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 June 27, 1998 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
(State or other jurisdiction of incorporation or organization)
77-0188631
(I.R.S. Employer Identification No.)
2100 LOGIC DRIVE, SAN JOSE, CA 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 June 27, 1998
- ----- -----------------------------------
Common Stock, $.01 par value 72,395,000
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
XILINX, INC.
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(in thousands except per share amounts)
Three Months Ended
June 27, June 28,
1998 1997
---------- ----------
<S> <C> <C>
Net revenues $ 151,603 $ 160,761
Costs and expenses:
Cost of revenues 56,823 60,906
Research and development 20,803 19,938
Marketing, general and administrative 31,434 32,666
---------- ----------
Operating costs and expenses 109,060 113,510
---------- ----------
Operating income 42,543 47,251
Interest income and other 3,908 5,786
Interest expense (3,492) (3,491)
---------- ----------
Income before provision for taxes on income
and equity in joint venture 42,959 49,546
Provision for taxes on income 13,317 16,102
---------- ----------
Income before equity in joint venture 29,642 33,444
Equity in net income (loss) of joint venture (2,613) -
---------- ----------
Net income $ 27,029 $ 33,444
========== ==========
Net income per share:
Basic $ 0.37 $ 0.46
========== ==========
Diluted $ 0.35 $ 0.41
========== ==========
Shares used in per share calculations:
Basic 72,843 73,495
========== ==========
Diluted 76,838 81,326
========== ==========
<FN>
(See accompanying Notes to Consolidated Condensed Financial Statements.)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
XILINX, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(in thousands except per share amounts)
June 27, March 28,
1998 1998
---------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 134,233 $ 166,861
Short-term investments 227,401 195,326
Accounts receivable, net 77,870 60,912
Inventories 56,458 55,289
Advances for wafer purchases 70,836 72,267
Deferred income taxes and other current assets 54,190 49,569
---------- -----------
Total current assets 620,988 600,224
Property, plant and equipment, at cost 167,347 163,632
Accumulated depreciation and amortization (78,285) (75,356)
---------- -----------
Net property, plant and equipment 89,062 88,276
Restricted investments 36,749 36,271
Investment in joint venture 86,146 90,872
Advances for wafer purchases 63,214 77,342
Deposits and other assets 47,659 48,253
---------- -----------
$ 943,818 $ 941,238
========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 19,275 $ 20,332
Accrued payroll, other accrued liabilities and interest payable 27,831 32,735
Income taxes payable 21,387 16,692
Deferred income on shipments to distributors 64,558 55,898
---------- -----------
Total current liabilities 133,051 125,657
Long-term debt 250,000 250,000
Deferred tax liabilities 17,802 15,406
Stockholders' equity:
Preferred stock, $.01 par value - -
Common stock, $.01 par value 724 729
Additional paid-in capital 112,030 119,172
Retained earnings 531,497 504,468
Treasury stock, at cost (81,930) (56,973)
Cumulative translation adjustment (19,356) (17,221)
---------- -----------
Total stockholders' equity 542,965 550,175
---------- -----------
$ 943,818 $ 941,238
========== ===========
<FN>
(See accompanying Notes to Consolidated Condensed Financial Statements.)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
XILINX, INC.
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS
Increase (decrease) in cash and cash equivalents
(in thousands)
Three Months Ended
June 27, June 28,
1998 1997
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 27,029 $ 33,444
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 8,152 7,715
Undistributed earnings of joint venture 2,613 (518)
Changes in assets and liabilities:
Accounts receivable (16,958) (456)
Inventories 14,390 11,135
Deferred income taxes and other (3,456) 4,630
Accounts payable, accrued liabilities and income taxes payable 5,463 10,384
Deferred income on shipments to distributors 8,660 7,395
---------- ----------
Total adjustments 18,864 40,285
---------- ----------
Net cash provided by operating activities 45,893 73,729
Cash flows from investing activities:
Purchases of short-term available-for-sale investments (105,481) (172,063)
Proceeds from sale or maturity of short-term available-for-sale investments 73,270 46,927
Advances for wafer purchases - (30,000)
Property, plant and equipment (7,774) (5,377)
---------- ----------
Net cash used in investing activities (39,985) (160,513)
Cash flows from financing activities:
Acquisition of treasury stock (53,659) (8,899)
Proceeds from issuance of common stock 15,123 10,311
---------- ----------
Net cash (used)/provided by financing activities (38,536) 1,412
---------- ----------
Net decrease in cash and cash equivalents (32,628) (85,372)
Cash and cash equivalents at beginning of period 166,861 215,903
---------- ----------
Cash and cash equivalents at end of period $ 134,233 $ 130,531
========== ==========
Schedule of non-cash transactions:
Tax benefit from stock options $ 6,514 $ 5,940
Issuance of treasury stock under employee stock plans 28,702 10,746
Receipts against advances for wafer purchases 15,559 -
Supplemental disclosures of cash flow information:
Interest paid 6,501 6,469
Income taxes paid $ 1,946 $ 6,168
<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. (Xilinx or the Company)
consolidated financial statements for the year ended March 28, 1998. The
balance sheet at March 28, 1998 is derived from audited financial statements,
although certain prior period amounts have been reclassified to conform to the
fiscal 1999 presentation. 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 fairly the statements of financial
position, results of operations and cash flows for the interim periods
presented. The results for the three-month period ended June 27, 1998 are not
necessarily indicative of the results that may be expected for the year ending
April 3, 1999.
2. Inventories are stated at the lower of cost (first-in, first-out) or
market (estimated net realizable value). Inventories at June 27, 1998 and
March 28, 1998 are as follows:
<TABLE>
<CAPTION>
(in thousands) June 27, March 28,
<S> <C> <C>
1998 1998
--------- ----------
Raw materials $ 4,095 $ 5,976
Work-in-process 25,411 24,845
Finished goods 26,952 24,468
--------- ----------
$ 56,458 $ 55,289
========= ==========
</TABLE>
3. The computation of basic net income per share for all years presented
is derived from the information on the face of the income statement, and there
are no reconciling items in either the numerator or denominator.
Additionally, there are no reconciling items in the numerator used to compute
diluted net income per share. The total shares used in the denominator of the
diluted net income per share calculation includes 4.0 million and 7.8 million
incremental common shares attributable to outstanding options for the first
quarter of fiscal year 1999 and 1998, respectively.
The shares issuable upon conversion of long-term debt to equity, approximately
4.9 million shares, were not included in the calculation of diluted net income
per share as their inclusion would have had an anti-dilutive effect for all
periods presented. In addition, outstanding options to purchase approximately
3.1 million and 0.5 million shares, for the first quarter of fiscal year 1999
and 1998, respectively, under the Company's Stock Option Plan were not
included in the treasury stock calculation to derive diluted income per share
as their inclusion would have had an anti-dilutive effect.
4. The Company has adopted the Statement of Financial Accounting Standards
No. 130 (FASB 130), "Reporting Comprehensive Income" in the first quarter of
fiscal 1999. FASB 130 establishes standards for the reporting and disclosure
of comprehensive income and its components; however, the disclosure has no
impact on the Company's consolidated results of operations, financial position
or cash flows. Comprehensive income is defined as the change in equity of a
company during a period resulting from certain transactions and other events
and circumstances, excluding transactions resulting from investments by owners
and distributions to owners. The difference between net income and
comprehensive income for Xilinx is from foreign currency translation
adjustments and unrealized gains or losses on the Company's available-for-sale
securities.
<PAGE>
The components of comprehensive income for the three months ended June 27,
1998 and June 28, 1997 are as follows:
<TABLE>
<CAPTION>
(in thousands) June 27, June 28,
<S> <C> <C>
1998 1997
---------- ----------
Net Income $ 27,029 $ 33,444
Cumulative translation adjustment (2,135) (153)
Unrealized gain on available for sale securities,
net of tax (82) (75)
---------- ----------
Comprehensive Income $ 24,812 $ 33,216
========== ==========
</TABLE>
5. The Company is currently involved in litigation with Altera Corporation
and other parties (see Part II, Item 1, Legal Proceedings). Due to the
uncertain nature of the various legal proceedings and because the lawsuits are
still in the pre-discovery or pre-trial stage, the ultimate outcome of these
matters cannot be determined at this time. Management believes that it has
meritorious defenses to each claim, 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 subject to
risks and uncertainties, and the future outcome could differ materially due to
the uncertain nature of each litigation and because the lawsuits are still in
the pre-discovery or pre-trial stages.
6. The Company, United Microelectronics Corporation (UMC) and other
parties have entered into a joint venture to construct a wafer fabrication
facility in Taiwan, known as United Silicon Inc. (USIC). Subsequent to June
27, 1998, the Company invested additional equity of approximately $6 million
in USIC. However, as other parties increased their equity in USIC during the
most recent investment, the Company decreased its equity ownership to 20%.
The Company will still receive up to 31.25% of the wafers produced in this
facility.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion contains forward-looking statements, which involve
numerous risks and uncertainties. Actual results may differ materially.
Certain of these risks and uncertainties are discussed under "Factors
Affecting Future Operating Results".
RESULTS OF OPERATIONS: FIRST QUARTER OF FISCAL 1999 COMPARED TO THE FIRST
- ------------------------------------------------------------------------------
QUARTER OF FISCAL 1998
- -------------------------
REVENUES
Revenues of $151.6 million in the first quarter of fiscal 1998 represent a
5.7% decrease from the comparable prior year quarter. The decrease was
primarily attributable to the revenue decline of the Company's first
generation product families, as well as the XC4000 family, a mature second
generation product line. The decrease was partially offset by the Company's
newest product families including the XC4000X family, comprised of the
XC4000EX and XC4000XL devices, as well as the XC9500 and Spartan product
families. Combined, these three new product families contributed
approximately $39 million in revenue in the first quarter of fiscal 1999
compared to approximately $7 million in the first quarter of the prior year.
Despite the significant growth in new product revenues, first quarter fiscal
1999 revenues were impacted by the overall slowdown in the semiconductor
market, continued price competition, inventory reductions at end customers and
the current economic environment in Japan and Southeast Asia . The Company
believes that these factors, as well as others described in "Factors Affecting
Future Operating Results," could continue to impact future revenues in the
near term.
Revenues for the Company's first generation products, which include the
XC2000, XC3000 and XC3100 families, represented 19.2% of total revenues in the
first quarter of fiscal 1999, as compared to 27.8% in the first quarter of
fiscal 1998. The Company's second generation products, including the XC4000,
XC4000X, XC5200 and Spartan families, represented 63.9% of total revenues in
the first quarter of fiscal 1999, as compared to 57.4% in the first quarter of
fiscal 1998. The increase in revenues relating to second generation products
is primarily a function of the increased demand for the functionality and
performance provided by the newer XC4000X devices. Revenues from other
programmable logic products, which include the XC7000 and XC9500 complex
programmable logic devices (CPLD) families, HardWire and serial proms,
increased from 12.5% to 14.8% of total revenues in fiscal 1999 as compared to
the prior year, primarily due to the increased revenue from the XC9500 family.
Proprietary software design tools sold to customers during the first quarter
of fiscal 1999 totaled approximately 4,000 units amounting to $3.1 million in
revenues, as compared to approximately 1,700 units during the prior year first
quarter and $3.8 million in revenue. The increase in software revenue seats
resulted primarily from increased demand for the Company's lower cost, easier
to use Foundation Series software. Although software seats increased,
software revenue decreased 16.7% due to the change in the sales mix towards
lower priced products as well as price reductions for specific products.
Software sales as a percentage of total revenues represented approximately 2%
of revenues in the first quarter of both fiscal years.
International revenues represented approximately 37% of total revenues in the
first quarter of both fiscal year 1999 and 1998. International revenues are
derived from customers in Europe, Japan and Asia Pacific/Rest of World which
represented approximately 24%, 9% and 4% of the Company's worldwide sales,
respectively, in the first fiscal quarter of 1999. Europe and Asia
Pacific/Rest of World experienced revenue declines in the first quarter of
fiscal 1999 as compared to the same quarter a year ago. Relative to the
fiscal June 1998 quarter, Japan related revenues increased approximately 7%
when stated in yen, but declined approximately 3% when translated in US dollar
equivalent revenues due to the erosion in the yen to US dollar exchange rate
over the past year.
GROSS MARGIN
Gross margin was $94.8 million, or 62.5% of revenues, for the first three
months of fiscal 1999 as compared to $99.9 million, or 62.1% of revenues, for
the first three months of fiscal 1998. The slight increase in the gross
margin percentage over the prior year quarter was due to the favorable impact
of lower wafer prices from wafer suppliers, manufacturing process technology
improvements, and improved yields that more than offset selling price
reductions. Over the past years, Xilinx has also been able to offset much of
the erosion in gross margin percentages of its more mature integrated circuits
with increased volumes of newer, proprietary, higher margin products, although
no assurance can be given that the Company will continue to do so in the
future. 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 gross margin objectives in the
range of 60% to 62% of revenues are consistent with 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
The Company continues to invest in research and development and increased its
expenditures 4.3% in the first three months of fiscal 1999 over the comparable
period in the prior year from $19.9 million, or 12.4% of revenues, to $20.8
million, or 13.7% of revenues. The increase in research and development
expenses was primarily attributable to the increased costs associated with
designing and developing new product architectures of complex, high density
devices. The Company remains committed to a significant level of research and
development effort in order to continue to maintain its technology leadership
in the programmable logic marketplace.
MARKETING, GENERAL AND ADMINISTRATIVE
Marketing, general and administrative expenses decreased 3.8% to $31.4 million
in the first three months of fiscal 1999 as compared to the same quarter in
the prior fiscal year. The decrease in expenses was primarily attributable to
decreased sales commissions on a lower level of revenue partially offset by
increased labor-related costs. As a percentage of revenues, marketing,
general and administrative expenses were 20.7% and 20.3%, respectively, when
comparing the same periods. The increase as a percentage of revenue was a
function of the lower revenues achieved, despite the cost controls in place.
The Company remains committed to controlling administrative expenses.
However, 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 significantly increase the level of marketing,
general and administrative expenses in the future.
OPERATING INCOME
Operating income of $42.5 million represented 28.1% of revenue in the first
quarter of fiscal 1999 as compared to $47.3 million or 29.4% of revenue in the
prior year quarter. Operating income could be adversely impacted in future
years by the factors discussed throughout this report, particularly those
noted in "Factors Affecting Future Operating Results".
INTEREST AND OTHER, NET
Interest and other income for the first quarter of fiscal 1999 declined $1.9
million from the amount in the first quarter of fiscal 1998. Although average
cash and investment balances and average interest rates remained fairly
consistent with the prior year, the weakening of the yen relative to the US
dollar resulted in unfavorable foreign exchange losses. Beginning in fiscal
1999, most wafers purchased from Japanese suppliers have been denominated in
US dollars. However, the Company is currently invoicing Japanese customers in
yen, resulting in a yen exposure. The Company is using hedging instruments to
limit future yen related exposure. The amount of net interest and other
income in the future will continue to be impacted by the level of the
Company's investment portfolio, prevailing interest rates and foreign currency
exchange rates.
PROVISION FOR INCOME TAXES
The company recorded a tax provision of $13.3 million for the first three
months of fiscal 1999 as compared to $16.1 million in the same period in the
prior year representing an effective tax rate of 31.0% and 32.5%,
respectively. The lower tax rate for the first quarter of fiscal 1999 was
favorably impacted by legislation reinstating the R&D Tax Credit through June
1998 as well as increased profits in foreign operations where the tax rate is
lower than the US rate.
JOINT VENTURE EQUITY INCOME
The Company records its 25% proportional ownership of the net income (loss) of
United Silicon Inc. (USIC), a wafer fabrication joint venture located in
Taiwan, as joint venture equity income. The Company recorded a $2.6 million
net loss for the first quarter of fiscal 1999 as the wafer fabrication
facility began ramping up production. Many of the expenses associated with
full foundry operation are being incurred in the early stages of limited
production, and the Company expects that profitability of the joint venture
will occur, if at all, only after a sufficient volume of wafer production is
obtained.
INFLATION
To date, the effects of inflation upon the Company's financial results have
not been significant.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
- ---------------------------------------------------------
The Company's financial condition at June 27, 1998 remained strong. Total
current assets exceeded total current liabilities by 4.7 times, compared to
4.8 times at March 28, 1998. Since its inception, the Company has used a
combination of equity and debt financing and cash flow from operations to
support on-going business activities, make acquisitions and investments in
complementary technologies, obtain facilities and capital equipment and
finance inventory and accounts receivable.
The Company continued to generate positive cash flows from operations during
the first three months of fiscal 1999. As of June 27, 1998, the Company had
cash, cash equivalents and short-term investments of $361.6 million and
working capital of $487.9 million. Cash generated by operations of $45.9
million for the first three months of fiscal 1999 was $27.8 million lower than
the $73.7 million generated for the first three months of fiscal 1998. This
decrease in cash generated by operations resulted primarily from an increase
in accounts receivable, the cash flow impact of reduced net income, a decrease
in accounts payable, accrued liabilities and income taxes payable and a
decrease in deferred income taxes and other. The $17.0 million, or 28%
increase in accounts receivable was primarily a result of the Company's
efforts to move domestic distributors to longer payment terms in exchange for
elimination of prompt payment discounts. One distributor switched over to the
new terms in the first quarter of fiscal 1999. In addition, another
distributor's semi-monthly payment was received after quarter end.
Cash flows used for investing activities during the three months ended June
27, 1998, included net short-term investment purchases of $32.2 million and
$7.8 million of property, plant and equipment. In the first three months of
fiscal 1998, investing activities used funds for advances to Seiko Epson for
wafer purchases of $30.0 million, net short-term investment purchases of
$125.1 million and acquisitions in property, plant and equipment of $5.4
million.
Net cash flows used by financing activities were $38.5 million in the first
three months of fiscal 1999, as the acquisition of treasury stock during the
period of $53.7 million was only partially offset by proceeds from the
issuance of common stock under employee stock plans of $15.1 million. For the
comparable fiscal 1998 period, financing activities included $10.3 million in
proceeds from issuance of common stock under corporate stock plans partially
offset by the acquisition of treasury stock during the period of $8.9 million.
Stockholders' equity decreased by $7.2 million at June 27, 1998, principally
as a result of the Company's existing stock buyback program whereby
approximately 1.3 million shares were purchased during the three months ended
June 27, 1998. Partially offsetting the treasury stock repurchases was the
net income during the period and the proceeds from the issuance of common
stock under employee stock plans and related tax benefits from stock options.
The Company has available credit line facilities for up to $46.2 million of
which $6.2 million is intended to meet occasional working capital requirements
for the Company's wholly owned Irish subsidiary. At June 27, 1998, no
borrowings were outstanding under the lines of credit.
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 to
obtain additional wafer capacity, procure additional capital equipment and
facilities, develop new products, and acquire businesses, products or
technologies that would complement the Company's businesses and may use
available cash or other sources of funding for such purposes.
FACTORS AFFECTING FUTURE OPERATING RESULTS
- ----------------------------------------------
The semiconductor industry is characterized by rapid technological change,
intense competitive pressure and cyclical market patterns characterized by
diminished product demand, limited visibility of demand for products further
out than three to nine months, accelerated erosion of average selling prices
and overcapacity. The Company's results of operations are affected by a wide
variety of factors, including general economic conditions, conditions relating
to technology companies, conditions specific to the semiconductor industry,
decreases in average selling prices over the life of any particular product,
the timing of new product introductions (by the Company, its competitors and
others), the ability to manufacture sufficient quantities of a given product
in a timely manner, the timely implementation of new manufacturing
technologies, the ability to safeguard patents and intellectual property from
competitors, and the impact of new technologies resulting in 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 times and minimize inventory
levels. Unpredictable market demand 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 wafer
production yields could adversely impact the Company's financial condition and
results of operations. The Company attempts to identify changes in market
conditions as soon as possible; however, the dynamics of the market make
prediction of and timely reaction to such events difficult. Due to the
foregoing and other factors, past results, including those described in this
report, are much less reliable predictors of the future than is the case in
many older, more stable and less dynamic industries. Based on the factors
noted herein, the Company may experience substantial period-to-period
fluctuations in future operating results.
The Company's future success depends in large part on the continued service of
its key technical, sales, marketing and management personnel and on its
ability to continue to attract and retain qualified employees. Particularly
important are those highly skilled design, process, software and test
engineers involved in the manufacture of existing products and the development
of new products and processes. The competition for such personnel is intense,
and the loss of key employees could have a material adverse effect on the
Company's financial condition and results of operations.
Sales and operations outside of the United States subject the Company to risks
associated with conducting business in foreign economic and regulatory
environments. The Company's financial condition and results of operations
could be adversely impacted by unfavorable economic conditions in countries in
which it does significant business and by changes in foreign currency exchange
rates affecting those countries. Specifically, the Company has sales and
operations in the Asian markets, including Southeast Asia and Japan. The
recent instability in the Asian financial markets has adversely impacted
revenues and may continue to adversely impact revenues in those markets in
several ways, including reduced access to sources of capital needed by
customers to make purchases and increased exchange rate differentials that may
adversely effect the customer's ability to purchase or the Company's ability
to sell at competitive prices. In addition, the instability may increase
credit risks as the recent weakening of certain Asian currencies may impair
customers' ability to repay existing obligations. Depending on the situation
in Asia in coming quarters, any or all of these factors could adversely impact
the Company's financial condition and results of operations in the near
future.
Additionally, risks include government regulation of exports, tariffs and
other potential trade barriers, reduced protection for intellectual property
rights in some countries, and generally longer receivable collection periods.
The Company's business is also subject to the risks associated with the
imposition of legislation and regulations relating specifically to the import
or export of semiconductor products. The Company cannot predict whether
quotas, duties, taxes or other charges or restrictions will be imposed by the
United States or other countries upon the importation or exportation of the
Company's products in the future or what, if any, effect such actions would
have on the Company's financial condition and results of operations.
In order to expand international sales and service, the Company will need to
maintain and expand existing foreign operations or establish new foreign
operations. This entails hiring additional personnel and maintaining or
expanding existing relationships with international distributors and sales
representatives. This will require significant management attention and
financial resources and could adversely affect the Company's financial
condition and results of operations. There can be no assurance that the
Company will be successful in its maintenance or expansion of existing foreign
operations, in its establishment of new foreign operations or in its efforts
to maintain or expand its relationships with international distributors or
sales representatives.
Many of the Company's operations are centered in an area of California 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 manufacture or ship products in a timely manner, thereby materially
adversely affecting the Company's financial condition and results of
operations.
In addition, the securities of many high technology companies have
historically been subject to extreme price and volume fluctuations, which may
adversely affect the market price of the Company's common stock.
DEPENDENCE UPON INDEPENDENT MANUFACTURERS AND SUBCONTRACTORS
The Company does not manufacture the wafers used for its products. During the
past several years, most of the Company's wafers have been manufactured by
Seiko Epson Corporation (Seiko Epson) and UMC. The Company has depended upon
these suppliers and others to produce wafers with competitive performance and
cost attributes, including transitioning to advanced manufacturing process
technologies, producing wafers at acceptable yields, and delivering them to
the Company in a timely manner. While the timeliness, yield and quality of
wafer deliveries have met the Company's requirements to date, there can be no
assurance that the Company's wafer suppliers will not experience future
manufacturing problems, including delays in the realization of advanced
manufacturing process technologies. Additionally, disruption of operations at
these foundries for any reason, including natural disasters such as fires or
earthquakes as well as disrupted access to adequate supplies of electricity,
natural gas or water would cause delays in shipments of the Company's
products, and could have a material adverse effect on the Company's results of
operations. The Company is also dependent on subcontractors to provide
semiconductor assembly services. Any prolonged inability to obtain wafers or
assembly services with competitive performance and cost attributes, adequate
yields or timely deliveries from these manufacturers and subcontractors, or
any other circumstance that would require the Company to seek alternative
sources of supply, could delay shipments, and have a material adverse effect
on the Company's financial condition and results of operations.
The Company's growth will depend in large part on the Company's ability to
obtain increased wafer fabrication capacity and assembly services from
suppliers which are cost effective. In order to secure additional wafer
capacity, the Company from time to time considers alternatives, including,
without limitation, equity investments in, or loans, deposits, or other
financial commitments to, independent wafer manufacturers to secure 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. In addition, 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.
Such events could have a material adverse affect on the Company's financial
condition and results of operations.
LITIGATION
The Company is currently engaged in several lawsuits. See "Legal Proceedings"
in Part II.
DEPENDENCE ON NEW PRODUCTS
The Company's future success depends in large part on its ability to develop
and introduce on a timely basis new products which address customer
requirements and compete effectively on the basis of price, functionality and
performance. The success of new product introductions is dependent upon
several factors, including timely completion of new product designs, the
ability to utilize advanced manufacturing process technologies, achievement of
acceptable yields, availability of supporting software design tools,
utilization of predefined cores of logic 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
some of the Company's mature products are expected to continue to decline in
the future. As a result, the Company will be increasingly dependent on
revenues derived from newer 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 do not occur in
a timely manner, or the Company's products do not achieve market acceptance at
prices with higher margins, the Company's financial condition and results of
operations could be materially adversely affected.
COMPETITION
The Company's field programmable gate arrays (FPGAs) and complex programmable
logic devices (CPLDs) 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 continuous price erosion. The Company expects significantly
increased competition both from existing competitors and from 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 software
design tools, functionality of predefined cores of logic and the ability to
provide timely customer service and support. The Company's strategy for
expansion in the programmable logic market includes continued introduction of
new product architectures which address high volume, low cost applications as
well as high performance, leading edge density applications and continued
price reductions proportionate with the ability to lower the cost of
manufacture for established products. However, there can be no assurance that
the Company will be successful in achieving these strategies.
The Company's major sources of competition fall into four main categories: the
manufacturers of custom CMOS gate arrays, providers of high density
programmable logic products characterized by FPGA-type architectures,
providers of high speed, low density CPLDs devices and other providers of new
or emerging 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 continues to develop lower cost architectures
intended to narrow the gap between current custom gate array production costs
(in high volumes) and PLD production costs. The Company competes with high
density programmable logic suppliers on the basis of performance, the ability
to deliver complete solutions to customers, voltage and customer support,
taking advantage of the primary characteristics of flexible, high speed
implementation and quick time-to-market capabilities of the Company's PLD
product offerings. Competition among CPLD suppliers is based primarily on
price, performance, design, software utility and the ability to deliver
complete solutions to customers. In addition, the Company competes with
manufacturers of new or emerging programmable logic products on the basis of
price, performance, customer support, software utility and the ability to
deliver complete solutions to customers. Some of the Company's current or
potential competitors have substantially greater financial, manufacturing,
marketing and technical resources than Xilinx. To the extent that such
efforts to compete are not successful, the Company's financial condition and
results of operations could be materially adversely affected.
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, have asserted 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.
YEAR 2000 COMPLIANCE
As is the case with most other companies using computers in their operations,
the Company is currently working to resolve the potential impact of the year
2000 on the processing of date-sensitive information by the Company's
computerized information systems, as well as the vendor and customer
date-sensitive computerized information electronically transferred to the
Company. The year 2000 issue is the result of computer programs being written
using two digits, rather than four, to define the applicable year. Any of the
Company's systems that have time-sensitive software may recognize the year
"00" as 1900 rather than the year 2000, which could result in miscalculations,
classification errors or system failures. Based on preliminary information,
costs of addressing potential problems are not currently expected to have a
material adverse impact on the Company's financial position, results of
operations or cash flows in future periods. However, if the Company, its
customers or vendors are unable to resolve such processing issues on a timely
basis, the Company's financial condition and results of operations could be
adversely affected. Accordingly, the Company plans to devote the necessary
resources to resolve all significant year 2000 issues in a timely manner.
<PAGE>
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 and expert discovery has been completed
in both cases, which have been consolidated. On April 20, 1995, Altera filed
an additional suit against the Company in the Federal District Court in
Delaware, alleging that the Company's XC5200 family infringes an Altera
patent. The Company answered the Delaware suit denying that the XC5200 family
infringes the patent in suit, asserting certain affirmative defenses and
counterclaiming that the Altera Max 9000 family infringes certain of the
Company's patents. The Delaware suit was transferred to the United States
District Court for the Northern District of California and is also before the
same judge.
On July 22, 1998, the Company filed a suit for injunctive relief against
Altera and Joseph Ward, a former Xilinx employee, in the Circuit Court of Cook
County, Illinois, to prevent disclosure of certain Company confidential
information. On the same day, Altera filed suit against the Company in
Superior Court in Santa Clara County, California, arising from the same
events. Altera's suit requests declaratory relief and claims the Company
engages in unfair business practices and interference with contractual
relations.
On July 31, 1998, the Lemelson Foundation Partnership filed a lawsuit in the
United States District Court in Phoenix, Arizona against Xilinx, Inc. and
twenty-five (25) other Unites States semiconductor companies for infringement
of certain of its patents.
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. The foregoing is a forward-looking statement
subject to risks and uncertainties, and the future outcome of these matters
could differ materially due to the uncertain nature of each legal proceeding
and because the lawsuits are still in the pre-discovery or pre-trial stages.
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 12 Statement of Computation of Ratio of Earning
to Fixed Charges
(b) Reports on Form 8-K None
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 August 7, 1998 /s/ Kris Chellam
- ----------------------- -----------------
Kris Chellam
Senior Vice President of Finance and
Chief Financial Officer
(as principal accounting and financial
officer and on behalf of Registrant)
<PAGE>
EXHIBIT 12
<TABLE>
<CAPTION>
XILINX, INC.
STATEMENT OF COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES
(in thousands, except ratios)
Three Months Ended
June 27, June 28,
1998 1997
--------- ---------
<S> <C> <C>
Income before taxes and joint venture $ 42,959 $ 49,546
Add fixed charges 3,675 3,680
--------- ---------
Earnings (as defined) $ 46,634 $ 53,226
========= =========
Fixed charges
Interest expense $ 3,274 $ 3,273
Amortization of debt issuance costs 218 218
Estimated interest component of rent expenses 183 189
--------- ---------
Total fixed charges $ 3,675 $ 3,680
========= =========
Ratio of earnings to fixed charges 12.7 14.5
========= =========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary information extracted from Xilinx, Inc.'s
CONSOLIDATED STATEMENTS OF INCOME AND CONSOIDATED BALANCE SHEETS and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> APR-03-1999
<PERIOD-START> MAR-29-1998
<PERIOD-END> JUN-27-1998
<CASH> 134,233
<SECURITIES> 227,401
<RECEIVABLES> 84,335
<ALLOWANCES> 6,465
<INVENTORY> 56,458
<CURRENT-ASSETS> 620,988
<PP&E> 167,347
<DEPRECIATION> 78,285
<TOTAL-ASSETS> 943,818
<CURRENT-LIABILITIES> 133,051
<BONDS> 250,000
0
0
<COMMON> 724
<OTHER-SE> 542,241
<TOTAL-LIABILITY-AND-EQUITY> 943,818
<SALES> 151,603
<TOTAL-REVENUES> 151,603
<CGS> 56,823
<TOTAL-COSTS> 56,823
<OTHER-EXPENSES> 52,237
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,492
<INCOME-PRETAX> 42,959
<INCOME-TAX> 13,317
<INCOME-CONTINUING> 27,029
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 27,029
<EPS-PRIMARY> 0.37 <F1>
<EPS-DILUTED> 0.35
<FN>
<F1> Represents basic earnings per share.
</TABLE>
