United States
Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-K
(Mark One)
þ | Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the fiscal year ended March 29, 2014 | |
o | Transition report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the transition period from ___________ to ____________. | |
Commission File Number 000-18548
Xilinx, Inc.
(Exact name of registrant as specified in its charter)
Delaware | 77-0188631 | |
(State or other jurisdiction of | (I.R.S. Employer | |
incorporation or organization) | Identification No.) | |
2100 Logic Drive, San Jose, CA | 95124 | |
(Address of principal executive offices) | (Zip Code) | |
(Registrant’s telephone number, including area code) (408) 559-7778
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Name of each exchange on which registered | |
Common stock, $0.01 par value | The NASDAQ Global Select Market | |
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. YES þ NO o
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. YES o NO þ
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 þ NO o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YES þ NO o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405) is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer þ | Accelerated filer o | Non-accelerated filer o | Smaller reporting company o | |||
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). YES o NO þ
The aggregate market value of the voting stock held by non-affiliates of the registrant based upon the closing price of the registrant’s common stock on September 28, 2013 as reported on the NASDAQ Global Select Market was approximately $10,272,092,000. Shares of common stock held by each executive officer and director and by each person who owns 5% or more of the outstanding common stock have been excluded in that such persons may be deemed affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes.
As of April 25, 2014, the registrant had 268,794,081 shares of Common Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Parts of the Proxy Statement for the Registrant’s Annual Meeting of Stockholders to be held on August 13, 2014 are incorporated by reference into Part III of this Annual Report on Form 10-K.
Xilinx, Inc.
Form 10-K
For the Fiscal Year Ended March 29, 2014
TABLE OF CONTENTS
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PART I
FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements may be found throughout this Annual Report and particularly in Items 1. "Business" and 3. "Legal Proceedings" which contain discussions concerning our development efforts, strategy, new product introductions, backlog and litigation. Forward-looking statements involve numerous known and unknown risks and uncertainties that could cause actual results to differ materially and adversely from those expressed or implied. Such risks include, but are not limited to, those discussed throughout this document as well as in Item 1A. "Risk Factors." Often, forward-looking statements can be identified by the use of forward-looking words, such as "anticipates," "believes," "continue," "could," "estimates," "expects," "intends," "may," "plans," "projects," "should," "will," "would" 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 Annual Report or in any of our other communications for any reason.
ITEM 1. | BUSINESS |
Xilinx, Inc. (Xilinx, the Company or we) designs and develops programmable devices and associated technologies, including:
• | integrated circuits (ICs) in the form of programmable logic devices (PLDs), including programmable System on Chips (SoCs) and three-dimensional ICs, or 3D ICs; |
• | software design tools to program the PLDs; |
• | targeted reference designs; |
• | printed circuit boards; and |
• | intellectual property (IP), which consists of Xilinx and various third-party verification and IP cores. |
In addition to its programmable platforms, Xilinx provides design services, customer training, field engineering and technical support.
Our PLDs include field programmable gate arrays (FPGAs), complex programmable logic devices (CPLDs) that our customers program to perform desired logic functions, and programmable SoCs, which combine industry standard ARM® processor-based systems with programmable logic in a single device. We also design and develop 3D ICs, which combine multiple FPGA logic die or a combination of FPGA and transceiver die in a single package to exceed the capacity and bandwidth of monolithic devices. Our product portfolio is designed to provide high integration and quick time-to-market for electronic equipment manufacturers in end markets such as wired and wireless communications, industrial, scientific and medical, aerospace and defense, audio, video and broadcast, consumer, automotive and data processing.
We sell our products and services through independent domestic and foreign distributors and through direct sales to original equipment manufacturers (OEMs) and electronic manufacturing service providers (EMS). Sales are generated by these independent distributors, independent sales representative or our direct sales organization.
Xilinx was founded and incorporated in California in February 1984. In April 1990, the Company was reincorporated in Delaware. Our corporate facilities and executive offices are located at 2100 Logic Drive, San Jose, California 95124, and our website address is www.xilinx.com.
Industry Overview
There are three principal types of ICs used in most digital electronic systems: processors, which generally are utilized for control and computing tasks; memory devices, which are used for storing program instructions and data; and logic devices, which generally are used to manage the interchange and manipulation of digital signals within a system. Xilinx designs and develops PLDs, a type of logic device. Alternatives to PLDs may include application specific integrated circuits (ASICs) and application specific standard products (ASSPs). PLDs, ASICs and ASSPs may be utilized in many of the same types of electronic systems. However, differences in unit pricing, development cost, product performance, reliability, power consumption, capacity, features and functionality, ease of use and time-to-market determine which devices are best-suited for specific applications.
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PLDs have key competitive advantages over ASICs and ASSPs, including:
• | Faster time-to-market and increased design flexibility. Both of these advantages are enabled by Xilinx desktop software which allows users to implement and revise their designs quickly. In contrast, ASICs and ASSPs require significant development time and offer limited, if any, flexibility to make design changes. |
• | PLDs are standard components. This means that the same device can be sold to many different users for a myriad of applications. In sharp contrast, ASICs and ASSPs are customized for an individual user or a specific application. |
PLDs are generally disadvantaged in terms of relative device size when compared to chips that are designed to perform a fixed function in a single or small set of applications. ASICs and ASSPs tend to be smaller than PLDs performing the same fixed function, resulting in a lower unit cost. However, there is a high fixed cost associated with ASIC and ASSP development that is not applicable to PLD customers. This fixed cost of ASIC and ASSP development is expected to significantly increase on next generation technology nodes. From a total cost of development perspective, ASICs and ASSPs have generally been more cost effective when used in high-volume production, and PLDs have generally been more cost effective when used in low- to mid-volume production. However, we expect PLDs to be able to address higher volume applications and gain market share from ASIC and ASSP suppliers as the fixed cost of ASIC and ASSP development increases on next generation technology nodes.
An overview of typical PLD end market applications for our products is shown in the following table:
End Markets | Sub-Segments | Applications | ||
Communications & Data Center | Wireless | • 3G/4G Base Stations | ||
• Wireless Backhaul | ||||
Wireline | • Enterprise Routers and Switches | |||
• Metro Optical Networks | ||||
• Data Centers | ||||
Industrial, Aerospace & Defense | Industrial, Scientific and Medical | • Factory Automation | ||
• Medical Imaging | ||||
Test and Measurement | • Semiconductor Test and Measurement Equipment | |||
• ASIC Emulation and Prototyping | ||||
Aerospace and Defense | • Secure Communications | |||
• Avionics | ||||
• Electronic Warfare and Surveillance | ||||
Broadcast, Consumer & | Consumer | • Digital Televisions | ||
Automotive | • Multifunction Printers | |||
• Set-Top Boxes | ||||
Automotive | • Infotainment Systems | |||
• Driver Information Systems | ||||
• Driver Assistance Systems | ||||
Audio, Video and Broadcast | • Cable Head-End Systems | |||
• Post Production Equipment | ||||
• Broadcast Cameras | ||||
Other | Miscellaneous | • High Performance Computing | ||
• Computer Peripherals | ||||
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Strategy and Competition
Our strategy for expansion is the displacement of ASICs and ASSPs in the development of next generation electronic systems. The costs and risks associated with application-specific devices can only be justified for high-volume or highly-specialized commodity products. Programmable platforms, alternatively, are becoming critical for our customers to meet increasingly stringent product requirements - cost, power, performance and density - in a business environment characterized by increased complexity, shrinking market windows, rapidly changing market demands, capped engineering budgets, escalating ASIC and ASSP non-recurring engineering costs and increased economic and development risk.
With every new generation of FPGAs, our strategy is to increase the performance, density and system-level functionality and integration, while driving down cost and power consumption at each manufacturing process node. This enables us to provide simpler, smarter programmable platforms and design methodologies allowing our customers to focus on innovation and differentiation of their products.
Our PLDs compete in the logic IC industry, an industry that is intensely competitive and characterized by rapid technological change, increasing levels of integration, product obsolescence and continuous price erosion. We expect increased competition from our primary PLD competitors such as Altera Corporation (Altera), Lattice Semiconductor Corporation (Lattice) and Microsemi Corporation (Microsemi), and from ASSP vendors such as Broadcom Corporation (Broadcom), Marvell Technology Group, Ltd. (Marvell) and Texas Instruments Incorporated (Texas Instruments), as well as from new companies that may enter the traditional programmable logic market segment. In addition, we expect continued competition from the ASIC market, which has been ongoing since the inception of FPGAs. Other competitors include manufacturers of:
• | high-density programmable logic products characterized by FPGA-type architectures; |
• | high-volume and low-cost FPGAs as programmable replacements for ASICs and ASSPs; |
• | ASICs and ASSPs with incremental amounts of embedded programmable logic; |
• | high-speed, low-density CPLDs; |
• | high-performance digital signal processing (DSP) devices; |
• | products with embedded processors; |
• | products with embedded multi-gigabit transceivers; and |
• | other new or emerging programmable logic products. |
We believe that important competitive factors in the logic IC industry include:
• | product pricing; |
• | time-to-market; |
• | product performance, reliability, quality, power consumption and density; |
• | field upgradability; |
• | adaptability of products to specific applications; |
• | ease of use and functionality of software design tools; |
• | availability and functionality of predefined IP; |
• | inventory and supply chain management; |
• | access to leading-edge process technology and assembly capacity; |
• | ability to provide timely customer service and support; and |
• | access to advanced packaging technology. |
Silicon Product Overview
A brief overview of the silicon product offerings is listed in the table below. These products comprise the majority of our revenues. Additionally, some of our more mature product families have been excluded from the table, although they continue to generate revenues. We operate and track our results in one operating segment for financial reporting purposes.
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Product Families
PLDs | Date Introduced |
Kintex®UltraScaleTM | November 2013 |
Virtex®-7 | June 2010 |
Kintex-7 | June 2010 |
Artix®-7 | June 2010 |
Zynq®-7000 | March 2011 |
Virtex-6 | February 2009 |
Spartan®-6 | February 2009 |
Virtex-5 | May 2006 |
See information under the caption "Results of Operations - Net Revenues" in Item 7. "Management’s Discussion and Analysis of Financial Condition and Results of Operations" for information about our revenues from our product families. See also "Note 16. Segment Information" to our consolidated financial statements included in Item 8 "Financial Information and Supplementary Data" for information regarding segments.
UltraScale Product Families
These devices deliver an ASIC-class advantage, based on the UltraScale architecture and utilizing Taiwan Semiconductor Manufacturing Company Limited's (TSMC) 20SoC gate density process. These devices deliver next generation routing, ASIC-like clocking, and enhancements to logic and fabric to eliminate interconnect bottlenecks while supporting consistent device utilization of more than 90% without performance degradation.
• | Kintex UltraScale FPGAs represent the Company’s second generation mid-range FPGA family. These devices offer high price-performance at the lowest power. Kintex UltraScale devices are designed to meet the requirements for the growing number of key applications including next generation wired and wireless communications and super high vision displays and equipment. |
• | Virtex UltraScale devices provide advanced levels of performance, system integration and bandwidth on a single chip. The largest family member delivers 4.4M logic cells, more than doubling Xilinx's industry's highest capacity device and delivering 50M equivalent ASIC gates. Virtex UltraScale devices are expected to be used in the industry’s most challenging applications including: 400G communication applications, high performance computing, intelligence surveillance and reconnaissance systems and ASIC emulation and prototyping. |
28 nanometer (nm) Product Families
The 7 series devices that comprise our 28nm product families are fabricated on a high-K metal gate, high performance and low power 28nm process technology. These devices are based on a scalable and optimized architecture, which enables design, IP portability and re-use across all families as well as provides designers the ability to achieve the appropriate combination of I/O support, performance, feature quantities, packaging and power consumption to address a wide range of applications. The 7 series devices consist of the following three families:
• | Virtex-7 FPGAs, including 3D ICs, are optimized for applications requiring the highest capacity, performance, DSP and serial connectivity with transceivers operating up to 28G. Target applications include 400G and 100G line cards, high-performance computing and test and measurement applications. |
• | Kintex-7 FPGAs represent Xilinx’s first mid-range FPGA family. These devices maximize price-performance and performance per watt. Target applications include wireless LTE infrastructure, video display technology and medical imaging. |
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• | Artix-7 FPGAs offer the lowest power and system cost at higher performance than alternative high volume FPGAs. These devices are targeted to high volume applications such as handheld portable ultrasound devices, multi-function printers and software defined radios. |
The Zynq-7000 family is the first family of Xilinx programmable SoCs. This new class of product combines an industry-standard ARM dual-core Cortex™-A9 MPCore™ processing system with Xilinx 28nm architecture. There are five devices in the Zynq-7000 SoC family that allow designers to target cost sensitive as well as high-performance applications from a single platform using industry-standard tools. These devices are designed to enable incremental market opportunities in applications such as industrial motor control, driver assistance and smart surveillance systems, and smart heterogeneous wireless networks.
40nm and 45nm Product Families
The Virtex-6 FPGA family consists of 13 devices and is the sixth generation in the Virtex series of FPGAs. Virtex-6 FPGAs are fabricated on a high-performance, 40nm process technology. There are three Virtex-6 families, and each is optimized to deliver different feature mixes to address a variety of markets as follows:
• | Virtex-6 LXT FPGAs - optimized for applications that require high-performance logic, DSP and serial connectivity with low-power 6.6G serial transceivers. |
• | Virtex-6 SXT FPGAs - optimized for applications that require ultra-high-performance DSP and serial connectivity with low-power 6.6G serial transceivers. |
• | Virtex-6 HXT FPGAs - optimized for communications applications that require the highest-speed serial connectivity with up to 11.2G serial transceivers. |
The latest generation in the Spartan FPGA series, the Spartan-6 FPGA family, is fabricated on a low-power 45nm process technology. The Spartan-6 family is the PLD industry’s first 45nm high-volume FPGA family, consisting of 11 devices in two product families:
• | Spartan-6 LX FPGAs - optimized for applications that require the lowest cost. |
• | Spartan-6 LXT FPGAs - optimized for applications that require LX features plus 3.125G serial transceivers. |
65nm Product Families
The Virtex-5 FPGA family consists of 26 devices in five product families: Virtex-5 LX FPGAs for logic-intensive designs, Virtex-5 LXT FPGAs for high-performance logic with serial connectivity, Virtex-5 SXT FPGAs for high-performance DSP with serial connectivity, Virtex-5 FXT FPGAs for embedded processing with serial connectivity and Virtex-5 TXT FPGAs for high-bandwidth serial connectivity.
Other Product Families
Prior generation Virtex families include Virtex-4, Virtex-II Pro, Virtex-II, Virtex-E and the original Virtex family. Spartan family FPGAs include 90nm Spartan-3 FPGAs, the Spartan-3E family and the Spartan-3A family. Prior generation Spartan families include Spartan-IIE, Spartan-II, Spartan XL and the original Spartan family.
CPLDs operate on the lowest end of the programmable logic density spectrum. CPLDs are single-chip, nonvolatile solutions characterized by instant-on and universal interconnect. CPLDs combine the advantages of ultra-low power consumption with the benefits of high performance and low cost. Prior generations of CPLDs include the CoolRunnerTM and XC9500 product families.
EasyPath™ FPGAs
EasyPath FPGAs offer customers a fast, simple method of cost-reducing FPGA designs. EasyPath FPGAs use the same production masks and fabrication process as standard FPGAs and are tested to a specific customer application to improve yield and lower costs. As a result, EasyPath FPGAs provide customers with significant cost reduction when compared to the standard FPGA devices without the conversion risk, engineering effort, or the additional time required to move to an ASIC. The latest generation of EasyPath FPGAs and EasyPath-7 FPGAs provide lower total product cost of ownership for cost-reducing high performance FPGAs.
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Design Platforms and Services
Programmable Platforms
We offer three types of programmable platforms that support our customers’ designs and reduce their development efforts:
The Base Platform is the delivery vehicle for all of our new silicon offerings used to develop and run customer-specific software applications and hardware designs. Released at launch, the Base Platform is comprised of: FPGA silicon; Vivado® Design Suite design environment; integration support of optional third-party synthesis, simulation, and signal integrity tools; reference designs; development boards and IP.
The Domain-Specific Platform targets one of the three primary Xilinx FPGA user profiles: the embedded processing developer; the DSP developer; or the logic/connectivity developer. It accomplishes this by augmenting the Base Platform with a targeted set of integrated technologies, including: higher-level design methodologies and tools; domain-specific IP including embedded, mixed signal, video, DSP and connectivity; domain-specific development hardware and reference designs; and operating systems and software.
The Market-Specific Platform enables software or hardware developers to quickly build and run their specific application or solution. Built for specific markets such as automotive, consumer, aerospace and defense, communications, audio, video and broadcast, industrial, or scientific and medical, the Market-Specific Platform integrates both the Base and Domain-Specific Platforms with higher targeted applications elements such as IP, reference designs and boards optimized for a particular market.
Design Tools
To accommodate the various design methodologies and design flows employed by the wide range of our customers’ user profiles such as system designers, algorithm designers, software coders and logic designers, we provide the appropriate design environment tailored to each user profile for design creation, design implementation and design verification. During April 2012, Xilinx introduced the next-generation Vivado Design Suite designed to improve developer productivity resulting in faster design integration and implementation. The Vivado Design Suite hallmarks include an easy-to-use IP-centric design flow and significant improvement in run times. The standards-based Vivado tools include high-level synthesis to provide a more direct flow in retargeting DSPs and general purpose processor designs into our FPGAs, IP Integrator to rapidly stitch together cores at higher levels of abstraction, and a new analytical place-and-route engine which significantly improves run times. The Vivado Design Suite supports both Xilinx 7 series FPGAs and Zynq-7000, our programmable SoCs.
The previous generation tool suite, the ISE® Design Suite, supports Xilinx 7 series FPGAs, programmable SoCs and all previous generation FPGAs, enabling customers to transition to the Vivado Design Suite when the timing is right for their design needs. Both the Vivado Design Suite and ISE Design Suite operate with a wide range of third-party Electronic Design Automation software point-tools offerings.
Intellectual Property
Xilinx and various third parties offer hundreds of no charge and fee-bearing IP core licenses covering Ethernet, memory controllers, Interlaken and PCIe® interfaces, as well as an abundance of domain-specific IP in the areas of embedded, DSP and connectivity, and market-specific IP cores. In addition, our products and technology leverage industry standards such as ARM AMBA® AXI-4 interconnect technology, IP-XACT and IEEE P1735 encryption to facilitate plug-and-play FPGA design and take advantage of the large ecosystem of ARM IP developers.
Development Boards, Kits and Configuration Products
In addition to the broad selection of legacy development boards presently offered, we have introduced a new unified board strategy that enables the creation of a standardized and coordinated set of base boards available both from Xilinx and our ecosystem vendors, all utilizing the industry-standard extensions that enable customization for market specific applications. Adopting this standard for all of our base boards enables the creation of a scalable and extensible delivery mechanism for all Xilinx programmable platforms.
We also offer comprehensive development kits including hardware, design tools, IP and reference designs that are designed to streamline and accelerate the development of domain-specific and market-specific applications.
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Finally, Xilinx offers a range of configuration products including one-time programmable and in-system programmable storage devices to configure Xilinx FPGAs. These programmable read-only memory (PROM) products support all of our FPGA devices.
Third-Party Alliances
Xilinx and certain third parties have developed and continue to offer a robust ecosystem of IP, boards, tools, services and support through the Xilinx alliance program. Xilinx also works with these third parties to promote our programmable platforms through third-party tools, IP, software, boards and design services.
Engineering Services
Xilinx engineering services provide customers with engineering resources to augment their design teams and to provide expert design-specific advice. Xilinx tailors its engineering services to the needs of its customers, ranging from hands-on training to full design creation and implementation.
Research and Development
Our research and development (R&D) activities are primarily directed toward the design of new ICs, the development of new software design automation tools for hardware and embedded software, the design of logic IP, the adoption of advanced semiconductor manufacturing processes for ongoing cost reductions, performance and signal integrity improvements and lowering PLD power consumption. As a result of our R&D efforts, we have introduced a number of new products during the past several years including the Virtex UltraScale, Kintex UltraScale, Virtex-7, Kintex-7, Artix-7 and Zynq-7000 families. We have made enhancements to our IP core offerings and introduced Vivado tools, our next generation software design suite. We extended our collaboration with our foundry suppliers in the development of 65nm, 45nm, 40nm and 28nm manufacturing technology, enabling us to be the first company in the PLD industry to ship 45nm high-volume as well as 28nm and 20nm FPGA devices. Additionally, our investment in R&D has allowed us to ship the industry’s first 28nm with embedded ARM technology as well as the industry’s first 3D IC devices.
Our R&D challenge is to continue to develop new products that create value-added solutions for customers. In fiscal 2014, 2013 and 2012, our R&D expenses were $492.4 million, $475.5 million and $435.3 million, respectively. We believe technical leadership and innovation are essential to our future success and are committed to maintaining a significant level of R&D investment.
Sales and Distribution
We sell our products to OEMs, EMSs and to electronic components distributors who resell these products to OEMs and EMSs.
We use a dedicated global sales and marketing organization as well as independent sales representatives to generate sales. In general, we focus our direct demand creation efforts on a limited number of key accounts. Distributors and independent sales representatives create demand within the balance of our customer base in defined territories. Distributors also provide inventory, value-added services and logistics for a wide range of our OEM customers.
Whether Xilinx, the independent sales representative, or the distributor identifies the sales opportunity, a local distributor will process and fulfill the majority of all customer orders. In such situations, distributors are the sellers of the products and as such they bear all legal and financial risks generally related to the sale of commercial goods, including such risks as credit loss, inventory shrinkage, theft and foreign currency fluctuations, but excluding indemnity and warranty liability.
In accordance with our distribution agreements and industry practice, we have granted our authorized distributors the contractual right to return certain amounts of unsold product on a periodic basis and also receive price adjustments for unsold product in the case of a change in list prices subsequent to the initial sale. Revenue recognition on shipments to distributors worldwide is deferred until the products are sold to the distributors’ end customers.
Avnet, Inc. (Avnet) distributes the substantial majority of our products worldwide. As of March 29, 2014 and March 30, 2013, Avnet accounted for 55% and 64%, respectively, of our total accounts receivable. Resale of product through Avnet accounted for 46%, 46% and 48% of our worldwide net revenues in fiscal 2014, 2013 and 2012, respectively. We also use other regional distributors throughout the world. We believe distributors provide a cost-effective means of reaching a broad range of customers while providing efficient logistics services. Since PLDs are standard products, they do not carry many of the inventory risks posed by ASICs, and they simplify the requirements for distributor technical support. From time to time, we may add or terminate distributors in specific geographies, or move customers to a direct fulfillment model as we deem appropriate given our strategies, the level of distributor business activity and distributor performance and financial condition. See "Note 2. Summary of Significant
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Accounting Policies and Concentrations of Risk" to our consolidated financial statements, included in Item 8. "Financial Statements and Supplementary Data," for information about concentrations of credit risk and "Note 16. Segment Information" for information about our revenues from external customers and domestic and international operations.
No end customer accounted for more than 10% of our net revenues in fiscal 2014, 2013 or 2012.
Backlog
As of March 29, 2014, our backlog from OEM customers and backlog from end customers reported by our distributors scheduled for delivery within the next three months was $322.0 million, compared to $253.0 million as of March 30, 2013. Orders from end customers to our distributors are subject to changes in delivery schedules or to cancellation without significant penalty. As a result, backlog from both OEM customers and end customers reported by our distributors as of any particular period may not be a reliable indicator of revenue for any future period.
Wafer Fabrication
As a fabless semiconductor company, we do not manufacture wafers used for our IC products or PROMs. Rather, we purchase our wafers from independent foundries including United Microelectronics Corporation (UMC), TSMC, and Samsung Electronics Co., Ltd. (Samsung). Currently, UMC manufactures the majority of our wafers and TSMC manufactures the wafers for our newest products.
Precise terms with respect to the volume and timing of wafer production and the pricing of wafers produced by the semiconductor foundries are determined by periodic negotiations with each wafer foundry.
Our strategy is to focus our resources on market development and creating new ICs and software design tools rather than on wafer fabrication. We continuously evaluate opportunities to enhance foundry relationships and/or obtain additional capacity from our main suppliers as well as other suppliers of wafers manufactured with leading-edge process technologies, and we adjust loadings at particular foundries to meet our business needs.
Sort, Assembly and Test
Wafers are sorted by the foundry or independent sort subcontractors. Sorted die are assembled by subcontractors. During the assembly process, the wafers are separated into individual die, which are then assembled into various package types. Following assembly, the packaged units are generally tested by independent test subcontractors or by Xilinx personnel. We purchase most of our assembly and some of our test services from Siliconware Precision Industries Ltd. in Taiwan and Amkor Technology, Inc. in Korea and the Philippines.
Quality Certification
Xilinx has achieved and currently maintains quality management systems certification to TL9000/ISO9001 for our facilities in San Jose, California; Longmont, Colorado; Singapore and Hyderabad, India. In addition, Xilinx achieved and currently maintains ISO 14001 and OHSAS 18001 environmental health and safety management system certifications in the San Jose and Singapore locations.
Patents and Licenses
While our various proprietary intellectual property rights are important to our success, we believe our business as a whole is not materially dependent on any particular patent or license, or any particular group of patents or licenses. As of March 29, 2014, we held over 3,200 issued United States (U.S.) patents, which vary in duration, and over 300 pending U.S. patent applications relating to our proprietary technology. We maintain an active program of filing for additional patents in the areas of, but not limited to, circuits, software, IC architecture, IP cores, system design, testing methodologies and other technologies relating to our products and business. We have licensed some parties to certain portions of our patent portfolio and obtained licenses to certain third-party patents as well.
We have acquired various licenses from third parties to certain technologies that are implemented in IP cores or embedded in our PLDs, such as processors. Those licenses support our continuing ability to make and sell these PLDs to our customers. We also have acquired various licenses to certain third-party proprietary software, open-source software and related technologies, such as compilers, for our design tools. Continued use of such software and technology is important to the operation of the design tools upon which customers depend.
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We maintain the Xilinx trade name and trademarks, including the following trademarks that are registered in the U.S. and other countries: Xilinx, the Xilinx logo, Artix, ISE, Kintex, Spartan, Virtex, Vivado and Zynq. Maintaining these trademarks, and the goodwill associated with them, is important to our business. We have also obtained the rights to use certain trademarks owned by consortiums and other trademark owners that are related to our products and business.
We intend to continue to protect our IP rights (including, for example, patents, copyrights and trademarks) vigorously. We believe that failure to enforce our intellectual property rights or failure to protect our trade secrets effectively could have an adverse effect on our financial condition and results of operations. We incurred, and in the future we may continue to incur, litigation expenses to defend against claims of infringement and to enforce our intellectual property rights against third parties. However, any such litigation may or may not be successful.
Corporate Responsibility
Xilinx places a high level of importance on corporate responsibility. Through senior-level sponsorship, regular environmental, health and safety assessments and company-wide performance targets, we strive to achieve a culture that emphasizes contribution to local and global communities through a number of key initiatives:
Company
We strive to meet or exceed industry and regulatory standards for ethical business practices, product responsibility, and supplier management. All of Xilinx’s directors, officers and employees are required to comply not only with the letter of the laws, rules and regulations that govern the conduct of our business, but also with the spirit of those laws.
Environment
We monitor regulatory and resource trends and are committed to setting focused targets for key resources and emissions. These targets address several parameters, including product design; chemical, energy, and water use; waste recycling; and emissions. As a company, we focus on reducing natural resource use, the solid and chemical waste of our operations and minimizing our overall environmental impact with regards to the communities around us and consistent with global climate change efforts.
Community
We are committed to growing strategic relationships with a wide range of local organizations and programs that are designed to develop and strengthen communities located around the world. Xilinx develops local community relationships at key sites through funding and involvement that encourages active participation, teamwork, and volunteerism. Xilinx supports opportunities initiated by its employees and that involve participation and empowerment of its employees. We are committed to charitable giving programs that work toward systemic change and measurable results.
Workplace
We provide a safe and healthy work environment where employee diversity is embraced and opportunities for training, growth, and advancement are strongly encouraged. The Xilinx Code of Social Responsibility outlines standards to ensure that working conditions at Xilinx are safe and that workers are treated with respect, fairness and dignity.
Employees
As of March 29, 2014, we had 3,500 employees compared to 3,329 as of the end of the prior fiscal year. None of our employees are represented by a labor union. We have not experienced any work stoppages and believe we maintain good employee relations.
Executive Officers of the Registrant
Certain information regarding the executive officers of Xilinx as of May 16, 2014 is set forth below:
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Name | Age | Position | ||
Moshe N. Gavrielov | 59 | President and Chief Executive Officer (CEO) | ||
Steven L. Glaser | 52 | Senior Vice President, Corporate Strategy and Marketing | ||
Scott R. Hover-Smoot | 59 | Senior Vice President, General Counsel and Secretary | ||
Jon A. Olson | 60 | Executive Vice President, Finance and Chief Financial Officer (CFO) | ||
Victor Peng | 54 | Executive Vice President and General Manager of Products | ||
Raja G. Petrakian | 49 | Senior Vice President, Worldwide Operations | ||
Krishna Rangasayee | 45 | Senior Vice President and General Manager, Market Segments and Communications Business Unit | ||
Vincent L. Tong | 52 | Senior Vice President, Worldwide Quality and New Product Introductions | ||
Frank A. Tornaghi | 59 | Senior Vice President, Worldwide Sales | ||
There are no family relationships among the executive officers of the Company or the Board of Directors.
Moshe N. Gavrielov joined the Company in January 2008 as President and CEO and was appointed to the Board of Directors in February 2008. Prior to joining the Company, Mr. Gavrielov served at Cadence Design Systems, Inc., an electronic design automation company, as Executive Vice President and General Manager of the Verification Division from April 2005 through November 2007. Mr. Gavrielov served as CEO of Verisity Ltd., an electronic design automation company, from March 1998 to April 2005 before its acquisition by Cadence Design Systems, Inc. Prior to joining Verisity, Mr. Gavrielov spent nearly 10 years at LSI Corporation (formerly LSI Logic Corporation), a semiconductor manufacturer, in a variety of executive management positions, including Executive Vice President of the Products Group, Senior Vice President and General Manager of International Marketing and Sales and Senior Vice President and General Manager of LSI Logic Europe plc. Additionally, Mr. Gavrielov held various engineering and engineering management positions at Digital Equipment Corporation and National Semiconductor Corporation.
Steven L. Glaser joined the Company in January 2011 as Corporate Vice President, Strategic Planning. In April 2012, Mr. Glaser was promoted to his current position of Senior Vice President, Corporate Strategy and Marketing. Prior to joining the Company, Mr. Glaser held various senior positions in Cadence Design Systems between April 2005 and January 2011, including Corporate Vice President of Strategic Development and Corporate Vice President of Marketing for the Verification Division. From June 2003 to April 2005, he served as Senior Vice President of Marketing at Verisity Ltd. Prior to that, Mr. Glaser held various senior business and technical positions at companies in the semiconductor and electronic design automation industries.
Scott R. Hover-Smoot joined the Company in October 2007 and currently serves as Senior Vice President, General Counsel and Secretary, a position he has held since May 2014. From October 2007 to May 2014, Mr. Hover-Smoot served as Corporate Vice President, General Counsel and Secretary. From November 2001 to October 2007, Mr. Hover-Smoot served as Regional Counsel and Director of Legal Operations with TSMC, an independent semiconductor foundry. He served as Vice President and General Counsel of California Micro Devices Corporation, a provider of application-specific protection devices and display electronics devices from June 1994 to November 2001. Prior to joining California Micro Devices Corporation, Mr. Hover-Smoot spent over 20 years working in law firms including Berliner-Cohen, Flehr, Hohbach, Test, Albritton & Herbert and Lyon & Lyon.
Jon A. Olson joined the Company in June 2005 and currently serves as Executive Vice President, Finance and CFO, a position he has held since May 2014. From August 2006 to May 2014, Mr. Olson served as Senior Vice President, Finance and CFO. From June 2005 to August 2006, he served as Vice President, Finance and CFO. Prior to joining the Company, Mr. Olson spent more than 25 years at Intel Corporation, a semiconductor chip maker, serving in a variety of positions, including Vice President, Finance and Enterprise Services, and Director of Finance.
Victor Peng joined the Company in April 2008 and currently serves as Executive Vice President and General Manager of Products, a position he has held since May 2014. From October 2013 to May 2014, Mr. Peng served as Senior Vice President and General Manager of Products. From April 2012 to October 2013, he served as Senior Vice President, Programmable Platforms Development. From November 2008 to April 2012, he served as Senior Vice President, Silicon Engineering Group. Prior to joining the Company, Mr. Peng served as Corporate Vice President, Graphics Products Group at Advanced Micro Devices (AMD), a provider of processing solutions, from November 2005 to April 2008. Prior to joining AMD, Mr. Peng served in a variety of executive engineering positions at companies in the semiconductor and processor industries.
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Raja G. Petrakian joined the Company in October 1995 and has served in a number of key roles within Operations, including Senior Director of Supply Chain Management and Vice President of Supply Chain Management. Dr. Petrakian assumed his current position of Senior Vice President, Worldwide Operations in March 2009. Prior to joining Xilinx, Dr. Petrakian spent more than three years at the IBM T.J. Research Center serving as a research staff member in the Manufacturing Research Department.
Krishna Rangasayee joined the Company in July 1999 and currently serves as Senior Vice President, and General Manager, Market Segments and Communications Business Unit, a position he has held since October 2013. Prior to that, he served in a number of key roles, including as Senior Director of Vertical Markets and Partnerships from November 2005 through June 2008. He then served as the Vice President of Strategic Planning from July 2008 through September 2010 and was promoted to the rank of Corporate Vice President for the same function. Mr. Rangasayee assumed the position of Corporate Vice President and General Manager, Communications Business Unit in October 2010. Mr. Rangasayee was promoted to the position of Senior Vice President, and General Manager, Communications Business Unit in April 2012. Prior to joining Xilinx, Mr. Rangasayee held various positions at Altera, a provider of programmable logic solutions, and Cypress Semiconductor, a semiconductor company.
Vincent L. Tong joined the Company in May 1990 and has served in a number of key roles, including Vice President of Product Technology and as Vice President, Worldwide Quality and Reliability. In April 2008, he assumed his current position of Senior Vice President, Worldwide Quality and New Product Introductions and assumed the additional role of Executive Leader, Asia Pacific in October 2011. Prior to joining the Company, Mr. Tong served in a variety of engineering positions at Monolithic Memories, a producer of logic devices, and AMD. Mr. Tong serves on the board of the Global Semiconductor Alliance, a non-profit semiconductor organization.
Frank A. Tornaghi joined the Company in February 2008 as Vice President, Worldwide Sales and assumed his current position of Senior Vice President, Worldwide Sales in April 2008. Prior to joining the Company, Mr. Tornaghi spent 22 years at LSI Corporation. Mr. Tornaghi acted as an independent consultant from April 2006 until he joined the Company. He served as Executive Vice President, Worldwide Sales at LSI Corporation from July 2001 to April 2006 and as Vice President, North America Sales, from May 1993 to July 2001. From 1984 until May 1993, Mr. Tornaghi held various management positions in sales at LSI Corporation.
Additional Information
We make available, via a link through our investor relations website located at www.investor.xilinx.com, access to our Annual Report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and any amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the U.S. Securities Exchange Act of 1934, as amended (Exchange Act) as soon as reasonably practicable after they are electronically filed with or furnished to the Securities and Exchange Commission (SEC). All such filings on our investor relations website are available free of charge. Printed copies of these documents are also available to stockholders without charge, upon written request directed to Xilinx, Inc., Attn: Investor Relations, 2100 Logic Drive, San Jose, CA 95124. Further, a copy of this Annual Report on Form 10-K is located at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. Information on the operation of the Public Reference Room can be obtained by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet site that contains reports, proxy and information statements and other information regarding our filings at http://www.sec.gov. The content on any website referred to in this filing is not incorporated by reference into this filing unless expressly noted otherwise.
Additional information required by this Item 1 is incorporated by reference to the section captioned "Net Revenues - Net Revenues by Geography" in Item 7. "Management’s Discussion and Analysis of Financial Condition and Results of Operations" and to "Note 16. Segment Information" to our consolidated financial statements, included in Item 8. "Financial Statements and Supplementary Data."
This annual report includes trademarks and service marks of Xilinx and other companies that are unregistered and registered in the U.S. and other countries.
ITEM 1A. | RISK FACTORS |
The following risk factors and other information included in this Annual Report on Form 10-K should be carefully considered. The risks and uncertainties described below are not the only risks to the Company. Additional risks and uncertainties not presently known to the Company, or that the Company’s management currently deems immaterial, also may impair its business operations. If any of the risks described below were to occur, our business, financial condition, operating results and cash flows could be materially adversely affected.
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Our success depends on our ability to develop and introduce new products and failure to do so would have a material adverse impact on our financial condition and results of operations.
Our success depends in large part on our ability to develop and introduce new products that address customer requirements and compete effectively on the basis of price, density, functionality, power consumption and performance. The success of new product introductions is dependent upon several factors, including:
• | timely completion of new product designs; |
• | ability to generate new design opportunities and design wins; |
• | availability of specialized field application engineering resources supporting demand creation and customer adoption of new products; |
• | ability to utilize advanced manufacturing process technologies on circuit geometries of 28nm and smaller; |
• | achieving acceptable yields; |
• | ability to obtain adequate production capacity from our wafer foundries and assembly and test subcontractors; |
• | ability to obtain advanced packaging; |
• | availability of supporting software design tools; |
• | utilization of predefined IP logic; |
• | customer acceptance of advanced features in our new products; and |
• | market acceptance of our customers’ products. |
Our product development efforts may not be successful, our new products may not achieve industry acceptance and we may not achieve the necessary volume of production that would lead to further per unit cost reductions. Revenues relating to our mature products are expected to decline in the future, which is normal for our product life cycles. As a result, we may be increasingly dependent on revenues derived from design wins for our newer products as well as anticipated cost reductions in the manufacture of our current products. We rely primarily on obtaining yield improvements and corresponding cost reductions in the manufacture of existing products, and on introducing new products that incorporate advanced features and other price/performance factors that enable us to increase revenues while maintaining consistent margins. To the extent that such cost reductions and new product introductions do not occur in a timely manner, or to the extent that our products do not achieve market acceptance at prices with higher margins, our financial condition and results of operations could be materially adversely affected.
We rely on independent foundries for the manufacture of all of our products and a manufacturing problem or insufficient foundry capacity could adversely affect our operations.
Most of our wafers are manufactured in Taiwan by UMC and by TSMC for our newest products. In addition, we also have wafers manufactured in South Korea by Samsung. Terms with respect to the volume and timing of wafer production and the pricing of wafers produced by the semiconductor foundries are determined by periodic negotiations between Xilinx and these wafer foundries, which usually result in short-term agreements that do not provide for long-term supply or allocation commitments. We are dependent on these foundries, especially UMC, which supplies the substantial majority of our wafers. We rely on UMC, TSMC and our other foundries to produce wafers with competitive performance attributes. Therefore, the foundries, particularly TSMC who manufactures our newest products, must be able to transition to advanced manufacturing process technologies and increased wafer sizes, produce wafers at acceptable yields and deliver them in a timely manner. Furthermore, we cannot guarantee that the foundries that supply our wafers will offer us competitive pricing terms or other commercial terms important to our business.
We cannot guarantee that our foundries will not experience manufacturing problems, including delays in the realization of advanced manufacturing process technologies or difficulties due to limitations of new and existing process technologies. Furthermore, we cannot guarantee the foundries will be able to manufacture sufficient quantities of our products or that they will continue to manufacture a product for the full life of the product. In addition, weak economic conditions may adversely impact the financial health and viability of the foundries and result in their insolvency or their inability to meet their commitments to us. For example, we may experience supply shortages due to the difficulties foundries may encounter if they must rapidly increase their production capacities from low utilization levels to high utilization levels because of an unexpected increase in demand. We may also experience supply shortages due to very strong demand for our products and a surge in demand for semiconductors in general, which may lead to tightening of foundry capacity across the industry. The insolvency of a foundry or any significant manufacturing problem or insufficient foundry capacity would disrupt our operations and negatively impact our financial condition and results of operations.
General economic conditions and any related deterioration in the global business environment could have a material adverse effect on our business, operating results and financial condition.
During the past five years, global consumer confidence eroded amidst concerns over declining asset values, inflation, volatility in energy costs, geopolitical issues, the availability and cost of credit, rising unemployment, and the stability and solvency of financial institutions, financial markets, businesses and sovereign nations, among other concerns. These concerns slowed global economic growth and resulted in recessions in numerous countries, including many of those in North America, Europe and Asia. The financial condition of certain sovereign nations, particularly in Europe, is of continuing concern as the sovereign debt crisis
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remains unresolved. These weak economic conditions resulted in reduced customer demand and had a negative impact on our results of operations for the second and third quarter of fiscal 2012 and the third quarter of fiscal 2013. If weak economic conditions return, there may be a number of negative effects on our business, including customers or potential customers reducing or delaying orders, the insolvency of key suppliers, potentially causing production delays, the inability of customers to obtain credit, and the insolvency of one or more customers. Any of these effects could impact our ability to effectively manage inventory levels and collect receivables and ultimately decrease our net revenues and profitability.
The semiconductor industry is characterized by cyclical market patterns and a significant industry downturn could adversely affect our operating results.
The semiconductor industry is highly cyclical and our financial performance has been affected by downturns in the industry. Down cycles are generally characterized by price erosion and weaker demand for our products. Weaker demand for our products resulting from economic conditions in the end markets we serve and reduced capital spending by our customers can result, and in the past has resulted, in excess and obsolete inventories and corresponding inventory write-downs. We attempt to identify changes in market conditions as soon as possible; however, the dynamics of the market in which we operate make prediction of and timely reaction to such events difficult. Due to these and other factors, our past results are not reliable predictors of our future results.
The nature of our business makes our revenues difficult to predict which could have an adverse impact on our business.
In addition to the challenging market conditions we may face, we have limited visibility into the demand for our products, particularly new products, because demand for our products depends upon our products being designed into our end customers’ products and those products achieving market acceptance. Due to the complexity of our customers’ designs, the design to volume production process for our customers requires a substantial amount of time, frequently longer than a year. In addition, we are dependent upon "turns," orders received and turned for shipment in the same quarter. These factors make it difficult for us to forecast future sales and project quarterly revenues. The difficulty in forecasting future sales impairs our ability to project our inventory requirements, which could result, and in the past has resulted, in inventory write-downs or failure to meet customer product demands in a timely manner. In addition, difficulty in forecasting revenues compromises our ability to provide forward-looking revenue and earnings guidance.
If we are not able to compete successfully in our industry, our financial results and future prospects will be adversely affected.
Our PLDs compete in the logic IC industry, an industry that is intensely competitive and characterized by rapid technological change, increasing levels of integration, product obsolescence and continuous price erosion. We expect increased competition from our primary PLD competitors, Altera, Lattice and Microsemi, and from new market entrants. In addition, competition from the ASIC market and from the ASSP market continues. We believe that important competitive factors in the logic IC industry include:
• | product pricing; |
• | time-to-market; |
• | product performance, reliability, quality, power consumption and density; |
• | field upgradeability; |
• | adaptability of products to specific applications; |
• | ease of use and functionality of software design tools; |
• | availability and functionality of predefined IP logic; |
• | inventory and supply chain management; |
• | access to leading-edge process technology and assembly capacity; |
• | ability to provide timely customer service and support; and |
• | access to advanced packaging technology. |
Our strategy for expansion in the logic market includes continued introduction of new product architectures that address high-volume, low-cost and low-power applications as well as high-performance, high-density applications. However, we may not be successful in executing this strategy. In addition, we anticipate continued pressure from our customers to reduce prices, which may outpace our ability to lower the cost for established products.
Other competitors include manufacturers of:
• | high-density programmable logic products characterized by FPGA type architectures; |
• | high-volume and low-cost FPGAs as programmable replacements for ASICs and ASSPs; |
• | ASICs and ASSPs with incremental amounts of embedded programmable logic; |
• | high-speed, low-density complex programmable logic devices; |
• | high-performance digital signal processing devices; |
• | products with embedded processors; |
• | products with embedded multi-gigabit transceivers; and |
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• | other new or emerging programmable logic products. |
Several companies have introduced products that compete with ours or have announced their intention to sell PLD products. To the extent that our efforts to compete are not successful, our financial condition and results of operations could be materially adversely affected.
The benefits of programmable logic have attracted a number of competitors to this segment. We recognize that different applications require different programmable technologies, and we are developing architectures, processes and products to meet these varying customer needs. Recognizing the increasing importance of standard software solutions, we have developed common software design tools that support the full range of our IC products. We believe that automation and ease of design are significant competitive factors in this segment.
We could also face competition from our licensees. In the past we have granted limited rights to other companies with respect to certain aspects of our older technology, and we may do so in the future. Granting such rights may enable these companies to manufacture and market products that may be competitive with some of our older products.
Increased costs of wafers and materials, or shortages in wafers and materials, could adversely impact our gross margins and lead to reduced revenues.
If greater demand for wafers is not offset by an increase in foundry capacity, market demand for wafers or production and assembly materials increases, or if a supplier of our wafers ceases or suspends operations, our supply of wafers and other materials could become limited. Such shortages raise the likelihood of potential wafer price increases, wafer shortages or shortages in materials at production and test facilities, resulting in potential inability to address customer product demands in a timely manner. For example, when certain suppliers were forced to temporarily halt production as the result of a natural disaster, this resulted in a tightening of supply for those materials. Such shortages of wafers and materials as well as increases in wafer or materials prices could adversely affect our gross margins and would adversely affect our ability to meet customer demands and lead to reduced revenue.
We depend on distributors, primarily Avnet, to generate a majority of our sales and complete order fulfillment.
Resale of product through Avnet accounted for 46% of our worldwide net revenues in fiscal 2014 and as of March 29, 2014, Avnet accounted for 55% of our total net accounts receivable. Any adverse change to our relationship with Avnet or our remaining distributors could have a material impact on our business. Furthermore, if a key distributor materially defaults on a contract or otherwise fails to perform, our business and financial results would suffer. In addition, we are subject to concentrations of credit risk in our trade accounts receivable, which includes accounts of our distributors. A significant reduction of effort by a distributor to sell our products or a material change in our relationship with one or more distributors may reduce our access to certain end customers and adversely affect our ability to sell our products.
In addition, the financial health of our distributors and our continuing relationships with them are important to our success. Unpredictable economic conditions may adversely impact the financial health of some of these distributors, particularly our smaller distributors. This could result in the insolvency of certain distributors, the inability of distributors to obtain credit to finance the purchase of our products, or cause distributors to delay payment of their obligations to us and increase our credit risk exposure. Our business could be harmed if the financial health of these distributors impairs their performance and we are unable to secure alternate distributors.
We are dependent on independent subcontractors for most of our assembly and test services, and unavailability or disruption of these services could negatively impact our financial condition and results of operations.
We are dependent on subcontractors to provide semiconductor assembly, substrate, test and shipment services. Any prolonged inability to obtain wafers with competitive performance and cost attributes, adequate yields or timely delivery, any disruption in assembly, test or shipment services, delays in stabilizing manufacturing processes and ramping up volume for new products, transitions to new service providers or any other circumstance that would require us to seek alternative sources of supply, could delay shipments and have a material adverse effect on our ability to meet customer demands. In addition, unpredictable economic conditions may adversely impact the financial health and viability of these subcontractors and result in their insolvency or their inability to meet their commitments to us. These factors would result in reduced net revenues and could negatively impact our financial condition and results of operations.
A number of factors, including our inventory strategy, can impact our gross margins.
A number of factors, including yield, wafer pricing, product mix, market acceptance of our new products, competitive pricing dynamics, geographic and/or market segment pricing strategies can cause our gross margins to fluctuate. In addition, forecasting our gross margins is difficult because a significant portion of our business is based on turns within the same quarter.
Our current inventory levels are higher than historical norms due to our decision to build ahead of a previously planned closure of a particular foundry process line at one of our foundry partners, weaker than anticipated sales and a planned increase in safety
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stock across newer technologies in anticipation of future revenue growth. In the event demand does not materialize, we may be subject to incremental obsolescence costs. In addition, future product cost reductions could have an increased impact on our inventory valuation, which would then impact our operating results.
Reductions in the average selling prices of our products could have a negative impact on our gross margins.
The average selling prices of our products generally decline as the products mature. We seek to offset the decrease in selling prices through yield improvement, manufacturing cost reductions and increased unit sales. We also continue to develop higher value products or product features that increase, or slow the decline of, the average selling price of our products. However, there is no guarantee that our ongoing efforts will be successful or that they will keep pace with the decline in selling prices of our products, which could ultimately lead to a decline in revenues and have a negative effect on our gross margins.
Because of our international business and operations, we are vulnerable to the economic conditions of the countries in which we operate and currency fluctuations could have a material adverse effect on our business and negatively impact our financial condition and results of operations.
In addition to our U.S. operations, we also have significant international operations, including foreign sales offices to support our international customers and distributors, our regional headquarters in Ireland and Singapore and an R&D site in India. Our international operations have grown because we have established certain operations and administrative functions outside the U.S. Sales and operations outside of the U.S. subject us to the risks associated with conducting business in foreign economic and regulatory environments. Our financial condition and results of operations could be adversely affected by unfavorable economic conditions in countries in which we do significant business or by changes in foreign currency exchange rates affecting those countries. We derive over one-half of our revenues from international sales, primarily in the Asia Pacific region, Europe and Japan. Past economic weaknesses in these markets adversely affected revenues. Sales to all direct OEMs and distributors are denominated in U.S. dollars. While the recent movements of the Euro and Yen exchange rates against the U.S. dollar had no material impact to our business, increased volatility could impact our European and Japanese customers. Currency instability and volatility and disruptions in the credit and capital markets may increase credit risks for some of our customers and may impair our customers’ ability to repay existing obligations. Increased currency volatility could also positively or negatively impact our foreign-currency-denominated costs, assets and liabilities. In addition, any devaluation of the U.S. dollar relative to other foreign currencies may increase the operating expenses of our foreign subsidiaries adversely affecting our results of operations. Furthermore, because we are increasingly dependent on the global economy, instability in worldwide economic environments occasioned, for example, directly or indirectly by political instability, terrorist activity, U.S. or other military actions, and international sanctions or other diplomatic actions (potentially including sanctions adopted or under consideration by the U.S. or European Union with respect to Russia or Russian individuals or businesses), could adversely impact economic activity and lead to a contraction of capital spending by our customers generally or in specific regions. Any or all of these factors could adversely affect our financial condition and results of operations in the future.
We are subject to the risks associated with conducting business operations outside of the U.S. which could adversely affect our business.
In addition to international sales and support operations and development activities, we purchase our wafers from foreign foundries, have our commercial products assembled, packaged and tested by subcontractors located outside the U.S. and utilize third party warehouse operators to store and manage inventory levels for certain of our products. All of these activities are subject to the uncertainties associated with international business operations, including tax laws and regulations, trade barriers, economic sanctions, import and export regulations, duties and tariffs and other trade restrictions, changes in trade policies, anti-corruption laws, foreign governmental regulations, potential vulnerability of and reduced protection for IP, longer receivable collection periods and disruptions or delays in production or shipments, any of which could have a material adverse effect on our business, financial condition and/or operating results. Additional factors that could adversely affect us due to our international operations include rising oil prices and increased costs of natural resources. Moreover, our financial condition and results of operations could be affected in the event of political conflicts or economic crises in countries where our main wafer providers, warehouses, end customers and contract manufacturers who provide assembly and test services worldwide, are located. Adverse change to the circumstances or conditions of our international business operations could have a material adverse effect on our business.
We are exposed to fluctuations in interest rates and changes in credit rating and in the market values of our portfolio investments which could have a material adverse impact on our financial condition and results of operations.
Our cash, short-term and long-term investments represent significant assets that may be subject to fluctuating or even negative returns depending upon interest rate movements, changes in credit rating and financial market conditions. Global credit market disruptions and economic slowdown and uncertainty have in the past negatively impacted the values of various types of investment and non-investment grade securities. The global credit and capital markets may again experience significant volatility and disruption due to instability in the global financial system, uncertainty related to global economic conditions and concerns regarding sovereign financial stability.
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Therefore, there is a risk that we may incur other-than-temporary impairment charges for certain types of investments should credit market conditions deteriorate or the underlying assets fail to perform as anticipated. Our future investment income may fall short of expectations due to changes in interest rates or if the decline in fair values of our debt securities is judged to be other than temporary. Furthermore, we may suffer losses in principal if we are forced to sell securities that have declined in market value due to changes in interest rates or financial market conditions.
Our failure to protect and defend our IP could impair our ability to compete effectively.
We rely upon patent, copyright, trade secret, mask work and trademark laws to protect our IP. We cannot provide assurance that such IP rights can be successfully asserted in the future or will not be invalidated, violated, circumvented or challenged. From time to time, third parties, including our competitors, have asserted against us patent, copyright and other IP rights to technologies that are important to us. Third parties may attempt to misappropriate our IP through electronic or other means or assert infringement claims against our indemnitees or us in the future. Such assertions by third parties may result in costly litigation, indemnity claims or other legal actions, and we may not prevail in such matters or be able to license any valid and infringed patents from third parties on commercially reasonable terms. This could result in the loss of our ability to import and sell our products or require us to pay costly royalties to third parties in connection with sales of our products. Any infringement claim, indemnification claim, or impairment or loss of use of our IP could materially adversely affect our financial condition and results of operations.
Our ability to design and introduce new products in a timely manner is dependent upon third-party IP.
In the design and development of new products and product enhancements, we rely on third-party intellectual property such as software development tools and hardware testing tools. Furthermore, certain product features may rely on intellectual property acquired from third parties. The design requirements necessary to meet future consumer demands for more features and greater functionality from semiconductor products may exceed the capabilities of the third-party intellectual property or development tools that are available to us. If the third-party intellectual property that we use becomes unavailable or fails to produce designs that meet consumer demands, our business could be adversely affected.
We rely on information technology systems, and failure of these systems to function properly or unauthorized access to our systems could result in business disruption.
We rely in part on various information technology (IT) systems to manage our operations, including financial reporting, and we regularly evaluate these systems and make changes to improve them as necessary. Consequently, we periodically implement new, or upgrade or enhance existing, operational and IT systems, procedures and controls. For example, in the third quarter of fiscal 2012 we upgraded the IT systems we use to manage our operations and record and report financial information, and in the past we simplified our supply chain and were required to make certain changes to our IT systems. Any delay in the implementation of, or disruption in the transition to, new or enhanced systems, procedures or controls, could harm our ability to record and report financial and management information on a timely and accurate basis. These systems are also subject to power and telecommunication outages or other general system failures. Failure of our IT systems or difficulties in managing them could result in business disruption. We also may be subject to unauthorized access to our IT systems through a security breach or attack. In the past there have been attempts by third parties to penetrate and/or infect our network and systems with malicious software, in an effort to gain access to our network and systems. We seek to detect and investigate any security incidents and prevent their recurrence, but in some cases, we might be unaware of an incident or its magnitude and effects. Our business could be significantly harmed and we could be subject to third party claims in the event of such a security breach.
Earthquakes and other natural disasters could disrupt our operations and have a material adverse effect on our financial condition and results of operations.
The independent foundries upon which we rely to manufacture our products, as well as our California and Singapore facilities, are located in regions that are subject to earthquakes and other natural disasters. UMC’s and TSMC's foundries in Taiwan and our assembly and test partners in other regions as well as many of our operations in California are centered in areas that have been seismically active in the recent past and some areas have been affected by other natural disasters such as typhoons. Any catastrophic event in these locations will disrupt our operations, including our manufacturing activities and our insurance may not cover losses resulting from such disruptions of our operations. This type of disruption could result in our inability to manufacture or ship products, thereby materially adversely affecting our financial condition and results of operations. For example, as a result of the March 2011 earthquake in Japan, production at the Seiko foundry at Sakata was halted temporarily, impacting production of some of our older devices. In addition, suppliers of wafers and substrates were forced to halt production temporarily. Disruption of operations at these foundries for any reason, including other natural disasters such as typhoons, tsunamis, volcano eruptions, fires or floods, as well as disruptions in access to adequate supplies of electricity, natural gas or water could cause delays in shipments of our products, and could have a material adverse effect on our results of operations. Furthermore, natural disasters can also indirectly impact us. For example, our customers’ supply of other complimentary products may be disrupted by a natural disaster and may cause them to delay orders of our products.
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If we are unable to maintain effective internal controls, our stock price could be adversely affected.
We are subject to the ongoing internal control provisions of Section 404 of the Sarbanes-Oxley Act of 2002 (the Act). Our controls necessary for continued compliance with the Act may not operate effectively at all times and may result in a material weakness disclosure. The identification of material weaknesses in internal control, if any, could indicate a lack of proper controls to generate accurate financial statements and could cause investors to lose confidence and our stock price to drop.
We compete with others to attract and retain key personnel, and any loss of, or inability to attract, such personnel would harm us.
We depend on the efforts and abilities of certain key members of management and other technical personnel. Our future success depends, in part, upon our ability to retain such personnel and attract and retain other highly qualified personnel, particularly product engineers. Competition for such personnel is intense and we may not be successful in hiring or retaining new or existing qualified personnel. From time to time we have effected restructurings which eliminate a number of positions. Even if such personnel are not directly affected by the restructuring effort, such terminations can have a negative impact on morale and our ability to attract and hire new qualified personnel in the future. If we lose existing qualified personnel or are unable to hire new qualified personnel, as needed, our business, financial condition and results of operations could be seriously harmed.
Unfavorable results of legal proceedings could adversely affect our financial condition and operating results.
From time to time we are subject to various legal proceedings and claims that arise out of the ordinary conduct of our business. The amount of damages alleged in certain legal claims may be significant. For example, in December 2013, we entered into a Settlement and License Agreement with PACT in which the parties agreed to dismiss with prejudice all outstanding patent litigation among us, Avnet and PACT. As part of the settlement, we agreed to pay PACT a lump sum of $33.5 million. Certain other claims involving the Company are not yet resolved, including those that are discussed under Item 3. "Legal Proceedings," included in Part I of this Form 10-K, and additional claims may arise in the future. Results of legal proceedings cannot be predicted with certainty. Regardless of its merit, litigation may be both time-consuming and disruptive to our operations and cause significant expense and diversion of management attention and we may enter into material settlements to avoid these risks. Should we fail to prevail in certain matters, or should several of these matters be resolved against us in the same reporting period, we may be faced with significant monetary damages or injunctive relief against us that would materially and adversely affect a portion of our business and might materially and adversely affect our financial condition and operating results.
Our products could have defects which could result in reduced revenues and claims against us.
We develop complex and evolving products that include both hardware and software. Despite our testing efforts and those of our subcontractors, defects may be found in existing or new products. These defects may cause us to incur significant warranty, support and repair or replacement costs, divert the attention of our engineering personnel from our product development efforts and harm our relationships with customers. Subject to certain terms and conditions, we have agreed to compensate certain customers for limited specified costs they actually incur in the event our hardware products experience epidemic failure. As a result, epidemic failure and other performance problems could result in claims against us, the delay or loss of market acceptance of our products and would likely harm our business. Our customers could also seek damages from us for their losses.
In addition, we could be subject to product liability claims. A product liability claim brought against us, even if unsuccessful, would likely be time-consuming and costly to defend. Product liability risks are particularly significant with respect to aerospace, automotive and medical applications because of the risk of serious harm to users of these products. Any product liability claim, whether or not determined in our favor, could result in significant expense, divert the efforts of our technical and management personnel, and harm our business.
In preparing our financial statements, we make good faith estimates and judgments that may change or turn out to be erroneous.
In preparing our financial statements in conformity with accounting principles generally accepted in the U.S., we must make estimates and judgments in applying our most critical accounting policies. Those estimates and judgments have a significant impact on the results we report in our consolidated financial statements. The most difficult estimates and subjective judgments that we make concern valuation of marketable and non-marketable securities, revenue recognition, inventories, long-lived assets including acquisition-related intangibles, goodwill, taxes and stock-based compensation. We base our estimates on historical experience, input from outside experts and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. 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. Actual results may differ materially from these estimates. If these estimates or their related assumptions change, our operating results for the periods in which we revise our estimates or assumptions could be adversely and perhaps materially affected.
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The conditional conversion features of our 2.625% Senior Convertible Debentures due June 15, 2017 (2017 Convertible Notes) were triggered and holders of the 2017 Convertible Notes may elect to convert such 2017 Convertible Notes which could have a material effect on our liquidity.
The 2017 Convertible Notes have conditional conversion features which were triggered in fiscal 2013. Holders of the 2017 Convertible Notes are entitled to convert the 2017 Convertible Notes at any time during specified periods at their option. As a result of this, we were required under applicable accounting rules to reclassify all or a portion of the outstanding principal of the 2017 Convertible Notes as a current rather than long-term liability. In addition, we were required to increase the number of shares used in our per share calculations to reflect the potentially dilutive impact of the conversion.
If one or more holders elect to convert their 2017 Convertible Notes, we would be required to settle any converted principal through the payment of cash, which could adversely affect our liquidity.
Our failure to comply with the requirements of the International Traffic and Arms Regulations could have a material adverse effect on our financial condition and results of operations.
Certain Xilinx space-grade FPGAs and related technologies are subject to the International Traffic in Arms Regulations (ITAR), which are administered by the U.S. Department of State. The ITAR governs the export and re-export of these FPGAs, the transfer of related technical data and the provision of defense services, as well as offshore production, test and assembly. We are required to maintain an internal compliance program and security infrastructure to meet ITAR requirements.
An inability to obtain the required export licenses, or to predict when they will be granted, increases the difficulties of forecasting shipments. In addition, security or compliance program failures that could result in penalties or a loss of export privileges, as well as stringent ITAR licensing restrictions that may make our products less attractive to overseas customers, could have a material adverse effect on our business, financial condition and/or operating results.
Our inability to effectively control the sale of our products on the gray market could have a material adverse effect on us.
We market and sell our products directly to OEMs and through authorized third-party distributors which helps to ensure that products delivered to our customers are authentic and properly handled. From time to time, customers may purchase products bearing our name from the unauthorized "gray market." These parts may be counterfeit, salvaged or re-marked parts, or parts that have been altered, mishandled, or damaged. Gray market products result in shadow inventory that is not visible to us, thus making it difficult to forecast supply or demand. Also, when gray market products enter the market, we and our authorized distributors may compete with brokers of these discounted products, which can adversely affect demand for our products and negatively impact our margins. In addition, our reputation with customers may be negatively impacted when gray market products bearing our name fail or are found to be substandard.
The conflict minerals provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act could result in additional costs and liabilities.
In accordance with the Dodd-Frank Wall Street Reform and Consumer Protection Act, the SEC established new disclosure and reporting requirements for those companies who use "conflict" minerals mined from the Democratic Republic of Congo and adjoining countries in their products, whether or not these products are manufactured by third parties. These new requirements could affect the sourcing and availability of minerals used in the manufacture of our semiconductor products. There will also be costs associated with complying with the disclosure requirements, including for due diligence in regard to the sources of any conflict minerals used in our products, in addition to the cost of remediation and other changes to products, processes, or sources of supply as a consequence of such verification activities. We may face reputational challenges if we are unable to sufficiently verify the origins for all minerals used in our products through the due diligence process we implement. Moreover, we may encounter challenges to satisfy those customers who require that all of the components of our products are certified as conflict free.
Considerable amounts of our common shares are available for issuance under our equity incentive plans and 2017 Convertible Notes, and significant issuances in the future may adversely impact the market price of our common shares.
As of March 29, 2014 we had 2.00 billion authorized common shares, of which 268.6 million shares were outstanding. In addition, 36.9 million common shares were reserved for issuance pursuant to our equity incentive plans and Employee Stock Purchase Plan, 20.0 million common shares were reserved for issuance upon conversion or repurchase of the 2017 Convertible Notes and 20.0 million common shares were reserved for issuance upon exercise of warrants. The availability of substantial amounts of our common shares resulting from the exercise or settlement of equity awards outstanding under our equity incentive plans or the
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conversion or repurchase of convertible debentures using common shares, which would be dilutive to existing stockholders, could adversely affect the prevailing market price of our common shares and could impair our ability to raise additional capital through the sale of equity securities.
We have indebtedness that could adversely affect our financial position and prevent us from fulfilling our debt obligations.
The aggregate amount of our consolidated indebtedness as of March 29, 2014 was $1.60 billion (principal amount), which includes $500.0 million in aggregate principal amount of our 2.125% Notes due 2019 (2019 Notes), $500.0 million in aggregate principal amount of our 3.000% Notes due 2021 (2021 Notes) and $600.0 million in aggregate principal amount of our 2017 Convertible Notes. We also may incur additional indebtedness in the future. Our indebtedness may:
• | make it difficult for us to satisfy our financial obligations, including making scheduled principal and interest payments on the debentures and our other indebtedness; |
• | limit our ability to borrow additional funds for working capital, capital expenditures, acquisitions or other general corporate purposes; |
• | limit our ability to use our cash flow or obtain additional financing for future working capital, capital expenditures, acquisitions or other general business purposes; |
• | require us to use a portion of our cash flow from operations to make debt service payments; |
• | limit our flexibility to plan for, or react to, changes in our business and industry; |
• | place us at a competitive disadvantage compared to our less leveraged competitors; |
• | increase our vulnerability to the impact of adverse economic and industry conditions; and |
• | require us to repatriate off-shore cash to the U.S. at unfavorable tax rates. |
Our ability to meet our debt service obligations will depend on our future performance, which will be subject to financial, business and other factors affecting our operations, many of which are beyond our control.
The agreements governing the 2019 Notes and 2021 Notes contain covenants that may adversely affect our ability to operate our business.
The indentures governing the 2019 Notes and 2021 Notes contain various covenants limiting our and our subsidiaries’ ability to, among other things:
• | create certain liens on principal property or the capital stock of certain subsidiaries; |
• | enter into certain sale and leaseback transactions with respect to principal property; |
• | consolidate or merge with, or convey, transfer or lease all or substantially all our assets, taken as a whole, to, another person. |
A failure to comply with these covenants and other provisions in these indentures could result in events of default under the indentures, which could permit acceleration of the 2019 Notes and the 2021 Notes. Any required repayment as a result of such acceleration could have a material adverse effect on our business, results of operations, financial condition or cash flows.
The call options and warrant transactions related to our 2017 Convertible Notes may affect the value of the debentures and our common stock.
To hedge against potential dilution upon conversion of the 2017 Convertible Notes, we purchased call options on our common stock from the hedge counterparties. We also sold warrants to the hedge counterparties, which could separately have a dilutive effect on our earnings per share to the extent that the market price per share of our common stock exceeds the applicable strike price of the warrants of $42.46 per share.
As the hedge counterparties and their respective affiliates modify hedge positions, they may enter or unwind various derivatives with respect to our common stock and/or purchase or sell our common stock in secondary market transactions. This activity also could affect the market price of our common stock and/or debentures, which could affect the ability of the holders of the debentures to convert and the number of shares and value of the consideration that will be received by the holders of the debentures upon conversion.
Acquisitions and strategic investments present risks, and we may not realize the goals that were contemplated at the time of a transaction.
We recently acquired technology companies whose products complement our products, and in the past we have made a number of strategic investments in other technology companies. We may make similar acquisitions and strategic investments in the future. Acquisitions and strategic investments present risks, including:
• | our ongoing business may be disrupted and our management’s attention may be diverted by investment, acquisition, transition or integration activities; |
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• | an acquisition or strategic investment may not further our business strategy as we expected, and we may not integrate an acquired company or technology as successfully as we expected; |
• | our operating results or financial condition may be adversely impacted by claims or liabilities that we assume from an acquired company or technology or that are otherwise related to an acquisition; |
• | we may have difficulty incorporating acquired technologies or products with our existing product lines; |
• | we may have higher than anticipated costs in continuing support and development of acquired products, and in general and administrative functions that support such products; |
• | our strategic investments may not perform as expected; and |
• | we may experience unexpected changes in how we are required to account for our acquisitions and strategic investments pursuant to U.S. GAAP. |
The occurrence of any of these risks could have a material adverse effect on our business, results of operations, financial condition or cash flows, particularly in the case of a larger acquisition or several concurrent acquisitions or strategic investments.
ITEM 1B. | UNRESOLVED STAFF COMMENTS |
Not applicable.
ITEM 2. | PROPERTIES |
Our corporate offices, which include the administrative, sales, customer support, marketing, R&D and manufacturing and testing groups, are located in San Jose, California. This main site consists of adjacent buildings providing 588,000 square feet of space, which we own. Excess space in this facility is leased to tenants under multi-year lease agreements. We also own two parcels of land totaling approximately 121 acres in South San Jose near our corporate facility. At present, we do not have any plans to develop the land.
We own a 228,000 square foot facility in the metropolitan area of Dublin, Ireland, which serves as our regional headquarters in Europe. The Irish facility is primarily used for service and support for our customers in Europe, R&D, marketing and IT support.
We own a 222,000 square foot facility in Singapore, which serves as our Asia Pacific regional headquarters. We own the building but the land is subject to a 30-year lease expiring in November 2035. The Singapore facility is primarily used for manufacturing support and testing of our products and services for our customers in Asia Pacific/Japan, coordination and management of certain third parties in our supply chain and R&D.
We own a 130,000 square foot facility in Longmont, Colorado. The Longmont facility serves as the primary location for our software efforts in the areas of R&D, manufacturing and quality control. In addition, we own a 200,000 square foot facility and 40 acres of land adjacent to the Longmont facility for future expansion. The facility is partially leased to tenants under long-term lease agreements and partially used by us.
We lease office facilities for our engineering design centers in Hyderabad, India; Portland, Oregon; Albuquerque, New Mexico; Edinburgh, Scotland; Ottawa, Canada; Beijing, China; Belfast, Northern Ireland; Cork, Ireland; Hazlet, New Jersey; Gothenberg, Sweden; Tallinn, Estonia and Brisbane, Australia. We also lease sales offices in various locations throughout North America, which include the metropolitan areas of Chicago, Dallas, Detroit, Montreal, Nashua, Phoenix, Raleigh, San Diego, Seattle and Toronto as well as international sales offices located in the metropolitan areas of Bangalore, Beijing, Chengdu, Brussels, Helsinki, Hong Kong, London, Milan, Munich, Nanjing, Osaka, Paris, Seoul, Shanghai, Shenzhen, Stockholm, Taichung, Taipei, Tel Aviv, Tokyo and Xi’an.
ITEM 3. | LEGAL PROCEEDINGS |
Patent Litigation
On February 14, 2011, we filed a complaint for declaratory judgment of patent non-infringement and invalidity against Intellectual Ventures in the U.S. District Court for the Northern District of California. On September 30, 2011, we amended our complaint in this case to eliminate certain defendants and patents from the action (Xilinx, Inc. v. Intellectual Ventures I LLC and Intellectual Ventures II LLC, Case No CV11-0671) (California Case I). The lawsuit pertained to one patent and sought judgment of non-infringement by Xilinx and judgment that the patent is invalid and unenforceable, as well as costs and attorneys’ fees.
On February 15, 2011, Intellectual Ventures added us as a defendant in its complaint for patent infringement previously filed against Altera, Microsemi and Lattice in the U.S. District Court for the District of Delaware (Intellectual Ventures I LLC and
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Intellectual Ventures II LLC v. Altera Corporation, Microsemi Corporation, Lattice Semiconductor Corporation and Xilinx, Inc., Case No. 10-CV-1065) (Delaware Case). The lawsuit pertained to five patents, four of which we were alleged to be infringing. Intellectual Ventures sought unspecified damages, interest and attorneys’ fees. Altera, Microsemi and Lattice were previously dismissed from the case with prejudice.
On October 17, 2011, we filed a complaint for patent non-infringement and invalidity and violation of California Business and Professions Code Section 17200 in the U.S. District Court for the Northern District of California against Intellectual Ventures and related entities as well as additional defendants (Xilinx, Inc. v. Intellectual Ventures, LLC. Intellectual Ventures Management, LLC, Detelle Relay KG, LLC, Roldan Block NY LLC, Latrosse Technologies LLC, TR Technologies Foundation LLC, Taichi Holdings, LLC, Noregin Assets N.V., LLC and Intellectual Venture Funding LLC Case No CV-04407) (California Case II). By order dated January 25, 2012, the Court granted with leave to amend defendants' motion to dismiss our claim for violation of California Business and Professions Code section 17200. We amended our complaint to remove the claim for violation of California Business and Professions Code section 17200. The remainder of the lawsuit pertained to two patents and sought judgments of non-infringement by us and judgments that the patents are invalid and unenforceable, as well as costs and attorneys’ fees.
On May 1, 2014, we entered into a confidential settlement agreement with Intellectual Ventures. Under the terms of the settlement, Intellectual Ventures agreed to dismiss with prejudice all outstanding patent litigation against us. On May 2, 2014, the U.S. District Court for the Northern District of California dismissed California Case I and California Case II and the U.S. District Court for the District of Delaware dismissed the Delaware Case.
On November 5, 2012, a patent infringement lawsuit was filed by Mosaid against us in the U.S. District Court for the Eastern District of Texas (Mosaid Technologies Inc. v. Xilinx, Inc., Case No. 6:12-CV-00847). The lawsuit pertains to five patents and Mosaid seeks unspecified damages, costs, fees, royalties and injunctive relief and the proceedings are in their early stages. We are unable to estimate our range of possible loss in this matter at this time.
We intend to continue to protect and defend our IP vigorously.
Other Matters
From time to time, we are involved in various disputes and litigation matters that arise in the ordinary course of our 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, we review the status of each matter and assess 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, we accrue 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, we continue to reassess the potential liability related to pending claims and litigation and may revise estimates.
ITEM 4. | MINE SAFETY DISCLOSURES |
Not applicable.
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PART II
ITEM 5. | MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES |
Our common stock trades on the NASDAQ Global Select Market under the symbol XLNX. As of May 7, 2014, there were approximately 550 stockholders of record. Since many holders’ shares are listed under their brokerage firms’ names, the actual number of stockholders is estimated by us to be over 135,000.
The following table sets forth the high and low closing sale prices, for the periods indicated, for our common stock as reported by the NASDAQ Global Select Market:
Fiscal 2014 | Fiscal 2013 | ||||||||||||||
High | Low | High | Low | ||||||||||||
First Quarter | $ | 41.33 | $ | 35.51 | $ | 36.72 | $ | 31.00 | |||||||
Second Quarter | 47.99 | 39.65 | 35.31 | 30.63 | |||||||||||
Third Quarter | 47.45 | 42.99 | 36.30 | 32.17 | |||||||||||
Fourth Quarter | 55.07 | 45.02 | 39.14 | 35.61 | |||||||||||
Dividends Declared Per Common Share
The following table presents the quarterly dividends declared on our common stock for the periods indicated:
Fiscal 2014 | Fiscal 2013 | ||||||
First Quarter | $ | 0.25 | $ | 0.22 | |||
Second Quarter | 0.25 | 0.22 | |||||
Third Quarter | 0.25 | 0.22 | |||||
Fourth Quarter | 0.25 | 0.22 | |||||
On February 11, 2014, our Board of Directors declared a cash dividend of $0.29 per common share for the first quarter of fiscal 2015. The dividend is payable on June 4, 2014 to stockholders of record on May 14, 2014.
Securities Authorized for Issuance Under Equity Compensation Plans
See "Equity Compensation Plan Information," included in Item 12. "Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters" in Part III of this Form 10-K for information regarding our equity compensation plans.
Issuer Purchases of Equity Securities
The following table summarizes the Company's repurchase of its common stock during the fourth quarter of fiscal 2014.
Total Number of Shares Purchased | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Program (1) | Approximate Dollar Value of Shares that May Yet Be Purchased Under the Program | |||||||||||
(In thousands, except per share amounts) | ||||||||||||||
Period | ||||||||||||||
December 29, 2013 to February 1, 2014 | — | $ | — | — | $ | 572,321 | ||||||||
February 2 to March 1, 2014 | 487 | $ | 51.26 | 487 | $ | 547,344 | ||||||||
March 2 to March 29, 2014 | 923 | $ | 54.20 | 923 | $ | 497,348 | ||||||||
Total for Quarter | 1,410 | $ | 53.18 | 1,410 | ||||||||||
(1) In August 2012, the Board authorized the repurchase of $750.0 million of the Company’s common stock (2012 Repurchase Program). The 2012 Repurchase Program has no stated expiration date. Through March 29, 2014, the Company had used $252.7 million of the $750.0 million authorized under the 2012 Repurchase
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Program, leaving $497.3 million available for future repurchases. The Company’s current policy is to retire all repurchased shares, and consequently, no treasury shares were held as of March 29, 2014 and March 30, 2013.
See "Note 14. Stockholders’ Equity" to our consolidated financial statements, included in Item 8. "Financial Statements and Supplementary Data" for information regarding our stock repurchase plans.
Company Stock Price Performance
The following graph shows a comparison of cumulative total return for our common stock, the Standard & Poor’s 500 Stock Index (S&P 500 Index), and the Standard & Poor’s 500 Semiconductors Index (S&P 500 Semiconductors Index). The graph covers the period from March 27, 2009, the last trading day before our fiscal 2009, to March 29, 2014, the last trading day of our fiscal 2014. The graph and table assume that $100 was invested on March 27, 2009 in our common stock, the S&P 500 Index and the S&P 500 Semiconductors Index and that all dividends were reinvested.
Company / Index | 03/27/09 | 04/01/10 | 04/01/11 | 03/30/12 | 03/28/13 | 03/28/14 | |||||||||||
Xilinx, Inc. | 100.00 | 135.47 | 173.50 | 201.34 | 216.27 | 312.16 | |||||||||||
S&P 500 Index | 100.00 | 147.54 | 170.21 | 183.82 | 209.49 | 253.26 | |||||||||||
S&P 500 Semiconductors Index | 100.00 | 152.49 | 165.73 | 195.10 | 176.36 | 226.95 | |||||||||||
Note: Stock price performance and indexed returns for our common stock are historical and are not indicators of future price performance or future investment returns.
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ITEM 6. | SELECTED FINANCIAL DATA |
Consolidated Statement of Income Data
Five years ended March 29, 2014
(In thousands, except per share amounts)
March 29, 2014 (1) | March 30, 2013 | March 31, 2012 (2) | April 2, 2011 (3) | April 3, 2010 (4) | ||||||||||||||||
Net revenues | $ | 2,382,531 | $ | 2,168,652 | $ | 2,240,736 | $ | 2,369,445 | $ | 1,833,554 | ||||||||||
Operating income | 748,927 | 580,732 | 627,773 | 795,399 | 432,149 | |||||||||||||||
Income before income taxes | 709,526 | 547,006 | 597,051 | 771,080 | 421,765 | |||||||||||||||
Provision for income taxes | 79,138 | 59,470 | 66,972 | 129,205 | 64,281 | |||||||||||||||
Net income | 630,388 | 487,536 | 530,079 | 641,875 | 357,484 | |||||||||||||||
Net income per common share: | ||||||||||||||||||||
Basic | $ | 2.37 | $ | 1.86 | $ | 2.01 | $ | 2.43 | $ | 1.30 | ||||||||||
Diluted | $ | 2.19 | $ | 1.79 | $ | 1.95 | $ | 2.39 | $ | 1.29 | ||||||||||
Shares used in per share calculations: | ||||||||||||||||||||
Basic | 266,431 | 261,652 | 263,783 | 264,094 | 276,012 | |||||||||||||||
Diluted | 287,396 | 272,753 | 272,157 | 268,061 | 276,953 | |||||||||||||||
Cash dividends per common share | $ | 1.00 | $ | 0.88 | $ | 0.76 | $ | 0.64 | $ | 0.60 | ||||||||||
(1) | Fiscal 2014 consolidated statement of income data included litigation charges of $9,410 and loss on extinguishment of convertible debentures of $9,848. |
(2) | Fiscal 2012 consolidated statement of income data included restructuring and litigation charges of $3,369 and $15,400, respectively. |
(3) | Fiscal 2011 consolidated statement of income data included restructuring charges of $10,346 and impairment loss on investments of $5,904. |
(4) | Fiscal 2010 consolidated statement of income data included restructuring charges of $30,064 and impairment loss on investments of $3,805. |
Consolidated Balance Sheet Data
Five years ended March 29, 2014
(In thousands)
2014 | 2013 | 2012 | 2011 | 2010 | ||||||||||||||||
Working capital | $ | 2,077,787 | $ | 1,910,851 | $ | 2,107,533 | $ | 2,254,646 | $ | 1,549,905 | ||||||||||
Total assets | 5,037,349 | 4,729,451 | 4,464,122 | 4,140,850 | 3,184,318 | |||||||||||||||
Long-term debt | 993,870 | 922,666 | 906,569 | 890,980 | 354,798 | |||||||||||||||
Other long-term liabilities | 266,438 | 456,701 | 507,092 | 467,113 | 351,889 | |||||||||||||||
Stockholders' equity | 2,752,682 | 2,963,296 | 2,707,685 | 2,414,617 | 2,120,470 | |||||||||||||||
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ITEM 7. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
This discussion and analysis of financial condition and results of operations should be read in conjunction with our consolidated financial statements and accompanying notes included in Item 8. "Financial Statements and Supplementary Data."
Cautionary Statement
The statements in this Management’s Discussion and Analysis that are forward-looking, within the meaning of the Private Securities Litigation Reform Act of 1995, involve numerous risks and uncertainties and are based on current expectations. The reader should not place undue reliance on these forward-looking statements. Our actual results could differ materially from those anticipated in these forward-looking statements for many reasons, including those risks discussed under "Risk Factors" and elsewhere in this document. Often, forward-looking statements can be identified by the use of forward-looking words, such as "anticipates," "believes," "continue," "could," "estimates," "expects," "intends," "may," "plans," "projects," "should," "will," "would" and other similar terminology, or the negative of such terms. We disclaim any responsibility to update or revise any forward-looking statement provided in this Management’s Discussion and Analysis for any reason.
Nature of Operations
We design, develop and market programmable devices and associated technologies, including advanced ICs in the form of PLDs, software design tools and predefined system functions delivered as IP. In addition to our programmable platforms, we provide design services, customer training, field engineering and technical support. Our PLDs include FPGAs, CPLDs and programmable SoCs. These devices are standard products that our customers program to perform desired logic functions. Our products are designed to provide high integration and quick time-to-market for electronic equipment manufacturers in end markets such as wired and wireless communications, industrial, scientific and medical, aerospace and defense, consumer and automotive, audio, video and broadcast, and data processing. We sell our products globally through independent domestic and foreign distributors and through direct sales to OEMs by a network of independent sales representative firms and by a direct sales management organization.
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 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 including acquisition-related intangibles, 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 consolidated balance sheet; and valuation and recognition of stock-based compensation, which impacts gross margin, research and development (R&D) expenses, and selling, general and administrative (SG&A) expenses. Below, we discuss these policies further, as well as the estimates and judgments involved. 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.
Valuation of Marketable Securities
Our short-term and long-term investments include marketable debt securities. As of March 29, 2014, we had marketable debt securities with a fair value of $3.39 billion.
We determine the fair values for marketable debt securities using industry standard pricing services, data providers and other third-party sources and by internally performing valuation testing and analyses. See "Note 3. Fair Value Measurements" to our consolidated financial statements, included in Item 8. "Financial Statements and Supplementary Data," for details of the valuation methodologies. In determining if and when a decline in value below adjusted cost of marketable debt and equity securities is other than temporary, we evaluate on an ongoing basis the market conditions, trends of earnings, financial condition, credit ratings, any underlying collateral and other key measures for our investments. We did not record any other-than-temporary impairment for marketable debt or equity securities in fiscal 2014, 2013 or 2012.
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Revenue Recognition
Sales to distributors are made under agreements providing distributor price adjustments and rights of return under certain circumstances. Revenue and costs relating to distributor sales are deferred until products are sold by the distributors to the distributors’ end customers. For fiscal 2014, approximately 56% of our net revenues were from products sold to distributors for subsequent resale to OEMs or their subcontract manufacturers. Revenue recognition depends on notification from the distributor that product has been sold to the distributor’s end customer. Also reported by the distributor are product resale price, quantity and end customer shipment information, as well as inventory on hand. Reported distributor inventory on hand is reconciled to deferred revenue balances monthly. We maintain system controls to validate distributor data and to verify that the reported information is accurate. Deferred income on shipments to distributors reflects the estimated effects of distributor price adjustments and the estimated amount of gross margin expected to be realized when distributors sell through product purchased from us. Accounts receivable from distributors are recognized and inventory is relieved when title to inventories transfers, typically upon shipment from Xilinx at which point we have a legally enforceable right to collection under normal payment terms.
As of March 29, 2014, we had $75.2 million of deferred revenue and $20.1 million of deferred cost of revenues recognized as a net $55.1 million of deferred income on shipments to distributors. As of March 30, 2013, we had $71.3 million of deferred revenue and $17.9 million of deferred cost of revenues recognized as a net $53.4 million of deferred income on shipments to distributors. The deferred income on shipments to distributors that will ultimately be recognized in our consolidated statement of income will be different than the amount shown on the consolidated balance sheet due to actual price adjustments issued to the distributors when the product is sold to their end customers.
Revenue from sales to our direct customers is recognized upon shipment provided that persuasive evidence of a sales arrangement exists, the price is fixed, title has transferred, collection of resulting receivables is reasonably assured, and there are no customer acceptance requirements and no remaining significant obligations. For each of the periods presented, there were no significant formal acceptance provisions with our direct customers.
Revenue from software licenses is deferred and recognized as revenue over the term of the licenses of one year. Revenue from services is recognized when the service is performed. Revenue from Support Products, which includes software and services sales, was less than 5% of net revenues for all of the periods presented.
Allowances for end customer sales returns are recorded based on historical experience and for known pending customer returns or allowances.
Valuation of Inventories
Inventories are stated at the lower of actual cost (determined using the first-in, first-out method) or market (estimated net realizable value). The valuation of inventory requires us to estimate excess or obsolete inventory as well as inventory that is not of salable quality. We review and set standard costs quarterly to approximate current actual manufacturing costs. Our manufacturing overhead standards for product costs are calculated assuming full absorption of actual spending over actual volumes, adjusted for excess capacity. Given the cyclicality of the market, the obsolescence of technology and product lifecycles, we write down inventory based on forecasted demand and technological obsolescence. These forecasts are developed based on inputs from our customers, including bookings and extended but uncommitted demand forecasts, and internal analyses such as customer historical purchasing trends and actual and anticipated design wins, as well as market and economic conditions, technology changes, new product introductions and changes in strategic direction. These factors require estimates that may include uncertain elements. The estimates of future demand that we use in the valuation of inventory are the basis for our published revenue forecasts, which are also consistent with our short-term manufacturing plans. The differences between our demand forecast and the actual demand in the recent past have not resulted in any material write down in our inventory. If our demand forecast for specific products is greater than actual demand and we fail to reduce manufacturing output accordingly, we could be required to write down additional inventory, which would have a negative impact on our gross margin.
Impairment of Long-Lived Assets Including Acquisition-Related Intangibles
Long-lived assets and certain identifiable intangible assets to be held and used are reviewed for impairment if indicators of potential impairment exist. Impairment indicators are reviewed on a quarterly basis. When indicators of impairment exist and assets are held for use, we estimate future undiscounted cash flows attributable to the assets. In the event such cash flows are not expected to be sufficient to recover the recorded value of the assets, the assets are written down to their estimated fair values based on the expected discounted future cash flows attributable to the assets or based on appraisals. Factors affecting impairment of assets held for use include the ability of the specific assets to generate separately identifiable positive cash flows.
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When assets are removed from operations and held for sale, we estimate impairment losses as the excess of the carrying value of the assets over their fair value. Market conditions are amongst the factors affecting impairment of assets held for sale. Changes in any of these factors could necessitate impairment recognition in future periods for assets held for use or assets held for sale.
Long-lived assets such as other intangible assets and property, plant and equipment are considered non-financial assets, and are only measured at fair value when indicators of impairment exist.
Goodwill
Goodwill is not amortized but is subject to impairment tests on an annual basis, or more frequently if indicators of potential impairment exist, and goodwill is written down when it is determined to be impaired. We perform an annual impairment review in the fourth quarter of each fiscal year and compare the fair value of the reporting unit in which the goodwill resides to its carrying value. If the carrying value exceeds the fair value, the goodwill of the reporting unit is potentially impaired. For purposes of impairment testing, Xilinx operates as a single reporting unit. We use the quoted market price method to determine the fair value of the reporting unit. Based on the impairment review performed during the fourth quarter of fiscal 2014, there was no impairment of goodwill in fiscal 2014. Unless there are indicators of impairment, our next impairment review for goodwill will be performed and completed in the fourth quarter of fiscal 2015. To date, no impairment indicators have been identified.
Accounting for Income Taxes
Xilinx is a multinational corporation operating in multiple tax jurisdictions. We must determine the allocation of income to each of these jurisdictions based on estimates and assumptions and apply the appropriate tax rates for these jurisdictions. We undergo routine audits by taxing authorities regarding the timing and amount of deductions and the allocation of income among various tax jurisdictions. Tax audits often require an extended period of time to resolve and may result in income tax adjustments if changes to the allocation are required between jurisdictions with different tax rates.
In determining income for financial statement purposes, we must make certain estimates and judgments. These estimates and judgments occur in the calculation of certain tax liabilities and in the determination of the recoverability of certain deferred tax assets, which arise from temporary differences between the tax and financial statement recognition of revenue and expense. Additionally, we must estimate the amount and likelihood of potential losses arising from audits or deficiency notices issued by taxing authorities. The taxing authorities’ positions and our assessment can change over time resulting in a material effect on the provision for income taxes in periods when these changes occur.
We must also assess the likelihood that we will be able to recover our deferred tax assets. If recovery is not likely, we must increase our provision for taxes by recording a reserve in the form of a valuation allowance for the deferred tax assets that we estimate will not ultimately be recoverable.
We perform a two-step approach to recognize and measure uncertain tax positions relating to accounting for income taxes. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount that is more than 50% likely of being ultimately realized. See "Note 15. Income Taxes" to our consolidated financial statements included in Item 8. "Financial Statements and Supplementary Data."
Stock-Based Compensation
Determining the appropriate fair-value model and calculating the fair value of stock-based awards at the date of grant requires judgment. We use the Black-Scholes option-pricing model to estimate the fair value of employee stock options and rights to purchase shares under our Employee Stock Purchase Plan. Option pricing models, including the Black-Scholes model, also require the use of input assumptions, including expected stock price volatility, expected life, expected dividend rate, expected forfeiture rate and expected risk-free rate of return. We use implied volatility based on traded options in the open market as we believe implied volatility is more reflective of market conditions and a better indicator of expected volatility than historical volatility. In determining the appropriateness of implied volatility, we considered: the volume of market activity of traded options, and determined there was sufficient market activity; the ability to reasonably match the input variables of traded options to those of options granted by us, such as date of grant and the exercise price, and determined the input assumptions were comparable; and the length of term of traded options used to derive implied volatility, which is generally one to two years and which was extrapolated to match the expected term of the employee options granted by us, and determined the length of the option term was reasonable. The expected life of options granted is based on the historical exercise activity as well as the expected disposition of all options outstanding. We will continue to review our input assumptions and make changes as deemed appropriate depending on new
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information that becomes available. Higher volatility and expected lives result in a proportional increase to stock-based compensation determined at the date of grant. The expected dividend rate and expected risk-free rate of return do not have as significant an effect on the calculation of fair value.
In addition, we developed an estimate of the number of stock-based awards which will be forfeited due to employee turnover. Quarterly changes in the estimated forfeiture rate have an effect on reported stock-based compensation, as the effect of adjusting the rate for all expense amortization is recognized in the period the forfeiture estimate is changed. If the actual forfeiture rate is higher than the estimated forfeiture rate, then an adjustment is made to increase the estimated forfeiture rate, which will result in a decrease to the expense recognized in the financial statements. If the actual forfeiture rate is lower than the estimated forfeiture rate, then an adjustment is made to decrease the estimated forfeiture rate, which will result in an increase to the expense recognized in the financial statements. The impact of forfeiture true up was not material for all periods presented. The expense we recognize in future periods could also differ significantly from the current period and/or our forecasts due to adjustments in the assumed forfeiture rates.
Results of Operations
The following table sets forth statement of income data as a percentage of net revenues for the fiscal years indicated:
2014 | 2013 | 2012 | ||||||
Net revenues | 100.0 | % | 100.0 | % | 100.0 | % | ||
Cost of revenues | 31.2 | 34.0 | 35.1 | |||||
Gross margin | 68.8 | 66.0 | 64.9 | |||||
Operating expenses: | ||||||||
Research and development | 20.7 | 21.9 | 19.4 | |||||
Selling, general and administrative | 15.9 | 16.9 | 16.3 | |||||
Amortization of acquisition-related intangibles | 0.4 | 0.4 | 0.3 | |||||
Restructuring charges | — | — | 0.2 | |||||
Litigation and contingencies | 0.4 | — | 0.7 | |||||
Total operating expenses | 37.4 | 39.2 | 36.9 | |||||
Operating income | 31.4 | 26.8 | 28.0 | |||||
Loss on extinguishment of convertible debentures | 0.4 | — | — | |||||
Interest and other expense, net | 1.2 | 1.6 | 1.4 | |||||
Income before income taxes | 29.8 | 25.2 | 26.6 | |||||
Provision for income taxes | 3.3 | 2.7 | 2.9 | |||||
Net income | 26.5 | % | 22.5 | % | 23.7 | % | ||
Net Revenues
(In millions) | 2014 | Change | 2013 | Change | 2012 | ||||||||||||
Net revenues | $ | 2,382.5 | 10 | % | $ | 2,168.7 | (3 | )% | $ | 2,240.7 | |||||||
Net revenues in fiscal 2014 increased 10% to $2.38 billion from $2.17 billion in fiscal 2013. New Product revenues increased in fiscal 2014 but were offset by declines from our Mainstream, Base and Support Products. The increase in New Products was due to higher sales primarily in the Industrial, Aerospace & Defense and Communications end markets. Net revenues in fiscal 2013 decreased 3% compared to fiscal 2012. New Product revenues increased in fiscal 2013 but were offset by declines from our Mainstream, Base and Support Products. The declines were primarily due to lower sales in the Industrial, Aerospace & Defense and Other end markets. See also "Net Revenues by Product" and "Net Revenues by End Markets" below for more information on our product and end-market categories.
No end customer accounted for more than 10% of net revenues for any of the periods presented.
Net Revenues by Product
We sell our products to global manufacturers of electronic products in end markets such as wired and wireless communications, aerospace and defense, industrial, scientific and medical and audio, video and broadcast. The vast majority of our net revenues
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are generated by sales of our semiconductor products, but we also generate sales from support products. We classify our product offerings into four categories: New, Mainstream, Base and Support Products. The composition of each product category is as follows:
• | New Products include our most recent product offerings and include the Kintex UltraScale, Virtex-7, Kintex-7, Artix-7, Zynq-7000, Virtex-6 and Spartan-6 product families. |
• | Mainstream Products include the Virtex-5, Spartan-3 and CoolRunner-II product families. |
• | Base Products consist of our older product families including the Virtex-4, Virtex-II, Virtex-E, Virtex, Spartan-II, Spartan, CoolRunner and XC9500 products. |
• | Support Products include configuration solutions, HardWire, software and support/services. |
These product categories, except for Support Products, 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 1, 2012, which was the beginning of our fiscal 2013. The amounts for the prior periods presented have been reclassified to conform to the new categorization. New Products include our most recent product offerings and are typically designed into our customers’ latest generation of electronic systems. Mainstream Products are generally several years old and designed into customer programs that are currently shipping in full production. Base Products are older than Mainstream Products with demand generated generally by the customers’ oldest systems still in production. Support Products are generally products or services sold in conjunction with our semiconductor devices to aid customers in the design process.
Net revenues by product categories for the fiscal years indicated were as follows:
(In millions) | 2014 | % of Total | % Change | 2013 | % of Total | % Change | 2012 | ||||||||||||||||
New Products | $ | 874.7 | 37 | 85 | $ | 473.6 | 22 | 81 | $ | 261.3 | |||||||||||||
Mainstream Products | 810.4 | 34 | (14 | ) | 942.9 | 43 | (9 | ) | 1,039.7 | ||||||||||||||
Base Products | 614.4 | 26 | (8 | ) | 666.8 | 31 | (21 | ) | 847.2 | ||||||||||||||
Support Products | 83.0 | 3 | (3 | ) | 85.4 | 4 | (8 | ) | 92.5 | ||||||||||||||
Total net revenues | $ | 2,382.5 | 100 | 10 | $ | 2,168.7 | 100 | (3 | ) | $ | 2,240.7 | ||||||||||||
Net revenues from New Products increased significantly in fiscal 2014 as a result of sales growth from our 28nm as well as 40 nm product families. Sales from our 28nm products exceeded $380.0 million during fiscal 2014. We expect sales of New Products to continue to grow as more customer programs enter into volume production with our 28nm products. In fiscal 2013, strong market acceptance of our 28nm, 40nm and 45nm product families contributed to the majority of the revenue growth versus the comparable prior year period.
Net revenues from Mainstream Products decreased in both fiscal 2014 and fiscal 2013 from the comparable prior year periods. The decreases in both periods were largely due to the decline in sales of our Virtex-5 and Spartan-3 product families.
Net revenues from Base Products decreased in fiscal 2014 and fiscal 2013 from the comparable prior year periods. The decreases in both periods were as expected due to a decline in sales from our Virtex-2 and Virtex-4 product families. Base Products are mature products and their sales are expected to decline over time.
Net revenues from Support Products decreased in fiscal 2014 and 2013 compared to the prior year periods. The decreases in both periods were due to a decline in sales from our PROM products.
Net Revenues by End Markets
Our end market revenue data is derived from our understanding of our end customers’ primary markets. In the beginning of fiscal 2013, we modified our end market categories in two ways. First, Data Center customers were moved from the Data Processing category into the Communications category. Additionally, all end market categories were renamed to better reflect actual sales composition. Amounts for the prior periods presented have been reclassified to conform to the new categorization. Net revenues by end markets were reclassified into the following four categories: Communications & Data Center; Industrial, Aerospace & Defense; Broadcast, Consumer & Automotive; and Other. The percentage change calculation in the table below represents the year-to-year dollar change in each end market.
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Net revenues by end markets for fiscal years indicated were as follows:
(% of total net revenues) | 2014 | % Change in Dollars | 2013 | % Change in Dollars | 2012 | |||||||||
Communications & Data Center | 45 | % | 8 | 46 | % | (1 | ) | 45 | % | |||||
Industrial, Aerospace & Defense | 36 | 16 | 34 | (4 | ) | 35 | ||||||||
Broadcast, Consumer & Automotive | 16 | 8 | 16 | 2 | 15 | |||||||||
Other | 3 | (15 | ) | 4 | (33 | ) | 5 | |||||||
Total net revenues | 100 | % | 10 | 100 | % | (3 | ) | 100 | % | |||||
Net revenues from Communications & Data Center, our largest end market, increased in fiscal 2014 in terms of absolute dollars, from the comparable prior year period. The increase in fiscal 2014 was primarily due to stronger sales from both wireline and wireless communications with wireless communication applications driving most of the growth. Net revenues from Communications & Data Center decreased slightly in fiscal 2013 from the comparable prior year period due to lower sales from wireline communications, which completely offset the increased sales from wireless communications.
Net revenues from the Industrial, Aerospace & Defense end market increased in fiscal 2014 from the comparable prior year period. The increase in fiscal 2014 was primarily driven by higher sales in defense and industrial, scientific, and medical applications, as well as test and measurement applications. Net revenues from the Industrial, Aerospace & Defense end market decreased in fiscal 2013 compared to the prior year period. The decrease was due to a decline in sales from aerospace and defense and industrial, scientific and medical applications, which more than offset the increase in sales from test and measurement applications.
Net revenues from the Broadcast, Consumer & Automotive end market increased in fiscal 2014 from the comparable prior year period. The increase in fiscal 2014 was due to an increase in sales from consumer, audio, video and broadcast, and automotive applications. Net revenues from the Broadcast, Consumer & Automotive end market increased in fiscal 2013 due to an increase in sales from audio, video and broadcast, and automotive applications.
Net revenues from the Other end market decreased in fiscal 2014 and 2013 from the comparable prior year periods. The decreases in both periods were primarily due to weaker sales from storage and server applications.
Net Revenues by Geography
Geographic revenue information reflects the geographic location of the distributors, 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 fiscal years indicated were as follows:
(In millions) | 2014 | % of Total | % Change | 2013 | % of Total | % Change | 2012 | ||||||||||||||||
North America | $ | 707.7 | 30 | 8 | $ | 655.6 | 30 | (4 | ) | $ | 684.4 | ||||||||||||
Asia Pacific | 939.8 | 39 | 25 | 753.8 | 35 | 1 | 744.5 | ||||||||||||||||
Europe | 519.8 | 22 | (5 | ) | 548.4 | 25 | (7 | ) | 589.8 | ||||||||||||||
Japan | 215.2 | 9 | 2 | 210.9 | 10 | (5 | ) | 222.0 | |||||||||||||||
Total net revenues | $ | 2,382.5 | 100 | 10 | $ | 2,168.7 | 100 | (3 | ) | $ | 2,240.7 | ||||||||||||
Net revenues in North America increased in fiscal 2014 from the comparable prior year period. The increase was primarily due to stronger sales from Industrial and Aerospace & Defense end market, which more than offset lower sales from Communications & Data Center end market. Net revenues in North America decreased in fiscal 2013 from the comparable prior year period. The decrease was primarily due to a decline in sales across most of our end markets, including Communications & Data Center, Industrial and Aerospace & Defense, and Other.
Net revenues in Asia Pacific increased significantly in fiscal 2014 from the comparable prior year period. The increase in fiscal 2014 was primarily due to an increase in sales across most of our end markets with particular strength from the Communications & Data Center end market, particularly wireless communication applications. Net revenues in Asia Pacific increased slightly in fiscal 2013 from the comparable prior year period. The increase was primarily due to an increase in sales from wireless communication applications, industrial, scientific, and medical, and test and measurement applications.
Net revenues in Europe decreased in fiscal 2014 from the comparable prior year period. The decrease in fiscal 2014 was primarily due to weaker sales from Communications & Data Center, which partly offset the increased sales from aerospace and defense
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applications. Net revenues in Europe decreased in fiscal 2013 from the comparable prior year period. The decrease was due to lower sales from the Communications & Data Center and Broadcast, Consumer, & Automotive end markets.
Net revenues in Japan slightly increased in fiscal 2014 from the comparable prior year period. The increase in fiscal 2014 was primarily due to increased sales in wireline communication applications, which largely offset the decrease from test and measurement applications. The fiscal 2013 decrease in net revenues in Japan, as compared to the prior year period, was primarily driven by lower sales in industrial, scientific, and medical, and test and measurement applications.
Gross Margin
(In millions) | 2014 | Change | 2013 | Change | 2012 | ||||||||||||
Gross margin | $ | 1,639.3 | 15 | % | $ | 1,431.4 | (2 | )% | $ | 1,454.7 | |||||||
Percentage of net revenues | 68.8 | % | 66.0 | % | 64.9 | % | |||||||||||
Gross margin was 2.8 percentage points and 1.1 percentage points higher in fiscal 2014 and fiscal 2013 from their comparable prior year period, respectively. The improvement in gross margin was driven primarily by our continued focus on margin expansion and cost reduction across our product portfolio. This improvement was offset, in part, by the significant revenue growth of New Products, which generally have lower gross margins than Mainstream and Base Products as they are in the early stage of their product life cycle and have higher unit costs associated with relatively lower volumes and early manufacturing maturity.
Gross margin may be affected in the future due to multiple factors, including but not limited to those set forth above in "Risk Factors," included in Part I of this Form 10-K", shifts in the mix of customers and products, competitive-pricing pressure, manufacturing-yield issues and wafer pricing. We expect to mitigate any adverse impacts from these factors by continuing to improve yields on our New Products, improve manufacturing efficiencies, and improve average selling price management.
Sales of inventory previously written off were not material during all periods presented.
In order to compete effectively, we pass manufacturing cost reductions to our customers in the form of reduced prices to the extent that we can maintain acceptable margins. Price erosion is common in the semiconductor industry, as advances in both product architecture and manufacturing process technology permit continual reductions in unit cost. We have historically been able to offset much of this revenue decline in our mature products with increased revenues from newer products.
Research and Development
(In millions) | 2014 | Change | 2013 | Change | 2012 | ||||||||||||
Research and development | $ | 492.4 | 4 | % | $ | 475.5 | 9 | % | $ | 435.3 | |||||||
Percentage of net revenues | 21 | % | 22 | % | 19 | % | |||||||||||
R&D spending increased $16.9 million, or 4%, during fiscal 2014 from the comparable prior year period. The increase was primarily attributable to higher employee compensation related to variable elements of compensation associated with higher operating margin, and higher stock-based compensation driven by a higher stock price and higher overall headcount. These increases were offset by lower mask and wafer expenses related to 28nm development as this product generation is now entirely in production and shipping at an accelerated rate. R&D for fiscal 2014 also included spending for next generation products, including our UltraScale product family.
R&D spending increased $40.2 million, or 9%, during fiscal 2013 from the comparable prior year period. The increase was primarily attributable to higher employee-related expenses (including stock-based compensation expense), and mask and wafer expenses related to our 28nm development activities.
We plan to continue to selectively invest in R&D efforts in areas such as new products and more advanced process development, IP cores and the development of new design and layout software. We may also consider acquisitions to complement our strategy for technology leadership and engineering resources in critical areas.
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Selling, General and Administrative
(In millions) | 2014 | Change | 2013 | Change | 2012 | ||||||||||||
Selling, general and administrative | $ | 378.6 | 4 | % | $ | 365.7 | — | % | $ | 365.3 | |||||||
Percentage of net revenues | 16 | % | 17 | % | 16 | % | |||||||||||
SG&A expenses increased $12.9 million or 4% during fiscal 2014 from the comparable prior year period. We incurred higher employee-related expenses (including employee compensation related to variable spending associated with higher revenue and operating margin, and stock-based compensation expense) in fiscal 2014, but the increases were partially offset by lower legal expenses and continued efforts on controlling other discretionary spending. SG&A expenses were relatively flat during fiscal 2013 compared to the prior year as higher employee-related expenses (including stock-based compensation expense) were offset by lower sales commission due to lower revenues.
Amortization of Acquisition-Related Intangibles
(In millions) | 2014 | Change | 2013 | Change | 2012 | ||||||||||||
Amortization of acquisition-related intangibles | $ | 9.9 | 4 | % | $ | 9.5 | 26 | % | $ | 7.6 | |||||||
Percentage of net revenues | — | % | — | % | — | % | |||||||||||
Amortization expense for fiscal 2014 and 2013 increased from the comparable prior year periods. The increases were primarily due to the impact of amortization of intangible assets obtained from an acquisition during the second quarter of fiscal 2013. See "Note 18. Business Combination" to our consolidated financial statements, included in Item 8. "Financial Statements and Supplementary Data."
Litigation and Contingencies
On December 19, 2013, we entered into a Settlement and License Agreement with PACT XPP Technologies, AG (PACT). Under the settlement, the parties agreed to dismiss with prejudice all outstanding patent litigation between Xilinx, Avnet, Inc. and PACT and Xilinx agreed to pay PACT a lump sum of $33.5 million. In addition, we received license rights to all patents owned or controlled by PACT. On December 23, 2013, the trial court dismissed the suit and on December 27, 2013, the court of appeals dismissed the appeal.
We previously recorded charges of $15.4 million in fiscal 2012. Due to the $33.5 million settlement, we recorded an additional $9.4 million in fiscal 2014 as a current period charge to the consolidated statements of income. The remainder of the settlement of $8.7 million will be amortized to cost of revenues in subsequent periods.
Stock-Based Compensation
(In millions) | 2014 | Change | 2013 | Change | 2012 | ||||||||||||
Stock-based compensation included in: | |||||||||||||||||
Cost of revenues | $ | 7.6 | 20 | % | $ | 6.4 | 13 | % | $ | 5.6 | |||||||
Research and development | 46.2 | 22 | % | 37.9 | 17 | % | 32.3 | ||||||||||
Selling, general and administrative | 40.5 | 21 | % | 33.6 | 14 | % | 29.5 | ||||||||||
$ | 94.3 | 21 | % | $ | 77.9 | 15 | % | $ | 67.4 | ||||||||
The $16.4 million and $10.5 million increases in stock-based compensation expense for fiscal 2014 and 2013, respectively, as compared to the prior year periods were primarily related to higher expenses associated with restricted stock units, as we granted more restricted stock units at a higher fair value in the recent years. The higher expense from restricted stock units was partially offset by lower expenses related to stock option grants as we granted lower number of stock options in the current fiscal year.
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Loss on Extinguishment of Convertible Debentures
On March 12, 2014, we paid $1.23 billion in cash to redeem all of the outstanding $689.6 million (principal amount) of our 3.125% Junior Convertible Debentures due March 15, 2037 (2037 Convertible Notes). In accordance with the authoritative guidance for convertible debentures issued by the Financial Accounting Standards Board (FASB), the redemption payment was allocated between the liability ($377.6 million) and equity ($856.5 million) components of the convertible debentures, using the equivalent rate that reflected the borrowing rate for a similar non-convertible debt prior to the redemption. As a result, we recognized a loss on extinguishment of convertible debentures of $9.8 million.
Interest and Other Expense, Net
(In millions) | 2014 | Change | 2013 | Change | 2012 | ||||||||||||
Interest and other expense, net | $ | 29.6 | (12 | )% | $ | 33.7 | 10 | % | $ | 30.7 | |||||||
Percentage of net revenues | 1 | % | 2 | % | 1 | % | |||||||||||
Our net interest and other expense decreased by $4.1 million in fiscal 2014 from the comparable prior year period. The decrease was primarily due to higher interest income from the investment portfolio. The increase in net interest and other expense in fiscal 2013 over the prior-year period was primarily due to an impairment of investments in non-marketable equity securities.
Provision for Income Taxes
(In millions) | 2014 | Change | 2013 | Change | 2012 | ||||||||||||
Provision for income taxes | $ | 79.1 | 33 | % | $ | 59.5 | (11 | )% | $ | 67.0 | |||||||
Percentage of net revenues | 3 | % | 3 | % | 3 | % | |||||||||||
Effective tax rate | 11 | % | 11 | % | 11 | % | |||||||||||
The difference between the U.S. federal statutory tax rate of 35% and our effective tax rate in all periods is primarily due to income earned in lower tax rate jurisdictions, for which no U.S. income tax has been provided, we intend to permanently reinvest these earnings outside of the U.S.
The effective tax rate remained flat for fiscal 2014 as compared with fiscal 2013, with underlying increases and decreases that offset each other. Both periods included benefits relating to lapses of statutes of limitation; however, the fiscal 2014 benefit was $5.5 million, which was less than the comparable release in fiscal 2013 of $9.0 million. The fiscal 2014 effective tax rate included a shift in the geographic mix of earnings with proportionally more earnings subject to U.S. tax. These two items, which increased the effective tax rate, were offset by a decrease in the rate when the amount of permanently reinvested foreign earnings, for which no U.S. taxes were provided, was increased.
The effective tax rate remained flat for fiscal 2013 as compared with fiscal 2012. While both periods included benefits related to the U.S. federal research credit, the credit was larger in fiscal 2013 than fiscal 2012 primarily due to the retroactive reinstatement of the research tax credit as part of the American Taxpayer Relief Act of 2012 enacted on January 2, 2013. The income tax provision for fiscal 2013 included five quarters of research tax credit as compared to the fiscal 2012 provision, which included three quarters. The net benefits relating to the federal research credit for fiscal 2013 and 2012 were $12.7 million and $9.1 million, respectively. Both periods also included benefits relating to lapses of statutes of limitation; however, the fiscal 2013 benefit was less than the comparable release in fiscal 2012. The benefits relating to lapses of statutes of limitation for fiscal 2013 and 2012 were $9.0 million and $15.9 million, respectively.
Financial Condition, Liquidity and Capital Resources
We have historically used a combination of cash flows from operations and equity and debt financing to support ongoing business activities, acquire or invest in critical or complementary technologies, purchase facilities and capital equipment, repurchase our common stock and debentures under our repurchase program, pay dividends and finance working capital. Additionally, our investments in debt securities are liquid and available for future business needs.
Fiscal 2014 Compared to Fiscal 2013
Cash, Cash Equivalents and Short-term and Long-term Investments
The combination of cash, cash equivalents and short-term and long-term investments as of March 29, 2014 and March 30, 2013 totaled $3.65 billion and $3.37 billion, respectively. As of March 29, 2014, we had cash, cash equivalents and short-term investments
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of $2.46 billion and working capital of $2.08 billion. As of March 30, 2013, cash, cash equivalents and short-term investments were $1.71 billion and working capital was $1.91 billion.
As of March 29, 2014, we had $1.84 billion of cash and cash equivalents and short-term investments held by our non-U.S. jurisdictions. From a financial statement perspective, approximately $752.6 million of the $1.84 billion held by our non-U.S. jurisdictions was available for use in the U.S. without incurring additional U.S. income taxes in excess of the amounts already accrued in our financial statements as of March 29, 2014. The remaining amount of non-U.S. cash and cash equivalents and short-term investments was permanently reinvested and, therefore, no U.S. current or deferred taxes accrued on this amount, which is intended for investment in our operations outside the U.S. We believe our U.S. sources of cash and liquidity are sufficient to meet our business needs in the U.S. and do not expect that we will need to repatriate the funds we have designated as permanently reinvested outside the U.S. Under current tax laws, should our plans change and we were to choose to repatriate some or all of the funds we have designated as permanently reinvested outside the U.S., such amounts would be subject to U.S. income taxes and applicable non-U.S. income and withholding taxes.
During fiscal 2014, our operations generated net positive cash flow of $804.9 million, which was $148.4 million higher than the $656.5 million generated during fiscal 2013. The positive cash flow from operations generated during fiscal 2014 was primarily from net income as adjusted for non-cash related items and increases in accounts payable and accrued liabilities. These items were partially offset by decrease in income taxes payable as well as increases in accounts receivable, inventories and other assets.
Net cash provided by investing activities was $28.6 million during fiscal 2014, as compared to net cash used in investing activities of $511.5 million in fiscal 2013. Net cash provided by investing activities during fiscal 2014 consisted of $57.5 million of net sales of available-for-sale securities and $16.0 million of other investing activities, which was partially offset by $44.9 million for purchases of property, plant and equipment (see further discussion below).
Net cash used in financing activities was $483.4 million in fiscal 2014, as compared to $310.3 million in fiscal 2013. Net cash used in financing activities during fiscal 2014 consisted of $1.23 billion in redemption of the 2037 Convertible Notes, $267.3 million dividend payments to stockholders and $241.1 million of cash payment to repurchase common stocks, which was partially offset by $990.1 million of proceeds from issuance of the 2019 and 2021 Notes, $238.2 million of proceeds from issuance of common stock under employee stock plans and $30.8 million for the excess of the tax benefit from stock-based compensation.
Accounts Receivable
Accounts receivable increased by $38.7 million and days sales outstanding (DSO) increased slightly to 41 days at March 29, 2014 from 38 days at March 30, 2013. The increase was primarily due to timing of shipments and collections.
Inventories
Inventories increased to $234.0 million as of March 29, 2014 from $201.3 million as of March 30, 2013, with combined inventory days at Xilinx and distribution increasing to 125 days at March 29, 2014 from 108 days at March 30, 2013. During fiscal 2014 and 2013, our inventory levels were relatively higher than historical trends due to the build ahead of a number of legacy parts in response to the previously planned closure of a particular foundry process line and the build ahead of our 28nm products in anticipation of ramping sales. We expect to ship the vast majority of these parts over the next two years.
We attempt to maintain sufficient levels of inventory in various product, package and speed configurations in order to keep lead times short and to meet forecasted customer demand as well as address potential supply constraints. Conversely, we also attempt to minimize the handling costs associated with maintaining higher inventory levels and to fully realize the opportunities for cost reductions associated with architecture and manufacturing process advancements. We continually strive to balance these two objectives to provide excellent customer response at a competitive cost.
Property, Plant and Equipment
During fiscal 2014, we invested $44.9 million in property, plant and equipment compared to $30.3 million in fiscal 2013. Primary investments in fiscal 2014 were for equipment and building improvements in order to support our New Products development and infrastructures.
Current Liabilities
Current liabilities increased to $989.4 million at the end of fiscal 2014 from $386.8 million at the end of fiscal 2013. The change was primarily due to the reclassification of our convertible debentures as a current liability on our consolidated balance sheet. See
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"Note 13. Debt and Credit Facility" to our consolidated financial statements, included in Item 8. "Financial Statements and Supplementary Data" for information.
Temporary and Stockholders’ Equity
Temporary and stockholders’ equity decreased $175.6 million during fiscal 2014 from $2.96 billion in fiscal 2013 to $2.79 billion in fiscal 2014. The decrease was primarily due to $646.7 million convertible debt extinguishment, $267.3 million of payment of dividends to stockholders, $242.1 million of repurchase of common stock and $9.2 million of other comprehensive loss. These decreases were partially offset by $630.4 million in net income for fiscal 2014, $94.3 million of stock-based compensation, $238.2 million of issuance of common stock under employee stock plans and increase in temporary equity of $35.0 million (see "Note 13. Debt and Credit Facility" to our consolidated financial statements, included in Item 8. "Financial Statements and Supplementary Data" for more information on temporary equity).
Fiscal 2013 Compared to Fiscal 2012
Cash, Cash Equivalents and Short-term and Long-term Investments
The combination of cash, cash equivalents and short-term and long-term investments as of March 30, 2013 and March 31, 2012 totaled $3.37 billion and $3.13 billion, respectively. As of March 30, 2013, we had cash, cash equivalents and short-term investments of $1.71 billion and working capital of $1.91 billion. As of March 31, 2012, cash, cash equivalents and short-term investments were $1.92 billion and working capital was $2.11 billion.
During fiscal 2013, our operations generated net positive cash flow of $656.5 million, which was $170.2 million lower than the $826.7 million generated during fiscal 2012. The positive cash flow from operations generated during fiscal 2013 was primarily from net income as adjusted for non-cash related items and increase in income taxes payable. These items were partially offset by increases in accounts receivable and other assets, as well as decreases in deferred income on shipments to distributors and accounts payable.
Net cash used in investing activities was $511.5 million during fiscal 2013, as compared to $960.9 million in fiscal 2012. Net cash used in investing activities during fiscal 2013 consisted of $396.2 million of net purchases of available-for-sale securities, $85.1 million of other investing activities and $30.3 million for purchases of property, plant and equipment (see further discussion below).
Net cash used in financing activities was $310.3 million in fiscal 2013, as compared to $299.4 million in fiscal 2012. Net cash used in financing activities during fiscal 2013 consisted of $230.5 million dividend payments to stockholders and $197.7 million of repurchase of common stocks, which was partially offset by $107.7 million of proceeds from issuance of common stock under employee stock plans and $10.2 million for the excess of the tax benefit from stock-based compensation.
Accounts Receivable
Accounts receivable increased by $14.2 million and DSOs increased to 38 days at March 30, 2013 from 35 days at March 31, 2012. The increase was primarily due to timing of shipments and collections.
Inventories
Inventories decreased to $201.3 million as of March 30, 2013 from $204.9 million as of March 31, 2012, but combined inventory days at Xilinx and distribution increased slightly to 108 days at March 30, 2013 from 106 days at March 31, 2012. While we were able to manage our inventory and reduce the balance in terms of absolute dollars at the end of fiscal 2013 from prior year, during fiscal 2013 and 2012 our inventory levels were still relatively higher than historical trends due to our decision to build ahead a number of legacy parts in response to the previously planned closure of a particular foundry process line.
Property, Plant and Equipment
During fiscal 2013, we invested $30.3 million in property, plant and equipment compared to $70.1 million in fiscal 2012. Primary investments in fiscal 2013 were for equipment, building improvements, testers, handlers, software in order to support our New Products development and infrastructures.
Current Liabilities
Current liabilities increased to $386.8 million at the end of fiscal 2013 from $342.8 million at the end of fiscal 2012. The change was primarily due to an increase in the U.S. federal income tax liability, partially offset by the decrease in deferred income on shipments to distributors.
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Stockholders’ Equity
Stockholders’ equity increased $255.6 million during fiscal 2013 from $2.71 billion in fiscal 2012 to $2.96 billion in fiscal 2013. The increase was primarily due to $487.5 million in net income for fiscal 2013, $77.9 million of stock-based compensation, $107.7 million of issuance of common stock under employee stock plans and $1.4 million of other comprehensive income. The increase was partially offset by $197.7 million of repurchase of common stock and $230.5 million of payment of dividends to stockholders.
Liquidity and Capital Resources
Cash generated from operations is used as our primary source of liquidity and capital resources. Our investment portfolio is also available for future cash requirements as is our $250.0 million revolving credit facility entered into in December 2011 (expiring in December 2016). We are not aware of any lack of access to the revolving credit facility; however, we can provide no assurance that access to the credit facility will not be impacted by adverse conditions in the financial markets. Our credit facility is not reliant upon a single bank. There have been no borrowings to date under our existing revolving credit facility.
We repurchased 5.2 million shares of our common stock for $242.1 million during fiscal 2014. During fiscal 2013, we used $197.7 million of cash to repurchase 6.2 million shares of common stock. During fiscal 2014, we paid $267.3 million in cash dividends to stockholders, representing $1.00 per common share. During fiscal 2013, we paid $230.5 million in cash dividends to stockholders, representing $0.88 per common share. On February 11, 2014, our Board of Directors declared a cash dividend of $0.29 per common share for the first quarter of fiscal 2015. The dividend is payable on June 4, 2014 to stockholders of record on May 14, 2014. Our common stock and debentures repurchase program and dividend policy could be impacted by, among other items, our views on potential future capital requirements relating to R&D, investments and acquisitions, legal risks, principal and interest payments on our debentures and other strategic investments.
We anticipate that existing sources of liquidity and cash flows from operations will be sufficient to satisfy our cash needs for the foreseeable future. We will continue to evaluate opportunities for investments to obtain additional wafer capacity, to procure additional capital equipment and facilities, to develop new products, and to potentially acquire technologies or businesses that could complement our business. However, the risk factors discussed in Item 1A and below could affect our cash positions adversely. In addition, certain types of investments such as auction rate securities may present risks arising from liquidity and/or credit concerns. In the event that our investments in auction rate securities become illiquid, we do not expect this will materially affect our liquidity and capital resources or results of operations.
As of March 29, 2014, marketable securities measured at fair value using Level 3 inputs were comprised of $20.2 million of student loan auction rate securities. The amount of assets and liabilities measured using significant unobservable inputs (Level 3) as a percentage of the total assets and liabilities measured at fair value was less than 1% as of March 29, 2014. See "Note 3. Fair Value Measurements" to our consolidated financial statements, included in Item 8. "Financial Statements and Supplementary Data," for additional information.
During fiscal 2014, we redeemed $10.3 million of student loan auction rate securities for cash at par value.
Contractual Obligations
The following table summarizes our significant contractual obligations as of March 29, 2014 and the effect such obligations are expected to have on our liquidity and cash flows in future periods. This table excludes amounts already recorded on our consolidated balance sheet as current liabilities as of March 29, 2014.
Payments Due by Period | ||||||||||||||||||||
(In millions) | Total | Less than 1 year | 1-3 years | 3-5 years | More than 5 years | |||||||||||||||
Operating lease obligations (1) | $ | 19.0 | $ | 5.9 | $ | 6.1 | $ | 3.5 | $ | 3.5 | ||||||||||
Inventory and other purchase obligations (2) | 143.8 | 143.8 | — | — | — | |||||||||||||||
Electronic design automation software licenses (3) | 24.5 | 12.0 | 12.5 | — | — | |||||||||||||||
Intellectual property license rights obligations (4) | 5.0 | — | — | — | 5.0 | |||||||||||||||
2017 Convertible Notes-principal and interest (5) | 650.6 | 15.8 | 31.5 | 603.3 | — | |||||||||||||||
2019 and 2021 Notes-principal and interest (5) | 1,157.1 | 25.6 | 51.3 | 550.8 | 529.4 | |||||||||||||||
Total | $ | 2,000.0 | $ | 203.1 | $ | 101.4 | $ | 1,157.6 | $ | 537.9 | ||||||||||
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(1) | We lease some of our facilities, office buildings and land under non-cancelable operating leases that expire at various dates through November 2035. Rent expense, net of rental income, under all operating leases was approximately $3.1 million for fiscal 2014. See "Note 9. Commitments" to our consolidated financial statements, included in Item 8. "Financial Statements and Supplementary Data," for additional information about operating leases. |
(2) | Due to the nature of our business, we depend entirely upon subcontractors to manufacture our silicon wafers and provide assembly and some test services. The lengthy subcontractor lead times require us to order the materials and services in advance, and we are obligated to pay for the materials and services when completed. We expect to receive and pay for these materials and services in the next three to six months, as the products meet delivery and quality specifications. |
(3) | As of March 29, 2014, we had $24.5 million of non-cancelable license obligations to providers of electronic design automation software and hardware/software maintenance expiring at various dates through December 2016. |
(4) | We committed up to $5.0 million to acquire, in the future, rights to intellectual property until July 2023. License payments will be amortized over the useful life of the intellectual property acquired. |
(5) | For purposes of this table we have assumed the principal of our debentures will be paid on maturity dates, which is June 15, 2017 for the 2017 Convertible Notes, March 15, 2019 for the 2019 Notes and March 15, 2021 for the 2021 Notes. See "Note 13. Debt and Credit Facility" to our consolidated financial statements, included in Item 8. "Financial Statements and Supplementary Data," for additional information about our debentures. |
As of March 29, 2014, $11.5 million of liabilities for uncertain tax positions and related interest and penalties were classified as long-term income taxes payable in the consolidated balance sheet. Due to the inherent uncertainty with respect to the timing of future cash outflows associated with such liabilities, we are unable to reliably estimate the timing of cash settlement with the respective taxing authorities. Therefore, liabilities for uncertain tax positions have been excluded from the contractual obligations table above.
Off-Balance-Sheet Arrangements
As of March 29, 2014, we did not have any significant off-balance-sheet arrangements, as defined in Item 303(a)(4)(ii) of SEC Regulation S-K.
Recent Accounting Pronouncements
See "Note 2. Summary of Significant Accounting Policies and Concentrations of Risk" to our consolidated financial statements, included in Item 8. "Financial Statements and Supplementary Data," for information about recent accounting pronouncements, including the expected dates of adoption and estimated effects, if any, on our consolidated financial statements.
ITEM 7A. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
Interest Rate Risk
Our exposure to interest rate risk relates primarily to our investment portfolio, which consists of fixed income securities with a fair value of approximately $3.39 billion as of March 29, 2014. Our primary aim with our investment portfolio is to invest available cash while preserving principal and meeting liquidity needs. Our investment portfolio includes municipal bonds, mortgage-backed securities, financial institution securities, non-financial institution securities, student loan auction rate securities, U.S. and foreign government and agency securities and debt mutual funds. In accordance with our investment policy, we place investments with high credit quality issuers and limit the amount of credit exposure to any one issuer based upon the issuer’s credit rating. These securities are subject to interest rate risk and will decrease in value if market interest rates increase. A hypothetical 100 basis-point (one percentage point) increase or decrease in interest rates compared to rates at March 29, 2014 and March 30, 2013 would have affected the fair value of our investment portfolio by approximately $53.0 million and $51.0 million, respectively.
Credit Market Risk
The global credit markets may experience adverse conditions that negatively impact the values of various types of investment and non-investment grade securities. The global credit and capital markets may experience significant volatility and disruption due to instability in the global financial system, uncertainty related to global economic conditions and concerns regarding sovereign financial stability. Therefore, there is a risk that we may incur other-than-temporary impairment charges for certain types of investments should credit market conditions deteriorate. See "Note 4. Financial Instruments" to our consolidated financial statements, included in Item 8. "Financial Statements and Supplementary Data."
Foreign Currency Exchange Risk
Sales to all direct OEMs and distributors are denominated in U.S. dollars.
Gains and losses on foreign currency forward contracts that are designated as hedges of anticipated transactions, for which a firm commitment has been attained and the hedged relationship has been effective, are deferred and included in income or expenses
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in the same period that the underlying transaction is settled. Gains and losses on any instruments not meeting the above criteria are recognized in income or expenses in the consolidated statements of income as they are incurred.
We enter into forward currency exchange contracts to hedge our overseas operating expenses and other liabilities when deemed appropriate. As of March 29, 2014 and March 30, 2013, we had the following outstanding forward currency exchange contracts (in notional amount):
(In thousands and U.S. dollars) | March 29, 2014 | March 30, 2013 | |||||
Singapore Dollar | $ | 60,551 | $ | 70,197 | |||
Euro | 46,062 | 39,865 | |||||
Indian Rupee | 18,631 | 16,941 | |||||
British Pound | 12,056 | 11,602 | |||||
Japanese Yen | 9,273 | 10,891 | |||||
$ | 146,573 | $ | 149,496 | ||||
As part of our strategy to reduce volatility of operating expenses due to foreign exchange rate fluctuations, we employ a hedging program with forward outlook of up to two years for major foreign-currency-denominated operating expenses. The outstanding forward currency exchange contracts expire at various dates through February 2016. The net unrealized losses, which approximate the fair market value of the forward currency exchange contracts, are expected to be realized into net income within the next two years.
Our investments in several of our wholly-owned subsidiaries are recorded in currencies other than the U.S. dollar. As the financial statements of these subsidiaries are translated at each quarter end during consolidation, fluctuations of exchange rates between the foreign currency and the U.S. dollar increase or decrease the value of those investments. These fluctuations are recorded within stockholders’ equity as a component of accumulated other comprehensive income (loss). Other monetary foreign-denominated assets and liabilities are revalued on a monthly basis with gains and losses on revaluation reflected in net income. A hypothetical 10% favorable or unfavorable change in foreign currency exchange rates at March 29, 2014 and March 30, 2013 would have affected the annualized foreign-currency-denominated operating expenses of our foreign subsidiaries by less than $11.0 million for each year. In addition, a hypothetical 10% favorable or unfavorable change in foreign currency exchange rates compared to rates at March 29, 2014 and March 30, 2013 would have affected the value of foreign-currency-denominated cash and investments by less than $5.0 million as of each date.
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ITEM 8. | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA |
XILINX, INC.
CONSOLIDATED STATEMENTS OF INCOME
Years Ended | |||||||||||
(In thousands, except per share amounts) | March 29, 2014 | March 30, 2013 | March 31, 2012 | ||||||||
Net revenues | $ | 2,382,531 | $ | 2,168,652 | $ | 2,240,736 | |||||
Cost of revenues | 743,253 | 737,206 | 786,078 | ||||||||
Gross margin | 1,639,278 | 1,431,446 | 1,454,658 | ||||||||
Operating expenses: | |||||||||||
Research and development | 492,447 | 475,522 | 435,276 | ||||||||
Selling, general and administrative | 378,607 | 365,684 | 365,272 | ||||||||
Amortization of acquisition-related intangibles | 9,887 | 9,508 | 7,568 | ||||||||
Restructuring charges | — | — | 3,369 | ||||||||
Litigation and contingencies | 9,410 | — | 15,400 | ||||||||
Total operating expenses | 890,351 | 850,714 | 826,885 | ||||||||
Operating income | 748,927 | 580,732 | 627,773 | ||||||||
Loss on extinguishment of convertible debentures | 9,848 | — | — | ||||||||
Interest and other expense, net | 29,553 | 33,726 | 30,722 | ||||||||
Income before income taxes | 709,526 | 547,006 | 597,051 | ||||||||
Provision for income taxes | 79,138 | 59,470 | 66,972 | ||||||||
Net income | $ | 630,388 | $ | 487,536 | $ | 530,079 | |||||
Net income per common share: | |||||||||||
Basic | $ | 2.37 | $ | 1.86 | $ | 2.01 | |||||
Diluted | $ | 2.19 | $ | 1.79 | $ | 1.95 | |||||
Shares used in per share calculations: | |||||||||||
Basic | 266,431 | 261,652 | 263,783 | ||||||||
Diluted | 287,396 | 272,573 | 272,157 | ||||||||
See notes to consolidated financial statements.
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XILINX, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Years Ended | |||||||||||
(In thousands) | March 29, 2014 | March 30, 2013 | March 31, 2012 | ||||||||
Net income | $ | 630,388 | $ | 487,536 | $ | 530,079 | |||||
Other comprehensive income (loss), net of tax: | |||||||||||
Change in net unrealized gains (losses) on available-for-sale securities | (11,241 | ) | 3,343 | 7,159 | |||||||
Reclassification adjustment for gains on available-for-sale securities | (167 | ) | (1,740 | ) | (1,062 | ) | |||||
Net change in unrealized gains (losses) on hedging transactions | 459 | (1,059 | ) | (3,665 | ) | ||||||
Reclassification adjustment for gains (losses) on hedging transactions | 1,707 | 2,792 | (4,659 | ) | |||||||
Cumulative translation adjustment, net | 34 | (1,940 | ) | (1,026 | ) | ||||||
Other comprehensive income (loss) | (9,208 | ) | 1,396 | (3,253 | ) | ||||||
Total comprehensive income | $ | 621,180 | $ | 488,932 | $ | 526,826 | |||||
See notes to consolidated financial statements.
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XILINX, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except par value amounts) | March 29, 2014 | March 30, 2013 | |||||
ASSETS | |||||||
Current assets: | |||||||
Cash and cash equivalents | $ | 973,677 | $ | 623,558 | |||
Short-term investments | 1,483,644 | 1,091,187 | |||||
Accounts receivable, net of allowances for doubtful accounts and customer returns of $3,355 and $3,425 in 2014 and 2013, respectively | 267,833 | 229,175 | |||||
Inventories | 233,999 | 201,250 | |||||
Deferred tax assets | 56,166 | 60,709 | |||||
Prepaid expenses and other current assets | 51,828 | 91,760 | |||||
Total current assets | 3,067,147 | 2,297,639 | |||||
Property, plant and equipment, at cost: | |||||||
Land | 93,701 | 93,701 | |||||
Buildings | 311,411 | 303,958 | |||||
Machinery and equipment | 358,193 | 340,402 | |||||
Furniture and fixtures | 46,725 | 46,735 | |||||
810,030 | 784,796 | ||||||
Accumulated depreciation and amortization | (454,941 | ) | (419,109 | ) | |||
Net property, plant and equipment | 355,089 | 365,687 | |||||
Long-term investments | 1,190,775 | 1,651,033 | |||||
Goodwill | 159,296 | 158,990 | |||||
Acquisition-related intangibles, net | 28,867 | 36,054 | |||||
Other assets | 236,175 | 220,048 | |||||
Total Assets | $ | 5,037,349 | $ | 4,729,451 | |||
LIABILITIES, TEMPORARY EQUITY AND STOCKHOLDERS’ EQUITY | |||||||
Current liabilities: | |||||||
Accounts payable | $ | 149,695 | $ | 72,766 | |||
Accrued payroll and related liabilities | 157,373 | 124,195 | |||||
Income taxes payable | 12,936 | 60,632 | |||||
Deferred income on shipments to distributors | 55,099 | 53,358 | |||||
Other accrued liabilities | 49,256 | 75,837 | |||||
Current portion of long-term debt | 565,001 | — | |||||
Total current liabilities | 989,360 | 386,788 | |||||
Long-term debt | 993,870 | 922,666 | |||||
Deferred tax liabilities | 253,433 | 415,442 | |||||
Long-term income taxes payable | 11,470 | 37,579 | |||||
Other long-term liabilities | 1,535 | 3,680 | |||||
Commitments and contingencies | |||||||
Temporary equity (Note 13) | 34,999 | — | |||||
Stockholders' equity: | |||||||
Preferred stock, $.01 par value; 2,000 shares authorized; none issued and outstanding | — | — | |||||
Common stock, $.01 par value; 2,000,000 shares authorized; 268,637 and 263,649 shares issued and outstanding in 2014 and 2013, respectively | 2,686 | 2,636 | |||||
Additional paid-in capital | 805,073 | 1,276,278 | |||||
Retained earnings | 1,945,471 | 1,675,722 | |||||
Accumulated other comprehensive income (loss) | (548 | ) | 8,660 | ||||
Total stockholders’ equity | 2,752,682 | 2,963,296 | |||||
Total Liabilities, Temporary Equity and Stockholders’ Equity | $ | 5,037,349 | $ | 4,729,451 | |||
See notes to consolidated financial statements.
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XILINX, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended | |||||||||||
(In thousands) | March 29, 2014 | March 30, 2013 | March 31, 2012 | ||||||||
Cash flows from operating activities: | |||||||||||
Net income | $ | 630,388 | $ | 487,536 | $ | 530,079 | |||||
Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||
Depreciation | 55,464 | 56,327 | 55,658 | ||||||||
Amortization | 19,808 | 17,233 | 16,690 | ||||||||
Stock-based compensation | 94,314 | 77,862 | 67,418 | ||||||||
Loss on extinguishment of convertible debentures | 9,848 | — | — | ||||||||
Net (gain) loss on sale of available-for-sale securities | 332 | (2,815 | ) | (2,515 | ) | ||||||
Amortization of debt discount on convertible debentures | 16,319 | 15,880 | 15,545 | ||||||||
Provision (benefit) for deferred income taxes | 53,854 | (44,100 | ) | 79,326 | |||||||
Excess tax benefit from stock-based compensation | (30,754 | ) | (10,156 | ) | (11,957 | ) | |||||
Others | (1,618 | ) | 2,779 | 44 | |||||||
Changes in assets and liabilities: | |||||||||||
Accounts receivable, net | (38,658 | ) | (14,210 | ) | 71,499 | ||||||
Inventories | (32,333 | ) | 3,889 | 60,121 | |||||||
Prepaid expenses and other current assets | (4,754 | ) | 5,000 | (7,401 | ) | ||||||
Other assets | (21,335 | ) | (13,932 | ) | 1,427 | ||||||
Accounts payable | 76,929 | (5,846 | ) | (20,640 | ) | ||||||
Accrued liabilities (including restructuring activities) | 19,659 | (2,319 | ) | 14,198 | |||||||
Income taxes payable | (44,287 | ) | 97,053 | (9,992 | ) | ||||||
Deferred income on shipments to distributors | 1,741 | (13,644 | ) | (32,761 | ) | ||||||
Net cash provided by operating activities | 804,917 | 656,537 | 826,739 | ||||||||
Cash flows from investing activities: | |||||||||||
Purchases of available-for-sale securities | (3,843,395 | ) | (3,910,398 | ) | (4,333,508 | ) | |||||
Proceeds from sale and maturity of available-for-sale securities | 3,900,858 | 3,514,224 | 3,481,501 | ||||||||
Purchases of property, plant and equipment | (44,865 | ) | (30,265 | ) | (70,071 | ) | |||||
Other investing activities | 16,048 | (85,076 | ) | (38,819 | ) | ||||||
Net cash provided by (used in) investing activities | 28,646 | (511,515 | ) | (960,897 | ) | ||||||
Cash flows from financing activities: | |||||||||||
Repurchase of convertible debentures | (1,234,086 | ) | — | — | |||||||
Repurchases of common stock | (241,076 | ) | (197,689 | ) | (219,638 | ) | |||||
Proceeds from issuance of common stock through various stock plans, net | 238,158 | 107,716 | 108,663 | ||||||||
Payment of dividends to stockholders | (267,343 | ) | (230,469 | ) | (200,361 | ) | |||||
Proceeds from issuance of long-term debts, net | 990,149 | — | — | ||||||||
Excess tax benefit from stock-based compensation | 30,754 | 10,156 | 11,957 | ||||||||
Net cash used in financing activities | (483,444 | ) | (310,286 | ) | (299,379 | ) | |||||
Net increase (decrease) in cash and cash equivalents | 350,119 | (165,264 | ) | (433,537 | ) | ||||||
Cash and cash equivalents at beginning of period | 623,558 | 788,822 | 1,222,359 | ||||||||
Cash and cash equivalents at end of period | $ | 973,677 | $ | 623,558 | $ | 788,822 | |||||
Supplemental disclosure of cash flow information: | |||||||||||
Interest paid | $ | 36,847 | $ | 37,301 | $ | 37,301 | |||||
Income taxes paid (refunded), net | $ | 68,215 | $ | 6,975 | $ | (2,447 | ) | ||||
See notes to consolidated financial statements.
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XILINX, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
Common Stock Outstanding | ||||||||||||||||||||||
(In thousands, except per share amounts) | Shares | Amount | Additional Paid-in Capital | Retained Earnings | Accumulated Other Comprehensive Income (Loss) | Total Stockholders’ Equity | ||||||||||||||||
Balance as of April 2, 2011 | 264,602 | $ | 2,646 | $ | 1,163,410 | $ | 1,238,044 | $ | 10,517 | $ | 2,414,617 | |||||||||||
Components of comprehensive income: | ||||||||||||||||||||||
Net income | — | — | — | 530,079 | — | 530,079 | ||||||||||||||||
Other comprehensive loss | — | — | — | — | (3,253 | ) | (3,253 | ) | ||||||||||||||
Total comprehensive income | 526,826 | |||||||||||||||||||||
Issuance of common shares under employee stock plans | 6,040 | 61 | 108,602 | — | — | 108,663 | ||||||||||||||||
Repurchase and retirement of common stock | (7,030 | ) | (71 | ) | (154,132 | ) | (65,435 | ) | — | (219,638 | ) | |||||||||||
Stock-based compensation expense | — | — | 67,418 | — | — | 67,418 | ||||||||||||||||
Stock-based compensation capitalized in inventory | — | — | 242 | — | — | 242 | ||||||||||||||||
Cash dividends declared ($0.76 per common share) | — | — | — | (200,361 | ) | — | (200,361 | ) | ||||||||||||||
Tax benefit from stock-based compensation | — | — | 9,918 | — | — | 9,918 | ||||||||||||||||
Balance as of March 31, 2012 | 263,612 | 2,636 | 1,195,458 | 1,502,327 | 7,264 | 2,707,685 | ||||||||||||||||
Components of comprehensive income: | ||||||||||||||||||||||
Net income | — | — | — | 487,536 | — | 487,536 | ||||||||||||||||
Other comprehensive income | — | — | — | — | 1,396 | 1,396 | ||||||||||||||||
Total comprehensive income | 488,932 | |||||||||||||||||||||
Issuance of common shares under employee stock plans | 6,191 | 61 | 107,655 | — | — | 107,716 | ||||||||||||||||
Repurchase and retirement of common stock | (6,154 | ) | (61 | ) | (113,956 | ) | (83,672 | ) | — | (197,689 | ) | |||||||||||
Stock-based compensation expense | — | — | 77,862 | — | — | 77,862 | ||||||||||||||||
Stock-based compensation capitalized in inventory | — | — | 275 | — | — | 275 | ||||||||||||||||
Cash dividends declared ($0.88 per common share) | — | — | — | (230,469 | ) | — | (230,469 | ) | ||||||||||||||
Tax benefit from stock-based compensation | — | — | 8,984 | — | — | 8,984 | ||||||||||||||||
Balance as of March 30, 2013 | 263,649 | 2,636 | 1,276,278 | 1,675,722 | 8,660 | 2,963,296 | ||||||||||||||||
Components of comprehensive income: | ||||||||||||||||||||||
Net income | — | — | — | 630,388 | — | 630,388 | ||||||||||||||||
Other comprehensive loss | — | — | — | — | (9,208 | ) | (9,208 | ) | ||||||||||||||
Total comprehensive income | 621,180 | |||||||||||||||||||||
Issuance of common shares under employee stock plans | 10,124 | 101 | 238,057 | — | — | 238,158 | ||||||||||||||||
Repurchase and retirement of common stock | (5,136 | ) | (51 | ) | (148,747 | ) | (93,296 | ) | — | (242,094 | ) | |||||||||||
Stock-based compensation expense | — | — | 94,314 | — | — | 94,314 | ||||||||||||||||
Stock-based compensation capitalized in inventory | — | — | 416 | — | — | 416 | ||||||||||||||||
Temporary equity reclassification | — | — | (34,999 | ) | — | — | (34,999 | ) | ||||||||||||||
Convertible Debt Extinguishment | — | — | (646,650 | ) | — | — | (646,650 | ) | ||||||||||||||
Cash dividends declared ($1.00 per common share) | — | — | — | (267,343 | ) | — | (267,343 | ) | ||||||||||||||
Tax benefit from stock-based compensation | — | — | 26,404 | — | — | 26,404 | ||||||||||||||||
Balance as of March 29, 2014 | 268,637 | $ | 2,686 | $ | 805,073 | $ | 1,945,471 | $ | (548 | ) | $ | 2,752,682 | ||||||||||
See notes to consolidated financial statements.
45
XILINX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Nature of Operations
Xilinx, Inc. (Xilinx or the Company) designs, develops and markets programmable devices and associated technologies, including advanced ICs in the form of PLDs, software design tools and predefined system functions delivered as IP. In addition to its programmable platforms, the Company provides design services, customer training, field engineering and technical support. The wafers used to manufacture its products are obtained primarily from independent wafer manufacturers located in Taiwan and Korea. The Company is dependent on these foundries to produce and deliver silicon wafers on a timely basis. The Company is also dependent on subcontractors, primarily located in the Asia Pacific region, to provide semiconductor assembly, test and shipment services. Xilinx is a global company with sales offices throughout the world. The Company derives over one-half of its revenues from international sales, primarily in the Asia Pacific region, Europe and Japan.
Note 2. | Summary of Significant Accounting Policies and Concentrations of Risk |
Basis of Presentation
The accompanying consolidated financial statements include the accounts of Xilinx and its wholly-owned subsidiaries after elimination of all intercompany transactions. The Company uses a 52- to 53-week fiscal year ending on the Saturday nearest March 31. Fiscal 2014, 2013 and 2012 were 52-week years ended on March 29, 2014, March 30, 2013 and March 31, 2012, respectively. Fiscal 2015 will be a 52-week year ending on March 28, 2015.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the U.S. requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the financial statements and the reported amounts of net revenues and expenses during the reporting period. Such estimates relate to, among others, the useful lives of assets, assessment of recoverability of property, plant and equipment, long-lived assets including acquisition-related intangible assets and goodwill, inventory write-downs, allowances for doubtful accounts, customer returns, deferred tax assets, stock-based compensation, potential reserves relating to litigation and tax matters, valuation of certain investments and derivative financial instruments as well as other accruals or reserves. Actual results may differ from those estimates and such differences may be material to the financial statements.
Cash Equivalents and Investments
Cash equivalents consist of highly liquid investments with original maturities from the date of purchase of three months or less. These investments consist of non-financial institution securities, U.S. and foreign government and agency securities, money market funds, and financial institution securities. Short-term investments consist of U.S. and foreign government and agency securities, mortgage-backed securities, financial institution securities, non-financial institution securities, a debt mutual fund and municipal bonds with original maturities greater than three months and remaining maturities less than one year from the balance sheet date. Long-term investments consist of mortgage-backed securities, non-financial institution securities, a debt mutual fund, U.S. government and agency securities, auction rate securities and municipal bonds with remaining maturities greater than one year, unless the investments are specifically identified to fund current operations, in which case they are classified as short-term investments. As of March 29, 2014 and March 30, 2013, long-term investments also included approximately $20.2 million and $28.7 million, respectively, of auction rate securities that experienced failed auctions in the fourth quarter of fiscal 2008. These auction rate securities are secured primarily by pools of student loans originated under Federal Family Education Loan Program (FFELP) that are substantially guaranteed by the U. S. Department of Education. Equity investments are also classified as long-term investments since they are not intended to fund current operations.
The Company maintains its cash balances with various banks with high quality ratings, and with investment banking and asset management institutions. The Company manages its liquidity risk by investing in a variety of money market funds, high-grade commercial paper, corporate bonds, municipal bonds, U.S. and foreign government and agency securities and debt mutual funds. This diversification of investments is consistent with its policy to maintain liquidity and ensure the ability to collect principal. The Company maintains an offshore investment portfolio denominated in U.S. dollars. All investments are made pursuant to corporate investment policy guidelines. Investments include Euro commercial paper, Euro dollar bonds, Euro dollar floating rate notes, offshore time deposits, U.S. and foreign government and agency securities, and mortgage-backed securities issued by U.S. government-sponsored enterprises and agencies.
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Management classifies investments as available-for-sale or held-to-maturity at the time of purchase and re-evaluates such designation at each balance sheet date, although classification is not generally changed. Securities are classified as held-to-maturity when the Company has the positive intent and the ability to hold the securities until maturity. Held-to-maturity securities are carried at cost adjusted for amortization of premiums and accretion of discounts to maturity. Such amortization, as well as any interest on the securities, is included in interest income. No investments were classified as held-to-maturity as of March 29, 2014 or March 30, 2013. Available-for-sale securities are carried at fair value with the unrealized gains or losses, net of tax, included as a component of accumulated other comprehensive income (loss) in stockholders’ equity. See "Note 3. Fair Value Measurements" for information relating to the determination of fair value. Realized gains and losses on available-for-sale securities are included in interest and other expense, net, and declines in value judged to be other than temporary are included in impairment loss on investments. The cost of securities matured or sold is based on the specific identification method.
In determining whether a decline in value of non-marketable equity investments in private companies is other than temporary, the assessment is made by considering available evidence including the general market conditions in the investee’s industry, the investee’s product development status, the investee’s ability to meet business milestones and the financial condition and near-term prospects of the individual investee, including the rate at which the investee is using its cash, the investee’s need for possible additional funding at a lower valuation and bona fide offers to purchase the investee from a prospective acquirer. When a decline in value is deemed to be other than temporary, the Company recognizes an impairment loss in the current period’s operating results to the extent of the decline.
Accounts Receivable
The allowance for doubtful accounts reflects the Company’s best estimate of probable losses inherent in the accounts receivable balance. The Company determines the allowance based on the aging of Xilinx’s accounts receivable, historical experience, known troubled accounts, management judgment and other currently available evidence. Xilinx writes off accounts receivable against the allowance when Xilinx determines a balance is uncollectible and no longer actively pursues collection of the receivable. The amounts of accounts receivable written off were insignificant for all periods presented.
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) | March 29, 2014 | March 30, 2013 | |||||
Raw materials | $ | 15,306 | $ | 12,484 | |||
Work-in-process | 192,067 | 165,034 | |||||
Finished goods | 26,626 | 23,732 | |||||
$ | 233,999 | $ | 201,250 | ||||
The Company reviews and sets standard costs quarterly to approximate current actual manufacturing costs. The Company’s manufacturing overhead standards for product costs are calculated assuming full absorption of actual spending over actual volumes, adjusted for excess capacity. Given the cyclicality of the market, the obsolescence of technology and product lifecycles, the Company writes down inventory based on forecasted demand and technological obsolescence. These forecasts are developed based on inputs from the Company’s customers, including bookings and extended but uncommitted demand forecasts, and internal analyses such as customer historical purchasing trends and actual and anticipated design wins, as well as market and economic conditions, technology changes, new product introductions and changes in strategic direction. These factors require estimates that may include uncertain elements. The estimates of future demand that the Company uses in the valuation of inventory are the basis for its published revenue forecasts, which are also consistent with our short-term manufacturing plans. The differences between the Company’s demand forecast and the actual demand in the recent past have not resulted in any material write down in the Company’s inventory. If the Company’s demand forecast for specific products is greater than actual demand and the Company fails to reduce manufacturing output accordingly, the Company could be required to write down additional inventory, which would have a negative impact on the Company’s gross margin.
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Property, Plant and Equipment
Property, plant and equipment are recorded at cost, net of accumulated depreciation. Depreciation for financial reporting purposes is computed using the straight-line method over the estimated useful lives of the assets of three to five years for machinery, equipment, furniture and fixtures and 15 to 30 years for buildings. Depreciation expense totaled $55.5 million, $56.3 million and $55.7 million for fiscal 2014, 2013 and 2012, respectively.
Impairment of Long-Lived Assets Including Acquisition-Related Intangibles
The Company evaluates the carrying value of long-lived assets and certain identifiable intangible assets to be held and used for impairment if indicators of potential impairment exist. Impairment indicators are reviewed on a quarterly basis. When indicators of impairment exist and assets are held for use, the Company estimates future undiscounted cash flows attributable to the assets. In the event such cash flows are not expected to be sufficient to recover the recorded value of the assets, the assets are written down to their estimated fair values based on the expected discounted future cash flows attributable to the assets or based on appraisals. When assets are removed from operations and held for sale, Xilinx estimates impairment losses as the excess of the carrying value of the assets over their fair value.
Goodwill
Goodwill is not amortized but is subject to impairment tests on an annual basis, or more frequently if indicators of potential impairment exist, using a fair-value-based approach. Based on the impairment review performed during the fourth quarter of fiscal 2014, there was no impairment of goodwill in fiscal 2014. Unless there are indicators of impairment, the Company’s next impairment review for goodwill will be performed and completed in the fourth quarter of fiscal 2015. To date, no impairment indicators have been identified.
Revenue Recognition
Sales to distributors are made under agreements providing distributor price adjustments and rights of return under certain circumstances. Revenue and costs relating to distributor sales are deferred until products are sold by the distributors to the distributors’ end customers. For fiscal 2014, approximately 56% of the Company’s net revenues were from products sold to distributors for subsequent resale to OEMs or their subcontract manufacturers. Revenue recognition depends on notification from the distributor that product has been sold to the distributor’s end customer. Also reported by the distributor are product resale price, quantity and end customer shipment information, as well as inventory on hand. Reported distributor inventory on hand is reconciled to deferred revenue balances monthly. The Company maintains system controls to validate distributor data and to verify that the reported information is accurate. Deferred income on shipments to distributors reflects the estimated effects of distributor price adjustments and the amount of gross margin expected to be realized when distributors sell through product purchased from the Company. Accounts receivable from distributors are recognized and inventory is relieved when title to inventories transfers, typically upon shipment from Xilinx at which point the Company has a legally enforceable right to collection under normal payment terms.
As of March 29, 2014, the Company had $75.2 million of deferred revenue and $20.1 million of deferred cost of revenues recognized as a net $55.1 million of deferred income on shipments to distributors. As of March 30, 2013, the Company had $71.3 million of deferred revenue and $17.9 million of deferred cost of revenues recognized as a net $53.4 million of deferred income on shipments to distributors. The deferred income on shipments to distributors that will ultimately be recognized in the Company’s consolidated statement of income will be different than the amount shown on the consolidated balance sheet due to actual price adjustments issued to the distributors when the product is sold to their end customers.
Revenue from sales to the Company’s direct customers is recognized upon shipment provided that persuasive evidence of a sales arrangement exists, the price is fixed, title has transferred, collection of resulting receivables is reasonably assured, and there are no customer acceptance requirements and no remaining significant obligations. For each of the periods presented, there were no significant formal acceptance provisions with the Company’s direct customers.
Revenue from software licenses is deferred and recognized as revenue over the term of the licenses of one year. Revenue from support services is recognized when the service is performed. Revenue from Support Products, which includes software and services sales, was less than 5% of net revenues for all of the periods presented.
Allowances for end customer sales returns are recorded based on historical experience and for known pending customer returns or allowances.
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Foreign Currency Translation
The U.S. dollar is the functional currency for the Company’s Ireland and Singapore subsidiaries. Monetary assets and liabilities that are not denominated in the functional currency are remeasured into U.S. dollars, and the resulting gains or losses are included in the consolidated statements of income under interest and other expense, net. The remeasurement gains or losses were immaterial for all fiscal periods presented.
The local currency is the functional currency for each of the Company’s other wholly-owned foreign subsidiaries. Assets and liabilities are translated from foreign currencies into U.S. dollars at month-end exchange rates and statements of income are translated at the average monthly exchange rates. Exchange gains or losses arising from translation of foreign currency denominated assets and liabilities (i.e., cumulative translation adjustment) are included as a component of accumulated other comprehensive income (loss) in stockholders’ equity.
Derivative Financial Instruments
To reduce financial risk, the Company periodically enters into financial arrangements as part of the Company’s ongoing asset and liability management activities. Xilinx uses derivative financial instruments to hedge fair values of underlying assets and liabilities or future cash flows which are exposed to foreign currency or commodity price fluctuations. The Company does not enter into derivative financial instruments for trading or speculative purposes. See "Note 5. Derivative Financial Instruments" for detailed information about the Company’s derivative financial instruments.
Research and Development Expenses
Research and development costs are current period expenses and charged to expense as incurred.
Stock-Based Compensation
The Company has equity incentive plans that are more fully discussed in "Note 6. Stock-Based Compensation Plans." The authoritative guidance of accounting for share-based payment requires the Company to measure the cost of all employee equity awards that are expected to be exercised based on the grant-date fair value of those awards and to record that cost as compensation expense over the period during which the employee is required to perform service in exchange for the award (over the vesting period of the award). In addition, the Company is required to record compensation expense (as previous awards continue to vest) for the unvested portion of previously granted awards that remain outstanding at the date of adoption. The authoritative guidance of accounting for share-based payment requires cash flows resulting from excess tax benefits to be classified as a part of cash flows from financing activities. Excess tax benefits are realized tax benefits from tax deductions for exercised options in excess of the deferred tax asset attributable to stock compensation costs for such options. The exercise price of employee stock options is equal to the market price of Xilinx common stock (defined as the closing trading price reported by The NASDAQ Global Select Market) on the date of grant. Additionally, Xilinx’s employee stock purchase plan is deemed a compensatory plan under the authoritative guidance of accounting for share-based payment. Accordingly, the employee stock purchase plan is included in the computation of stock-based compensation expense.
The Company uses the straight-line attribution method to recognize stock-based compensation costs over the requisite service period of the award. Upon exercise, cancellation or expiration of stock options, deferred tax assets for options with multiple vesting dates are eliminated for each vesting period on a first-in, first-out basis as if each award had a separate vesting period. To calculate the excess tax benefits available for use in offsetting future tax shortfalls as of the date of implementation, the Company followed the alternative transition method.
Income Taxes
All income tax amounts reflect the use of the liability method under the accounting for income taxes, as interpreted by FASB authoritative guidance for measuring uncertain tax positions. Under this method, deferred tax assets and liabilities are determined based on the expected future tax consequences of temporary differences between the carrying amounts of assets and liabilities for financial and income tax reporting purposes.
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 both fiscal 2014 and 2013, the accrual balance of the product warranty liability was immaterial.
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The Company offers, subject to certain terms and conditions, to indemnify customers and distributors for costs and damages awarded against these parties in the event the Company’s hardware products are found to infringe third-party intellectual property rights, including patents, copyrights or trademarks, and to compensate certain customers for limited specified costs they actually incur in the event our hardware products experience epidemic failure. To a lesser extent, the Company may from time-to-time offer limited indemnification with respect to its software products. The terms and conditions of these indemnity obligations are limited by contract, which obligations are typically perpetual from the effective date of the agreement. The Company has historically received only a limited number of requests for indemnification under these provisions and has not made any significant payments pursuant to these provisions. The Company cannot estimate the maximum amount of potential future payments, if any, that the Company may be required to make as a result of these obligations due to the limited history of indemnification claims and the unique facts and circumstances that are likely to be involved in each particular claim and indemnification provision. However, there can be no assurances that the Company will not incur any financial liabilities in the future as a result of these obligations.
Concentrations of Credit Risk
Avnet, Inc. (Avnet), one of the Company’s distributors, distributes the Company’s products worldwide. As of March 29, 2014 and March 30, 2013, Avnet accounted for 55% and 64% of the Company’s total net accounts receivable, respectively. Resale of product through Avnet accounted for 46%, 46% and 48% of the Company’s worldwide net revenues in fiscal 2014, 2013 and 2012, respectively. The percentage of accounts receivable due from Avnet and the percentage of worldwide net revenues from Avnet are consistent with historical patterns.
Xilinx is subject to concentrations of credit risk primarily in its trade accounts receivable and investments in debt securities to the extent of the amounts recorded on the consolidated balance sheet. The Company attempts to mitigate the concentration of credit risk in its trade receivables through its credit evaluation process, collection terms, distributor sales to diverse end customers and through geographical dispersion of sales. Xilinx generally does not require collateral for receivables from its end customers or from distributors.
No end customer accounted for more than 10% of the Company’s worldwide net revenues for any of the periods presented.
The Company mitigates concentrations of credit risk in its investments in debt securities by currently investing more than 84% of its portfolio in AA or higher grade securities as rated by Standard & Poor’s or Moody’s Investors Service. The Company’s methods to arrive at investment decisions are not solely based on the rating agencies’ credit ratings. Xilinx also performs additional credit due diligence and conducts regular portfolio credit reviews, including a review of counterparty credit risk related to the Company’s forward currency exchange contracts. Additionally, Xilinx limits its investments in the debt securities of a single issuer based upon the issuer’s credit rating and attempts to further mitigate credit risk by diversifying risk across geographies and type of issuer.
As of March 29, 2014, approximately 34% of the portfolio consisted of mortgage-backed securities. All of the mortgage-backed securities in the investment portfolio were issued by U.S. government-sponsored enterprises and agencies and are rated AA+ by Standard & Poor’s and AAA by Moody’s Investors Service.
The global credit and capital markets have continued to experience adverse conditions that have negatively impacted the values of various types of investment and non-investment grade securities, and have experienced volatility and disruption due to instability in the global financial system, uncertainty related to global economic conditions and concerns regarding sovereign financial stability. Therefore, there is a risk that the Company may incur other-than-temporary impairment charges for certain types of investments should credit market conditions deteriorate or the underlying assets fail to perform as anticipated. See "Note 4. Financial Instruments" for a table of the Company’s available-for-sale securities.
Dependence on Independent Manufacturers and Subcontractors
The Company does not directly manufacture the finished silicon wafers used to manufacture its products. Xilinx receives a majority of its finished wafers from independent wafer manufacturers located in Taiwan. The Company is also dependent on a limited number of subcontractors, primarily located in the Asia Pacific region, to provide semiconductor assembly, test and shipment services.
Recent Accounting Pronouncements
Beginning in its fiscal 2014, the Company adopted the authoritative guidance established by the FASB that sets requirements for presentation for significant items reclassified out of the accumulated other comprehensive income (loss) to net income in their entirety during the period, and for items not reclassified to net income in their entirety during the period. This guidance does not affect the underlying accounting for components of other comprehensive income (loss).
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In January 2014, the FASB issued the authoritative guidance that permits reporting entities to make an accounting policy election to account for their investments in qualified affordable housing projects using the proportional amortization method if certain conditions are met. If the conditions are met, the guidance permits an entity to amortize the initial cost of the investment in proportion to the amount of tax credits and the other tax benefits received and recognize the net investment performance in the income statement as a component of income tax. The guidance will be effective for public companies for fiscal years and interim periods within those years beginning after December 15, 2014, which for Xilinx is for its first quarter of fiscal year 2016, and should be applied retrospectively for all periods presented. The Company does not expect this guidance to have significant impact on its consolidated financial statements.
Note 3. | Fair Value Measurements |
The guidance for fair value measurements established by the FASB defines fair value as the exchange price that would be received from selling an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required or permitted to be recorded at fair value, the Company considers the principal or most advantageous market in which Xilinx would transact and also considers assumptions that market participants would use when pricing the asset or liability, such as inherent risk, transfer restrictions and risk of nonperformance.
The Company determines the fair value for marketable debt securities using industry standard pricing services, data providers and other third-party sources and by internally performing valuation testing and analysis. The Company primarily uses a consensus price or weighted-average price for its fair value assessment. The Company determines the consensus price using market prices from a variety of industry standard pricing services, data providers, security master files from large financial institutions and other third party sources and uses those multiple prices as inputs into a distribution-curve-based algorithm to determine the daily market value. The pricing services use multiple inputs to determine market prices, including reportable trades, benchmark yield curves, credit spreads and broker/dealer quotes as well as other industry and economic events. For certain securities with short maturities, such as discount commercial paper and certificates of deposit, the security is accreted from purchase price to face value at maturity. If a subsequent transaction on the same security is observed in the marketplace, the price on the subsequent transaction is used as the current daily market price and the security will be accreted to face value based on the revised price. For certain other securities, such as student loan auction rate securities, the Company performs its own valuation analysis using a discounted cash flow pricing model.
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 fiscal 2014 and the Company did not adjust or override any fair value measurements as of March 29, 2014.
Fair Value Hierarchy
The fair value framework requires the categorization of assets and liabilities into three levels based upon the assumptions (inputs) used to price the assets or liabilities. The guidance for fair value measurements requires that assets and liabilities carried at fair value be classified and disclosed in one of the following categories:
Level 1 — Quoted (unadjusted) prices in active markets for identical assets or liabilities.
The Company’s Level 1 assets consist of U.S. government and agency securities and money market funds.
Level 2 — Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the asset or liability.
The Company’s Level 2 assets consist of financial institution securities, non-financial institution securities, municipal bonds, U.S. agency securities, foreign government and agency securities, mortgage-backed securities and debt mutual funds. The Company’s Level 2 assets and liabilities also include foreign currency forward contracts and commodity swap contracts.
Level 3 — Unobservable inputs to the valuation methodology that are supported by little or no market activity and that are significant to the measurement of the fair value of the assets or liabilities. Level 3 assets and liabilities include those whose fair value measurements are determined using pricing models, discounted cash flow methodologies or similar valuation techniques, as well as significant management judgment or estimation.
The Company’s Level 3 assets and liabilities include student loan auction rate securities and the embedded derivative related to the Company’s debentures.
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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 March 29, 2014 and March 30, 2013:
March 29, 2014 | ||||||||||||||||
(In thousands) | Quoted Prices in Active Markets for Identical Instruments (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | Total Fair Value | ||||||||||||
Assets | ||||||||||||||||
Cash and cash equivalents: | ||||||||||||||||
Money market funds | $ | 213,988 | $ | — | $ | — | $ | 213,988 | ||||||||
Financial institution securities | — | 131,990 | — | 131,990 | ||||||||||||
Non-financial institution securities | — | 319,970 | — | 319,970 | ||||||||||||
U.S. government and agency securities | 69,998 | — | — | 69,998 | ||||||||||||
Foreign government and agency securities | — | 194,984 | — | 194,984 | ||||||||||||
Short-term investments: | ||||||||||||||||
Financial institution securities | — | 234,916 | — | 234,916 | ||||||||||||
Non-financial institution securities | — | 226,828 | — | 226,828 | ||||||||||||
Municipal bonds | — | 15,780 | — | 15,780 | ||||||||||||
U.S. government and agency securities | 349,023 | 89,422 | — | 438,445 | ||||||||||||
Foreign government and agency securities | — | 159,951 | — | 159,951 | ||||||||||||
Mortgage-backed securities | — | 387,508 | — | 387,508 | ||||||||||||
Debt mutual fund | — | 20,216 | — | 20,216 | ||||||||||||
Long-term investments: | ||||||||||||||||
Non-financial institution securities | — | 209,274 | — | 209,274 | ||||||||||||
Auction rate securities | — | — | 20,160 | 20,160 | ||||||||||||
Municipal bonds | — | 15,986 | — | 15,986 | ||||||||||||
U.S. government and agency securities | 4,950 | 36,126 | — | 41,076 | ||||||||||||
Mortgage-backed securities | — | 847,581 | — | 847,581 | ||||||||||||
Debt mutual fund | — | 56,698 | — | 56,698 | ||||||||||||
Derivative financial instruments, net | — | 1,713 | — | 1,713 | ||||||||||||
Total assets measured at fair value | $ | 637,959 | $ | 2,948,943 | $ | 20,160 | $ | 3,607,062 | ||||||||
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March 30, 2013 | ||||||||||||||||
(In thousands) | Quoted Prices in Active Markets for Identical Instruments (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | Total Fair Value | ||||||||||||
Assets | ||||||||||||||||
Cash and cash equivalents: | ||||||||||||||||
Money market funds | $ | 108,311 | $ | — | $ | — | $ | 108,311 | ||||||||
Financial institution securities | — | 124,988 | — | 124,988 | ||||||||||||
Non-financial institution securities | — | 163,674 | — | 163,674 | ||||||||||||
U.S. government and agency securities | 95,039 | — | — | 95,039 | ||||||||||||
Foreign government and agency securities | — | 54,989 | — | 54,989 | ||||||||||||
Short-term investments: | ||||||||||||||||
Financial institution securities | — | 179,933 | — | 179,933 | ||||||||||||
Non-financial institution securities | — | 200,670 | — | 200,670 | ||||||||||||
Municipal Bonds | — | 3,706 | — | 3,706 | ||||||||||||
U.S. government and agency securities | 416,887 | 75,011 | — | 491,898 | ||||||||||||
Foreign government and agency securities | — | 214,912 | — | 214,912 | ||||||||||||
Mortgage-backed securities | — | 68 | — | 68 | ||||||||||||
Long-term investments: | ||||||||||||||||
Non-financial institution securities | — | 235,275 | — | 235,275 | ||||||||||||
Auction rate securities | — | — | 28,700 | 28,700 | ||||||||||||
Municipal bonds | — | 21,234 | — | 21,234 | ||||||||||||
U.S. government and agency securities | 55,142 | 55,143 | — | 110,285 | ||||||||||||
Mortgage-backed securities | — | 1,192,612 | — | 1,192,612 | ||||||||||||
Debt mutual fund | — | 62,927 | — | 62,927 | ||||||||||||
Total assets measured at fair value | $ | 675,379 | $ | 2,585,142 | $ | 28,700 | $ | 3,289,221 | ||||||||
Liabilities | ||||||||||||||||
Derivative financial instruments, net | $ | — | $ | 1,615 | $ | — | $ | 1,615 | ||||||||
Convertible debentures — embedded derivative | — | — | 1,090 | 1,090 | ||||||||||||
Total liabilities measured at fair value | $ | — | $ | 1,615 | $ | 1,090 | $ | 2,705 | ||||||||
Net assets measured at fair value | $ | 675,379 | $ | 2,583,527 | $ | 27,610 | $ | 3,286,516 | ||||||||
Changes in Level 3 Instruments Measured at Fair Value on a Recurring Basis
The following table is a reconciliation of all assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3):
Years Ended | ||||||||
(In thousands) | March 29, 2014 | March 30, 2013 | ||||||
Balance as of beginning of period | $ | 27,610 | $ | 27,998 | ||||
Total realized and unrealized gains (losses): | ||||||||
Included in interest and other expense, net | 1,090 | (159 | ) | |||||
Included in other comprehensive income (loss) | 1,760 | 471 | ||||||
Sales and settlements, net (1) | (10,300 | ) | (700 | ) | ||||
Balance as of end of period | $ | 20,160 | $ | 27,610 | ||||
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(1) | During fiscal 2014 and 2013, the Company redeemed $10.3 million and $700 thousand of student loan auction rate securities, respectively, for cash at par value. |
The amount of total gains or (losses) included in net income attributable to the change in unrealized gains or (losses) relating to assets and liabilities still held as of the end of the period are summarized as follows:
(In thousands) | March 29, 2014 | March 30, 2013 | March 31, 2012 | |||||||||
Included in interest and other expense, net | $ | — | $ | (159 | ) | $ | 14 | |||||
As of March 29, 2014, marketable securities measured at fair value using Level 3 inputs were comprised of $20.2 million of student loan auction rate securities. Auction failures during the fourth quarter of fiscal 2008 and the lack of market activity and liquidity required that the Company’s student loan auction rate securities be measured using observable market data and Level 3 inputs. The fair values of the Company’s student loan auction rate securities were based on the Company’s assessment of the underlying collateral and the creditworthiness of the issuers of the securities. Substantially all of the underlying assets that secure the student loan auction rate securities are pools of student loans originated under FFELP, which are substantially guaranteed by the U.S. Department of Education. The fair values of the Company’s student loan auction rate securities were determined using a discounted cash flow pricing model that incorporated financial inputs such as projected cash flows, discount rates, expected interest rates to be paid to investors and an estimated liquidity discount. The most significant assumptions of the model are the weighted-average life over which cash flows were projected of eight years (given the collateral composition of the securities) and the discount rates ranging from 2.12% to 2.80% that were applied to the pricing model (based on market data and information for comparable- or similar-term student loan asset-backed securities). A hypothetical 20% increase or decrease of the weighted-average life over which cash flows were projected and 100 basis points (one percentage point) increase or decrease in the discount rates would not have a material effect on the fair values of the Company’s student loan auction rate securities. The Company does not intend to sell, nor does it believe it is more likely than not that it would be required to sell, the student loan auction rate securities before anticipated recovery, which could be at final maturity that ranges from June 2043 to May 2047.
The 2037 Convertible Notes, which were redeemed on March 12, 2014 (see "Note 13. Debt and Credit Facility"), included embedded features that qualify as an embedded derivative, and was separately accounted for as a discount on the 2037 Convertible Notes. Its fair value was established at the inception of the 2037 Convertible Notes. Prior to the redemption, each quarter, the change in the fair value of the embedded derivative, if any, was recorded in the consolidated statements of income. The Company used a derivative valuation model to derive the value of the embedded derivative. Key inputs into this valuation model were the Company’s current stock price, risk-free interest rates, the stock dividend yield, the stock volatility and the 2037 Convertible Notes’ credit spread over London Interbank Offered Rate. The first three inputs were based on observable market data and were considered Level 2 inputs while the last two inputs required management judgment and were Level 3 inputs.
Financial Instruments Not Recorded at Fair Value on a Recurring Basis
The Company’s 2017 Convertible Notes, 2019 Notes and 2021 Notes are measured at fair value on a quarterly basis for disclosure purposes. The fair values of the 2017 Convertible Notes, 2019 Notes and 2021 Notes as of March 29, 2014 were approximately $1.12 billion, $498.3 million and $497.8 million, respectively, based on the last trading price of the respective debentures for the period (classified as Level 2 in fair value hierarchy due to relatively low trading volume).
54
Note 4. | Financial Instruments |
The following is a summary of cash equivalents and available-for-sale securities as of the end of the periods presented:
March 29, 2014 | March 30, 2013 | |||||||||||||||||||||||||||||||
(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 | $ | 213,988 | $ | — | $ | — | $ | 213,988 | $ | 108,311 | $ | — | $ | — | $ | 108,311 | ||||||||||||||||
Financial institution | ||||||||||||||||||||||||||||||||
securities | 366,906 | — | — | 366,906 | 304,921 | — | — | 304,921 | ||||||||||||||||||||||||
Non-financial institution | ||||||||||||||||||||||||||||||||
securities | 753,888 | 3,428 | (1,244 | ) | 756,072 | 594,561 | 5,193 | (135 | ) | 599,619 | ||||||||||||||||||||||
Auction rate securities | 21,500 | — | (1,340 | ) | 20,160 | 31,900 | — | (3,200 | ) | 28,700 | ||||||||||||||||||||||
Municipal bonds | 31,367 | 604 | (205 | ) | 31,766 | 24,496 | 514 | (70 | ) | 24,940 | ||||||||||||||||||||||
U.S. government and | ||||||||||||||||||||||||||||||||
agency securities | 548,568 | 1,135 | (184 | ) | 549,519 | 696,836 | 431 | (45 | ) | 697,222 | ||||||||||||||||||||||
Foreign government and | ||||||||||||||||||||||||||||||||
agency securities | 354,935 | — | — | 354,935 | 269,901 | — | — | 269,901 | ||||||||||||||||||||||||
Mortgage-backed securities | 1,234,237 | 11,380 | (10,528 | ) | 1,235,089 | 1,180,156 | 17,601 | (5,077 | ) | 1,192,680 | ||||||||||||||||||||||
Debt mutual funds | 81,350 | 216 | (4,652 | ) | 76,914 | 61,350 | 1,577 | — | 62,927 | |||||||||||||||||||||||
$ | 3,606,739 | $ | 16,763 | $ | (18,153 | ) | $ | 3,605,349 | $ | 3,272,432 | $ | 25,316 | $ | (8,527 | ) | $ | 3,289,221 | |||||||||||||||
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 March 29, 2014 and March 30, 2013:
March 29, 2014 | |||||||||||||||||||||||
Less Than 12 Months | 12 Months or Greater | Total | |||||||||||||||||||||
(In thousands) | Fair Value | Gross Unrealized Losses | Fair Value | Gross Unrealized Losses | Fair Value | Gross Unrealized Losses | |||||||||||||||||
Non-financial institution securities | $ | 112,470 | $ | (1,167 | ) | $ | 4,488 | $ | (77 | ) | $ | 116,958 | $ | (1,244 | ) | ||||||||
Auction rate securities | — | — | 20,160 | (1,340 | ) | 20,160 | (1,340 | ) | |||||||||||||||
Municipal bonds | 5,917 | (166 | ) | 1,743 | (39 | ) | 7,660 | (205 | ) | ||||||||||||||
U.S. government and | |||||||||||||||||||||||
agency securities | 118,125 | (184 | ) | — | — | 118,125 | (184 | ) | |||||||||||||||
Mortgage-backed securities | 457,903 | (7,225 | ) | 132,376 | (3,303 | ) | 590,279 | (10,528 | ) | ||||||||||||||
Debt mutual fund | 56,698 | (4,652 | ) | — | — | 56,698 | (4,652 | ) | |||||||||||||||
$ | 751,113 | $ | (13,394 | ) | $ | 158,767 | $ | (4,759 | ) | $ | 909,880 | $ | (18,153 | ) | |||||||||
55
March 30, 2013 | |||||||||||||||||||||||
Less Than 12 Months | 12 Months or Greater | Total | |||||||||||||||||||||
(In thousands) | Fair Value | Gross Unrealized Losses | Fair Value | Gross Unrealized Losses | Fair Value | Gross Unrealized Losses | |||||||||||||||||
Non-financial institution securities | $ | 27,114 | $ | (135 | ) | $ | — | $ | — | $ | 27,114 | $ | (135 | ) | |||||||||
Auction rate securities | — | — | 28,701 | (3,200 | ) | 28,701 | (3,200 | ) | |||||||||||||||
Municipal bonds | 8,927 | (70 | ) | 60 | — | 8,987 | (70 | ) | |||||||||||||||
U.S. government and | |||||||||||||||||||||||
agency securities | 388,696 | (45 | ) | — | — | 388,696 | (45 | ) | |||||||||||||||
Mortgage-backed securities | 367,561 | (4,930 | ) | 11,029 | (147 | ) | 378,590 | (5,077 | ) | ||||||||||||||
$ | 792,298 | $ | (5,180 | ) | $ | 39,790 | $ | (3,347 | ) | $ | 832,088 | $ | (8,527 | ) | |||||||||
As of March 29, 2014, the gross unrealized losses that had been outstanding for less than twelve months were primarily related to mortgage-backed securities and a debt mutual fund due to the general rising of the interest-rate environment, although the percentage of such losses to the total estimated fair value of the mortgage-backed securities and the debt mutual fund was relatively insignificant. The gross unrealized losses that had been outstanding for more than twelve months were primarily related to mortgage-backed securities, which were primarily due to the general rising of the interest-rate environment, and failed auction rate securities, which were due to adverse conditions in the global credit markets during the past five years.
The Company reviewed the investment portfolio and determined that the gross unrealized losses on these investments as of March 29, 2014 and March 30, 2013 were temporary in nature as evidenced by the fluctuations in the gross unrealized losses within the investment categories. These investments are highly rated by the credit rating agencies and there have been no defaults on any of these securities, and we have received interest payments as they become due. Additionally, in the past several years a portion of the Company's investment in the auction rate securities and the mortgage-backed securities were redeemed or prepaid by the debtors at par. Furthermore, the aggregate of individual unrealized losses that had been outstanding for twelve months or more was not significant as of March 29, 2014 and March 30, 2013. 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 Company also believes that it will be able to collect both principal and interest amounts due to the Company at maturity, given the high credit quality of these investments and any related underlying collateral.
The amortized cost and estimated fair value of marketable debt securities (financial institution securities, non-financial institution securities, auction rate securities, municipal bonds, U.S. and foreign government and agency securities and mortgage-backed securities), by contractual maturity, are shown below. Actual maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations without call or prepayment penalties.
March 29, 2014 | |||||||
(In thousands) | Amortized Cost | Estimated Fair Value | |||||
Due in one year or less | $ | 1,614,563 | $ | 1,614,735 | |||
Due after one year through five years | 437,854 | 440,661 | |||||
Due after five years through ten years | 231,266 | 232,909 | |||||
Due after ten years | 1,027,718 | 1,026,142 | |||||
$ | 3,311,401 | $ | 3,314,447 | ||||
As of March 29, 2014, $585.9 million of marketable debt securities with contractual maturities of greater than one year were classified as short-term investments. Additionally, the above table did not include investments in money market and mutual funds because these funds do not have specific contractual maturities.
Certain information related to available-for-sale securities is as follows:
56
(In thousands) | March 29, 2014 | March 30, 2013 | March 31, 2012 | ||||||||
Gross realized gains on sale of available-for-sale securities | $ | 2,080 | $ | 3,488 | $ | 2,916 | |||||
Gross realized losses on sale of available-for-sale securities | (2,412 | ) | (673 | ) | (401 | ) | |||||
Net realized gains (losses) on sale of available-for-sale securities | $ | (332 | ) | $ | 2,815 | $ | 2,515 | ||||
Amortization of premiums on available-for-sale securities | $ | 27,293 | $ | 25,123 | $ | 13,302 | |||||
The cost of securities matured or sold is based on the specific identification method.
Note 5. | Derivative Financial Instruments |
The Company’s primary objective for holding derivative financial instruments is to manage foreign currency exchange rate risk and interest rate risk. As a result of the use of derivative financial instruments, the Company is exposed to the risk that counterparties to derivative contracts may fail to meet their contractual obligations. The Company manages counterparty credit risk in derivative contracts by reviewing counterparty creditworthiness on a regular basis, establishing collateral requirement and limiting exposure to any single counterparty. The right of set-off that exists with certain transactions enables the Company to net amounts due to and from the counterparty, reducing the maximum loss from credit risk in the event of counterparty default.
As of March 29, 2014 and March 30, 2013, the Company had the following outstanding forward currency exchange contracts (in notional amount), which were derivative financial instruments:
(In thousands and U.S. dollars) | March 29, 2014 | March 30, 2013 | |||||
Singapore Dollar | $ | 60,551 | $ | 70,197 | |||
Euro | 46,062 | 39,865 | |||||
Indian Rupee | 18,631 | 16,941 | |||||
British Pound | 12,056 | 11,602 | |||||
Japanese Yen | 9,273 | 10,891 | |||||
$ | 146,573 | $ | 149,496 | ||||
As part of the Company’s strategy to reduce volatility of operating expenses due to foreign exchange rate fluctuations, the Company employs a hedging program with a forward outlook of up to two years for major foreign-currency-denominated operating expenses. The outstanding forward currency exchange contracts expire at various dates through February 2016. The net unrealized losses, which approximate the fair market value of the outstanding forward currency exchange contracts, are expected to be realized into net income within the next two years.
As of March 29, 2014, all of the forward foreign currency exchange contracts were designated and qualified as cash flow hedges and the effective portion of the gain or loss on the forward contracts was reported as a component of other comprehensive income (loss) and reclassified into net income in the same period during which the hedged transaction affects earnings. The estimated amount of such gains or losses as of March 29, 2014 that is expected to be reclassified into earnings was not material. The ineffective portion of the gains or losses on the forward contracts was included in the net income for all periods presented.
The Company may enter into forward foreign currency exchange contracts to hedge firm commitments such as acquisitions and capital expenditures. Gains and losses on foreign currency forward contracts that are designated as hedges of anticipated transactions, for which a firm commitment has been attained and the hedged relationship has been effective, are deferred and included in income or expenses in the same period that the underlying transaction is settled. Gains and losses on any instruments not meeting the above criteria are recognized in income or expenses in the consolidated statements of income as they are incurred.
The Company had the following derivative instruments as of March 29, 2014 and March 30, 2013, located on the consolidated balance sheet, utilized for risk management purposes detailed above:
57
Foreign Exchange Contracts | |||||||||
Asset Derivatives | Liability Derivatives | ||||||||
(In thousands) | Balance Sheet Location | Fair Value | Balance Sheet Location | Fair Value | |||||
March 29, 2014 | Prepaid expenses and other current assets | $ | 2,648 | Other accrued liabilities | $ | 935 | |||
March 30, 2013 | Prepaid expenses and other current assets | $ | 1,179 | Other accrued liabilities | $ | 2,794 | |||
The Company does not offset or net the fair value amounts of derivative financial instruments in its consolidated balance sheets. The potential effect of rights of set-off associated with the derivative financial instruments was not material to the Company's consolidated balance sheet for all periods presented.
The following table summarizes the effect of derivative instruments on the consolidated statements of income for fiscal 2014 and 2013:
Foreign Exchange Contracts | |||||||
(In thousands) | 2014 | 2013 | |||||
Amount of gains recognized in other comprehensive income on derivative (effective portion of cash flow hedging) | $ | 2,167 | $ | 1,734 | |||
Amount of losses reclassified from accumulated other comprehensive income into income (effective portion) * | $ | (1,707 | ) | $ | (2,793 | ) | |
Amount of losses recorded (ineffective portion) * | $ | (13 | ) | $ | (5 | ) | |
* | Recorded in Interest and Other Expense location within the consolidated statements of income. |
Note 6. | Stock-Based Compensation Plans |
The Company’s equity incentive plans are broad-based, long-term retention programs that cover employees, consultants and non-employee directors of the Company. These plans are intended to attract and retain talented employees, consultants and non-employee directors and to provide such persons with a proprietary interest in the Company.
Stock-Based Compensation
The following table summarizes stock-based compensation expense related to stock awards granted under the Company’s equity incentive plans and rights to acquire stock granted under the Company’s ESPP:
(In thousands) | March 29, 2014 | March 30, 2013 | March 31, 2012 | ||||||||
Stock-based compensation included in: | |||||||||||
Cost of revenues | $ | 7,602 | $ | 6,356 | $ | 5,630 | |||||
Research and development | 46,197 | 37,937 | 32,310 | ||||||||
Selling, general and administrative | 40,515 | 33,569 | 29,478 | ||||||||
Stock-based compensation effect on income before taxes | 94,314 | 77,862 | 67,418 | ||||||||
Income tax effect | (27,327 | ) | (22,137 | ) | (19,214 | ) | |||||
Net stock-based compensation effect on net income | $ | 66,987 | $ | 55,725 | $ | 48,204 | |||||
In accordance with the authoritative guidance on accounting for share-based payments, the Company adjusts stock-based compensation on a quarterly basis for changes to the estimate of expected equity award forfeitures based on actual forfeiture experience. The effect of adjusting the forfeiture rate for all expense amortization was recognized in the period the forfeiture estimate was changed, and was not material for all periods presented.
58
As of March 29, 2014 and March 30, 2013, the ending inventory balances included $2.4 million and $2.0 million of capitalized stock-based compensation, respectively. During fiscal 2014, 2013 and 2012, the tax benefit realized for the tax deduction from option exercises and other awards, including amounts credited to additional paid-in capital, totaled $67.0 million, $32.6 million and $31.2 million, respectively.
The fair values of stock options and stock purchase plan rights under the Company’s equity incentive plans and ESPP were estimated as of the grant date using the Black-Scholes option pricing model. The Company’s expected stock price volatility assumption for stock options is estimated using implied volatility of the Company’s traded options. The expected life of options granted is based on the historical exercise activity as well as the expected disposition of all options outstanding. The expected life of options granted also considers the actual contractual term.
The Company's stock-based compensation expense relating to options granted during fiscal 2014, 2013, and 2012 were not material.
The weighted-average fair value per share of stock purchase rights granted under the ESPP during fiscal 2014, 2013 and 2012 were $11.11, $8.61 and $9.42, respectively. These fair values per share were estimated at the date of grant using the following weighted-average assumptions:
Employee Stock Purchase Plan | ||||||||
2014 | 2013 | 2012 | ||||||
Expected life of options (years) | 1.3 | 1.3 | 1.3 | |||||
Expected stock price volatility | 0.24 | 0.26 | 0.29 | |||||
Risk-free interest rate | 0.2 | % | 0.2 | % | 0.2 | % | ||
Dividend yield | 2.4 | % | 2.7 | % | 2.4 | % | ||
The estimated fair values of restricted stock unit (RSU) awards were calculated based on the market price of Xilinx common stock on the date of grant, reduced by the present value of dividends expected to be paid on Xilinx common stock prior to vesting. The per share weighted-average fair value of RSUs granted during fiscal 2014, 2013 and 2012 were $38.90, $31.58 and $33.69, respectively. The weighted average fair value of RSUs granted in fiscal 2013, 2012 and 2011 were calculated based on estimates at the date of grant using the following weighted-average assumptions:
2014 | 2013 | 2012 | ||||||
Risk-free interest rate | 0.7 | % | 0.4 | % | 0.7 | % | ||
Dividend yield | 2.5 | % | 2.7 | % | 2.2 | % | ||
Options outstanding that have vested and are expected to vest in future periods as of March 29, 2014 are as follows:
(Shares and intrinsic value in thousands) | Number of Shares | Weighted-Average Exercise Price Per Share | Weighted-Average Remaining Contractual Term (Years) | Aggregate Intrinsic Value (1) | |||||||
Vested (i.e., exercisable) | 4,935 | $24.87 | 2.20 | $ | 142,968 | ||||||
Expected to vest | 326 | $30.36 | 4.10 | $ | 7,648 | ||||||
Total vested and expected to vest | 5,261 | $25.21 | 2.30 | $ | 150,616 | ||||||
Total outstanding | 5,280 | $25.22 | 2.30 | $ | 151,139 | ||||||
(1) | These amounts represent the difference between the exercise price and $53.84, the closing price per share of Xilinx’s stock on March 29, 2014, for all in-the-money options outstanding. |
Options outstanding that are expected to vest are net of estimated future option forfeitures in accordance with the authoritative guidance of accounting for share-based payment, which are estimated when compensation costs are recognized. Options with a fair value of $4.7 million completed vesting during fiscal 2014. As of March 29, 2014, total unrecognized stock-based compensation costs related to stock options and Employee Stock Purchase Plan were $2.4 million and $20.9 million, respectively. The total unrecognized stock-based compensation cost for stock options and Employee Stock Purchase Plan is expected to be recognized over a weighted-average period of 1.2 years and 1.1 years, respectively.
59
Employee Stock Option Plans
Under the Company’s stock option plans (Option Plans), options reserved for future issuance of common shares to employees and directors of the Company total 20.3 million shares as of March 29, 2014, including 15.0 million shares available for future grants under the 2007 Equity Incentive Plan (2007 Equity Plan). Options to purchase shares of the Company’s common stock under the Option Plans are granted at 100% of the fair market value of the stock on the date of grant. The contractual term for stock awards granted under the 2007 Equity Plan is seven years from the grant date. Prior to April 1, 2007, stock options granted by the Company generally expire ten years from the grant date. Stock awards granted to existing and newly hired employees generally vest over a four-year period from the date of grant.
A summary of shares available for grant under the 2007 Equity Plan is as follows:
(Shares in thousands) | Shares Available for Grant | ||
April 2, 2011 | 13,164 | ||
Additional shares reserved | 4,500 | ||
Stocks options granted | (207 | ) | |
Stock options cancelled | 70 | ||
RSUs granted | (2,977 | ) | |
RSUs cancelled | 358 | ||
March 31, 2012 | 14,908 | ||
Additional shares reserved | 3,500 | ||
Stocks options granted | (92 | ) | |
Stock options cancelled | 209 | ||
RSUs granted | (3,018 | ) | |
RSUs cancelled | 483 | ||
March 30, 2013 | 15,990 | ||
Additional shares reserved | 2,000 | ||
Stocks options granted | (8 | ) | |
Stock options cancelled | 26 | ||
RSUs granted | (3,297 | ) | |
RSUs cancelled | 326 | ||
March 29, 2014 | 15,037 | ||
The types of awards allowed under the 2007 Equity Plan include incentive stock options, non-qualified stock options, RSUs, restricted stock and stock appreciation rights. To date, the Company has issued a mix of non-qualified stock options and RSUs under the 2007 Equity Plan.
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A summary of the Company’s Option Plans activity and related information is as follows:
Options Outstanding | ||||||
(Shares in thousands) | Number of Shares | Weighted-Average Exercise Price Per Share | ||||
April 2, 2011 | 24,969 | $ | 29.11 | |||
Granted | 207 | $ | 34.79 | |||
Exercised | (3,622 | ) | $ | 24.70 | ||
Forfeited/cancelled/expired | (3,766 | ) | $ | 37.35 | ||
March 31, 2012 | 17,788 | $ | 28.32 | |||
Granted | 92 | $ | 33.83 | |||
Exercised | (3,564 | ) | $ | 24.68 | ||
Forfeited/cancelled/expired | (1,563 | ) | $ | 39.54 | ||
March 30, 2013 | 12,753 | $ | 28.01 | |||
Granted | 8 | $ | 41.08 | |||
Exercised | (7,421 | ) | $ | 29.95 | ||
Forfeited/cancelled/expired | (60 | ) | $ | 35.61 | ||
March 29, 2014 | 5,280 | $ | 25.22 | |||
Options exercisable at: | ||||||
March 29, 2014 | 4,935 | $ | 24.87 | |||
March 30, 2013 | 11,639 | $ | 28.07 | |||
The total pre-tax intrinsic value of options exercised during fiscal 2014 and 2013 was $119.6 million and $38.9 million, respectively. This intrinsic value represents the difference between the exercise price and the fair market value of the Company’s common stock on the date of exercise.
Since the Company adopted the policy of retiring all repurchased shares of its common stock, new shares are issued upon employees’ exercise of their stock options.
The following information relates to options outstanding and exercisable under the Option Plans as of March 29, 2014:
Options Outstanding | Options Exercisable | |||||||||||
Weighted- | Weighted- | Weighted- | ||||||||||
(Shares in thousands) | Average | Average | Average | |||||||||
Remaining | Exercise | Exercise | ||||||||||
Options | Contractual Term | Price Per | Options | Price Per | ||||||||
Range of Exercise Prices | Outstanding | (Years) | Share | Exercisable | Share | |||||||
$15.95 - $19.79 | 78 | 1.97 | $18.15 | 78 | $18.15 | |||||||
$20.14 - $29.93 | 4,766 | 2.21 | $24.46 | 4,604 | $24.41 | |||||||
$30.04 - $38.56 | 355 | 4.14 | $33.54 | 180 | $32.88 | |||||||
$40.11 - $40.37 | 81 | 0.11 | $40.11 | 73 | $40.11 | |||||||
5,280 | 2.30 | $25.22 | 4,935 | $24.87 | ||||||||
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RSU Awards
A summary of the Company’s RSU activity and related information is as follows:
RSUs Outstanding | ||||||||||||
(Shares and intrinsic value in thousands) | Number of Shares | Weighted-Average Grant-Date Fair Value Per Share | Weighted Average Remaining Contractual Term (Years) | Average Intrinsic Value (1) | ||||||||
April 2, 2011 | 4,215 | $ | 23.19 | |||||||||
Granted | 2,977 | $ | 33.69 | |||||||||
Vested (2) | (1,543 | ) | $ | 23.11 | ||||||||
Cancelled | (410 | ) | $ | 25.18 | ||||||||
March 31, 2012 | 5,239 | $ | 29.01 | |||||||||
Granted | 3,018 | $ | 31.58 | |||||||||
Vested (2) | (1,778 | ) | $ | 27.01 | ||||||||
Cancelled | (483 | ) | $ | 29.69 | ||||||||
March 30, 2013 | 5,996 | $ | 30.83 | |||||||||
Granted | 3,297 | $ | 38.90 | |||||||||
Vested (2) | (2,066 | ) | $ | 29.25 | ||||||||
Cancelled | (326 | ) | $ | 32.28 | ||||||||
March 29, 2014 | 6,901 | $ | 35.08 | 2.38 | $ | 371,578 | ||||||
Expected to vest as of March 29, 2014 | 6,339 | $ | 35.22 | 3.38 | $ | 341,289 | ||||||
(1) | Aggregate intrinsic value for RSUs represents the closing price per share of Xilinx’s stock on March 29, 2014 of $53.84, multiplied by the number of RSUs outstanding or expected to vest as of March 29, 2014. |
(2) | The number of RSUs vested includes shares that the Company withheld on behalf of employees to satisfy the statutory tax withholding requirements. |
RSUs with a fair value of $60.4 million were vested during fiscal 2014. As of March 29, 2014, total unrecognized stock-based compensation costs related to non-vested RSUs was $185.1 million. The total unrecognized stock-based compensation cost for RSUs is expected to be recognized over a weighted-average period of 2.6 years.
Employee Stock Purchase Plan
Under the Company’s ESPP, qualified employees can obtain a 24-month purchase right to purchase the Company’s common stock at the end of each six-month exercise period. Participation is limited to 15% of the employee’s annual earnings up to a maximum of $21 thousand in a calendar year. Approximately 78% of all eligible employees participate in the ESPP. The purchase price of the stock is 85% of the lower of the fair market value at the beginning of the 24-month offering period or at the end of each six-month exercise period. Employees purchased 1.2 million shares for $37.9 million in fiscal 2014, 1.3 million shares for $34.5 million in fiscal 2013, and 1.2 million shares for $33.1 million in fiscal 2012. The next scheduled purchase under the ESPP is in the second quarter of fiscal 2015. As of March 29, 2014, 9.7 million shares were available for future issuance out of the 50.5 million shares authorized.
Note 7. Balance Sheet Information
The following tables disclose the current liabilities that individually exceed 5% of the respective consolidated balance sheet amounts in each fiscal year. Individual balances that are less than 5% of the respective consolidated balance sheet amounts are aggregated and disclosed as "other."
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(In thousands) | 2014 | 2013 | |||||
Accrued payroll and related liabilities: | |||||||
Accrued compensation | $ | 90,865 | $ | 66,967 | |||
Deferred compensation plan liability | 59,569 | 50,412 | |||||
Other | 6,939 | 6,816 | |||||
$ | 157,373 | $ | 124,195 | ||||
Note 8. | Restructuring Charges |
During the second quarter of fiscal 2012, the Company implemented restructuring measures designed to consolidate its research and development activities in the U.S. and to reduce its global workforce by 46 net positions, or less than 2%. The Company completed this restructuring plan and recorded total restructuring charges of $3.4 million in the second quarter of fiscal 2012, which was predominantly related to severance costs and benefits expenses. These charges have been shown separately as restructuring charges on the consolidated statements of income and were paid in full as of March 29, 2014.
Note 9. | Commitments |
Xilinx leases some of its facilities and office buildings under non-cancelable operating leases that expire at various dates through October 2021. Additionally, Xilinx entered into a land lease in conjunction with the Company’s building in Singapore, which will expire in November 2035 and the lease cost was settled in an up-front payment in June 2006. Some of the operating leases for facilities and office buildings require payment of operating costs, including property taxes, repairs, maintenance and insurance. Most of the Company’s leases contain renewal options for varying terms. Approximate future minimum lease payments under non-cancelable operating leases are as follows:
Fiscal | (In thousands) | ||
2015 | $ | 5,904 | |
2016 | 3,922 | ||
2017 | 2,214 | ||
2018 | 1,931 | ||
2019 | 1,555 | ||
Thereafter | 3,500 | ||
Total | $ | 19,026 | |
Aggregate future rental income to be received, which includes rents from both owned and leased property, totaled $4.5 million as of March 29, 2014. Rent expense, net of rental income, under all operating leases was $3.1 million for fiscal 2014, $3.9 million for fiscal 2013, and $3.1 million for fiscal 2012. Rental income was not material for fiscal 2014, 2013 or 2012.
Other commitments as of March 29, 2014 totaled $143.8 million and consisted of purchases of inventory and other non-cancelable purchase obligations related to subcontractors that manufacture silicon wafers and provide assembly and some test services. The Company expects to receive and pay for these materials and services in the next three to six months, as the products meet delivery and quality specifications. As of March 29, 2014, the Company also had $24.5 million of non-cancelable license obligations to providers of electronic design automation software and hardware/software maintenance expiring at various dates through December 2016.
The Company committed up to $5.0 million to acquire, in the future, rights to intellectual property until July 2023. License payments will be amortized over the useful life of the intellectual property acquired.
Note 10. | Net Income Per Common Share |
The computation of basic net income per common share for all periods presented is derived from the information on the consolidated statements of income, and there are no reconciling items in the numerator used to compute diluted net income per common share. The following table summarizes the computation of basic and diluted net income per common share:
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(In thousands, except per share amounts) | 2014 | 2013 | 2012 | ||||||||
Net income available to common stockholders | $ | 630,388 | $ | 487,536 | $ | 530,079 | |||||
Weighted average common shares outstanding-basic | 266,431 | 261,652 | 263,783 | ||||||||
Dilutive effect of employee equity incentive plans | 4,508 | 4,146 | 4,493 | ||||||||
Dilutive effect of 2017 Convertible Notes and warrants | 8,544 | 2,924 | 1,708 | ||||||||
Dilutive effect of 2037 Convertible Notes | 7,913 | 3,851 | 2,173 | ||||||||
Weighted average common shares outstanding-diluted | 287,396 | 272,573 | 272,157 | ||||||||
Basic earnings per common share | $ | 2.37 | $ | 1.86 | $ | 2.01 | |||||
Diluted earnings per common share | $ | 2.19 | $ | 1.79 | $ | 1.95 | |||||
The total shares used in the denominator of the diluted net income per common share calculation includes potentially dilutive common equivalent shares outstanding that are not included in basic net income per common share by applying the treasury stock method to the impact of the equity incentive plans and to the incremental shares issuable assuming conversion of the Company's convertible debt and warrants (see "Note 13. Debt and Credit Facility" for more discussion of our debt and warrants).
Outstanding stock options and RSUs under the Company's stock award plans and warrants to purchase approximately 5.1 million, 27.9 million and 30.6 million shares, for fiscal 2014, 2013 or 2012 respectively, were excluded from diluted net income per common share by applying the treasury stock method, as their inclusion would have been antidilutive. These options, RSUs and warrants 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, RSUs and warrants.
To hedge against potential dilution upon conversion of the 2017 Convertible Notes, the Company also purchased call options on its common stock from the hedge counterparties. The call options give the Company the right to purchase up to 20.0 million shares of its common stock at $29.97 per share. These call options are not considered for purposes of calculating the total shares outstanding under the basic and diluted net income per share, as their effect would be anti-dilutive. Upon exercise, the call options would serve to neutralize the dilutive effect of the 2017 Convertible Notes and potentially reduce the weighted number of diluted shares used in per share calculations.
Note 11. | Interest and Other Expense, Net |
The components of interest and other expense, net are as follows:
(In thousands) | March 29, 2014 | March 30, 2013 | March 31, 2012 | ||||||||
Interest income | $ | 28,079 | $ | 25,574 | $ | 23,697 | |||||
Interest expense | (54,035 | ) | (55,069 | ) | (54,576 | ) | |||||
Other income (expense), net | (3,597 | ) | (4,231 | ) | 157 | ||||||
$ | (29,553 | ) | $ | (33,726 | ) | $ | (30,722 | ) | |||
Note 12. | Accumulated Other Comprehensive Income (Loss) |
Comprehensive income (loss) is defined as the change in equity of a company during a period from transactions and other events and circumstances from non-owner sources. The components of accumulated other comprehensive income (loss) are as follows:
(In thousands) | 2014 | 2013 | |||||
Accumulated unrealized gains (losses) on available-for-sale securities, net of tax | $ | (889 | ) | $ | 10,519 | ||
Accumulated unrealized gains (losses) on hedging transactions, net of tax | 798 | (1,368 | ) | ||||
Accumulated cumulative translation adjustment, net of tax | (457 | ) | (491 | ) | |||
Accumulated other comprehensive income (loss) | $ | (548 | ) | $ | 8,660 | ||
The related tax effects of other comprehensive income (loss) were not material for all periods presented.
Note 13. | Debt and Credit Facility |
2017 Convertible Notes
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As of March 29, 2014, the Company had $600.0 million principal amount of 2017 Convertible Notes outstanding. The 2017 Convertible Notes are senior in right of payment to the Company’s existing and future unsecured indebtedness that is expressly subordinated in right of payment to the 2017 Convertible Notes, and are ranked equally with all of our other existing and future unsecured senior indebtedness, including the 2019 and 2021 Notes discussed below. The Company may not redeem the 2017 Convertible Notes prior to maturity.
The 2017 Convertible Notes are convertible, subject to certain conditions, into shares of Xilinx common stock at a conversion rate of 33.3681 shares of common stock per $1 thousand principal amount of the 2017 Convertible Notes, representing an effective conversion price of approximately $29.97 per share of common stock. The conversion rate is subject to adjustment for certain events as outlined in the indenture governing the 2017 Convertible Notes but will not be adjusted for accrued interest. One of the conditions allowing holders of the 2017 Convertible Notes to convert during any fiscal quarter is if the last reported sale price of the Company's common stock for at least 20 trading days during a period of 30 consecutive trading days ending on the last trading day of the preceding fiscal quarter is greater than or equal to 130% of the conversion price on each applicable trading day. This condition was met as of March 29, 2014 and as a result, the 2017 Convertible Notes were convertible at the option of the holders. As of March 29, 2014, the 2017 Convertible Notes were classified as a current liability on the Company's consolidated balance sheet. Additionally, a portion of the equity component attributable to the conversion feature of the 2017 Convertible Notes was classified in temporary stockholders' equity. The amount classified as temporary equity was equal to the difference between the principal amount and carrying value of the 2017 Convertible Notes.
Upon conversion, the Company would pay the holders of the 2017 Convertible Notes cash up to the aggregate principal amount of the 2017 Convertible Notes. If the conversion value exceeds the principal amount, the Company would deliver shares of its common stock in respect to the remainder of its conversion obligation in excess of the aggregate principal amount (conversion spread). Accordingly, there would be no adjustment to the numerator in the net income per common share computation for the cash settled portion of the 2017 Convertible Notes, as that portion of the debt liability will always be settled in cash. The conversion spread will be included in the denominator for the computation of diluted net income per common share, using the treasury stock method.
The carrying values of the liability and equity components of the 2017 Convertible Notes are reflected in the Company’s consolidated balance sheets as follows:
(In thousands) | 2014 | 2013 | |||||
Liability component: | |||||||
Principal amount of the 2017 Convertible Notes | $ | 600,000 | $ | 600,000 | |||
Unamortized discount of liability component | (49,223 | ) | (64,767 | ) | |||
Hedge accounting adjustment – sale of interest rate swap | 14,224 | 18,716 | |||||
Net carrying value of the 2017 Convertible Notes | $ | 565,001 | $ | 553,949 | |||
Equity component (including temporary equity) – net carrying value | $ | 66,415 | $ | 66,415 | |||
The remaining unamortized debt discount, net of the hedge accounting adjustment from the sale of the interest rate swap, is being amortized as additional non-cash interest expense over the expected remaining term of the 2017 Convertible Notes. As of March 29, 2014, the remaining term of the 2017 Convertible Notes is 3.2 years.
Interest expense related to the 2017 Convertible Notes was included in interest and other expense, net on the consolidated statements of income as follows:
(In thousands) | March 29, 2014 | March 30, 2013 | March 31, 2012 | ||||||||
Contractual coupon interest | $ | 15,750 | $ | 15,750 | $ | 15,750 | |||||
Amortization of debt issuance costs | 1,448 | 1,448 | 1,448 | ||||||||
Amortization of debt discount, net | 11,052 | 11,052 | 11,052 | ||||||||
Total interest expense related to the 2017 Convertible Notes | $ | 28,250 | $ | 28,250 | $ | 28,250 | |||||
To hedge against potential dilution upon conversion of the 2017 Convertible Notes, the Company also purchased call options on its common stock from the hedge counterparties. The call options give the Company the right to purchase up to 20.0 million shares of its common stock at $29.97 per share. The call options will terminate upon the earlier of the maturity of the 2017 Convertible Notes or the last day any of the 2017 Convertible Notes remain outstanding. To reduce the hedging cost, under separate transactions
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the Company sold warrants to the hedge counterparties, which give the hedge counterparties the right to purchase up to 20.0 million shares of the Company’s common stock at $42.46 per share. These warrants expire on a gradual basis over a specified period starting on September 13, 2017.
2019 and 2021 Notes
On March 12, 2014, the Company issued $500.0 million principal amount of 2019 Notes and $500.0 million principal amount of 2021 Notes with maturity dates of March 15, 2019 and March 15, 2021 respectively. The 2019 and 2021 Notes were offered to the public at a discounted price of 99.477% and 99.281% of par, respectively. Interest on the 2019 and 2021 Notes is payable semiannually on March 15 and September 15.
The Company received net proceeds of $990.1 million from issuance of the 2019 and 2021 Notes, after the debt discounts and deduction of debt issuance costs. The debt discounts and issuance costs are amortized to interest expense over the lives of the 2019 and 2021 Notes.
The following table summarizes the carrying value of the 2019 and 2021 Notes as of March 29, 2014.
(In thousands) | March 29, 2014 | |||
Principal amount of the 2019 Notes | $ | 500,000 | ||
Unamortized discount of the 2019 Notes | (2,574 | ) | ||
Principal amount of the 2021 Notes | 500,000 | |||
Unamortized discount of the 2021 Notes | (3,556 | ) | ||
Total senior notes | $ | 993,870 | ||
Interest expense related to the 2019 and 2021 Notes was included in interest and other expense, net on the consolidated statements of income as follows:
(In thousands) | March 29, 2014 | |||
Contractual coupon interest | $ | 1,210 | ||
Amortization of debt issuance costs | 52 | |||
Amortization of debt discount, net | 80 | |||
Total interest expense related to the 2019 and 2021 Notes | $ | 1,342 | ||
2037 Convertible Notes
On March 12, 2014, the Company paid $1.23 billion in cash to redeem all of the outstanding $689.6 million (principal amount) of its 2037 Convertible Notes. In accordance with the authoritative guidance for convertible debentures issued by the FASB, the redemption payment was allocated between the liability ($377.6 million) and equity ($856.5 million) components of the convertible debentures, using the equivalent rate that reflected the borrowing rate for a similar non-convertible debt prior to the redemption. As a result, the Company recognized a loss on extinguishment of convertible debentures of $9.8 million, net of the unamortized debt discount ($315.4 million), the write-off of the unamortized debt issuance costs ($5.1 million) and unamortized embedded derivative valuation ($1.3 million).
Prior to the redemption, interest expense related to the 2037 Convertible Notes was included in interest and other expense, net on the consolidated statements of income, and was recognized as follows:
(In thousands) | March 29, 2014 | March 30, 2013 | March 31, 2012 | ||||||||
Contractual coupon interest | $ | 20,065 | $ | 21,551 | $ | 21,551 | |||||
Amortization of debt issuance costs | 223 | 223 | 223 | ||||||||
Amortization of embedded derivative | 58 | 58 | 58 | ||||||||
Amortization of debt discount | 5,187 | 4,828 | 4,493 | ||||||||
Fair value adjustment of embedded derivative | (1,090 | ) | 159 | (14 | ) | ||||||
Total interest expense related to the 2037 Convertible Notes | $ | 24,443 | $ | 26,819 | $ | 26,311 | |||||
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Revolving Credit Facility
On December 7, 2011, the Company entered into a $250.0 million senior unsecured revolving credit facility with a syndicate of banks (expiring in December 2016). Borrowings under the credit facility will bear interest at a benchmark rate plus an applicable margin based upon the Company’s credit rating. In connection with the credit facility, the Company is required to maintain certain financial and nonfinancial covenants. As of March 29, 2014, the Company had made no borrowings under this credit facility and was not in violation of any of the covenants.
Note 14. Stockholders’ Equity
Preferred Stock
The Company’s Certificate of Incorporation authorized 2.0 million shares of undesignated preferred stock. The preferred stock may be issued in one or more series. The Board of Directors is authorized to determine or alter the rights, preferences, privileges and restrictions granted to, or imposed upon, any wholly unissued series of preferred stock. As of March 29, 2014 and March 30, 2013, no preferred shares were issued or outstanding.
Common Stock and Debentures Repurchase Programs
The Board of Directors has approved stock repurchase programs enabling the Company to repurchase its common stock in the open market or through negotiated transactions with independent financial institutions. The last approval was the 2012 Repurchase program, which was authorized by the Board in August 2012 to repurchase $750.0 million of the Company’s common stock. The 2012 Repurchase Program has no stated expiration date.
Through March 29, 2014, the Company has used $252.7 million of the $750.0 million authorized under the 2012 Repurchase Program, leaving $497.3 million available for future repurchases. The Company’s current policy is to retire all repurchased shares, and consequently, no treasury shares were held as of March 29, 2014 and March 30, 2013.
During fiscal 2014, the Company repurchased 5.2 million shares of common stock in the open market for a total of $242.1 million. During fiscal 2013, the Company repurchased 6.2 million shares of common stock in the open market for a total of $197.7 million.
Note 15. | Income Taxes |
The provision for income taxes consists of the following:
(In thousands) | March 29, 2014 | March 30, 2013 | March 31, 2012 | |||||||||
Federal: | ||||||||||||
Current | $ | 16,692 | $ | 97,108 | $ | (17,333 | ) | |||||
Deferred | 48,021 | (45,465 | ) | 74,911 | ||||||||
64,713 | 51,643 | 57,578 | ||||||||||
State: | ||||||||||||
Current | 1,333 | 1,007 | (2,999 | ) | ||||||||
Deferred | 5,954 | 1,742 | 6,591 | |||||||||
7,287 | 2,749 | 3,592 | ||||||||||
Foreign: | ||||||||||||
Current | 7,264 | 5,455 | 7,978 | |||||||||
Deferred | (126 | ) | (377 | ) | (2,176 | ) | ||||||
7,138 | 5,078 | 5,802 | ||||||||||
Total | $ | 79,138 | $ | 59,470 | $ | 66,972 | ||||||
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The domestic and foreign components of income before income taxes were as follows:
(In thousands) | March 29, 2014 | March 30, 2013 | March 31, 2012 | |||||||||
Domestic | $ | 83,617 | $ | 45,617 | $ | 74,959 | ||||||
Foreign | 625,909 | 501,389 | 522,092 | |||||||||
Income before income taxes | $ | 709,526 | $ | 547,006 | $ | 597,051 | ||||||
The tax benefits associated with stock-based compensation recorded in additional paid-in capital were $26.4 million, $9.0 million and $9.9 million, for fiscal 2014, 2013 and 2012, respectively.
As of March 29, 2014, the Company had federal and state net operating loss carryforwards of approximately $21.7 million. If unused, these carryforwards will expire at various dates through 2030. All of the federal and state net operating loss carryforwards are subject to change of ownership limitations provided by the Internal Revenue Code and similar state provisions. The Company had state research tax credit carryforwards of approximately $136.0 million. The credits have no expiration date. Some of the state credit carryforwards are subject to change of ownership limitations provided by state provisions similar to that of the Internal Revenue Code. The state credit carryforwards include $64.5 million that is not likely to be recovered and has been reduced by a valuation allowance.
Unremitted foreign earnings that are considered to be permanently invested outside the U.S., and on which no U.S. taxes have been provided, are approximately $2.40 billion as of March 29, 2014. The residual U.S. tax liability, if such amounts were remitted, would be approximately $800.3 million.
The provision for income taxes reconciles to the amount derived by applying the Federal statutory income tax rate to income before provision for taxes as follows:
(In thousands) | March 29, 2014 | March 30, 2013 | March 31, 2012 | |||||||||
Income before provision for taxes | $ | 709,526 | $ | 547,006 | $ | 597,051 | ||||||
Federal statutory tax rate | 35 | % | 35 | % | 35 | % | ||||||
Computed expected tax | 248,334 | 191,452 | 208,968 | |||||||||
State taxes, net of federal benefit | 4,664 | 1,787 | 2,162 | |||||||||
Foreign earnings at lower tax rates | (143,336 | ) | (107,730 | ) | (117,013 | ) | ||||||
Tax credits | (23,389 | ) | (26,305 | ) | (29,633 | ) | ||||||
Other | (7,135 | ) | 266 | 2,488 | ||||||||
Provision for income taxes | $ | 79,138 | $ | 59,470 | $ | 66,972 | ||||||
The Company has manufacturing operations in Singapore where the Company has been granted "Pioneer Status" that is effective through fiscal 2021. The Pioneer Status reduces the Company’s tax on the majority of Singapore income from 17% to zero. The benefits of Pioneer Status in Singapore for fiscal 2014, fiscal 2013 and fiscal 2012 were approximately $60.3 million ($0.21 per diluted share), $41.0 million ($0.15 per diluted share), and $43.5 million ($0.16 per diluted share), respectively, on income considered permanently reinvested outside the U.S. The tax effect of operations in low tax jurisdictions on the Company’s overall tax rate is reflected in the table above.
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The major components of deferred tax assets and liabilities consisted of the following as of March 29, 2014 and March 30, 2013:
(In thousands) | 2014 | 2013 (1) | ||||||
Deferred tax assets: | ||||||||
Stock-based compensation | $ | 21,142 | $ | 27,481 | ||||
Deferred income on shipments to distributors | 8,097 | 10,043 | ||||||
Accrued expenses | 26,864 | 33,859 | ||||||
Tax credit carryforwards | 79,272 | 62,723 | ||||||
Intangible and fixed assets | — | 11,638 | ||||||
Deferred compensation plan | 22,280 | 18,769 | ||||||
Other | 13,420 | 14,948 | ||||||
Subtotal | 171,075 | 179,461 | ||||||
Valuation allowance | (43,004 | ) | (26,401 | ) | ||||
Total deferred tax assets | 128,071 | 153,060 | ||||||
Deferred tax liabilities: | ||||||||
Unremitted foreign earnings | (253,231 | ) | (244,341 | ) | ||||
Convertible debt | (4,670 | ) | (198,943 | ) | ||||
Other | (5,493 | ) | (8,181 | ) | ||||
Total deferred tax liabilities | (263,394 | ) | (451,465 | ) | ||||
Total net deferred tax liabilities | $ | (135,323 | ) | $ | (298,405 | ) | ||
(1) Reclassifications related to the federal impacts of state deferred tax assets and liabilities were made to conform to the current year presentation. There was no impact to net income or the balance sheet for the change in presentation in this prior-year period.
Long-term deferred tax assets of $61.9 million and $56.4 million as of March 29, 2014 and March 30, 2013, respectively, were included in other assets on the consolidated balance sheet.
As of March 29, 2014, gross deferred tax assets were offset by valuation allowances of $43.0 million, which were associated with state tax credit carryforwards and foreign net operating loss carryforwards.
During the year ended March 29, 2014, there was a decrease in long-term deferred tax liabilities of $209.9 million related to the redemption of the Company's 2037 Convertible Notes. See "Loss on Extinguishment of Convertible Debentures" in Management's Discussion and Analysis for further disclosure of the underlying changes.
The aggregate changes in the balance of gross unrecognized tax benefits for fiscal 2014 and 2013 were as follows:
(In thousands) | 2014 | 2013 | ||||||
Balance as of beginning of fiscal year | $ | 69,957 | $ | 65,038 | ||||
Increases in tax positions for prior years | 163 | 2,208 | ||||||
Decreases in tax positions for prior years | (35,615 | ) | (4,281 | ) | ||||
Increases in tax positions for current year | 3,687 | 17,660 | ||||||
Settlements | (6,030 | ) | (44 | ) | ||||
Lapses in statutes of limitation | (5,764 | ) | (10,624 | ) | ||||
Balance as of end of fiscal year | $ | 26,398 | $ | 69,957 | ||||
If the remaining balance of $26.4 million and $70.0 million of unrecognized tax benefits as of March 29, 2014 and March 30, 2013, respectively, were realized in a future period, it would result in a tax benefit of $11.0 million and $32.3 million, respectively, thereby reducing the effective tax rate.
The Company’s policy is to include interest and penalties related to income tax liabilities within the provision for income taxes on the consolidated statements of income. The balances of accrued interest and penalties recorded in the consolidated balance sheets and the amounts of interest and penalties included in the Company’s provisions for income taxes were not material for any period presented.
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The Company is no longer subject to U.S. federal audits by taxing authorities for years through fiscal 2010. The Company is no longer subject to U.S. state audits for years through fiscal 2004, except for fiscals 1996 through 2001 which are still open for audit purposes. The Company is no longer subject to tax audits in Ireland for years through fiscal 2009.
It is reasonably possible that changes to our unrecognized tax benefits could be significant in the next twelve months due to tax audit settlements and lapses of statutes of limitation. As a result of uncertainties regarding tax audit settlements and their possible outcomes, an estimate of the range of increase or decrease that could occur in the next twelve months cannot be made.
Note 16. Segment Information
Xilinx 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. Xilinx sells its products to OEMs and to electronic components distributors who resell these products to OEMs or subcontract manufacturers.
Geographic revenue information for fiscal 2014, 2013 and 2012 reflects the geographic location of the distributors or OEMs who purchased the Company’s products. This may differ from the geographic location of the end customers. Long-lived assets include property, plant and equipment, which were based on the physical location of the asset as of the end of each fiscal year.
Net revenues by geographic region were as follows:
(In thousands) | March 29, 2014 | March 30, 2013 | March 31, 2012 | ||||||||
North America: | |||||||||||
United States | $ | 610,276 | $ | 558,309 | $ | 596,388 | |||||
Other | 97,416 | 97,251 | 88,037 | ||||||||
Total North America | 707,692 | 655,560 | 684,425 | ||||||||
Asia Pacific: | |||||||||||
China | 564,814 | 428,892 | 418,036 | ||||||||
Other | 375,013 | 324,920 | 326,462 | ||||||||
Total Asia Pacific | 939,827 | 753,812 | 744,498 | ||||||||
Europe | 519,829 | 548,375 | 589,802 | ||||||||
Japan | 215,183 | 210,905 | 222,011 | ||||||||
Worldwide total | $ | 2,382,531 | $ | 2,168,652 | $ | 2,240,736 | |||||
Net long-lived assets by country at fiscal year-ends were as follows:
(In thousands) | 2014 | 2013 | 2012 | ||||||||
United States | $ | 237,229 | $ | 240,429 | $ | 254,811 | |||||
Foreign: | |||||||||||
Ireland | 48,043 | 50,627 | 53,255 | ||||||||
Singapore | 51,569 | 56,481 | 66,806 | ||||||||
Other | 18,248 | 18,150 | 20,110 | ||||||||
Total foreign | 117,860 | 125,258 | 140,171 | ||||||||
Worldwide total | $ | 355,089 | $ | 365,687 | $ | 394,982 | |||||
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Note 17. | Litigation Settlements and Contingencies |
Patent Litigation
On February 14, 2011, the Company filed a complaint for declaratory judgment of patent non-infringement and invalidity against Intellectual Ventures in the U.S. District Court for the Northern District of California. On September 30, 2011, the Company amended its complaint in this case to eliminate certain defendants and patents from the action (Xilinx, Inc. v. Intellectual Ventures I LLC and Intellectual Ventures II LLC, Case No CV11-0671) (California Case I). The lawsuit pertained to one patent and sought judgment of non-infringement by Xilinx and judgment that the patent is invalid and unenforceable, as well as costs and attorneys’ fees.
On February 15, 2011, Intellectual Ventures added the Company as a defendant in its complaint for patent infringement previously filed against Altera, Microsemi and Lattice in the U.S. District Court for the District of Delaware (Intellectual Ventures I LLC and Intellectual Ventures II LLC v. Altera Corporation, Microsemi Corporation, Lattice Semiconductor Corporation and Xilinx, Inc., Case No. 10-CV-1065) (Delaware Case). The lawsuit pertained to five patents, four of which we were alleged to be infringing. Intellectual Ventures sought unspecified damages, interest and attorneys’ fees. Altera, Microsemi and Lattice were previously dismissed from the case with prejudice.
On October 17, 2011, Xilinx filed a complaint for patent non-infringement and invalidity and violation of California Business and Professions Code Section 17200 in the U.S. District Court for the Northern District of California against Intellectual Ventures and related entities as well as additional defendants (Xilinx, Inc. v. Intellectual Ventures, LLC. Intellectual Ventures Management, LLC, Detelle Relay KG, LLC, Roldan Block NY LLC, Latrosse Technologies LLC, TR Technologies Foundation LLC, Taichi Holdings, LLC, Noregin Assets N.V., LLC and Intellectual Venture Funding LLC Case No CV-04407) (California Case II). By order dated January 25, 2012, the Court granted with leave to amend defendants' motion to dismiss our claim for violation of California Business and Professions Code section 17200. The Company amended its complaint to remove the claim for violation of California Business and Professions Code section 17200. The remainder of the lawsuit pertained to two patents and sought judgments of non-infringement by Xilinx and judgments that the patents are invalid and unenforceable, as well as costs and attorneys’ fees.
On May 1, 2014, the Company entered into a confidential settlement agreement with Intellectual Ventures. Under the terms of the settlement, Intellectual Ventures agreed to dismiss with prejudice all outstanding patent litigation against Xilinx. On May 2, 2014, the U.S. District Court for the Northern District of California dismissed California Case I and California Case II and the U.S. District Court for the District of Delaware dismissed the Delaware Case.
On November 5, 2012, a patent infringement lawsuit was filed by Mosaid against us in the U.S. District Court for the Eastern District of Texas (Mosaid Technologies Inc. v. Xilinx, Inc., Case No. 6:12-CV-00847). The lawsuit pertains to five patents and Mosaid seeks unspecified damages, costs, fees, royalties and injunctive relief and the proceedings are in their early stages. The Company is unable to estimate our range of possible loss in this matter at this time.
Litigation Settlement
On December 19, 2013, the Company entered into a Settlement and License Agreement with PACT XPP Technologies, AG (PACT). Under the settlement, the parties agreed to dismiss with prejudice all outstanding patent litigation between Xilinx, Avnet, Inc. and PACT and Xilinx agreed to pay PACT a lump sum of $33.5 million. In addition, the Company received license rights to all patents owned or controlled by PACT. On December 23, 2013, the trial court dismissed the suit and on December 27, 2013, the court of appeals dismissed the appeal.
The Company previously recorded charges of $15.4 million in fiscal 2012. Due to the $33.5 million settlement, the Company recorded an additional $9.4 million in fiscal 2014 as a current period charge to the consolidated statements of income. The remainder of the settlement of $8.7 million will be amortized to cost of revenues in subsequent periods.
Other Matters
Except as stated above, there are no pending legal proceedings of a material nature to which the Company is a party or of which any of its property is the subject.
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,
71
tax, regulatory, distribution arrangements, employee relations and other matters. Periodically, the Company reviews the status of each matter and assesses its potential financial exposure. If the potential loss from any claim or legal proceeding is considered probable and a range of possible losses can be estimated, the Company accrues a liability for the estimated loss. Legal proceedings are subject to uncertainties, and the outcomes are difficult to predict. Because of such uncertainties, accruals are based only on the best information available at the time. As additional information becomes available, the Company continues to reassess the potential liability related to pending claims and litigation and may revise estimates.
Note 18. | Business Combination |
During the second quarter of fiscal 2013, the Company purchased substantially all of the assets and assumed certain liabilities of Modesat Communications, a wireless mobile backhaul solutions company that specializes in the development of microwave modem solutions for the mobile backhaul market. This acquisition aligns with the Company’s strategy to expand its new adjacent markets in communication infrastructure by delivering industry leading wireless backhaul solutions to the Company’s top tier customers. The acquisition was accounted for under the purchase method of accounting. The financial impact of this acquisition was not material to the Company.
Note 19. | Goodwill and Acquisition-Related Intangibles |
As of March 29, 2014 and March 30, 2013, the gross and net amounts of goodwill and of acquisition-related intangibles for all acquisitions were as follows:
Weighted-Average | |||||||||
(In thousands) | 2014 | 2013 | Amortization Life | ||||||
Goodwill | $ | 159,296 | $ | 158,990 | |||||
In-process research and development | $ | — | $ | — | |||||
Core technology, gross | 91,860 | 89,360 | 5.7 years | ||||||
Less accumulated amortization | (63,267 | ) | (54,201 | ) | |||||
Core technology, net | 28,593 | 35,159 | |||||||
Other intangibles, gross | 46,716 | 46,516 | 2.7 years | ||||||
Less accumulated amortization | (46,442 | ) | (45,621 | ) | |||||
Other intangibles, net | 274 | 895 | |||||||
Total acquisition-related intangibles, gross | 138,576 | 135,876 | |||||||
Less accumulated amortization | (109,709 | ) | (99,822 | ) | |||||
Total acquisition-related intangibles, net | $ | 28,867 | $ | 36,054 | |||||
Amortization expense for acquisition-related intangibles for fiscal 2014, 2013 and 2012 were $9.9 million, $9.5 million and $7.6 million, respectively. Based on the carrying value of acquisition-related intangibles recorded as of March 29, 2014, and assuming no subsequent impairment of the underlying assets, the annual amortization expense for acquisition-related intangibles is expected to be as follows:
Fiscal | (In thousands) | ||
2015 | $ | 9,537 | |
2016 | 8,936 | ||
2017 | 7,131 | ||
2018 | 2,660 | ||
2019 | 603 | ||
Total | $ | 28,867 | |
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Note 20. Employee Benefit Plans
Xilinx offers various retirement benefit plans for U.S. and non-U.S. employees. Total contributions to these plans were $13.2 million, $12.2 million and $12.0 million in fiscal 2014, 2013 and 2012, respectively. For employees in the U.S., Xilinx instituted a Company matching program pursuant to which the Company will match contributions to Xilinx’s 401(k) Plan (the 401(k) Plan) based on the amount of salary deferral contributions the participant makes to the 401(k) Plan. Xilinx will match up to 50% of the first 8% of an employee’s compensation that the employee contributed to their 401(k) account. The maximum Company contribution per year is $4,500 per employee. As permitted under Section 401(k) of the Internal Revenue Code, the 401(k) Plan allows tax deferred salary deductions for eligible employees. The Compensation Committee of the Board of Directors administers the 401(k) Plan. Participants in the 401(k) Plan may make salary deferrals of up to 25% of the eligible annual salary, limited by the maximum dollar amount allowed by the Internal Revenue Code. Participants who have reached the age of 50 before the close of the plan year may be eligible to make catch-up salary deferral contributions, up to 25% of eligible annual salary, limited by the maximum dollar amount allowed by the Internal Revenue Code.
The Company allows its U.S.-based officers, director-level employees and its board members to defer a portion of their compensation under the Deferred Compensation Plan (the Plan). The Compensation Committee administers the Plan. As of March 29, 2014, there were more than 143 participants in the Plan who self-direct their contributions into investment options offered by the Plan. The Plan does not allow Plan participants to invest directly in Xilinx’s stock. In the event Xilinx becomes insolvent, Plan assets are subject to the claims of the Company’s general creditors. There are no Plan provisions that provide for any guarantees or minimum return on investments. As of March 29, 2014, Plan assets were $50.6 million and obligations were $59.6 million. As of March 30, 2013, Plan assets were $43.3 million and obligations were $50.4 million.
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REPORT OF ERNST & YOUNG LLP,
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders
Xilinx, Inc.
We have audited the accompanying consolidated balance sheets of Xilinx, Inc. as of March 29, 2014 and March 30, 2013, and the related consolidated statements of income, comprehensive income, stockholders’ equity and cash flows for each of the three years in the period ended March 29, 2014. Our audits also included the financial statement schedule listed in the Index at Part IV, Item 15(a)(2). These financial statements and schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Xilinx, Inc. at March 29, 2014 and March 30, 2013, and the consolidated results of its operations and its cash flows for each of the three years in the period ended March 29, 2014, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Xilinx, Inc.’s internal control over financial reporting as of March 29, 2014, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (1992 Framework) and our report dated May 16, 2014 expressed an unqualified opinion thereon.
/s/ ERNST & YOUNG LLP
San Jose, California
May 16, 2014
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REPORT OF ERNST & YOUNG LLP,
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders
Xilinx, Inc.
We have audited Xilinx, Inc.’s internal control over financial reporting as of March 29, 2014, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (1992 Framework) (the COSO criteria). Xilinx, Inc.’s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the company’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, Xilinx, Inc. maintained, in all material respects, effective internal control over financial reporting as of March 29, 2014, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Xilinx, Inc. as of March 29, 2014 and March 30, 2013, and the related consolidated statements of income, comprehensive income, stockholders’ equity, and cash flows for each of the three years in the period ended March 29, 2014 of Xilinx, Inc. and our report dated May 16, 2014 expressed an unqualified opinion thereon.
/s/ ERNST & YOUNG LLP
San Jose, California
May 16, 2014
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XILINX, INC.
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
(In thousands) | ||||||||||||||||
Description | Beginning of Year | Additions | Deductions(a) | End of Year | ||||||||||||
For the year ended March 31, 2012: | ||||||||||||||||
Allowance for doubtful accounts | $ | 3,579 | $ | 180 | $ | 313 | $ | 3,446 | ||||||||
Allowance for deferred tax assets (b) | $ | 11,814 | $ | 7,635 | $ | 623 | $ | 18,826 | ||||||||
For the year ended March 30, 2013: | ||||||||||||||||
Allowance for doubtful accounts | $ | 3,446 | $ | — | $ | 21 | $ | 3,425 | ||||||||
Allowance for deferred tax assets (b) | $ | 18,826 | $ | 7,575 | $ | — | $ | 26,401 | ||||||||
For the year ended March 29, 2014: | ||||||||||||||||
Allowance for doubtful accounts | $ | 3,425 | $ | 2 | $ | 72 | $ | 3,355 | ||||||||
Allowance for deferred tax assets | $ | 26,401 | $ | 19,771 | $ | 3,168 | $ | 43,004 | ||||||||
(a) | Represents amounts written off or released against the allowances accounts. |
(b) | Adjustments for the federal impact of the state allowance for deferred tax assets have been made to conform to the current year presentation as in "Note 15. Income Taxes." There was no impact to net income or the balance sheet for the change in presentation for the prior-year periods. |
Supplementary Financial Data
Quarterly Data (Unaudited)
(In thousands, except per share amounts) | ||||||||||||||||
Year ended March 29, 2014 (1) | First Quarter | Second Quarter | Third Quarter | Fourth Quarter | ||||||||||||
Net revenues | $ | 578,955 | $ | 598,937 | $ | 586,816 | $ | 617,823 | ||||||||
Gross margin | 399,255 | 416,121 | 406,024 | 417,878 | ||||||||||||
Income before income taxes (2) | 182,979 | 152,765 | 197,932 | 175,850 | ||||||||||||
Net income | 157,023 | 141,461 | 175,877 | 156,027 | ||||||||||||
Net income per common share: (3) | ||||||||||||||||
Basic | $ | 0.59 | $ | 0.53 | $ | 0.66 | $ | 0.58 | ||||||||
Diluted | $ | 0.56 | $ | 0.49 | $ | 0.61 | $ | 0.53 | ||||||||
Shares used in per share calculations: | ||||||||||||||||
Basic | 264,153 | 268,478 | 267,780 | 268,134 | ||||||||||||
Diluted | 280,291 | 290,685 | 288,195 | 294,536 | ||||||||||||
Cash dividends declared per common share | $ | 0.25 | $ | 0.25 | $ | 0.25 | $ | 0.25 | ||||||||
(1) | Xilinx uses a 52- to 53-week fiscal year ending on the Saturday nearest March 31. Fiscal 2014 was a 52-week year and each quarter was a 13-week quarter. |
(2) | Income before income taxes for the second quarter of fiscal 2014 included litigation and contingencies charge of $28,600, for the third quarter of fiscal 2014 included reversal of litigation and contingencies charge of$19,190 and for the fourth quarter of fiscal 2014 included loss on extinguishment of convertible debentures of $9,848. |
(3) | Net income per common share is computed independently for each of the quarters presented. Therefore, the sum of the quarterly per common share information may not equal the annual net income per common share. |
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(In thousands, except per share amounts) | ||||||||||||||||
Year ended March 30, 2013 (1) | First Quarter | Second Quarter | Third Quarter | Fourth Quarter | ||||||||||||
Net revenues | $ | 582,784 | $ | 543,933 | $ | 509,767 | $ | 532,168 | ||||||||
Gross margin | 384,373 | 356,220 | 339,274 | 351,579 | ||||||||||||
Income before income taxes | 154,905 | 138,083 | 115,693 | 138,325 | ||||||||||||
Net income | 129,831 | 123,437 | 103,648 | 130,620 | ||||||||||||
Net income per common share: (2) | ||||||||||||||||
Basic | $ | 0.49 | $ | 0.47 | $ | 0.40 | $ | 0.50 | ||||||||
Diluted | $ | 0.47 | $ | 0.46 | $ | 0.38 | $ | 0.47 | ||||||||
Shares used in per share calculations: | ||||||||||||||||
Basic | 263,055 | 260,605 | 260,690 | 263,035 | ||||||||||||
Diluted | 273,820 | 270,265 | 271,174 | 277,090 | ||||||||||||
Cash dividends declared per common share | $ | 0.22 | $ | 0.22 | $ | 0.22 | $ | 0.22 | ||||||||
(1) | Xilinx uses a 52- to 53-week fiscal year ending on the Saturday nearest March 31. Fiscal 2013 was a 52-week year and each quarter was a 13-week quarter. |
(2) | Net income per common share is computed independently for each of the quarters presented. Therefore, the sum of the quarterly per common share information may not equal the annual net income per common share. |
ITEM 9. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE |
Not applicable.
ITEM 9A. | CONTROLS AND PROCEDURES |
Evaluation of Disclosure Controls and Procedures
An evaluation was carried out, under the supervision of and with the participation of the Company’s management, including our CEO and CFO, of the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this report. Based upon this evaluation, our CEO and CFO have concluded that, as of the end of the period covered by this Form 10-K, the Company’s disclosure controls and procedures are effective to provide reasonable assurance that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms, and is accumulated and communicated to our management, including our CEO and CFO, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter ended March 29, 2014 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Management’s Report on Internal Control Over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles. This system of internal control is designed to provide reasonable assurance that assets are safeguarded and transactions are properly recorded and executed in accordance with management’s authorization. The design, monitoring and revision of the system of internal control over financial reporting involve, among other things, management’s judgments with respect to the relative cost and expected benefits of specific control measures. The effectiveness of the system of internal control over financial reporting is supported by the selection, retention and training of qualified personnel and an organizational structure that provides an appropriate division of responsibility and formalized procedures. The system of internal control is periodically reviewed and modified in response to changing conditions.
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Because of its inherent limitations, no matter how well designed, a system of internal control over financial reporting can provide only reasonable assurance and may not prevent or detect all misstatements or all fraud. Further, because of changes in conditions, the effectiveness of internal control over financial reporting may vary over time. Our system contains self-monitoring mechanisms, and actions are taken to correct deficiencies as they are identified.
Management has used the criteria established in the Report "Internal Control — Integrated Framework" issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) (1992 Framework) to evaluate the effectiveness of our internal control over financial reporting. Based on this evaluation, management has concluded that the Company’s internal control over financial reporting was effective as of March 29, 2014.
The effectiveness of the Company’s internal control over financial reporting as of March 29, 2014 has been audited by Ernst & Young LLP, an independent registered public accounting firm, as stated in their report which is included in Part II, Item 8 of this Form 10-K.
ITEM 9B. | OTHER INFORMATION |
None.
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PART III
Certain information required by Part III is omitted from this Report in that the Registrant will file a definitive proxy statement pursuant to Regulation 14A under the Exchange Act (the Proxy Statement) not later than 120 days after the end of the fiscal year covered by this Report, and certain information included therein is incorporated herein by reference. Only those sections of the Proxy Statement that specifically address the items set forth herein are incorporated by reference.
ITEM 10. | DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE |
The information required by this item pursuant to Item 401(b), (d), (e) and (f) of Regulation S-K concerning the Company’s executive officers is incorporated herein by reference to Item 1. "Business — Executive Officers of the Registrant" within this Form 10-K.
The information required by this item pursuant to Item 401(a), (d), (e), (f) and Items 406 and 407 of Regulation S-K concerning the Company’s directors, the code of ethics and corporate governance matters is incorporated herein by reference to the sections entitled "Proposal One-Election of Directors," "Board Matters" and "Corporate Governance Principles" in our Proxy Statement.
The information required by this item regarding delinquent filers pursuant to Item 405 of Regulation S-K is incorporated herein by reference to the section entitled "Section 16(a) Beneficial Ownership Reporting Compliance" in our Proxy Statement.
Our codes of conduct and ethics and significant corporate governance principles are available on the investor relations page of our website at www.investor.xilinx.com. Our code of conduct applies to our directors and employees, including our CEO, CFO and principal accounting personnel. In addition, our Board of Directors has adopted a code of ethics that pertains specifically to the Board of Directors. Printed copies of these documents are also available to stockholders without charge upon written request directed to Corporate Secretary, Xilinx, Inc., 2100 Logic Drive, San Jose CA 95124.
ITEM 11. | EXECUTIVE COMPENSATION |
The information required by this item pursuant to Item 402 of Regulation S-K concerning executive compensation is incorporated herein by reference to the sections entitled "Compensation of Directors" and "Executive Compensation" in our Proxy Statement.
The information required by this item pursuant to Item 407(e)(4) of Regulation S-K is incorporated herein by reference to the section entitled "Compensation Committee Interlocks and Insider Participation" in our Proxy Statement.
The information required by this item pursuant to Item 407(e)(5) of Regulation S-K is incorporated herein by reference to the section entitled "Compensation Committee Report" in our Proxy Statement.
ITEM 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS |
The information required by this item pursuant to Item 403 of Regulation S-K is incorporated herein by reference to the section entitled "Security Ownership of Certain Beneficial Owners and Management" in our Proxy Statement. The information required by Item 201(d) of Regulation S-K is set forth below.
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Equity Compensation Plan Information
The table below sets forth certain information as of fiscal year ended March 29, 2014 about the Company’s common stock that may be issued upon the exercise of options, RSUs, warrants and rights under all of our existing equity compensation plans including the ESPP:
(Shares in thousands) | A | B | C | ||||||||
Plan Category | Number of Securities to be Issued upon Exercise of Outstanding Options, Warrants and Rights | Weighted-average Exercise Price of Outstanding Options, Warrants and Rights | Number of Securities Remaining Available for Future Issuance under Equity Compensation Plans (excluding securities reflected in Column A) | ||||||||
Equity Compensation Plans Approved by Security Holders | |||||||||||
1997 Stock Plan | 2,573 | $ | 25.36 | — | (1) | ||||||
2007 Equity Plan | 9,631 | (2) | $ | 25.08 | (3) | 15,037 | (4) | ||||
Employee Stock Purchase Plan | N/A | N/A | 9,726 | ||||||||
Total-Approved Plans | 12,204 | $ | 25.22 | 24,763 | |||||||
Equity Compensation Plans NOT Approved by Security Holders | |||||||||||
Supplemental Stock Option Plan (5) | 1 | $ | 25.77 | — | |||||||
Total-All Plans | 12,205 | $ | 25.22 | 24,763 | |||||||
(1) | The Company ceased issuing options under the 1997 Stock Plan as of April 1, 2007. The 1997 Stock Plan expired on May 8, 2007 and all available but unissued shares under this plan were cancelled. |
(2) | Includes approximately 6.9 million shares issuable upon vesting of RSUs that the Company granted under the 2007 Equity Plan. |
(3) | The weighted-average exercise price does not take into account shares issuable upon vesting of outstanding RSUs, which have no exercise price. |
(4) | On July 26, 2006, the stockholders approved the adoption of the 2007 Equity Plan and authorized 10.0 million shares to be reserved for issuance thereunder. The 2007 Equity Plan, which became effective on January 1, 2007, replaced both the Company’s 1997 Stock Plan (which expired on May 8, 2007) and the Supplemental Stock Option Plan. On August 9, 2007, August 14, 2008, August 12, 2009, August 11, 2010, August 10, 2011, August 8, 2012, and August 14, 2013 our stockholders authorized the reserve of an additional 5.0 million shares, 4.0 million shares, 5.0 million shares, 4.5 million shares, 4.5 million shares, 3.5 million shares and 2.0 million shares, respectively. All of the shares reserved for issuance under the 2007 Equity Plan may be granted as stock options, stock appreciation rights, restricted stock or RSUs. |
(5) | Under the Supplemental Stock Option Plan, options were granted to employees and consultants of the Company, however neither officers nor members of our Board were eligible for grants under the Supplemental Stock Option Plan. Only non-qualified stock options were granted under the Supplemental Stock Option Plan (that is, options that do not entitle the optionee to special U.S. income tax treatment) and such options generally expire not later than 12 months after the optionee ceases to be an employee or consultant. Upon a merger of the Company with or into another company, or the sale of substantially all of the Company’s assets, each option granted under the Supplemental Stock Option Plan may be assumed or substituted with a similar option by the acquiring company, or the outstanding options will become exercisable in connection with the merger or sale. |
ITEM 13. | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE |
The information required by this item concerning related party transactions pursuant to Item 404 of Regulation S-K is incorporated herein by reference to the section entitled "Related Transactions" in our Proxy Statement.
The information required by this item concerning director independence pursuant to Item 407(a) of Regulation S-K is incorporated herein by reference to the section entitled "Board Matters" in our Proxy Statement.
ITEM 14. | PRINCIPAL ACCOUNTING FEES AND SERVICES |
The information required by this Item is incorporated herein by reference to the sections entitled "Proposal Six - Ratification of Appointment of External Auditors" and "Fees Paid to Ernst & Young LLP" in our Proxy Statement.
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PART IV
ITEM 15. | EXHIBITS AND FINANCIAL STATEMENT SCHEDULES |
(a) | (1) The financial statements required by Item 15(a) are included in Item 8 of this Annual Report on Form 10-K. |
(2) The financial statement schedule required by Item 15(a) (Schedule II, Valuation and Qualifying Accounts) is
included in Item 8 of this Annual Report on Form 10-K.
Schedules not filed have been omitted because they are not applicable, are not required or the information required to be set forth therein is included in the financial statements or notes thereto.
(3) The exhibits listed below in (b) are filed or incorporated by reference as part of this Annual report on Form 10-K.
(b) | Exhibits |
EXHIBIT LIST
Incorporated by Reference | ||||||||||||||
Exhibit No | Exhibit Title | Form | File No. | Exhibit | Filing Date | Filed Herewith | ||||||||
3.1 | Restated Certificate of Incorporation, as amended to date | 10-K | 000-18548 | 3.1 | 5/30/2007 | |||||||||
3.2 | Bylaws of the Company, as amended and restated as of May 9, 2012 | 8-K | 000-18548 | 3.2 | 5/15/2012 | |||||||||
4.1 | Indenture dated March 5, 2007 between the Company as Issuer and the Bank of New York Trust Company, N.A. as Trustee | 10-K | 000-18548 | 4.1 | 5/30/2007 | |||||||||
4.2 | Indenture dated June 9, 2010 between the Company as Issuer and the Bank of New York Mellon Trust Company, N.A. as Trustee | 10-Q | 000-18548 | 4.2 | 8/9/2010 | |||||||||
4.3 | Supplemental Indenture, dated as of March 12, 2014, between the Company as Issuer and The Bank of New York Mellon Trust Company, N.A., as trustee | 8-K | 000-18548 | 4.01 | 3/13/2014 | |||||||||
10.1 | * | Amended and Restated 1990 Employee Qualified Stock Purchase Plan | DEF 14A | 000-18548 | Appendix A | 5/29/2012 | ||||||||
10.2 | * | 1997 Stock Plan and Form of Stock Option Agreement | S-8 | 333-127318 | 4.2 | 8/9/2005 | ||||||||
10.3 | * | Form of Indemnification Agreement between the Company and its officers and directors | S-1 | 333-34568 | 10.17 | 4/27/1990 | ||||||||
10.4 | * | Supplemental Stock Option Plan | 10-K | 000-18548 | 10.16 | 6/17/2002 | ||||||||
10.5 | * | Letter Agreement dated June 2, 2005 between the Company and Jon A. Olson | 10-Q/A | 000-18548 | 10.1 | 8/12/2005 | ||||||||
10.6 | * | 2007 Equity Incentive Plan | DEF 14A | 000-18548 | Appendix B | 5/29/2012 | ||||||||
10.7 | * | Form of Stock Option Agreement under 2007 Equity Incentive Plan | 10-K | 000-18548 | 10.24 | 5/30/2007 | ||||||||
10.8 | * | Form of Restricted Stock Unit Agreement under 2007 Equity Incentive Plan | 10-K | 000-18548 | 10.25 | 5/30/2007 | ||||||||
10.9 | * | Form of Performance-Based Restricted Stock Unit Agreement under 2007 Equity Incentive Plan | 8-K | 000-18548 | 99.1 | 7/5/2007 | ||||||||
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Incorporated by Reference | ||||||||||||||
Exhibit No | Exhibit Title | Form | File No. | Exhibit | Filing Date | Filed Herewith | ||||||||
10.10 | * | Letter Agreement dated January 4, 2008 between the Company and Moshe N. Gavrielov | 8-K | 000-18548 | 99.2 | 1/7/2008 | ||||||||
10.11 | * | Amendment of Employment Agreement dated February 14, 2008 between the Company and Jon A. Olson | 8-K | 000-18548 | 99.1 | 2/20/2008 | ||||||||
10.12 | * | Summary of Fiscal 2014 Executive Incentive Plan | 8-K | 000-18548 | N/A | 5/21/2013 | ||||||||
10.13 | * | Restricted Stock Issuance Agreement | 10-Q | 000-18548 | 10.15 | 8/9/2011 | ||||||||
10.14 | * | Performance Based Restricted Stock Issuance Agreement | 10-Q | 000-18548 | 10.16 | 8/9/2011 | ||||||||
10.15 | * | Amendment of Employment Agreement between the Company and Moshe N. Gavrielov | 8-K | 000-18548 | 10.17 | 6/19/2012 | ||||||||
10.16 | * | Amendment of Employment Agreement between the Company and Jon A. Olson | 8-K | 000-18548 | 10.18 | 6/19/2012 | ||||||||
10.17 | * | Retirement Agreement between the Company and Vincent Ratford | 10-Q | 000-18548 | 10.19 | 11/2/2012 | ||||||||
10.18 | + | Xilinx, Inc. Master Distributor Agreement with Avnet, Inc. | X | |||||||||||
21.1 | Subsidiaries of the Company | X | ||||||||||||
23.1 | Consent of Independent Registered Public Accounting Firm | X | ||||||||||||
24.1 | Power of Attorney (included in the signature page) | X | ||||||||||||
31.1 | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | X | ||||||||||||
31.2 | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | X | ||||||||||||
32.1 | Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | X | ||||||||||||
32.2 | Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | X | ||||||||||||
101.INS | ** | XBRL Instance Document | X | |||||||||||
101.SCH | ** | XBRL Taxonomy Extension Schema Document | X | |||||||||||
101.CAL | ** | XBRL Taxonomy Extension Calculation Linkbase Document | X | |||||||||||
101.LAB | ** | XBRL Taxonomy Extension Label Linkbase Document | X | |||||||||||
101.PRE | ** | XBRL Taxonomy Extension Presentation Linkbase Document | X | |||||||||||
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+ | Confidential treatment requested as to certain portions of this document. | |
* | Management contract or compensatory plan or arrangement required to be filed as an exhibit to the Company’s Annual Report on Form 10-K pursuant to Item 15(b) herein. | |
** | Pursuant to applicable securities laws and regulations, we are deemed to have complied with the reporting obligation relating to the submission of interactive data files in such exhibits and are not subject to liability under any anti-fraud provisions of the federal securities laws as long as we have made a good faith attempt to comply with the submission requirements and promptly amend the interactive data files after becoming aware that the interactive data files fail to comply with the submission requirements. Users of this data are advised that pursuant to Rule 406T, these interactive data files are deemed not filed and otherwise are not subject to liability. | |
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Date: May 16, 2014
XILINX, INC. | |||
By: | /s/ Moshe N. Gavrielov | ||
Moshe N. Gavrielov, | |||
President and Chief Executive Officer | |||
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Moshe N. Gavrielov and Jon A. Olson, jointly and severally, his/her attorneys-in-fact, each with the power of substitution, for him/her in any and all capacities, to sign any amendments to this Annual Report on Form 10-K, and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that each of said attorneys-in-fact, or his/her substitute or substitutes, may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934 this Annual Report on Form 10-K has been signed below by the following persons on behalf of the Registrant in the capacities and on the dates indicated.
Signature | Title | Date | ||
/s/ Moshe N. Gavrielov | President and Chief Executive Officer (Principal Executive Officer) and Director | May 16, 2014 | ||
(Moshe N. Gavrielov) | ||||
/s/ Jon A. Olson | Executive Vice President, Finance and Chief Financial Officer (Principal Accounting and Financial Officer) | May 16, 2014 | ||
(Jon A. Olson) | ||||
/s/ Philip T. Gianos | Chairman of the Board of Directors | May 16, 2014 | ||
(Philip T. Gianos) | ||||
/s/ John L. Doyle | Director | May 16, 2014 | ||
(John L. Doyle) | ||||
/s/ William G. Howard, Jr. | Director | May 16, 2014 | ||
(William G. Howard, Jr.) | ||||
/s/ J. Michael Patterson | Director | May 16, 2014 | ||
(J. Michael Patterson) | ||||
/s/ Albert A. Pimentel | Director | May 16, 2014 | ||
(Albert A. Pimentel) | ||||
/s/ Marshall C. Turner | Director | May 16, 2014 | ||
(Marshall C. Turner) | ||||
/s/ Elizabeth W. Vanderslice | Director | May 16, 2014 | ||
(Elizabeth W. Vanderslice) | ||||
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