

In-process research and development (not subject to amortization)
52,710

 

 
N/A
Other intangibles, net
56,438

 
205

 

Total acquisition-related intangibles, gross
210,919

 
129,446

 

Less accumulated amortization
(128,387
)
 
(125,323
)
 

Total acquisition-related intangibles, net
$
82,532

 
$
4,123

 


Amortization expense for acquisition-related intangibles for the three and nine months ended December 29, 2018 was $1.9 million and $3.1 million, respectively. Amortization expense for acquisition-related intangibles for the three and nine months ended December 30, 2017 was $353 thousand and $1.6 million, respectively.

During the second quarter of fiscal 2019, the Company recorded $178.3 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 December 29, 2018, assuming no subsequent acquisition or impairment of the underlying assets, the annual amortization expense for acquisition-related intangibles is expected to be as follows:
 
Fiscal
(In thousands)
2019 (remaining three months)
$
1,866

2020
7,464

2021
7,442

2022
6,089

Thereafter
6,961

Total
$
29,822


In-process research and development are not subject to amortization prior to the completion of the projects and therefore the balance is excluded from the above annual amortization expense schedule.

Note 19.
Business Combination

During the second quarter of fiscal 2019, the Company completed the acquisition of Deephi Tech by acquiring all its outstanding ordinary shares. Deephi Tech was a privately held start-up with industry-leading capabilities in machine learning and focusing on system-level neural network optimization. This acquisition strengthens the Company's capabilities in artificial intelligence applications.
Total purchase consideration to acquire Deephi Tech was $251.9 million, including $11.5 million of fair value from the Company's preexisting investment in Deephi Tech, $200 thousand of unsettled payments to Deephi Tech equity holders and $6.3 million of cash acquired. The Company incurred $3.4 million of acquisition related costs, which was recorded in the operating expenses of condensed consolidated statements of income. Additionally, the Company was required to assess the fair value of its preexisting

25


investment in Deephi Tech and recorded $6.5 million gain in its condensed consolidated statements of income as part of interest and other income, net.
Subsequent to the acquisition, the financial results for Deephi Tech are included in the Company's condensed consolidated financial statements. Prior to the acquisition, the financial results for Deephi Tech were not significant for pro forma financial information.
The company allocated the purchase price to tangible and identified intangible assets acquired and liabilities assumed based on estimated fair values. As additional information becomes available, the company may further update the preliminary purchase price allocation during the remainder of the measurement period (up to one year from the acquisition date). The preliminary fair values of the assets acquired and liabilities assumed in the acquisition of Deephi Tech, by major class, were recognized as follows:
 
Amount
 
(In thousands)
Cash and cash equivalents
$
6,263

Tangible assets
2,076

Identifiable intangible assets
81,530

Goodwill
178,297

Deferred tax liabilities
(13,702
)
Other liabilities
(2,554
)
Total
$
251,910

The goodwill of $178.3 million arising from the acquisition is attributed to the expected synergies and other benefits that will be generated from the combination of the Company and Deephi Tech. The goodwill recognized is expected to be deductible for tax purposes.
The identified intangible assets assumed in the acquisition of Deephi Tech were recognized as follows based upon the preliminary fair values as of the closing date of the acquisition.
 
Amount
 
Amortization Life
 
(In thousands)
 
 
Trade Names & Trademarks
$
1,020

 
3.0 years
Developed Technology
24,770

 
5.0 years