UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended December 28, 1996 or
[ ] Transition report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from to .
Commission File Number 0-18548
Xilinx, Inc.
(Exact name of registrant as specified in its charter)
Delaware 77-0188631
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
2100 Logic Drive, San Jose, California 95124
(Address of principal executive offices) (Zip Code)
(408) 559-7778
(Registrant's telephone number, including area code)
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 requirements for the past 90 days.
YES [X] NO [ ]
Class Shares Outstanding at December 28, 1996
Common Stock, $.01 par value 73,043,000
<TABLE>
<CAPTION>
XILINX, INC.
CONSOLIDATED CONDENSED STATEMENT OF INCOME
(in thousands except per share amounts)
Three Months Ended Nine Months Ended
Dec. 28, Dec. 30, Dec. 28, Dec. 30,
1996 1995 1996 1995
---------- ---------- --------- ----------
<S> <C> <C> <C> <C>
Net revenues $ 135,587 $ 144,123 $416,366 $ 411,095
Costs and expenses:
Cost of revenues 52,156 51,672 156,139 151,792
Write-off of discontinued product family - - 5,000 -
Research and development 17,698 16,228 52,283 47,733
Marketing, general and administrative 28,830 26,905 87,087 79,142
Non-recurring charges - - - 19,366
---------- ---------- --------- ----------
Operating costs and expenses 98,684 94,805 300,509 298,033
---------- ---------- --------- ----------
Operating income 36,903 49,318 115,857 113,062
Interest and other income 5,353 3,288 15,121 6,546
Interest expense (3,407) (1,913) (10,320) (2,076)
---------- ---------- --------- ----------
Income before provision for taxes on income 38,849 50,693 120,658 117,532
Provision for taxes on income 12,626 18,503 40,725 49,968
---------- ---------- --------- ----------
Net income $ 26,223 $ 32,190 $ 79,933 $ 67,564
========== ========== ========= ==========
Net income per share $ 0.33 $ 0.41 $ 1.01 $ 0.86
========== ========== ========= ==========
Weighted average common and common
equivalent shares used in computing
per share amounts 79,791 79,106 79,371 78,732
========== ========== ========= ==========
<FN>
(See accompanying Notes to Consolidated Condensed Financial Statements.)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
XILINX, INC.
CONSOLIDATED CONDENSED BALANCE SHEET
(in thousands except per share amounts)
Dec. 28, March 30,
1996 1996
---------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 155,003 $ 110,893
Short-term investments 235,099 267,068
Accounts receivable, net 68,549 79,528
Inventories 70,181 39,238
Deferred income taxes and other current assets 35,059 41,979
---------- -----------
Total current assets 563,891 538,706
Property, plant and equipment, at cost 150,338 128,283
Accumulated depreciation and amortization (61,843) (45,645)
---------- -----------
Net property, plant and equipment 88,495 82,638
Restricted investments 36,730 36,212
Investment in joint venture 35,404 34,316
Advances for wafer purchases 60,000 -
Developed technology and other assets 26,291 29,008
---------- -----------
$ 810,811 $ 720,880
========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable, accrued liabilities, income taxes
payable and current obligations under capital leases $ 71,333 $ 65,068
Deferred income on shipments to distributors 29,347 37,568
---------- -----------
Total current liabilities 100,680 102,636
Long-term debt 250,000 250,000
Stockholders' equity:
Preferred stock, $.01 par value - -
Common stock, $.01 par value 730 719
Additional paid-in capital 112,181 100,020
Treasury stock (218) -
Retained earnings 347,438 267,505
---------- -----------
Total stockholders' equity 460,131 368,244
---------- -----------
$ 810,811 $ 720,880
========== ===========
<FN>
(See accompanying Notes to Consolidated Condensed Financial Statements.)
</TABLE>
<TABLE>
<CAPTION>
XILINX, INC.
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS
Increase (decrease) in cash and cash equivalents
(in thousands)
Nine Months Ended
Dec. 28, Dec. 30,
1996 1995
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 79,933 $ 67,564
Adjustments to reconcile net income to net cash
provided by operating activities:
Write-off of in-process technology - 19,366
Depreciation and amortization 20,195 15,981
Undistributed earnings of joint venture (938) -
Changes in assets and liabilities net of effects of NeoCAD acquisition:
Accounts receivable 10,979 (26,175)
Inventories, including the impact of receipts against advances
for wafer purchases (21,908) 20,206
Deferred income taxes and other 1,607 (1,436)
Accounts payable, accrued liabilities and income taxes payable 7,044 1,916
Deferred income on shipments to distributors (8,221) 10,614
---------- ----------
Total adjustments net of effects of NeoCAD acquisition 8,758 40,472
---------- ----------
Net cash provided by operating activities 88,691 108,036
Cash flows from investing activities:
Purchases of short-term available-for-sale investments (209,111) (268,679)
Proceeds from sale or maturity of short-term available-for-sale investments 240,650 69,620
Purchases of restricted held-to-maturity investments (36,097) (59,929)
Proceeds from sale or maturity of restricted held-to-maturity investments 36,092 36,384
Advances for wafer purchases (60,000) -
Acquisition of NeoCAD, net of cash acquired - (33,412)
Property, plant and equipment (22,300) (43,155)
---------- ----------
Net cash used in investing activities (50,766) (299,171)
Cash flows from financing activities:
Net proceeds from issuance of long-term debt - 244,197
Acquisition of treasury stock (15,729) -
Principal payments on capital lease obligations (779) (1,168)
Proceeds from issuance of common stock 22,693 11,700
---------- ----------
Net cash provided by financing activities 6,185 254,729
---------- ----------
Net increase in cash and cash equivalents 44,110 63,594
Cash and cash equivalents at beginning of period 110,893 56,703
---------- ----------
Cash and cash equivalents at end of period $ 155,003 $ 120,297
========== ==========
Schedule of non-cash transactions:
Tax benefit from stock options $ 5,484 $ 5,459
Issuance of treasury stock under employee stock plans 15,511 7,369
Receipts against advances for wafer purchases 9,035 23,220
Supplemental disclosures of cash flow information:
Interest paid $ 12,561 $ 192
Income taxes paid 26,416 53,800
<FN>
(See accompanying Notes to Consolidated Condensed Financial Statements.)
</TABLE>
XILINX, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
1. The accompanying interim consolidated financial statements have been
prepared in conformity with generally accepted accounting principles and
should be read in conjunction with the Xilinx, Inc. consolidated financial
statements for the year ended March 30, 1996. The balance sheet at March 30,
1996 is derived from audited financial statements. The interim financial
statements are unaudited but reflect all adjustments which are in the opinion
of management of a normal, recurring nature necessary to present a fair
statement of results for the interim periods presented. The results for the
nine month period ended December 28, 1996 are not necessarily indicative of
the results that may be expected for the year ending March 29, 1997.
2. Inventories are stated at the lower of cost (first-in, first-out) or
market (estimated net realizable value). Inventories at December 28, 1996 and
March 30, 1996 are as follows:
<TABLE>
<CAPTION>
December 28, March 30,
1996 1996
------------- ----------
<S> <C> <C>
Raw materials $ 4,929 $ 5,886
Work-in-process 50,581 21,927
Finished goods 14,671 11,425
------------- ----------
$ 70,181 $ 39,238
============= ==========
</TABLE>
3. On May 17, 1996, the Company signed an agreement with Seiko Epson
Corporation (Seiko), a primary wafer supplier. The agreement provides for
total payments to Seiko of $300 million to be used in the construction of a
wafer fabrication facility in Japan which will provide access to eight-inch,
sub-micron wafers. Of the total payments, $200 million represents an advance
payment for future wafer deliveries. In conjunction with the agreement, $30
million installments were paid in May 1996 and November 1996 and additional
installments of $30 million are scheduled for May 1, 1997, November 1, 1997
and February 1, 1998 or upon the start of mass production, whichever is later.
The final installment for the advance payment of $50 million is due on or
after the later of April 1, 1998 or the date the outstanding balance of the
advance payment is less than $125 million. As a result, the maximum
outstanding amount of the advance payment at any time will be $175 million.
Repayment of this advance will be in the form of wafer deliveries using U.S.
dollar denominated pricing. Specific wafer pricing will be based upon the
prices of similar wafers manufactured by other, specifically identified,
leading-edge foundry suppliers. The advance payment provision also provides
for interest to be paid to the Company in the form of free wafers. In
addition to the advance payments, the Company will provide further funding to
Seiko in the amount of $100 million. This additional funding will be paid
after the final installment of the $200 million advance, and the form of the
additional funding will be negotiated at that time.
4. The Company discontinued the XC8100 family of one-time programmable
antifuse devices. As a result, the Company recorded a pretax charge against
earnings of $5 million. This charge primarily related to the write-off of
inventories held by Xilinx and its distributors and for termination charges
related to purchase commitments to foundry partners for work in process wafers
which had not completed the manufacturing process.
5. On September 16, 1996, the Company's Board of Directors authorized a
stock repurchase program whereby up to 2 million shares of the Company's
common stock may be purchased in the open market from time to time as market
and business conditions warrant. The Company plans to use shares repurchased
to meet the stock requirements of the Company's Stock Option and Employee
Qualified Stock Purchase plans. During the quarter ended December 28, 1996,
the Company repurchased 490,000 shares of common stock for $15.7 million, of
<PAGE>
which 483,000 shares were reissued during the period in response to stock
option exercises and stock purchase plan requirements. As of January 31,
1997, an additional 252,500 shares of common stock have been repurchased for
$10.3 million.
6. The Company is currently involved in patent litigation with Altera
Corporation (see Part II, Item 1, Legal Proceedings). Due to the uncertain
nature of the litigation with Altera and because the lawsuits are still in the
pre-trial stage, the ultimate outcome of these matters cannot be determined at
this time. Management believes that it has meritorious defenses to such
claims and is defending them vigorously, and has not recorded a provision for
the ultimate outcome of these matters in its financial statements. The
foregoing is a forward looking statement based on information presently known
to management. Due to the uncertain nature of the litigation with Altera and
because the lawsuits are still in the pre-trial stage, actual results could
differ materially.
XILINX, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The statements in this Management's Discussion and Analysis that are forward
looking involve numerous risks and uncertainties and are based on current
expectations. Actual results may differ materially. Such risks and
uncertainties are detailed below.
RESULTS OF OPERATIONS - THIRD QUARTER AND FIRST NINE MONTHS OF FISCAL 1997
COMPARED TO THE THIRD QUARTER AND FIRST NINE MONTHS OF FISCAL 1996
Revenues
Revenues for the third quarter of fiscal 1997 of $135.6 million represented a
$8.5 million, or 5.9%, decrease from the corresponding period of fiscal 1996.
Revenues for the first nine months of fiscal 1997 were $416.4 million, an
increase of 1.3% from the corresponding period of 1996. Revenues for the
third quarter of fiscal 1997, as compared to the comparable prior year period,
were adversely impacted by the general slowdown in the semiconductor industry,
customer efforts to reduce inventory levels, customer programs which have not
ramped up as quickly as expected and price reductions in response to a
competitive pricing environment. The revenue decrease during the third
quarter of fiscal 1997 was primarily attributable to decreases in revenues
relating to the non-proprietary members of the XC3000 family, the XC3100
family and the XC4000 family partially offset by increases in revenues
relating to the XC5200 family. Relative to the prior year quarter, revenues
for the non-proprietary members of the XC3000 family decreased by $9.7
million, or 45.4%, revenues for the XC3100 family decreased by $2.3 million,
or 14.8% and revenues for the XC4000 family decreased by $4 million, or 6.3%
offset by an $8.5 million increase in revenue for the XC5200 family, up from
$2.8 million in the prior year. Revenues from two of the Company's newer
product families, the XC4000EX and the XC9500, contributed more than $2
million in revenues during the third quarter of fiscal 1997. Revenues for the
Company's first generation FPGA products, which includes the XC2000, XC3000
and XC3100 families, represented 32.5% of aggregate component revenues in the
third quarter of fiscal 1997 and decreased 20.3% relative to the results of
the comparable quarter of the prior fiscal year. Revenues for the Company's
second generation FPGA products, which includes the XC4000, XC4000EX and
XC5200 families as well as the recently introduced XC6200 family, represented
54.9% of aggregate component revenues and exceeded the revenues of the
comparable quarter of the prior year by 8.6%. The increase in revenues
relating to the second generation of products is primarily a function of
increasing demand for the functionality, performance and pricing provided by
these product families. The other products generation, consisting primarily
of the CPLD families, the Hardwire product and serial proms, represented
<PAGE>
12.6% of aggregate component revenues in the third quarter of fiscal 1997 and
decreased 10.0% relative to the results of the comparable quarter of the prior
year. Proprietary products constituted 91.4% of revenues for the third
quarter of fiscal 1997, as compared to 85.2% in the comparable quarter last
year. Software revenues represented approximately 3% of total revenues for
all periods presented.
Independent semiconductor industry analyst projections indicated that the
overall semiconductor industry would experience lower growth rates for 1996
than those experienced over the last few years. See "Factors Affecting Future
Operating Results" for discussion relating to potential impact of
semiconductor industry conditions on the Company's business.
The Company expects total revenues for fiscal 1997 to approximate fiscal 1996
revenues. The Company believes that the conditions that led to slow
sequential quarterly revenue growth or declining sequential quarterly revenue
growth over the last five fiscal quarters, are still present. The Company
also realizes that a prolonged slowdown in the overall semiconductor industry
would detrimentally impact Xilinx. Based on current inventory levels and
wafer capacity availability, the Company is generally able to deliver products
to customers within fairly short lead times. As a result, many of the
Company's customers are placing orders for near-term delivery and providing
the Company relatively limited visibility to demand for products in the
intermediate to long-term range. In this environment, the level of customer
orders for a given quarter is difficult to predict. While the Company
currently projects the revenue growth rate for the last quarter of fiscal 1997
to be in the low single-digit range, no assurance can be given that this will
be the case.
The preceding two paragraphs contain forward-looking statements which involve
risks and uncertainties. The Company's actual results could differ materially
from those anticipated in these forward-looking statements as a result of
certain factors including those set forth in "Factors Affecting Future
Operating Results", "Dependence on New Products" and those described above.
Gross Margin
Cost of revenues were $52.2 million, or 38.5% of revenues, and $156.1 million,
excluding the impact of the $5 million non-recurring write-off relating to the
XC8100 product family in the second quarter of fiscal 1997, or 37.5% of
revenues, for the third quarter and first nine months of fiscal 1997,
respectively. Costs of revenues for the comparable periods of fiscal 1996
were $51.7 million, or 35.9% of revenues, and $151.8 million, or 36.9% of
revenues, respectively. The increase in the cost of revenues as a percentage
of revenues during the third quarter of fiscal 1997 over the comparable
quarter of the prior year was primarily attributable to price reductions and
increased inventory reserves relating to an expanded level of inventory
partially offset by favorable impact of lower wafer costs (reflecting the
strengthened U.S. dollar exchange rate against the yen) and improved yields.
The Company was able to partially offset the negative impact of ongoing price
reductions for its existing products with increased volumes of newer,
proprietary, higher margin products although not to the extent the Company has
done so in prior periods. The Company recognizes that ongoing price
reductions for its integrated circuits are a significant element in expanding
the market for its products. Company management believes that the gross
margins of up to 65.7% of revenues (achieved during the fourth quarter of
fiscal 1996) were neither sustainable nor desirable in the future. Rather,
gross margins closer to the historical range of 60% to 62% of revenues,
including the 61.5% gross margin realized in the third quarter of fiscal 1997,
are considered more appropriate for expanding market share while realizing
acceptable returns, although there can be no assurance that future gross
margins will be in this range.
Research and Development
Research and development expenditures were $17.7 million for the third quarter
and $52.3 million for the first nine months of fiscal 1997, or 13.1% and 12.6%
of revenues respectively, compared to $16.2 million and $47.7 million, or
11.3% and 11.6% of revenues, respectively, in the comparable fiscal 1996
periods. Research and development expenditures for the third quarter of
fiscal 1997 increased as a percentage of revenues as a function of the
decrease in
<PAGE>
revenues. Research and development expenses increased in the third quarter of
fiscal 1997 over the comparable fiscal 1996 period as a result of increased
headcount, increased purchases of engineering wafers and higher depreciation
for design software. The 9.5% increase in research and development
expenditures for the first nine months of fiscal 1997 as compared to the
comparable fiscal 1996 period resulted primarily from increased headcount,
higher engineering wafer purchases, and increased facility and support costs
associated with an expanded scope of operations. The Company remains
committed to a significant level of research and development effort in order
to continue to compete aggressively in the programmable logic marketplace.
Non-recurring Charges
During the first nine months of fiscal 1996, the Company incurred a $19.4
million non-recurring write-off of in-process technology relating to the
acquisition of NeoCAD, Inc.
Marketing, General and Administrative
Marketing, general and administrative expenses were $28.8 million for the
third quarter and $87.1 million for the first nine months of fiscal 1997, or
21.3% and 20.9% of revenues, respectively, compared to $26.9 million and $79.1
million, or 18.7% and 19.3% of revenues, respectively, in the comparable
fiscal 1996 periods. These expenses have increased in amount primarily as a
result of increased headcount as well as increased marketing and sales related
costs. Such expenses have increased as a percentage of revenues in the third
quarter of fiscal 1997 as compared to the comparable fiscal 1996 period,
reflecting the recent decline in revenues. The timing and extent of future
legal costs associated with the ongoing enforcement of the Company's
intellectual property rights are not readily predictable and may increase the
level of future general and administrative expenses.
Operating Income
Operating income was $36.9 million, or 27.2% of revenues, and $120.9 million,
excluding the impact of the $5 million non-recurring write-off relating to the
XC8100 product family in the second quarter of fiscal 1996, or 29% of
revenues, for the third quarter of fiscal 1997 and the first nine months of
fiscal 1997, respectively. Operating income was $49.3 million, or 34.2% of
revenues, and $132.4 million (excluding the impact of the $19.4 million
write-off of in-process technology associated with the acquisition of NeoCAD),
or 32.2% of revenues, respectively, for the comparable fiscal 1996 periods.
Operating income decreased $12.4 million during the third quarter of fiscal
1997 as compared to the comparable period of the prior year. The decrease was
primarily attributable to a decrease in revenues achieved in the comparable
three month periods. Operating income decreased $11.6 million, excluding the
impact of non-recurring write-offs, during the first nine months of fiscal
1997 as compared to the comparable period of the prior year. The decrease was
primarily attributable to increased expenses and minimal revenue growth.
Interest and other income, net
The Company incurs interest expense on the $250 million of 5 1/4% convertible
notes issued in November 1995. The Company earns interest income on its cash,
cash equivalents, short-term investments, restricted investments and on the
outstanding amount of the advances for wafer purchases. The amount of
interest earned is a function of the balance of cash invested as well as the
prevailing interest rates. The Company also records 25% of United Silicon
Inc.'s net income as joint venture equity income. Net interest and other
income was $1.9 million in the third quarter of fiscal 1997 as compared to
$1.4 million during the comparable prior year period. The increase is
primarily attributable to increased interest income resulting from higher
investment portfolio balances and joint venture equity income. The Company's
investment portfolio contains tax-advantaged municipal bonds, which generally
have pretax yields which are less than the interest rate on the convertible
notes. For financial reporting purposes, the Company records the difference
between the pretax and tax-equivalent yields as a reduction in provision for
taxes on income. As a result of the difference in yields and future uses of
the investment portfolio, levels of net interest income could decrease in the
future.
<PAGE>
Provision for Income Taxes
The Company recorded a tax provision of $12.6 million (32.5% of income before
taxes) for the third quarter of fiscal 1997 and a tax provision of $40.7
million (33.8% of income before taxes) for the first nine months of fiscal
1997 as compared to a tax provision for the third quarter of fiscal 1996 of
$18.5 million (36.5% of income before taxes) and a provision for taxes for the
first nine months of fiscal 1996 of $50 million (42.5% of income before
taxes). The higher tax rate for the first nine months of fiscal 1996 resulted
from the non-recurring write-off of in-process technology which is not tax
deductible. Excluding the non-recurring write-off of in-process technology,
the Company's effective tax rate for the first nine months of fiscal 1996 was
36.5%. The reduced tax rate in fiscal 1997 resulted from legislation
reinstating the R&D Tax Credit as well as an increase in foreign operations
where tax rates are lower than the U. S. effective tax rate.
RISK FACTORS
The following risk factors may be associated with the Company's business:
Factors Affecting Future Operating Results
The semiconductor industry is characterized by rapid technological change,
intense competitive pressure and cyclical market patterns. The Company's
results of operations are affected by a wide variety of factors, including
general economic conditions and conditions specific to the semiconductor
industry, decreases in average selling price over the life of any particular
product, the timing and implementation of new product introductions (both by
the Company and its competitors), the timely implementation of new
manufacturing technologies, the ability to safeguard patents and intellectual
property in a rapidly evolving market, and rapid escalation of demand for some
products in the face of equally steep decline in demand for others. Market
demand for the Company's products, particularly for those most recently
introduced, can be difficult to predict, especially in light of customers'
demands to shorten product lead time and minimize inventory levels. This
could lead to revenue volatility if the Company were unable to provide
sufficient quantities of specified products in a given quarter. In addition,
any difficulty in achieving targeted yields could adversely impact the
Company's results of operations. The Company attempts to identify these
changes in market conditions as soon as possible; however, the rapidity of
their onset makes prediction of and reaction to such events difficult. Due to
the foregoing and other factors, past results, such as those described in this
report, are a much less useful predictor of the future than is the case in
many older, more stable and less dynamic industries.
The semiconductor industry has historically been cyclical and subject to
significant economic downturns at various times, characterized by diminished
product demand, accelerated erosion of average selling prices and
overcapacity. The Company may experience substantial period-to-period
fluctuations in future operating results due to general semiconductor industry
conditions, overall economic conditions or other factors.
Many of the Company's operations are centered in an area that has been
seismically active. Should there be a major earthquake in this area, the
Company's operations may be disrupted resulting in the inability of the
Company to ship products in a timely manner, thereby materially adversely
affecting the Company's business.
In addition, the securities of many high technology companies have
historically been subject to extreme price and volume fluctuations, a factor
which may adversely affect the market price of the Company's Common Stock.
Dependence Upon Independent Manufacturers
The Company does not manufacture the wafers used for its products. In fiscal
1997, most of the Company's wafers have been manufactured by Seiko Epson
Corporation (Seiko) and United Microelectronics Corporation (UMC). The
Company has depended upon these suppliers and others to produce wafers with
competitive performance and cost
<PAGE>
attributes and to deliver them to the Company in a timely manner. While the
timeliness, yield and quality of wafer deliveries to date from these suppliers
have been acceptable, there can be no assurance that manufacturing problems
will not occur in the future. Any prolonged inability to obtain wafers with
competitive performance and cost attributes, adequate yields or timely
deliveries from these manufacturers, or any other circumstance that would
require the Company to seek alternative sources of supply, could delay
shipments. Any significant delays could have a material adverse effect on the
Company's operating results. In addition, the Company's purchases from Seiko
are denominated in yen. In fiscal 1997 the US dollar has strengthened against
the yen; however, prolonged periods of a weakened US dollar exchange rate
against the yen could adversely affect manufacturing costs.
The Company's long-term growth will depend in large part on the Company's
ability to obtain increased wafer fabrication capacity from suppliers. A
significant increase in general industry demand or any interruption of supply
could reduce the Company's supply of wafers or increase the Company's cost of
such wafers, thereby materially adversely affecting the Company's business.
In order to secure additional wafer capacity, the Company from time to time
considers a number of alternatives, including, without limitation, equity
investments in, or loans, deposits, or other financial commitments to,
independent wafer manufacturers in exchange for production capacity, or the
use of contracts which commit the Company to purchase specified quantities of
wafers over extended periods. Although the Company is currently able to obtain
wafers from existing suppliers in a timely manner, the Company has at times
been unable, and may in the future be unable, to fully satisfy customer demand
because of production constraints, including the ability of suppliers and
subcontractors to provide materials and services in satisfaction of customer
delivery dates, as well as the ability of the Company to process products for
shipment. The Company's future growth will depend in part on its ability to
locate and qualify additional suppliers and subcontractors and to increase its
own capacity to ship products, and there can be no assurance that the Company
will be able to do so. Any increase in these constraints on the Company's
production could materially adversely affect the Company's business. In this
regard, the Company has entered into a joint venture, United Silicon Inc.,
with UMC and other parties to obtain wafer capacity from a new wafer
fabrication facility. However, there are many risks associated with the
construction of a new facility, and there can be no assurance that such
facility will become operational in a timely manner. In addition, the
Company's recent agreement with Seiko was made to obtain additional capacity
from a facility currently under construction and expected to provide wafers in
volume in calendar 1998. If the Company requires additional capacity and such
capacity is unavailable, or unavailable on reasonable terms, the Company's
business could be materially adversely affected.
Dependence on New Products
The Company's future success depends on its ability to develop and introduce
on a timely basis new products which compete effectively on the basis of price
and performance and which address customer requirements. The success of new
product introductions is dependent upon several factors, including timely
completion of new product designs, the ability to utilize advanced process
technologies, achievement of acceptable yields and market acceptance. No
assurance can be given that the Company's product development efforts will be
successful or that its new products will achieve market acceptance. Revenues
relating to the Company's first generation FPGA products are expected to
decline in the future as a percentage of aggregate component revenues and the
Company will be increasingly dependent on revenues derived from second
generation FPGA's and other products. In addition, the average selling price
for any particular product tends to decrease rapidly over the product's life.
To offset such decreases, the Company relies primarily on obtaining yield
improvements and corresponding cost reductions in the manufacture of existing
products and on introducing new products which incorporate advanced features
and other price/performance factors such that higher average selling prices
and higher margins are achievable relative to mature product lines. To the
extent that such cost reductions and new product introductions with higher
margins do not occur in a timely manner or the Company's products do not
achieve market acceptance, the Company's operating results could be adversely
affected.
<PAGE>
Competition
The Company's FPGA and CPLD products compete in the programmable logic
marketplace, with a substantial majority of the Company's revenues derived
from its FPGA product families. The industries in which the Company competes
are intensely competitive and are characterized by rapid technological change,
rapid product obsolescence and price erosion. The Company expects
significantly increased competition both from existing competitors and from a
number of companies that may enter its market. Xilinx believes that important
competitive factors in the programmable logic market include price, product
performance and reliability, adaptability of products to specific
applications, ease of use and functionality of development system software,
and technical service and support. The Company's strategy for expansion in
the programmable logic market includes continued price reductions commensurate
with the ability to lower the cost of manufacture and continued introduction
of new product architectures which target high volume, low cost applications.
However, there can be no assurance that the Company will be successful in
achieving this strategy.
The Company's major sources of competition are comprised of three elements:
the manufacturers of custom CMOS gate arrays, providers of high density
programmable logic products characterized by FPGA-type architectures and other
providers of programmable logic products. The Company competes with custom
gate array manufacturers on the basis of lower design costs, shorter
development schedules and reduced inventory risks. The primary attributes of
custom gate arrays are high density, high speed and low production costs in
high volumes. The Company is currently involved in developing lower cost
architectures which are intended to narrow the gap between current custom gate
array production costs (in high volumes) and FPGA production costs. To the
extent that such efforts are not successful, the Company's business could be
materially adversely affected.
The Company competes with providers of high density programmable logic
products characterized by FPGA-type architectures on the basis of software
capability, product functionality, price, performance and customer service.
The Company believes that certain of its patents have been infringed by a
competitor and has initiated legal action to protect its intellectual property
(see "Litigation").
The benefits of programmable logic have attracted a number of companies to
this market, competing primarily on the basis of speed, density or cost.
Xilinx recognizes that different applications require different programmable
technologies, and the Company is developing multiple architectures, processes
and products to meet these varying customer needs. Recognizing the increasing
importance of standard software solutions, Xilinx is working to develop common
design software that supports the full range of integrated circuit products.
Xilinx believes that automation and ease of design will be significant
competitive factors in the programmable logic market.
Several companies, both large and small, have introduced products competitive
with those of the Company or have announced their intention to enter this
market. Some of the Company's competitors may possess innovative technology
which could prove superior to Xilinx's technology in some applications. In
addition, the Company anticipates potential competition from suppliers of
logic products based on new technologies. Many of the Company's current or
potential competitors have substantially greater financial, manufacturing,
marketing and technical resources
than Xilinx. This additional competition could adversely affect the Company
Xilinx also faces competition from its licensees. Under a license from the
Company, Lucent Technologies is manufacturing and marketing the Company's
non-proprietary XC3000 products and is employing that technology to provide
additional FPGA products offering higher density. Seiko has rights to
manufacture the Company's products and market them in Japan and Europe but is
not currently doing so. Advanced Micro Devices is licensed to use certain of
the Company's patents to manufacture and market products other than SRAM-based
FPGAs and, after March 19, 1997, could also compete directly in this market.
<PAGE>
Intellectual Property
The Company relies upon patent, trademark, trade secret and copyright law to
protect its intellectual property. There can be no assurance that such
intellectual property rights can be successfully asserted in the future or
will not be invalidated, circumvented or challenged. From time to time, third
parties, including competitors of the Company, may assert exclusive patent,
copyright and other intellectual property rights to technologies that are
important to the Company. There can be no assurance that third parties will
not assert infringement claims against the Company in the future, that
assertions by third parties will not result in costly litigation or that the
Company would prevail in such litigation or be able to license any valid and
infringed patents from third parties on commercially reasonable terms.
Litigation, regardless of its outcome, could result in substantial cost and
diversion of resources of the Company. Any infringement claim or other
litigation against or by the Company could materially adversely affect the
Company's financial condition and results of operations.
Litigation
The Company is currently engaged in patent litigation with Altera Corporation
(Altera). See "Legal Proceedings" in Part II.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
The Company's financial condition at December 28, 1996 remained strong. Total
current assets exceeded total current liabilities by 5.6 times, as compared to
5.2 times at March 30, 1996. Since its inception, the Company has used a
combination of equity and debt financing and internal cash flow to support
operations, obtain additional wafer supply capacity, make acquisitions and
investments in complementary technologies, obtain additional capital equipment
and facilities and finance inventory and accounts receivable.
The Company has generated positive cash flow from operations for the first
nine months of fiscal 1997. As of December 28, 1996, the Company had cash,
cash equivalents and short-term investments of $390.1 million and working
capital of $463.2 million as compared to $378 million and $436.1 million,
respectively, at March 30, 1996. Cash generated by operations of $88.7
million for the first nine months of fiscal 1997 was $19.3 million lower than
the $108 million generated for the first nine months of fiscal 1996. The
decrease in cash generated by operations during the first nine months of
fiscal 1997 over the comparable fiscal 1996 period resulted primarily from the
unfavorable impact of the changes in inventory and deferred income on
shipments to distributors offset by the favorable impact of the change in
accounts receivable.
Cash flows used for investing activities for the nine months ended December
28, 1996, included $31.5 million of net short-term investment proceeds. Uses
of cash included the $60 million advance to Seiko for wafer purchases (see
Note 3 of Notes to Consolidated Condensed Financial Statements) and $22.3
million of property, plant and equipment acquisitions. Property, plant and
equipment additions decreased $20.9 million from the comparable fiscal 1996
period. This decrease is primarily due to significantly reduced expenditures
relating to the Company's Ireland manufacturing facility which were partially
offset by expenditures incurred relating to the Company's facility being
constructed in Boulder, Colorado. In the first nine months of fiscal 1996,
the Company's investing activities included $33.4 million (net of cash
acquired) incurred relating to the acquisition of NeoCAD and $23.5 million of
net purchases of restricted investments relating to the Company's Corporate
facilities. Additionally, the Company invested the majority of the $244.2
million net proceeds from the issuance of convertible notes in short-term
investments.
<PAGE>
Cash flows provided by financing activities were $6.2 million in the first
nine months of fiscal 1997 and was attributable to $22.7 million in proceeds
from the issuance of common stock under employee stock plans offset by
acquisitions of treasury stock of $15.7 (see Note 5 of Notes to Consolidated
Condensed Financial Statements). For the comparable fiscal 1996 period,
financing activities included $244.2 million in net proceeds from the issuance
of convertible notes and $11.7 million in proceeds from issuance of common
stock under corporate stock plans.
Stockholders' equity increased by $91.9 million, principally as a result of
the net income for the nine months ended December 28, 1996, proceeds from the
issuance of common stock under employee stock plans and related tax benefits
from stock options, offset by the $15.7 million in Treasury Stock purchased
during the period.
The Company has available credit line facilities for up to $47 million of
which $7 million is intended to meet occasional working capital requirements
for the Company's wholly owned Irish subsidiary. At December 28, 1996, no
borrowings were outstanding under the lines of credit.
Under the terms of the Company's agreement relating to the United Silicon Inc.
(USI) joint venture, the Company expected to invest additional amounts in
installments of approximately $68 million and $34 million. The USI joint
venture is accounted for by the equity method, as the Company records 25% of
USI's net income as joint venture equity income. The Board of Directors of
USI recently voted to postpone the wafer fabrication facility construction
schedule by approximately six months. As a result, the additional payments
are also postponed. The revised timing of construction of the facility and
the related payments are subject to further change based on overall industry
conditions and other factors. United Microelectronics Corporation has
committed to and is supplying the Company with wafers manufactured in an
existing facility until capacity is available in the new facility.
In the first quarter of fiscal 1997, the Company entered into a wafer
foundry/supply agreement with Seiko. The agreement provides for total
payments of $300 million to be made to Seiko, of which $200 million is in the
form of advance payments and $100 million is in the form of an advance or an
alternate form to be negotiated at a later date. Repayment of the advances
will be in the form of wafer deliveries, which are expected to begin in the
first half of calendar 1998, using dollar denominated pricing. The advance
payment provision also provides for interest to be paid to the Company in the
form of free wafers. See Note 3 of Notes to Consolidated Condensed Financial
Statements.
The Company anticipates that existing sources of liquidity and cash flow from
operations will be sufficient to satisfy the Company's cash needs for the
foreseeable future. The Company will continue to evaluate opportunities for
investments to obtain additional wafer supply capacity, procurement of
additional capital equipment and facilities, development of new products, and
potential acquisitions of businesses, products or technologies that would
complement the Company's businesses and may use available cash or other
sources of funding for such purposes. Part II. Other Information
Item 1. Legal Proceedings.
On June 7, 1993, the Company filed suit against Altera Corporation (Altera) in
the United States District Court for the Northern District of California for
infringement of certain of the Company's patents. Subsequently, Altera filed
suit against the Company, alleging that certain of the Company's products
infringe certain Altera patents. Fact discovery has been completed in both
cases. Both cases have been consolidated and assigned to Judge Spencer
Williams. The cases are currently scheduled for trial on September 15, 1997.
On April 20, 1995, Altera filed an additional suit against the Company in
Federal District Court in Delaware, alleging that the Company's XC5000 family
infringes a certain Altera patent. The Company answered that suit, denying
that the XC5000 family infringes the patent in suit, asserting certain
affirmative defenses and counterclaiming that the Altera Max 9000 family
infringes certain of the
<PAGE>
Company's patents. That suit has now been transferred to the United States
District Court for the Northern District of California and is also before
Judge Spencer Williams. Management believes that it has meritorious defenses
to Altera's claims and is defending them vigorously. The foregoing is a
forward looking statement based on information presently known to management.
Due to the uncertain nature of the litigation with Altera and because the
lawsuits are still in the pre-trial stage, actual results could differ
materially.
There are no other pending legal proceedings of a material nature to which the
Company is a party or of which any of its property is the subject. The
Company knows of no legal proceedings contemplated by any governmental
authority or agency.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibit 11: Statement of Computation of Net Income Per Share
Exhibit 12: Statement of Computation of Ratio of Earning to
Fixed Charges
(b) Reports on Form 8-K - None
<PAGE>
SIGNATURES
Pursuant to the requirements 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.
XILINX, INC.
Date February 10, 1997 /s/ Gordon M. Steel
Gordon M. Steel
Senior Vice President of Finance and
Chief Financial Officer
(as principal accounting and financial
officer and on behalf of Registrant)
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT 11
XILINX, INC.
STATEMENT OF COMPUTATION OF NET INCOME PER SHARE
(in thousands, except per share amounts)
Three Months Ended Nine Months Ended
Dec. 28, Dec. 30, Dec. 28, Dec. 30
1996 1995 1996 1995
------------------- ------------------ --------- --------
<S> <C> <C> <C> <C>
PRIMARY
Weighted average number of
common shares outstanding 72,931 71,117 72,653 70,845
Incremental common shares
attributable to outstanding options 6,860 7,989 6,718 7,887
------------------- ------------------ --------- --------
Total shares 79,791 79,106 79,371 78,732
=================== ================== ========= ========
Net income $ 26,223 $ 32,190 $ 79,933 $ 67,564
=================== ================== ========= ========
Net income per share $ 0.33 $ 0.41 $ 1.01 $ 0.86
=================== ================== ========= ========
FULLY DILUTED
Weighted average number of
common shares outstanding 72,931 71,117 72,653 70,845
Incremental common shares
attributable to outstanding options 6,860 7,989 6,834 8,265
------------------- ------------------ --------- --------
Total shares 79,791 79,106 79,487 79,110
=================== ================== ========= ========
Net income $ 26,223 $ 32,190 $ 79,933 $ 67,564
=================== ================== ========= ========
Net income per share $ 0.33 $ 0.41 $ 1.01 $ 0.85
=================== ================== ========= ========
<FN>
NOTE: The convertible debt is not included in the calculation of fully
diluted net income per share since their inclusion would have had an
anti-dilutive effect.
<PAGE>
</TABLE>
<TABLE>
<CAPTION>
EXHIBIT 12
XILINX, INC.
STATEMENT OF COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES
(in thousands, except ratios)
Three Months Ended Nine Months Ended
Dec. 28, Dec. 30 Dec. 28 Dec. 30
1996 1995 1996 1995
------------------- ------------------ -------- --------
<S> <C> <C> <C> <C>
Income before taxes $ 38,849 $ 50,693 $120,658 $117,532
Add fixed charges 3,614 2,083 10,868 2,608
------------------- ------------------ -------- --------
Earnings (as defined) $ 42,463 $ 52,776 $131,526 $120,140
=================== ================== ======== ========
Fixed charges
Interest expense $ 3,184 $ 1,775 $ 9,655 $ 1,938
Amortization of debt issuance costs 223 138 664 138
Estimated interest component of rent expenses 207 170 549 532
------------------- ------------------ -------- --------
Total fixed charges $ 3,614 $ 2,083 $ 10,868 $ 2,608
=================== ================== ======== ========
Ratio of earnings to fixed charges 11.7 25.3 12.1 46.1
=================== ================== ======== ========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 9-MOS
<FISCAL-YEAR-END> MAR-29-1997 MAR-29-1997
<PERIOD-START> SEP-29-1996 MAR-31-1996
<PERIOD-END> DEC-28-1996 DEC-28-1996
<CASH> 155,003 155,003
<SECURITIES> 235,099 235,099
<RECEIVABLES> 68,549 68,549
<ALLOWANCES> 4,548 4,548
<INVENTORY> 70,181 70,181
<CURRENT-ASSETS> 563,891 563,891
<PP&E> 150,338 150,338
<DEPRECIATION> 61,843 61,843
<TOTAL-ASSETS> 810,811 810,811
<CURRENT-LIABILITIES> 100,680 100,680
<BONDS> 250,000 250,000
0 0
0 0
<COMMON> 730 730
<OTHER-SE> 459,401 459,401
<TOTAL-LIABILITY-AND-EQUITY> 810,811 810,811
<SALES> 135,587 416,366
<TOTAL-REVENUES> 135,587 416,366
<CGS> 52,156 156,139
<TOTAL-COSTS> 98,684 300,509
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 3,407 10,320
<INCOME-PRETAX> 38,849 120,658
<INCOME-TAX> 12,626 40,725
<INCOME-CONTINUING> 26,223 79,933
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 26,223 79,933
<EPS-PRIMARY> 0.33 1.01
<EPS-DILUTED> 0.33 1.01
</TABLE>
