UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
| ☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||||
For the quarterly period ended October 2, 2021 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 | 2100 Logic Drive | 77-0188631 | ||||||||||||
| (State or other jurisdiction of incorporation or organization) | San Jose | (I.R.S. Employer Identification No.) | ||||||||||||
| 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)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||
| Common Stock, $0.01 par value | XLNX | The Nasdaq Global Select Market | ||||||
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 | ☐ | Emerging growth company | ☐ | ||||||||||||||
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 15, 2021 | |||||||
| Common Stock, $0.01 par value | 247,880,415 | |||||||
TABLE OF CONTENTS
2
FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements may be found throughout this Quarterly Report and involve numerous known and unknown risks and uncertainties and are based on current expectations. The reader should not place undue reliance on these forward-looking statements. Our actual results could differ materially from those anticipated in these forward-looking statements for many reasons, including those risks discussed under "Risk Factors" and elsewhere in this document. Often, forward-looking statements can be identified by the use of forward-looking words, such as "may," "will," "could," "should," "expect," "believe," "anticipate," "estimate," "continue," "plan," "intend," "project" and other similar terminology, or the negative of such terms. We disclaim any responsibility to update or revise any forward-looking statement provided in this Quarterly Report or in any of our other communications for any reason.
PART I.FINANCIAL INFORMATION
Item 1.Financial Statements
XILINX, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
| Three Months Ended | Six Months Ended | ||||||||||||||||||||||
| (In thousands, except per share amounts) | October 2, 2021 | September 26, 2020 | October 2, 2021 | September 26, 2020 | |||||||||||||||||||
| Net revenues | $ | 935,770 | $ | 766,535 | $ | 1,814,376 | $ | 1,493,208 | |||||||||||||||
| Cost of revenues: | |||||||||||||||||||||||
| Cost of products sold | 293,327 | 218,120 | 576,768 | 444,223 | |||||||||||||||||||
| Amortization of acquisition-related intangibles | 10,150 | 6,696 | 19,216 | 13,393 | |||||||||||||||||||
| Total cost of revenues | 303,477 | 224,816 | 595,984 | 457,616 | |||||||||||||||||||
| Gross margin | 632,293 | 541,719 | 1,218,392 | 1,035,592 | |||||||||||||||||||
| Operating expenses: | |||||||||||||||||||||||
| Research and development | 253,881 | 219,647 | 501,856 | 429,760 | |||||||||||||||||||
| Selling, general and administrative | 126,319 | 113,793 | 251,239 | 219,176 | |||||||||||||||||||
| Amortization of acquisition-related intangibles | 2,252 | 2,862 | 5,093 | 5,724 | |||||||||||||||||||
| Total operating expenses | 382,452 | 336,302 | 758,188 | 654,660 | |||||||||||||||||||
| Operating income | 249,841 | 205,417 | 460,204 | 380,932 | |||||||||||||||||||
| Interest and other expense, net | (9,204) | (10,771) | (8,204) | (22,924) | |||||||||||||||||||
| Income before income taxes | 240,637 | 194,646 | 452,000 | 358,008 | |||||||||||||||||||
| Provision for income taxes | 6,092 | 830 | 11,114 | 70,356 | |||||||||||||||||||
| Net income | $ | 234,545 | $ | 193,816 | $ | 440,886 | $ | 287,652 | |||||||||||||||
| Net income per common share: | |||||||||||||||||||||||
| Basic | $ | 0.95 | $ | 0.79 | $ | 1.79 | $ | 1.18 | |||||||||||||||
| Diluted | $ | 0.94 | $ | 0.79 | $ | 1.77 | $ | 1.17 | |||||||||||||||
| Cash dividends per common share | $ | — | $ | 0.38 | $ | — | $ | 0.76 | |||||||||||||||
| Shares used in per share calculations: | |||||||||||||||||||||||
| Basic | 247,765 | 244,837 | 246,344 | 243,602 | |||||||||||||||||||
| Diluted | 250,457 | 246,763 | 249,478 | 245,847 | |||||||||||||||||||
See notes to condensed consolidated financial statements.
3
XILINX, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
| Three Months Ended | Six Months Ended | ||||||||||||||||||||||
| (In thousands) | October 2, 2021 | September 26, 2020 | October 2, 2021 | September 26, 2020 | |||||||||||||||||||
| Net income | $ | 234,545 | $ | 193,816 | $ | 440,886 | $ | 287,652 | |||||||||||||||
| Other comprehensive income (loss), net of tax: | |||||||||||||||||||||||
| Change in net unrealized gains (losses) on available-for-sale securities | (220) | (100) | (669) | 267 | |||||||||||||||||||
| Reclassification adjustment for (gains) losses on available-for-sale securities | (1) | 132 | 20 | (145) | |||||||||||||||||||
| Change in unrealized gains (losses) on hedging transactions | (181) | 2,420 | 52 | 9,549 | |||||||||||||||||||
| Reclassification adjustment for (gains) losses on hedging transactions | (771) | (1,337) | (2,943) | 350 | |||||||||||||||||||
| Cumulative translation adjustment, net | (4,220) | 4,834 | (2,951) | 1,968 | |||||||||||||||||||
| Other comprehensive income (loss) | (5,393) | 5,949 | (6,491) | 11,989 | |||||||||||||||||||
| Total comprehensive income | $ | 229,152 | $ | 199,765 | $ | 434,395 | $ | 299,641 | |||||||||||||||
See notes to condensed consolidated financial statements.
4
XILINX, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
| (In thousands, except par value amounts) | October 2, 2021 | April 3, 2021 | |||||||||
(unaudited) | |||||||||||
| ASSETS | |||||||||||
| Current assets: | |||||||||||
| Cash and cash equivalents | $ | 1,683,071 | $ | 1,438,528 | |||||||
| Short-term investments | 1,738,156 | 1,640,371 | |||||||||
| Accounts receivable, net | 405,040 | 285,214 | |||||||||
| Inventories | 285,568 | 311,085 | |||||||||
| Prepaid expenses and other current assets | 73,257 | 71,064 | |||||||||
| Total current assets | 4,185,092 | 3,746,262 | |||||||||
| Property, plant and equipment, at cost | 1,024,236 | 1,004,187 | |||||||||
| Accumulated depreciation and amortization | (688,053) | (659,164) | |||||||||
| Net property, plant and equipment | 336,183 | 345,023 | |||||||||
| Goodwill | 633,200 | 620,697 | |||||||||
| Acquisition-related intangibles, net | 167,295 | 171,592 | |||||||||
| Other assets | 673,791 | 635,627 | |||||||||
| Total Assets | $ | 5,995,561 | $ | 5,519,201 | |||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||||||
| Current liabilities: | |||||||||||
| Accounts payable | $ | 107,429 | $ | 116,046 | |||||||
| Accrued payroll and related liabilities | 368,178 | 328,344 | |||||||||
| Income taxes payable | 47,696 | 48,468 | |||||||||
| Other accrued liabilities | 90,883 | 131,697 | |||||||||
| Total current liabilities | 614,186 | 624,555 | |||||||||
| Long-term debt | 1,493,311 | 1,492,688 | |||||||||
| Long-term income taxes payable | 436,999 | 460,926 | |||||||||
| Other long-term liabilities | 55,520 | 54,071 | |||||||||
| Total Liabilities | 2,600,016 | 2,632,240 | |||||||||
| Commitments and contingencies (Note 17) | |||||||||||
| Stockholders' equity: | |||||||||||
Preferred stock, $.01 par value | — | — | |||||||||
Common stock, $.01 par value | 2,478 | 2,458 | |||||||||
| Additional paid-in capital | 1,457,663 | 1,383,494 | |||||||||
| Retained earnings | 1,944,008 | 1,503,122 | |||||||||
| Accumulated other comprehensive loss | (8,604) | (2,113) | |||||||||
| Total stockholders’ equity | 3,395,545 | 2,886,961 | |||||||||
| Total Liabilities and Stockholders’ Equity | $ | 5,995,561 | $ | 5,519,201 | |||||||
See notes to condensed consolidated financial statements.
5
XILINX, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| Six Months Ended | |||||||||||
| (In thousands) | October 2, 2021 | September 26, 2020 | |||||||||
| Cash flows from operating activities: | |||||||||||
| Net income | $ | 440,886 | $ | 287,652 | |||||||
Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||
| Depreciation and amortization of software | 63,100 | 61,998 | |||||||||
| Amortization - others | 36,511 | 30,375 | |||||||||
| Stock-based compensation | 137,329 | 108,822 | |||||||||
| Deferred income taxes | (32,991) | (10,028) | |||||||||
| Others | (2,713) | 3,462 | |||||||||
| Changes in assets and liabilities: | |||||||||||
| Accounts receivable, net | (119,825) | (89,468) | |||||||||
| Inventories | 25,517 | 22,292 | |||||||||
| Prepaid expenses and other current assets | (11,581) | (995) | |||||||||
| Other assets | (29,254) | (21,530) | |||||||||
| Accounts payable | (5,830) | (3,035) | |||||||||
| Accrued liabilities | 31,965 | 81,781 | |||||||||
| Income taxes payable | (21,100) | 21,728 | |||||||||
| Net cash provided by operating activities | 512,014 | 493,054 | |||||||||
| Cash flows from investing activities: | |||||||||||
| Purchases of available-for-sale securities | (2,326,323) | (2,743,360) | |||||||||
| Proceeds from sale and maturity of available-for-sale and equity securities | 2,210,316 | 1,231,731 | |||||||||
| Purchases of property, plant and equipment and software | (32,145) | (30,792) | |||||||||
| Acquisition of business, net of cash acquired | (30,533) | — | |||||||||
| Other investing activities | 1,827 | (12,198) | |||||||||
| Net cash used in investing activities | (176,858) | (1,554,619) | |||||||||
| Cash flows from financing activities: | |||||||||||
| Repurchases of common stock | — | (53,682) | |||||||||
| Taxes paid related to net share settlements of restricted stock units | (83,006) | (53,425) | |||||||||
| Proceeds from issuance of common stock through various stock plans | 19,866 | 20,114 | |||||||||
| Payment of dividends to stockholders | — | (185,519) | |||||||||
| Proceeds from issuance of long-term debt, net | — | 744,427 | |||||||||
| Other financing activities | (27,473) | (17,277) | |||||||||
| Net cash provided by (used in) financing activities | (90,613) | 454,638 | |||||||||
| Net increase (decrease) in cash and cash equivalents | 244,543 | (606,927) | |||||||||
| Cash and cash equivalents at beginning of period | $ | 1,438,528 | 1,777,703 | ||||||||
| Cash and cash equivalents at end of period | $ | 1,683,071 | $ | 1,170,776 | |||||||
| Supplemental disclosure of cash flow information: | |||||||||||
| Interest paid | $ | 19,969 | $ | 21,289 | |||||||
| Income taxes paid, net | $ | 65,145 | $ | 59,145 | |||||||
See notes to condensed consolidated financial statements.
6
XILINX, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Unaudited)
| Three Months Ended October 2, 2021 | Common Stock Outstanding | Additional Paid-in Capital | Retained Earnings | Accumulated Other Comprehensive Income (Loss) | Total Stockholders' Equity | ||||||||||||||||||||||||||||||
| (In thousands, except per share amounts) | Shares | Amount | |||||||||||||||||||||||||||||||||
| Balance as of July 3, 2021 | 245,909 | $ | 2,459 | $ | 1,410,893 | $ | 1,709,463 | $ | (3,211) | $ | 3,119,604 | ||||||||||||||||||||||||
| Components of comprehensive income: | |||||||||||||||||||||||||||||||||||
| Net income | — | — | — | 234,545 | — | 234,545 | |||||||||||||||||||||||||||||
| Other comprehensive loss | — | — | — | — | (5,393) | (5,393) | |||||||||||||||||||||||||||||
| Issuance of common shares under employee stock plans, net | 1,914 | 19 | (22,950) | — | — | (22,931) | |||||||||||||||||||||||||||||
| Stock-based compensation expense | — | — | 69,720 | — | — | 69,720 | |||||||||||||||||||||||||||||
| Balance as of October 2, 2021 | 247,823 | $ | 2,478 | $ | 1,457,663 | $ | 1,944,008 | $ | (8,604) | $ | 3,395,545 | ||||||||||||||||||||||||
| Six Months Ended October 2, 2021 | Common Stock Outstanding | Additional Paid-in Capital | Retained Earnings | Accumulated Other Comprehensive Income (Loss) | Total Stockholders' Equity | ||||||||||||||||||||||||||||||
| (In thousands, except per share amounts) | Shares | Amount | |||||||||||||||||||||||||||||||||
| Balance as of April 3, 2021 | 245,808 | $ | 2,458 | $ | 1,383,494 | $ | 1,503,122 | $ | (2,113) | $ | 2,886,961 | ||||||||||||||||||||||||
| Components of comprehensive income: | |||||||||||||||||||||||||||||||||||
| Net income | — | — | — | 440,886 | — | 440,886 | |||||||||||||||||||||||||||||
| Other comprehensive loss | — | — | — | — | (6,491) | (6,491) | |||||||||||||||||||||||||||||
| Issuance of common shares under employee stock plans, net | 2,015 | 20 | (63,160) | — | — | (63,140) | |||||||||||||||||||||||||||||
| Stock-based compensation expense | — | — | 137,329 | — | — | 137,329 | |||||||||||||||||||||||||||||
| Balance as of October 2, 2021 | 247,823 | $ | 2,478 | $ | 1,457,663 | $ | 1,944,008 | $ | (8,604) | $ | 3,395,545 | ||||||||||||||||||||||||
7
XILINX, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Unaudited)
| Three Months Ended September 26, 2020 | Common Stock Outstanding | Additional Paid-in Capital | Retained Earnings | Accumulated Other Comprehensive Income (Loss) | Total Stockholders' Equity | ||||||||||||||||||||||||||||||
| (In thousands, except per share amounts) | Shares | Amount | |||||||||||||||||||||||||||||||||
| Balance as of June 27, 2020 | 243,231 | $ | 2,432 | $ | 1,194,748 | $ | 1,136,710 | $ | (14,237) | $ | 2,319,653 | ||||||||||||||||||||||||
| Components of comprehensive income: | |||||||||||||||||||||||||||||||||||
| Net income | — | — | — | 193,816 | — | 193,816 | |||||||||||||||||||||||||||||
| Other comprehensive income | — | — | — | — | 5,949 | 5,949 | |||||||||||||||||||||||||||||
| Issuance of common shares under employee stock plans, net | 1,828 | 18 | (31,933) | — | — | (31,915) | |||||||||||||||||||||||||||||
| Stock-based compensation expense | — | — | 58,439 | — | — | 58,439 | |||||||||||||||||||||||||||||
Cash dividends declared ($0.38 per common share) | — | — | — | (93,105) | — | (93,105) | |||||||||||||||||||||||||||||
| Balance as of September 26, 2020 | 245,059 | $ | 2,450 | $ | 1,221,254 | $ | 1,237,421 | $ | (8,288) | $ | 2,452,837 | ||||||||||||||||||||||||
| Six Months Ended September 26, 2020 | Common Stock Outstanding | Additional Paid-in Capital | Retained Earnings | Accumulated Other Comprehensive Income (Loss) | Total Stockholders' Equity | ||||||||||||||||||||||||||||||
| (In thousands, except per share amounts) | Shares | Amount | |||||||||||||||||||||||||||||||||
| Balance as of March 28, 2020 | 243,810 | $ | 2,438 | $ | 1,145,083 | $ | 1,187,805 | $ | (20,277) | $ | 2,315,049 | ||||||||||||||||||||||||
| Components of comprehensive income: | |||||||||||||||||||||||||||||||||||
| Net income | — | — | — | 287,652 | — | 287,652 | |||||||||||||||||||||||||||||
| Other comprehensive income | — | — | — | — | 11,989 | 11,989 | |||||||||||||||||||||||||||||
| Issuance of common shares under employee stock plans, net | 1,934 | 19 | (35,173) | — | — | (35,154) | |||||||||||||||||||||||||||||
| Repurchase and retirement of common stock | (685) | (7) | 2,522 | (52,517) | — | (50,002) | |||||||||||||||||||||||||||||
| Stock-based compensation expense | — | — | 108,822 | — | — | 108,822 | |||||||||||||||||||||||||||||
Cash dividends declared ($0.76 per common share) | — | — | — | (185,519) | — | (185,519) | |||||||||||||||||||||||||||||
| Balance as of September 26, 2020 | 245,059 | $ | 2,450 | $ | 1,221,254 | $ | 1,237,421 | $ | (8,288) | $ | 2,452,837 | ||||||||||||||||||||||||
See notes to condensed consolidated financial statements.
8
XILINX, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1.Basis of Presentation
The accompanying interim condensed consolidated financial statements have been prepared in conformity with United States (U.S.) generally accepted accounting principles (GAAP) for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X, and should be read in conjunction with the Xilinx, Inc. (Xilinx or the Company) consolidated financial statements filed with the U.S. Securities and Exchange Commission (SEC) on Form 10-K for the fiscal year ended April 3, 2021. The interim financial statements are unaudited, but reflect all adjustments which are, in the opinion of management, of a normal, recurring nature necessary to provide a fair statement of results for the interim periods presented. The results of operations for the interim periods shown in this report are not necessarily indicative of the results that may be expected for the fiscal year ending April 2, 2022 or any future period.
The Company uses a 52- to 53-week fiscal year ending on the Saturday nearest March 31. Fiscal 2022 is a 52-week year ending on April 2, 2022 and fiscal 2021 was a 53-week year ended on April 3, 2021. The quarters ended on October 2, 2021 and September 26, 2020 each consisted of 13 weeks.
Merger with Advanced Micro Devices, Inc.
On October 27, 2020, the Company announced that it had entered into an Agreement and Plan of Merger, dated October 26, 2020 (as it may be amended from time to time, the Merger Agreement) with Advanced Micro Devices, Inc., a Delaware corporation (AMD), and Thrones Merger Sub, Inc., a wholly-owned subsidiary of AMD (Merger Sub), under which, subject to the satisfaction or (to the extent permissible) waiver of the conditions set forth therein, Merger Sub will merge with and into the Company, and the Company will survive the merger as a wholly-owned subsidiary of AMD (Merger). Under the terms of the Merger Agreement, at the effective time of the Merger (Effective Time), each share of common stock, par value $0.01 per share, of the Company, issued and outstanding immediately prior to the Effective Time (other than treasury shares and any shares of Company common stock held by AMD or Merger Sub) will be converted into the right to receive 1.7234 fully paid and non-assessable shares of common stock, par value $0.01 per share, of AMD (with cash being paid, without interest and less applicable withholding taxes, in lieu of any fractional shares of AMD common stock).
The Merger has been approved by the Company’s board of directors, the board of directors of AMD, the Company's stockholders and the stockholders of AMD. The completion of the Merger is subject to customary closing conditions, including, among others, the receipt of various regulatory approvals. Subject to the satisfaction or (to the extent permissible) waiver of such conditions, the Merger is currently expected to close by the end of calendar year 2021. The Company cannot guarantee that the Merger will be completed on a timely basis or at all or that, if completed, it will be completed on the terms set forth in the Merger Agreement.
The aggregate financial advisor fees associated with the Merger are $90.0 million in total, $9.0 million of which was paid upon the public announcement of the Merger, and the remainder is contingent upon the closing of the Merger. The Company is also obligated to pay up to an additional $40.0 million calculated based on the extent to which the value of the Company’s shares in the Merger at the time of closing exceeds a specified threshold. If the Merger is not completed, the Company could be required to pay a termination fee of $1.00 billion to AMD under certain circumstances as described in the Merger Agreement or AMD could be required to pay a termination fee to the Company equal to $1.50 billion, or $1.00 billion under certain circumstances, as described in the Merger Agreement.
Note 2.Recent Accounting Changes and Accounting Pronouncements
Recent Accounting Pronouncements Adopted
9
Income Taxes
In December 2019, the FASB issued ASU 2019-12, Simplifying the Accounting for Income Taxes, which simplifies the accounting for income taxes as part of the overall initiative to reduce complexity in accounting standards. Amendments include removal of certain exceptions to the general principles of Accounting Standards Codification 740, Income Taxes. The amendments also include simplification in several other areas, such as recognition of deferred tax assets on step-up in tax basis in goodwill and accounting for franchise tax that is partially based on income. For public entities, the guidance was effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years, which for Xilinx was the first quarter of fiscal 2022. The standard provides different transition methods for the various provisions. The Company adopted the new authoritative guidance in the first quarter of fiscal 2022 and the impact was not material to the Company's 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 October 2, 2021 and April 3, 2021, Avnet accounted for 27% and 13% of the Company’s total net accounts receivable, respectively. Net revenues from Avnet accounted for 48% of the Company’s worldwide net revenues in both the second quarter and the first six months of fiscal 2022. Net revenues from Avnet accounted for 41% and 43% of the Company’s worldwide net revenues in the second quarter and the first six months of fiscal 2021, respectively. While the percentage of worldwide net revenues from Avnet fluctuates from period to period, overall the percentage is within historical ranges.
For the second quarter and the first six months of fiscal 2022, approximately 63% and 65% of the Company's net revenues were from products sold to distributors for subsequent resale to original equipment manufacturers (OEMs) or their subcontract manufacturers, respectively. For the second quarter and the first six months of fiscal 2021 the percentages of the Company's net revenues from distributors were 52% and 57%, respectively.
No other distributor or end customer accounted for more than 10% of the Company’s worldwide net revenues for the second quarter and the first six months of fiscal 2022 and 2021.
The Company 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 concentrations 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. The Company generally does not require collateral for receivables from its end customers or distributors.
The Company mitigates concentrations of credit risk in its investments in debt securities by currently investing approximately 96% of its portfolio in AA (or its equivalent) or higher-grade securities as rated by Standard & Poor’s or Moody’s Investors Service. 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. The Company’s methods to arrive at investment decisions are not solely based on the rating agencies’ credit ratings. Xilinx also performs additional credit due diligence and conducts regular portfolio credit reviews, including a review of counterparty credit risk related to the Company’s forward currency exchange contracts.
As of October 2, 2021, all of the mortgage-backed securities in the Company's 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 and also considers assumptions that market participants would use when pricing the asset or liability, such as inherent risk, transfer restrictions and risk of nonperformance.
10
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 of fiscal 2022 and the Company did not adjust or override any fair value measurements as of October 2, 2021.
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.
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.
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.
Assets and Liabilities Measured at Fair Value on a Recurring Basis
In instances where the inputs used to measure fair value fall into different levels of the fair value hierarchy, the fair value measurement has been determined based on the lowest level input that is significant to the fair value measurement in its entirety. The Company’s assessment of the significance of a particular item to the fair value measurement in its entirety requires judgment, including the consideration of inputs specific to the asset or liability. The following tables present information about the Company’s assets and liabilities measured at fair value on a recurring basis as of October 2, 2021 and April 3, 2021:
11
| October 2, 2021 | ||||||||||||||||||||||||||
| (In thousands) | (Level 1) | (Level 2) | (Level 3) | Total Fair Value | ||||||||||||||||||||||
| Assets | ||||||||||||||||||||||||||
| Cash equivalents: | ||||||||||||||||||||||||||
| Money market funds | $ | 375,559 | $ | — | $ | — | $ | 375,559 | ||||||||||||||||||
| Financial institution securities | — | 186,991 | 186,991 | |||||||||||||||||||||||
| Non-financial institution securities | — | 283,291 | — | 283,291 | ||||||||||||||||||||||
| U.S. government and agency securities | 409,976 | 24,999 | — | 434,975 | ||||||||||||||||||||||
| Foreign government and agency securities | — | 197,979 | — | 197,979 | ||||||||||||||||||||||
| Short-term investments: | ||||||||||||||||||||||||||
| Financial institution securities | — | 348,895 | — | 348,895 | ||||||||||||||||||||||
| Non-financial institution securities | — | 216,951 | — | 216,951 | ||||||||||||||||||||||
| U.S. government and agency securities | 349,905 | 114,991 | — | 464,896 | ||||||||||||||||||||||
| Foreign government and agency securities | — | 496,881 | — | 496,881 | ||||||||||||||||||||||
| Mortgage-backed securities | — | 157,782 | — | 157,782 | ||||||||||||||||||||||
| Asset-backed securities | — | 159 | — | 159 | ||||||||||||||||||||||
| Commercial mortgage-backed securities | — | 52,592 | — | 52,592 | ||||||||||||||||||||||
| Total assets measured at fair value | $ | 1,135,440 | $ | 2,081,511 | $ | — | $ | 3,216,951 | ||||||||||||||||||
| Liabilities | ||||||||||||||||||||||||||
| Derivative financial instruments, net | $ | — | $ | (190) | $ | — | $ | (190) | ||||||||||||||||||
| Total liabilities measured at fair value | $ | — | $ | (190) | $ | — | $ | (190) | ||||||||||||||||||
| Net assets measured at fair value | $ | 1,135,440 | $ | 2,081,321 | $ | — | $ | 3,216,761 | ||||||||||||||||||
| April 3, 2021 | ||||||||||||||||||||||||||
| (In thousands) | (Level 1) | (Level 2) | (Level 3) | Total Fair Value | ||||||||||||||||||||||
| Assets | ||||||||||||||||||||||||||
| Cash equivalents: | ||||||||||||||||||||||||||
| Money market funds | $ | 583,390 | $ | — | $ | — | $ | 583,390 | ||||||||||||||||||
| Financial institution securities | — | 274,985 | — | 274,985 | ||||||||||||||||||||||
| Non-financial institution securities | — | 158,981 | — | 158,981 | ||||||||||||||||||||||
| Foreign government and agency securities | — | 247,979 | — | 247,979 | ||||||||||||||||||||||
| Short-term investments: | ||||||||||||||||||||||||||
| Financial institution securities | — | 159,997 | — | 159,997 | ||||||||||||||||||||||
| Non-financial institution securities | — | 374,854 | — | 374,854 | ||||||||||||||||||||||
| U.S. government and agency securities | 378,686 | 189,481 | — | 568,167 | ||||||||||||||||||||||
| Foreign government and agency securities | — | 414,876 | — | 414,876 | ||||||||||||||||||||||
| Mortgage-backed securities | — | 109,603 | — | 109,603 | ||||||||||||||||||||||
| Asset-backed securities | — | 172 | — | 172 | ||||||||||||||||||||||
| Commercial mortgage-backed securities | — | 12,702 | — | 12,702 | ||||||||||||||||||||||
| Derivative financial instruments, net | — | 3,519 | — | 3,519 | ||||||||||||||||||||||
| Total assets measured at fair value | $ | 962,076 | $ | 1,947,149 | $ | — | $ | 2,909,225 | ||||||||||||||||||
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.
12
Financial Instruments Not Recorded at Fair Value on a Recurring Basis
The Company's $750.0 million principal amount of 2.950% senior notes due June 1, 2024 (2024 Notes) and $750.0 million principal amount of 2.375% senior notes due June 1, 2030 (2030 Notes) are measured at fair value on a quarterly basis for disclosure purposes. The fair values of the 2024 Notes and 2030 Notes as of October 2, 2021 were approximately $791.1 million and $769.0 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 October 2, 2021, the Company had non-marketable securities in private companies of $115.5 million, which were classified as Level 3 assets. The Company’s investments in non-marketable equity securities of private companies are 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. The Company’s investments in non-financial assets such as property, plant and equipment, goodwill and acquisition-related intangibles, are recorded at cost (net of accumulated depreciation or amortization, where applicable). These non-financial assets are reduced to fair value when impaired.
Note 5.Financial Instruments
The following is a summary of cash equivalents and available-for-sale securities as of the end of the periods presented:
| October 2, 2021 | April 3, 2021 | |||||||||||||||||||||||||||||||||||||||||||||||||
| (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 | $ | 375,559 | $ | — | $ | — | $ | 375,559 | $ | 583,390 | $ | — | $ | — | $ | 583,390 | ||||||||||||||||||||||||||||||||||
| Financial institution | ||||||||||||||||||||||||||||||||||||||||||||||||||
| securities | 535,886 | — | — | 535,886 | 434,982 | — | — | 434,982 | ||||||||||||||||||||||||||||||||||||||||||
| Non-financial institution | ||||||||||||||||||||||||||||||||||||||||||||||||||
| securities | 500,240 | 2 | — | 500,242 | 533,835 | — | — | 533,835 | ||||||||||||||||||||||||||||||||||||||||||
| U.S. government and | ||||||||||||||||||||||||||||||||||||||||||||||||||
| agency securities | 899,884 | 6 | (19) | 899,871 | 568,122 | 45 | — | 568,167 | ||||||||||||||||||||||||||||||||||||||||||
| Foreign government and | ||||||||||||||||||||||||||||||||||||||||||||||||||
| agency securities | 694,906 | — | (46) | 694,860 | 662,855 | — | — | 662,855 | ||||||||||||||||||||||||||||||||||||||||||
Mortgage-backed securities | 157,087 | 1,431 | (736) | 157,782 | 108,460 | 1,488 | (345) | 109,603 | ||||||||||||||||||||||||||||||||||||||||||
| Asset-backed securities | 145 | 14 | — | 159 | 159 | 13 | — | 172 | ||||||||||||||||||||||||||||||||||||||||||
| Commercial mortgage- | ||||||||||||||||||||||||||||||||||||||||||||||||||
| backed securities | 52,816 | 51 | (275) | 52,592 | 12,622 | 86 | (6) | 12,702 | ||||||||||||||||||||||||||||||||||||||||||
| $ | 3,216,523 | $ | 1,504 | $ | (1,076) | $ | 3,216,951 | $ | 2,904,425 | $ | 1,632 | $ | (351) | $ | 2,905,706 | |||||||||||||||||||||||||||||||||||
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 October 2, 2021 and April 3, 2021.
13
The following tables show the fair values and gross unrealized losses of the Company’s investments, aggregated by investment category, for individual securities that have been in a continuous unrealized loss position for the length of time specified, as of October 2, 2021 and April 3, 2021:
| October 2, 2021 | |||||||||||||||||||||||||||||||||||
| 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 | |||||||||||||||||||||||||||||
| U.S. government and | |||||||||||||||||||||||||||||||||||
| agency securities | $ | 604,915 | $ | (19) | $ | — | $ | — | $ | 604,915 | $ | (19) | |||||||||||||||||||||||
| Foreign government and | |||||||||||||||||||||||||||||||||||
| agency securities | 99,939 | (46) | — | — | 99,939 | (46) | |||||||||||||||||||||||||||||
| Mortgage-backed securities | 81,432 | (706) | 1,886 | (30) | 83,318 | (736) | |||||||||||||||||||||||||||||
| Commercial mortgage- | |||||||||||||||||||||||||||||||||||
| backed securities | 43,672 | (271) | 497 | (4) | 44,169 | (275) | |||||||||||||||||||||||||||||
| $ | 829,958 | $ | (1,042) | $ | 2,383 | $ | (34) | $ | 832,341 | $ | (1,076) | ||||||||||||||||||||||||
| April 3, 2021 | |||||||||||||||||||||||||||||||||||
| 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 | |||||||||||||||||||||||||||||
| Mortgage-backed securities | $ | 37,442 | $ | (216) | $ | 9,835 | $ | (129) | $ | 47,277 | $ | (345) | |||||||||||||||||||||||
| Commercial mortgage- | |||||||||||||||||||||||||||||||||||
| backed securities | 2,671 | (5) | 181 | (1) | 2,852 | (6) | |||||||||||||||||||||||||||||
| $ | 40,113 | $ | (221) | $ | 10,016 | $ | (130) | $ | 50,129 | $ | (351) | ||||||||||||||||||||||||
The Company reviewed the investment portfolio and determined that the gross unrealized losses on these investments as of October 2, 2021 and April 3, 2021 were temporary in nature as evidenced by the fluctuations in the gross unrealized losses within the investment categories. The marketable debt securities (financial and 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 October 2, 2021 and April 3, 2021. 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, 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.
14
| October 2, 2021 | |||||||||||
| (In thousands) | Amortized Cost | Estimated Fair Value | |||||||||
| Due in one year or less | $ | 2,631,493 | $ | 2,631,441 | |||||||
| Due after one year through five years | 12,880 | 12,901 | |||||||||
| Due after five years through ten years | 14,549 | 14,993 | |||||||||
| Due after ten years | 182,042 | 182,057 | |||||||||
| $ | 2,840,964 | $ | 2,841,392 | ||||||||
As of October 2, 2021, $210.0 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 funds because these investments do not have specific contractual maturities.
Certain information related to available-for-sale securities is as follows:
| Three Months Ended | Six Months Ended | ||||||||||||||||||||||
| (In thousands) | October 2, 2021 | September 26, 2020 | October 2, 2021 | September 26, 2020 | |||||||||||||||||||
| Proceeds from sale of available-for-sale securities | $ | 872 | $ | 18,798 | $ | 5,854 | $ | 56,455 | |||||||||||||||
| Gross realized gains on sale of available-for-sale securities | $ | 1 | $ | 53 | $ | 38 | $ | 413 | |||||||||||||||
| Gross realized losses on sale of available-for-sale securities | — | (224) | (64) | (224) | |||||||||||||||||||
| Net realized gains (losses) on sale of available-for-sale securities | $ | 1 | $ | (171) | $ | (26) | $ | 189 | |||||||||||||||
| Amortization of premiums (discounts) on available-for-sale securities | $ | 501 | $ | (25) | $ | 892 | $ | (117) | |||||||||||||||
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.
In March and May 2020, the Company entered into interest rate swap contracts with an independent financial institution in an effort to reduce the risk of changes in the underlying benchmark interest rate. During the first quarter of fiscal 2021, the Company unwound the interest rate swap contracts and recognized an immaterial loss. The loss is being amortized as an additional increase to interest expense over the remaining life of the 2030 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
15
The following table summarizes stock-based compensation expense related to stock awards granted under the Company’s equity incentive plans and rights to acquire stock granted under the Company’s Employee Stock Purchase Plan (ESPP):
| Three Months Ended | Six Months Ended | ||||||||||||||||||||||
| (In thousands) | October 2, 2021 | September 26, 2020 | October 2, 2021 | September 26, 2020 | |||||||||||||||||||
| Stock-based compensation included in: | |||||||||||||||||||||||
| Cost of revenues | $ | 3,797 | $ | 2,963 | $ | 7,407 | $ | 5,684 | |||||||||||||||
| Research and development | 42,273 | 36,110 | 83,735 | 66,479 | |||||||||||||||||||
| Selling, general and administrative | 23,650 | 19,366 | 46,187 | 36,659 | |||||||||||||||||||
| $ | 69,720 | $ | 58,439 | $ | 137,329 | $ | 108,822 | ||||||||||||||||
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. As of October 2, 2021, 9.5 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 | |||||||||
| March 28, 2020 | 6,780 | $ | 80.53 | ||||||||
| Granted | 3,885 | $ | 106.36 | ||||||||
| Vested | (2,558) | $ | 71.07 | ||||||||
| Cancelled | (680) | $ | 85.26 | ||||||||
| April 3, 2021 | 7,427 | $ | 96.45 | ||||||||
| Granted | 2,507 | $ | 136.18 | ||||||||
| Vested | (2,355) | $ | 83.29 | ||||||||
| Cancelled | (209) | $ | 106.66 | ||||||||
| October 2, 2021 | 7,370 | $ | 113.54 | ||||||||
16
The estimated fair values of RSUs were calculated based on the market price of Xilinx common stock on the date of grant, reduced by the present value of dividends expected to be paid on Xilinx common stock prior to vesting. The per share weighted-average fair value of RSUs granted during the second quarter of fiscal 2022 was $135.77, ($95.59 for the second quarter of fiscal 2021), which were calculated based on estimates at the date of grant using the following weighted-average assumptions:
| Three Months Ended | Six Months Ended | ||||||||||||||||||||||
| October 2, 2021 | September 26, 2020 | October 2, 2021 | September 26, 2020 | ||||||||||||||||||||
| Risk-free interest rate | 0.6 | % | 0.3 | % | 0.6 | % | 0.3 | % | |||||||||||||||
| Dividend yield | — | % | 1.5 | % | — | % | 1.5 | % | |||||||||||||||
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 2022 and 2021, the Company withheld $83.0 million and $53.4 million worth of RSU awards, respectively, to satisfy the employees’ tax obligations.
During the second quarter and the first six months of fiscal 2022, the Company realized excess tax benefits of $10.5 million and $30.1 million, respectively, primarily from RSU vesting. During the second quarter and the first six months of fiscal 2021, the excess tax benefits were $12.4 million and $12.7 million, respectively, primarily from RSU vesting. These tax benefits were recorded in the condensed consolidated statements of income as a component of the provision (benefit) for income taxes.
Employee Stock Purchase Plan
Under the Company’s ESPP, shares are only issued during the second and fourth quarters of each fiscal year. Employees purchased 259 thousand shares for $19.8 million during the second quarter of fiscal 2022 and 283 thousand shares for $19.8 million during the second quarter of fiscal 2021. The per-share weighted-average fair value of stock purchase rights granted under the ESPP during the second quarter of fiscal 2022 and 2021 was $47.42 and $31.40, respectively. The fair values of stock purchase plan rights granted in the second quarter of fiscal 2022 and 2021 were estimated using the Black-Scholes option pricing model at the date of grant using the following assumptions:
| 2022 | 2021 | |||||||||||||
| Expected life of options (years) | 1.25 | 1.25 | ||||||||||||
| Expected stock price volatility | 0.40 | 0.38 | ||||||||||||
| Risk-free interest rate | 0.1 | % | 0.1 | % | ||||||||||
| Dividend yield | — | % | 1.4 | % | ||||||||||
The next scheduled purchase under the ESPP is in the fourth quarter of fiscal 2022. As of October 2, 2021, 11.6 million shares were available for future issuance under the Company's ESPP.
Note 8. Net Income Per Common Share
The computation of basic net income per common share for all periods presented is derived from information on the condensed consolidated statements of income, and there are no reconciling items in the numerator used to compute the diluted net income per common share. The following table summarizes the computation of basic and diluted net income per common share:
| Three Months Ended | Six Months Ended | |||||||||||||||||||||||||
| (In thousands, except per share amounts) | October 2, 2021 | September 26, 2020 | October 2, 2021 | September 26, 2020 | ||||||||||||||||||||||
| Net income available to common stockholders | $ | 234,545 | $ | 193,816 | $ | 440,886 | $ | 287,652 | ||||||||||||||||||
| Weighted average common shares outstanding-basic | 247,765 | 244,837 | 246,344 | 243,602 | ||||||||||||||||||||||
| Dilutive effect of employee equity incentive plans | 2,692 | 1,926 | 3,134 | 2,245 | ||||||||||||||||||||||
| Weighted average common shares outstanding-diluted | 250,457 | 246,763 | 249,478 | 245,847 | ||||||||||||||||||||||
| Basic net income per common share | $ | 0.95 | $ | 0.79 | $ | 1.79 | $ | 1.18 | ||||||||||||||||||
| Diluted net income per common share | $ | 0.94 | $ | 0.79 | $ | 1.77 | $ | 1.17 | ||||||||||||||||||
17
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.
Certain shares of outstanding stock options and RSUs were excluded from diluted net income per common share calculation by applying the treasury stock method, as their inclusion would have been anti-dilutive. These excluded options and RSUs were immaterial for the second quarter and the first six months of fiscal 2022 and 2021, respectively, but could be dilutive in the future if the Company’s average share price increases and is greater than the combined exercise prices and the unamortized fair values of these options and RSUs.
Note 9.Inventories
Inventories are stated at the lower of actual cost (determined using the first-in, first-out method), or market (estimated net realizable value) and are comprised of the following:
| (In thousands) | October 2, 2021 | April 3, 2021 | |||||||||
| Raw materials | $ | 32,936 | $ | 25,927 | |||||||
| Work-in-process | 192,699 | 220,228 | |||||||||
| Finished goods | 59,933 | 64,930 | |||||||||
| $ | 285,568 | $ | 311,085 | ||||||||
Note 10. Debt
2024 Notes
On May 30, 2017, the Company issued the 2024 Notes at a discounted price of 99.887% of par. Interest on the 2024 Notes is payable semi-annually on June 1 and December 1. The effective interest rate of the 2024 Notes is 2.968%. The coupon interest rate of the 2024 Notes is 2.950%.
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 October 2, 2021, the remaining term of the 2024 Notes is approximately 2.7 years.
The following table summarizes the carrying value of the 2024 Notes as of October 2, 2021 and April 3, 2021:
| (In thousands) | October 2, 2021 | April 3, 2021 | ||||||||||||
| Principal amount of the 2024 Notes | $ | 750,000 | $ | 750,000 | ||||||||||
| Unamortized discount of the 2024 Notes | (344) | (405) | ||||||||||||
| Unamortized debt issuance costs associated with 2024 Notes | (1,513) | (1,797) | ||||||||||||
| Carrying Value of the 2024 Notes | $ | 748,143 | $ | 747,798 | ||||||||||
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) | October 2, 2021 | September 26, 2020 | October 2, 2021 | September 26, 2020 | |||||||||||||||||||
| Contractual coupon interest | $ | 5,444 | $ | 5,444 | $ | 10,887 | $ | 10,887 | |||||||||||||||
| Amortization of debt issuance costs | 142 | 142 | 284 | 284 | |||||||||||||||||||
| Amortization of debt discount, net | 31 | 30 | 61 | 59 | |||||||||||||||||||
| Total interest expense related to the 2024 Notes | $ | 5,617 | $ | 5,616 | $ | 11,232 | $ | 11,230 | |||||||||||||||
18
2030 Notes
On May 19, 2020, the Company issued the 2030 Notes at a discounted price of 99.973% of par. Interest on the 2030 Notes is payable semi-annually on June 1 and December 1. The effective interest rate of the 2030 Notes is 2.378%. The coupon interest rate of the 2030 Notes is 2.375%.
The Company received $744.4 million from the issuance of the 2030 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 2030 Notes. As of October 2, 2021, the remaining term of the 2030 Notes is approximately 8.7 years.
The following table summarizes the carrying value of the 2030 Notes as of October 2, 2021 and April 3, 2021:
| (In thousands) | October 2, 2021 | April 3, 2021 | ||||||||||||
| Principal amount of the 2030 Notes | $ | 750,000 | $ | 750,000 | ||||||||||
| Unamortized discount of the 2030 Notes | (178) | (187) | ||||||||||||
| Unamortized debt issuance costs associated with 2030 Notes | (4,654) | (4,923) | ||||||||||||
| Carrying Value of the 2030 Notes | $ | 745,168 | $ | 744,890 | ||||||||||
Interest expense related to the 2030 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) | October 2, 2021 | September 26, 2020 | October 2, 2021 | September 26, 2020 | |||||||||||||||||||
| Contractual coupon interest | $ | 4,521 | $ | 4,521 | $ | 9,043 | $ | 6,565 | |||||||||||||||
| Amortization of debt issuance costs | 134 | 134 | 269 | 179 | |||||||||||||||||||
| Amortization of debt discount, net | 5 | 4 | 9 | 7 | |||||||||||||||||||
| Total interest expense related to the 2030 Notes | $ | 4,660 | $ | 4,659 | $ | 9,321 | $ | 6,751 | |||||||||||||||
Note 11. Common Stock Repurchase Program
The Board of Directors (Board) has approved stock repurchase programs enabling the Company to repurchase its common stock and debentures in the open market or through negotiated transactions with independent financial institutions. On October 22, 2019, the Board authorized another program (2019 Repurchase Program) to repurchase the Company's common stock and debentures up to $1.00 billion. The 2019 Repurchase Program has no stated expiration date.
Through October 2, 2021, the Company has used $716.3 million of the $1.00 billion authorized under the 2019 Repurchase Program, leaving $283.7 million available for future repurchases. Pursuant to the terms of the Merger Agreement, the Company suspended its repurchase program on October 27, 2020, the date the Company announced its planned merger with AMD. The Company’s current policy is to retire all repurchased shares, and consequently, no treasury shares were held as of October 2, 2021 and April 3, 2021.
There was no common stock repurchase during the first six months of fiscal 2022. During the first six months of fiscal 2021, the Company repurchased 0.7 million shares of common stock in the open market for a total of $53.7 million.
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Note 12. Interest and Other Expense, Net
The components of interest and other expense, net are as follows:
| Three Months Ended | Six Months Ended | ||||||||||||||||||||||
| (In thousands) | October 2, 2021 | September 26, 2020 | October 2, 2021 | September 26, 2020 | |||||||||||||||||||
| Interest income | $ | 1,142 | $ | 1,969 | $ | 2,859 | $ | 6,923 | |||||||||||||||
| Interest expense | (10,277) | (14,226) | (20,553) | (25,883) | |||||||||||||||||||
| Other income (expense), net | (69) | 1,486 | 9,490 | (3,964) | |||||||||||||||||||
| Total interest and other expense, net | $ | (9,204) | $ | (10,771) | $ | (8,204) | $ | (22,924) | |||||||||||||||
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) | October 2, 2021 | April 3, 2021 | |||||||||
| Accumulated unrealized gains on available-for-sale securities, net of tax | $ | 334 | $ | 983 | |||||||
| Accumulated unrealized losses on hedging transactions, net of tax | (1,987) | 904 | |||||||||
| Accumulated cumulative translation adjustment, net of tax | (6,951) | (4,000) | |||||||||
| Total accumulated other comprehensive loss | $ | (8,604) | $ | (2,113) | |||||||
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 $6.1 million and $11.1 million for the second quarter and the first six months of fiscal 2022, respectively, representing effective tax rates of 2.5% for both periods. The Company recorded a tax benefit of $0.8 million and a tax provision of $70.4 million for the second quarter and the first six months of fiscal 2021, respectively, representing effective tax rates of 0.4% and 19.7%, respectively.
The difference between the U.S. federal statutory tax rate of 21% and the Company's effective tax rate in the second quarter and first six months of fiscal 2022 was primarily due to the beneficial impact of income earned in lower tax rate jurisdictions and excess tax benefits with respect to stock-based compensation, which was partially offset by the U.S. tax on global intangible low-taxed income (GILTI).
The difference between the U.S. federal statutory tax rate of 21% and the Company's effective tax rate in the second quarter and first six months of fiscal 2021 was primarily due to the beneficial impact of income earned in lower tax rate jurisdictions and excess tax benefits with respect to stock-based compensation, which was partially offset by tax on GILTI. The first six months of fiscal 2021 also included the recognition of the cumulative adverse impact of including stock-based compensation in the intercompany research and development (R&D) cost sharing arrangement.
During fiscal 2021, the U.S. Supreme Court (Supreme Court) denied certiorari of the Ninth Circuit Court of Appeals (Ninth Circuit) decision in the case of Altera Corp. v. Commissioner (Altera), which concerned related party R&D cost sharing arrangements and required stock-based compensation to be included in the pool of costs to be shared. While the Company is not a party to the case, it is subject to the findings. Pursuant to the Supreme Court’s decision not to review the case, the Company recorded expense during fiscal 2021 for taxes and interest representing the cumulative adverse impact. Despite the decision in the Altera tax case, the Company has concluded that the related law remains unsettled and will continue to monitor developments and the potential effect on its condensed consolidated financial statements and tax filings.
The Company’s total gross unrecognized tax benefits as of October 2, 2021, determined in accordance with authoritative guidance for measuring uncertain tax positions, increased by $6.1 million in the second quarter of fiscal 2022 to $159.3 million. The total amount of unrecognized tax benefits that, if realized in a future period, would favorably affect the effective tax rate was $120.3 million as of October 2, 2021.
20
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 was $5.1 million as of October 2, 2021 compared to $4.1 million in the same prior year period. 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 2017 and for significant U.S. state income tax purposes for years through fiscal 2014. The statutes of limitations have closed for Ireland and India income tax purposes for years through fiscal 2016 and for Singapore income tax purposes for years through fiscal 2015.
Note 15. Leases and Commitments
The Company leases some of its facilities and office buildings under non-cancelable operating leases that expire at various dates through August 2029. Additionally, the Company entered into a land lease in conjunction with its 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. These renewal terms can extend the lease term from 1 to 15 years and are included in the lease term when it is reasonably certain that the Company will exercise the option. The following table presents the maturities of lease liabilities as of October 2, 2021:
| Fiscal | (In thousands) | ||||
| 2022 (remaining six months) | $ | 6,570 | |||
| 2023 | 9,773 | ||||
| 2024 | 7,799 | ||||
| 2025 | 7,012 | ||||
| 2026 | 6,934 | ||||
| Thereafter | 22,992 | ||||
| Total lease payments | $ | 61,080 | |||
| Less: Imputed interest | (11,305) | ||||
| Total lease liabilities | $ | 49,775 | |||
The Company's leases were included as a component of the following condensed consolidated balance sheet lines:
| (In thousands) | October 2, 2021 | April 3, 2021 | ||||||||||||
| $ | 46,535 | $ | 48,322 | |||||||||||
| 9,158 | 10,461 | |||||||||||||
| 40,617 | 40,858 | |||||||||||||
The components of lease costs were as follows:
| Three Months Ended | Six Months Ended | ||||||||||||||||||||||
| (In thousands) | October 2, 2021 | September 26, 2020 | October 2, 2021 | September 26, 2020 | |||||||||||||||||||
| Operating lease cost | $ | 3,747 | $ | 3,558 | $ | 7,545 | $ | 7,258 | |||||||||||||||
| Lease income | (569) | (1,050) | (1,148) | (1,972) | |||||||||||||||||||
| Total lease cost | $ | 3,178 | $ | 2,508 | $ | 6,397 | $ | 5,286 | |||||||||||||||
Other information related to leases were as follows:
| Six Months Ended | |||||||||||
| (In thousands) | October 2, 2021 | September 26, 2020 | |||||||||
| Cash paid for operating leases included in operating cash flows | $ | 6,882 | $ | 6,808 | |||||||
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| October 2, 2021 | September 26, 2020 | |||||||
| Weighted-average remaining lease term - operating leases (in years) | 6.6 | 7.1 | ||||||
| Weighted-average remaining discount rate - operating leases | 5.5 | % | 5.7 | % | ||||
Other commitments as of October 2, 2021 totaled $230.7 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 to six months, as the products meet delivery and quality specifications. Additionally, as of October 2, 2021, the Company had $33.3 million commitments primarily related to open purchase orders from ordinary operations. These commitments expire at various dates through December 2023.
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 2022 and the end of fiscal 2021, 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 October 18, 2019, a patent infringement lawsuit was filed by Arbor Global Strategies LLC (Arbor) against the Company in the U.S. District Court in Delaware (Arbor Global Strategies LLC, v. Xilinx, Inc., Case No. 1:19-cv-01986). The lawsuit pertains to four patents and Arbor seeks unspecified damages, interest, attorneys’ fees, and costs. The Company filed a motion to dismiss the case on December 19, 2019 that was denied on August 12, 2020. On September 4, 2020, the Company filed four inter parties review (IPR) petitions directed at each of the four Arbor patents. On March 5, 2021, the Patent Trial and Appeal Board (PTAB) entered decisions granting institution of all four IPR petitions. Subsequently, the parties filed an agreed stay motion on March 10, 2021 for the district court litigation. On March 11, 2021, the Court issued an order staying the case until the issuance of the PTAB’s Final Written Decision on the last-instituted of the parties’ pending IPRs, which is expected no later than March 2022. The Company is unable to estimate its range of possible loss, if any, in this matter at this time.
On December 5, 2019, Analog Devices, Inc. (ADI) filed a patent infringement lawsuit against the Company in the United States District Court for the District of Delaware (Analog Devices, Inc. v. Xilinx, Inc., Case No. 1-19-cv-02225). The lawsuit pertains to eight patents and ADI seeks unspecified damages, interest, attorneys’ fees, costs, and a permanent injunction. The Company filed its answer and counterclaims alleging infringement by ADI of eight patents on January 21, 2020. The Company filed amended counterclaims on April 3, 2020. The Company filed a motion to strike ADI’s affirmative defense of inequitable conduct on May 8, 2020, which the Court granted on February 9, 2021. The parties exchanged infringement contentions on August 17, 2020, and invalidity contentions on September 15, 2020. Between July 17 and December 4, 2020, the Company filed nine IPR petitions challenging the patentability of seven ADI asserted patents. The PTAB entered decisions granting institution of IPR on six ADI asserted patents, U.S. Patent No. 10,250,250, U.S. Patent No. 8,487,659, U.S. Patent No. 7,012,463, U.S. Patent No. 7,286,075, U.S. Patent No. 6,900,750 and U.S. Patent No. 7,719,452. The PTAB entered a decision denying institution of IPR on one ADI asserted patent, U.S. Patent No. 7,274,321. Between August 31 and September 15, 2020, ADI filed eight IPR petitions challenging eight Xilinx asserted patents. The PTAB entered decisions granting institution of IPR on eight Xilinx asserted patents, U.S. Patent No. 8,548,071, U.S. Patent No. 7,224,184, U.S. Patent No. 7,088,767, U.S. Patent
22
No. 7,187,709, U.S. Patent No. 7,015,838, U.S. Patent No. 7,280,590, U.S. Patent No. 7,116,251 and U.S. Patent No. 6,975,132. On February 22, 2021, the Court issued an order staying the case until the issuance of the PTAB’s Final Written Decision on the last-instituted of the parties’ pending IPRs, which is expected no later than May 2022. At that time, if either party believes a stay should continue, that party may file a motion with the Court within 10 days after the issuance of the last decision, and the other party may oppose. The Company is unable to estimate its range of possible loss, if any, in this matter at this time.
On April 30, 2020, a patent infringement lawsuit was filed by FG SRC LLC (SRC) against the Company in the U.S. District Court in Delaware (FG SRC LLC, v. Xilinx, Inc., Case No. 1:20-cv-00601). The lawsuit pertains to two patents and SRC seeks unspecified damages, interest, and an on-going royalty. The Company filed its answer to the complaint on June 29, 2020. On July 20, 2020, SRC filed an amended complaint. On August 3, 2020, the Company filed a motion to dismiss the amended complaint. On August 6, 2020, the Company filed a motion to stay this case in Delaware bankruptcy court in view of the pending bankruptcy of the prior owner of the patents. This motion to stay was denied on September 23, 2020. The motion to dismiss was denied on February 10, 2021. On March 22, 2021, SRC filed an amended complaint removing one of the two previously asserted patents. Discovery in the case is now open. SRC’s infringement contentions were received on June 3, 2021, and invalidity contentions were served on July 22, 2021. A trial has been set for March 20, 2023. The Company is unable to estimate its range of possible loss, if any, in this matter at this time.
On September 16, 2020, five patent infringement lawsuits (Case Nos. 1:20-cv-01228, 1:20-cv-01229, 1:20-cv-01231, 1:20-cv-01232 1:20-cv-01233) were filed by WSOU Investments, LLC - d/b/a Brazos Licensing and Development (WSOU Investments) in the U.S. District Court in Delaware. Each lawsuit pertains to a single patent and WSOU Investments seeks unspecified damages, interest, attorneys’ fees, and costs. On November 9, 2020, the Company filed a motion to dismiss WSOU Investments’ indirect infringement claims in each of the cases. In response, WSOU Investments filed amended complaints, limiting its request for pre-suite damages to the direct infringement claims. The Company filed motions to dismiss the indirect infringement claims in the amended complaints on December 7, 2020. The Court entered a scheduling order on September 13, 2021, setting a trial date for June 2023. On June 8, 2021, the Court entered an order in each of the cases, dismissing the indirect infringement claims. The Company is unable to estimate its range of possible loss, if any, in this matter at this time.
The Company intends to continue to protect and defend its intellectual property (IP) vigorously.
On August 9, 2021, a former employee filed a lawsuit against the Company (Case No. 21-cv-385612) in the Superior Court of California in the County of Santa Clara. The lawsuit alleges fourteen causes of action, which include claims for violations of employment law under the theory of retaliation, for trade secret misappropriation under the federal Defend Trade Secrets Act, and various causes of action for common law and statutory forms of fraud. The plaintiff is seeking $365.0 million in damages. The Company demurred to the complaint on September 20, 2021. The Court has not set a date for hearing the demurrer. Discovery in the case is now open. The Company is unable to estimate its range of possible loss, if any, in this matter at this time. The Company’s management intends to contest the case vigorously.
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
A summary of the goodwill and acquisitions-related intangibles balances as of October 2, 2021 and April 3, 2021 was as follows:
| Weighted-Average | |||||||||||||||||
| (In thousands) | October 2, 2021 | April 3, 2021 | Amortization Life | ||||||||||||||
| Goodwill | $ | 633,200 | $ | 620,697 | |||||||||||||
| Core technology, gross | $ | 279,763 | $ | 249,847 | |||||||||||||
| Less accumulated amortization | (152,223) | (133,007) | |||||||||||||||
| Core technology, net | 127,540 | 116,840 | 3.6 years | ||||||||||||||
| Other intangibles, gross | 95,759 | 95,759 | |||||||||||||||
| Less accumulated amortization | (73,092) | (67,999) | |||||||||||||||
| Other intangibles, net | 22,667 | 27,760 | 3.0 years | ||||||||||||||
| In-process research and development | 17,088 | 26,992 | |||||||||||||||
| Total acquisition-related intangibles, gross | 392,610 | 372,598 | |||||||||||||||
| Less accumulated amortization | (225,315) | (201,006) | |||||||||||||||
| Total acquisition-related intangibles, net | $ | 167,295 | $ | 171,592 | |||||||||||||
During the first quarter of fiscal 2022, the Company completed an immaterial business combination, which resulted in increases to goodwill and core technology intangibles.
Based on the carrying value of acquisition-related intangibles recorded as of October 2, 2021, and assuming no subsequent acquisition or impairment of the underlying assets, the annual amortization expense for acquisition-related intangibles is expected to be as follows:
| Fiscal | (In thousands) | ||||
| 2022 (remaining six months) | $ | 24,014 | |||
| 2023 | 47,819 | ||||
| 2024 | 43,569 | ||||
| 2025 | 20,729 | ||||
| 2026 | 12,912 | ||||
| Thereafter | 1,164 | ||||
| Total | $ | 150,207 | |||
In-process research and development is 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. Segment Information
The Company designs, develops and markets programmable logic semiconductor devices and the related software design tools. The Company operates and tracks its results in one operating segment. The Company sells its products to OEMs and to electronic components distributors who resell these products to OEMs or subcontract manufacturers. Net revenues by geography for the periods indicated were as follows:
24
| Three Months Ended | Six Months Ended | ||||||||||||||||||||||
| (In thousands) | October 2, 2021 | September 26, 2020 | October 2, 2021 | September 26, 2020 | |||||||||||||||||||
| North America | $ | 240,029 | $ | 223,781 | $ | 440,023 | $ | 410,075 | |||||||||||||||
| Asia Pacific | 448,863 | 365,898 | 909,275 | 758,930 | |||||||||||||||||||
| Europe | 155,633 | 136,109 | 289,424 | 228,860 | |||||||||||||||||||
| Japan | 91,245 | 40,747 | 175,654 | 95,343 | |||||||||||||||||||
| Total net revenues | $ | 935,770 | $ | 766,535 | $ | 1,814,376 | $ | 1,493,208 | |||||||||||||||
Geographic revenue information for the second quarter and the first six months of fiscal 2022 and 2021 reflects the geographic ship-to location of the distributors or OEMs who purchased the Company's products. This may differ from the geographic location of the end customers.
The Company's end market revenue data is derived from the understanding of end customers’ primary markets, which is based on reports provided by distributors and the Company's internal records. The Company classifies end markets into businesses with similar market drivers: Aerospace & Defense, Industrial and Test, Measurement & Emulation (AIT); Automotive, Broadcast & Consumer; Wired & Wireless; and Data Center. Additionally, revenue recognized from shipments to distributors but not yet subsequently sold to the end markets is classified as Channel Revenue. The Channel Revenue represents the difference between the shipments to distributors and what the distributors subsequently sold to the end customers within the same period.
| Three Months Ended | Six Months Ended | ||||||||||||||||||||||
| (% of total net revenues) | October 2, 2021 | September 26, 2020 | October 2, 2021 | September 26, 2020 | |||||||||||||||||||
| AIT | 40 | % | 44 | % | 39 | % | 44 | % | |||||||||||||||
| Automotive, Broadcast and Consumer | 22 | 16 | 21 | 14 | |||||||||||||||||||
| Wired and Wireless | 31 | 26 | 30 | 29 | |||||||||||||||||||
| Data Center | 9 | 14 | 9 | 13 | |||||||||||||||||||
| Channel Revenue | (2) | — | 1 | — | |||||||||||||||||||
| Total net revenues | 100 | % | 100 | % | 100 | % | 100 | % | |||||||||||||||
Note 20. Subsequent Events
On October 27, 2021 the Company's Board of Directors voted unanimously to declare a cash dividend of $0.37 per outstanding share of common stock payable on November 15, 2021 to all stockholders of record at the close of business on November 8, 2021. The dividend is conditioned upon and will only be payable if the Merger has not closed on or before the record date for such dividend.
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Item 2.Management's Discussion and Analysis of Financial Condition and Results of Operations
Impact of COVID-19
The social and economic impact of the COVID-19 outbreak has continued since it was declared a pandemic by the World Health Organization in March 2020. While COVID-19 did not have a significant impact on our financial results in the second quarter and the first six months of fiscal 2022, it is difficult to accurately predict the ultimate impact that COVID-19 will have on our future results from operations, financial condition, liquidity and cash flows due to numerous uncertainties, including the availability, distribution and adoption of the vaccine, the applicability of government regulations related to the pandemic and the vaccine, the duration and severity of the pandemic and related containment measures. Our compliance with these measures has impacted, and could continue to impact, our business and operations, as well as those of our key customers, suppliers (including contract manufacturers) and other counterparties, for an indefinite period of time. During this unprecedented time, our priority has been to support our employees, customers, partners and communities, while positioning Xilinx for the future. For example, almost all of our employees have been working remotely since March 16, 2020. In addition, employees of many of our customers are also working remotely, which may delay the timing of some orders and deliveries expected in fiscal 2022.
As we continue to experience uncertainties and disruptions in connection with COVID-19, it remains uncertain when we would eventually resume normal operations in a post-pandemic environment. Uncertainties and disruptions caused by the COVID-19 pandemic continue to affect the overall demand from customers and the availability of supply chain, logistical services and component supply, which may adversely impact our business and financial results. For example, recent sharp increases in demand for semiconductor products, combined with the pandemic’s impacts, have resulted in a global shortage of manufacturing capacities, increased lead times, inability to meet demand, and increased costs in the semiconductor industry. As a result, we may experience increases in the costs to manufacture our products and may not be able to manufacture and deliver all orders placed by our customers on time. We will continue to closely monitor the pandemic's associated effects, such as our ability to collect receivables from those customers significantly impacted by COVID-19 related closures and disruptions, as well as changes in orders in a given period likely to affect our revenues in future periods, particularly if experienced on a sustained basis.
We currently expect that current cash and cash equivalent balances and cash flows that are generated from operations will be sufficient to meet our domestic and international working capital needs and other capital and liquidity requirements in the foreseeable future.
Critical Accounting Policies and Estimates
The methods, estimates and judgments we use in applying our most critical accounting policies have a significant impact on the results we report in our condensed consolidated financial statements. The SEC has defined critical accounting policies as those that are most important to the portrayal of our financial condition and results of operations and require us to make our most difficult and subjective judgments, often as a result of the need to make estimates of matters that are inherently uncertain. Based on this definition, our critical accounting policies include: valuation of marketable securities, which impacts losses on debt and equity securities when we record impairments; revenue recognition, which impacts the recording of revenues; and valuation of inventories, which impacts cost of revenues and gross margin. Our critical accounting policies also include: the assessment of impairment of long-lived assets, which impacts their valuation; the assessment of the recoverability of goodwill, which impacts goodwill impairment; accounting for income taxes, which impacts the provision or benefit recognized for income taxes, as well as the valuation of deferred tax assets recorded on our condensed consolidated balance sheet; and accounting for business combinations, which impacts the valuation of tangible and intangible assets recognized and liabilities assumed. For additional discussion, please refer to the information under the caption "Critical Accounting Policies and Estimates" in "Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations" included in our Form 10-K for the year ended April 3, 2021 filed with the SEC, and to "Note 2. Recent Accounting Changes and Accounting Pronouncements" to our condensed consolidated financial statements, included in Part I. "Financial Information." We also have other key accounting policies that are not as subjective, and therefore, their application would not require us to make estimates or judgments that are as difficult, but which nevertheless could significantly affect our financial reporting.
Due to the ongoing COVID-19 pandemic, there has been uncertainty and disruption in the global economy and financial markets. While we are not currently aware of any specific event or circumstance that would require an update to our estimates or judgments or a revision of the carrying value of our assets or liabilities as of October 2, 2021, these estimates may change as new events occur and additional information is obtained. Actual results could differ materially from these estimates under different assumptions or conditions.
26
Results of Operations: second quarter and first six months of fiscal 2022 compared to the second quarter and first six months of fiscal 2021
The following table sets forth statement of income data as a percentage of net revenues for the periods indicated:
| Three Months Ended | Six Months Ended | ||||||||||||||||||||||
| October 2, 2021 | September 26, 2020 | October 2, 2021 | September 26, 2020 | ||||||||||||||||||||
| Net revenues | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | |||||||||||||||
| Cost of revenues: | |||||||||||||||||||||||
| Cost of products sold | 31.3 | 28.4 | 31.7 | 29.7 | |||||||||||||||||||
| Amortization of acquisition-related intangibles | 1.1 | 0.9 | 1.1 | 0.9 | |||||||||||||||||||
| Total cost of revenues | 32.4 | 29.3 | 32.8 | 30.6 | |||||||||||||||||||
| Gross margin | 67.6 | 70.7 | 67.2 | 69.4 | |||||||||||||||||||
| Operating expenses: | |||||||||||||||||||||||
| Research and development | 27.2 | 28.7 | 27.7 | 28.8 | |||||||||||||||||||
| Selling, general and administrative | 13.5 | 14.8 | 13.8 | 14.7 | |||||||||||||||||||
| Amortization of acquisition-related intangibles | 0.2 | 0.4 | 0.3 | 0.4 | |||||||||||||||||||
| Total operating expenses | 40.9 | 43.9 | 41.8 | 43.9 | |||||||||||||||||||
| Operating income | 26.7 | 26.8 | 25.4 | 25.5 | |||||||||||||||||||
| Interest and other expense, net | (1.0) | (1.4) | (0.5) | (1.5) | |||||||||||||||||||
| Income before income taxes | 25.7 | 25.4 | 24.9 | 24.0 | |||||||||||||||||||
| Provision for income taxes | 0.6 | 0.1 | 0.6 | 4.7 | |||||||||||||||||||
| Net income | 25.1 | % | 25.3 | % | 24.3 | % | 19.3 | % | |||||||||||||||
Net Revenues
We sell our products to global manufacturers of electronic products in various end markets. The vast majority of our net revenues is generated by sales of our semiconductor products, but we also generate sales from support products. We classify our product offerings into two categories: Advanced Products and Core Products:
•Advanced Products are our most recent product offerings and include the Versal, UltraScale+, UltraScale and 7-series product families, and our production boards business composed of Alveo, Solarflare, Network, and System-On-Modules.
•Core Products consist of all other product families.
These product categories are modified on a periodic basis to better reflect the maturity of the products and advances in technology. The most recent modification was made on April 3, 2016, which was the beginning of our fiscal 2017, whereby we reclassified our product categories to be consistent with how these categories are analyzed and reviewed internally. Specifically, we are grouping the products manufactured at the 28 nanometer (nm), 20nm, 16nm and 7nm nodes as well as production boards into the Advanced Products category while all other products are grouped in the Core Products category.
Except for Avnet, no other distributor or end customer accounted for more than 10% of our worldwide net revenues for the second quarter and the first six months of fiscal 2022 or 2021.
Net Revenues by Product
Net revenues by product categories for the second quarter and the first six months of fiscal 2022 and 2021 were as follows:
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| Three Months Ended | Six Months Ended | ||||||||||||||||||||||||||||||||||
| (In millions) | October 2, 2021 | % Change | September 26, 2020 | October 2, 2021 | % Change | September 26, 2020 | |||||||||||||||||||||||||||||
| Advanced Products | $ | 688.1 | 28 | $ | 537.4 | $ | 1,318.1 | 28 | $ | 1,033.0 | |||||||||||||||||||||||||
| Core Products | 247.7 | 8 | 229.1 | 496.3 | 8 | 460.2 | |||||||||||||||||||||||||||||
| Total net revenues | $ | 935.8 | 22 | $ | 766.5 | $ | 1,814.4 | 22 | $ | 1,493.2 | |||||||||||||||||||||||||
Net revenues from Advanced Products increased in the second quarter and the first six months of fiscal 2022 compared to the comparable prior year periods. The increase was primarily due to higher revenue from the 16nm Zynq and Kintex Ultrascale Plus product families.
Net revenues from Core Products increased in the second quarter and the first six months of fiscal 2022 from the comparable prior year periods. The increase was largely due to higher sales from our Virtex-5 and Virtex-6 product families. Core Products are relatively mature products and, as a result, sales are expected to decline over time.
Net Revenues by End Markets
Our end market revenue data is derived from our understanding of our end customers’ primary markets, which is based on reports provided by distributors and our internal records. To provide additional visibility, starting April 1, 2019, we classify our end markets into businesses with similar market drivers: (i) Aerospace & Defense, Industrial and Test, Measurement & Emulation (AIT); (ii) Automotive, Broadcast & Consumer; (iii) Wired & Wireless; and (iv) Data Center. Additionally, we classify revenue recognized from shipments to distributors but not yet subsequently sold to the end markets as Channel Revenue. The Channel Revenue represents the difference between the shipments to distributors and what the distributors subsequently sold to the end customers within the same period. The percentage change calculation in the table below represents the year-to-year dollar change in each end market.
Net revenues by end markets for the second quarter and the first six months of fiscal 2022 and 2021 were as follows:
| Three Months Ended | Six Months Ended | ||||||||||||||||||||||||||||||||||
| (% of total net revenues) | October 2, 2021 | % Change in Dollars | September 26, 2020 | October 2, 2021 | % Change in Dollars | September 26, 2020 | |||||||||||||||||||||||||||||
| AIT | 40 | % | 13 | 44 | % | 39 | % | 6 | 44 | % | |||||||||||||||||||||||||
| Automotive, Broadcast and Consumer | 22 | 70 | 16 | 21 | 80 | 14 | |||||||||||||||||||||||||||||
| Wired and Wireless | 31 | 42 | 26 | 30 | 26 | 29 | |||||||||||||||||||||||||||||
| Data Center | 9 | (22) | 14 | 9 | (13) | 13 | |||||||||||||||||||||||||||||
| Channel Revenue | (2) | nm* | — | 1 | nm* | — | |||||||||||||||||||||||||||||
| Total net revenues | 100 | % | 22 | 100 | % | 100 | % | 22 | 100 | % | |||||||||||||||||||||||||
Net revenues from AIT increased, in terms of absolute dollar, in the second quarter and the first six months of fiscal 2022 from the comparable prior year periods. The increases were primarily due to higher sales from Industrial, Scientific, Medical business.
Net revenues from Automotive, Broadcast and Consumer increased, in terms of absolute dollar, in the second quarter and the first six months of fiscal 2022 from the comparable prior year periods. The increases were primarily due to higher sales from Audio, Video and Broadcast and Automotive businesses.
Net revenues from Wired and Wireless increased in the second quarter and the first six months of fiscal 2022 from the comparable prior year periods. The increases were primarily due to higher sales from Wireless business.
Net revenues from Data Center decreased in the second quarter and the first six months of fiscal 2022 from the comparable prior year periods. The decreases were driven primarily by lower sales from Compute applications, which was partially offset by higher sales from High Performance Computing and Networking businesses.
Channel Revenue decreased in the second quarter but increased first six months of fiscal 2022 from the comparable prior year periods. The decrease was primarily due to timing differences between shipments to distributors and subsequent distributor
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shipments to the end customers in the period. While we strive to improve and maintain the stability of distributor inventory balances, Channel Revenue can fluctuate driven by external factors such as the distributors' own inventory management, distributor revenue growth which may require higher absolute inventory levels and customer service objectives.
Net Revenues by Geography
Geographic revenue information reflects the geographic ship-to location of the distributors, original equipment manufacturers (OEMs) or contract manufacturers who purchased our products. This may differ from the geographic location of the end customers. Net revenues by geography for the second quarter and the first six months of fiscal 2022 and 2021 were as follows:
| Three Months Ended | Six Months Ended | ||||||||||||||||||||||||||||||||||
| (In millions) | October 2, 2021 | % Change | September 26, 2020 | October 2, 2021 | % Change | September 26, 2020 | |||||||||||||||||||||||||||||
| North America | $ | 240.1 | 7 | $ | 223.8 | $ | 440.1 | 7 | $ | 410.1 | |||||||||||||||||||||||||
| Asia Pacific | 448.9 | 23 | 365.9 | 909.3 | 20 | 758.9 | |||||||||||||||||||||||||||||
| Europe | 155.6 | 14 | 136.1 | 289.4 | 26 | 228.9 | |||||||||||||||||||||||||||||
| Japan | 91.2 | 124 | 40.7 | 175.6 | 84 | 95.3 | |||||||||||||||||||||||||||||
| Total net revenues | $ | 935.8 | 22 | $ | 766.5 | $ | 1,814.4 | 22 | $ | 1,493.2 | |||||||||||||||||||||||||
Net revenues in North America increased in the second quarter and the first six months of fiscal 2022 from the comparable prior year periods. The increases for the second quarter and the first six months of fiscal 2022 were primarily due to an increase in distributor shipments and higher sales from Test, Measurement and Emulation and Wired businesses.
Net revenues in Asia Pacific increased in the second quarter and the first six months of fiscal 2022 from the comparable prior year periods. The increases were primarily due to higher sales from Wireless business.
Net revenues in Europe increased in the second quarter and the first six months of fiscal 2022 from the comparable prior year periods. The increases for the second quarter and first six months of fiscal 2022 were primarily due to higher sales from Automotive and Wireless businesses, and were partially offset by decreases from Test, Measurement & Emulation business.
Net revenues in Japan increased in the second quarter and the first six months of fiscal 2022 from the comparable prior year periods. The increases were primarily due to higher sales from Wireless business.
Gross Margin
| Three Months Ended | Six Months Ended | ||||||||||||||||||||||||||||||||||
| (In millions) | October 2, 2021 | % Change | September 26, 2020 | October 2, 2021 | % Change | September 26, 2020 | |||||||||||||||||||||||||||||
| Gross margin | $ | 632.3 | 17 | % | $ | 541.7 | $ | 1,218.4 | 18 | % | $ | 1,035.6 | |||||||||||||||||||||||
| Percentage of net revenues | 67.6 | % | 70.7 | % | 67.2 | % | 69.4 | % | |||||||||||||||||||||||||||
Gross margin, as a percentage of revenues, was lower in both the second quarter and the first six months of fiscal 2022 from the comparable prior year periods. The decrease, as a percentage of revenue, for the second quarter of fiscal 2022 was driven primarily by changes in the end market mix, as the Wireless and Automotive businesses increased and Aerospace & Defense business decreased. The decrease, as a percentage of revenue, for the first six months of fiscal 2022 was also driven primarily by changes in the end market mix, as the Communications, Automotive and Industrial, Scientific, Medical businesses increased and the Aerospace & Defense business decreased.
Gross margin may be affected in the future due to multiple factors, including but not limited to those set forth in Item 1A. "Risk Factors," included in Part II of this Form 10-Q, shifts in the mix of customers and products, the COVID-19 pandemic, competitive-pricing pressure, manufacturing-yield issues and wafer pricing. We expect to mitigate any adverse impacts from these factors by continuing to improve yields on our Advanced Products, manufacturing efficiencies, and average selling price management. However, continuing growth in wireless business driven by the global deployment ramp of 5G wireless networks would result in lower gross margin percentage in the future.
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Price erosion is common in the semiconductor industry, due to advances in product architecture and greater integration of functions that historically has been driven by process technology but increasingly will depend on other means of integration like advanced packaging. In order to compete effectively, we strive to strike a balance between manufacturing cost and price structure to maintain acceptable margins. We historically have been able to offset much of such revenue decline in our mature products with increased revenue from newer products.
Research and Development
| Three Months Ended | Six Months Ended | ||||||||||||||||||||||||||||||||||
| (In millions) | October 2, 2021 | % Change | September 26, 2020 | October 2, 2021 | % Change | September 26, 2020 | |||||||||||||||||||||||||||||
| Research and development | $ | 253.9 | 16 | % | $ | 219.6 | $ | 501.9 | 17 | % | $ | ||||||||||||||||||||||||