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 October 3, 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 October 3, 1998
----- ------------------------------------------
Common Stock, $.01 par value 71,483,000
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 Six Months Ended
Oct. 3, Sept. 27, Oct. 3, Sept. 27,
1998 1997 1998 1997
--------- ----------- --------- -----------
<S> <C> <C> <C> <C>
Net revenues $156,443 $ 150,272 $308,046 $ 311,033
Costs and expenses:
Cost of revenues 58,814 56,048 115,637 116,954
Research and development 22,560 19,950 43,363 39,888
Marketing, general and administrative 32,447 31,226 63,881 63,892
--------- ----------- --------- -----------
Operating costs and expenses 113,821 107,224 222,881 220,734
--------- ----------- --------- -----------
Operating income 42,622 43,048 85,165 90,299
Interest income and other 4,729 5,303 8,637 11,089
Interest expense (3,565) (3,496) (7,057) (6,987)
--------- ----------- --------- -----------
Income before provision for taxes on income
and equity in joint venture 43,786 44,855 86,745 94,401
Provision for taxes on income 13,574 13,905 26,891 30,007
--------- ----------- --------- -----------
Income before equity in joint venture 30,212 30,950 59,854 64,394
Equity in net income (loss) of joint venture (2,381) - (4,994) -
--------- ----------- --------- -----------
Net income $ 27,831 $ 30,950 $ 54,860 $ 64,394
========= =========== ========= ===========
Net income per share:
Basic $ 0.39 $ 0.42 $ 0.76 $ 0.87
========= =========== ========= ===========
Diluted $ 0.37 $ 0.38 $ 0.72 $ 0.79
========= =========== ========= ===========
Shares used in per share calculations:
Basic 71,912 73,921 72,377 73,708
========= =========== ========= ===========
Diluted 74,881 81,416 75,860 81,371
========= =========== ========= ===========
<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)
Oct. 3, March 28,
1998 1998
---------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 69,894 $ 166,861
Short-term investments 288,244 195,326
Accounts receivable, net 74,071 60,912
Inventories 58,709 55,289
Advances for wafer purchases 49,979 72,267
Deferred income taxes and other current assets 58,442 49,569
---------- -----------
Total current assets 599,339 600,224
Property, plant and equipment, at cost 176,493 163,632
Accumulated depreciation and amortization (83,801) (75,356)
---------- -----------
Net property, plant and equipment 92,692 88,276
Restricted investments 36,355 36,271
Investment in joint venture 87,064 90,872
Advances for wafer purchases 69,743 77,342
Deposits and other assets 46,149 48,253
---------- -----------
$ 931,342 $ 941,238
========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 21,215 $ 20,332
Accrued payroll, interest payable and other accrued liabilities 33,786 32,735
Income taxes payable 23,544 16,692
Deferred income on shipments to distributors 62,977 55,898
---------- -----------
Total current liabilities 141,522 125,657
Long-term debt 250,000 250,000
Deferred tax liabilities 17,383 15,406
Stockholders' equity:
Preferred stock, $.01 par value - -
Common stock, $.01 par value 715 729
Additional paid-in capital 99,483 119,172
Retained earnings 559,328 504,468
Treasury stock, at cost (115,373) (56,973)
Cumulative translation adjustment (21,716) (17,221)
---------- -----------
Total stockholders' equity 522,437 550,175
---------- -----------
$ 931,342 $ 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)
Six Months Ended
Oct. 3, Sept. 27,
1998 1997
---------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 54,860 $ 64,394
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 15,186 15,768
Undistributed earnings of joint venture 4,994 (1,028)
Changes in assets and liabilities:
Accounts receivable (13,159) 6,263
Inventories 26,267 8,054
Deferred income taxes and other (4,001) 6,752
Accounts payable, accrued liabilities and income taxes payable 13,556 5,694
Deferred income on shipments to distributors 7,079 10,526
---------- -----------
Total adjustments 49,922 52,029
---------- -----------
Net cash provided by operating activities 104,782 116,423
Cash flows from investing activities:
Purchases of short-term available-for-sale investments (405,320) (234,495)
Proceeds from sale or maturity of short-term available-for-sale investments 312,436 270,154
Purchases of restricted held-to-maturity investments (36,228) (36,136)
Proceeds from maturity of restricted held-to-maturity investments 36,145 36,130
Advances for wafer purchases - (30,000)
Property, plant and equipment (17,287) (10,556)
Investment in joint venture (5,448) (67,422)
---------- -----------
Net cash used in investing activities (115,702) (72,325)
Cash flows from financing activities:
Acquisition of treasury stock (105,426) (15,164)
Proceeds from issuance of common stock 19,379 15,535
---------- -----------
Net cash (used)/provided by financing activities (86,047) 371
---------- -----------
Net decrease in cash and cash equivalents (96,967) 44,469
Cash and cash equivalents at beginning of period 166,861 215,903
---------- -----------
Cash and cash equivalents at end of period $ 69,894 $ 260,372
========== ===========
Schedule of non-cash transactions:
Tax benefit from stock options $ 7,925 $ 10,252
Issuance of treasury stock under employee stock plans 47,026 17,011
Receipts against advances for wafer purchases 29,888 -
Supplemental disclosures of cash flow information:
Interest paid 6,466 6,480
Income taxes paid $ 15,233 $ 26,087
<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 fiscal year ended March 28, 1998.
The balance sheet at March 28, 1998 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 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 October 3, 1998 are not necessarily
indicative of the results that may be expected for the fiscal year ending
April 3, 1999, the Saturday nearest March 31. The three-month and six-month
periods ended October 3, 1998 consisted of fourteen and twenty-seven weeks,
respectively. The three-month and six-month periods ended September 27, 1997
consisted of thirteen and twenty-six weeks, respectively.
2. Inventories are stated at the lower of cost (first-in, first-out) or
market (estimated net realizable value). Inventories at October 3, 1998 and
March 28, 1998 are as follows:
<TABLE>
<CAPTION>
(in thousands) Oct. 3, March 28,
1998 1998
-------- ----------
<S> <C> <C>
Raw materials $ 4,242 $ 5,976
Work-in-process 27,067 24,845
Finished goods 27,400 24,468
-------- ----------
$ 58,709 $ 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 3.0 million and 3.5 million
incremental common shares attributable to outstanding options for the second
quarter and first six months of fiscal year 1999, respectively, as compared to
7.5 million and 7.7 million in the comparable fiscal 1998 periods,
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
5.8 million and 4.4 million shares for the second quarter and first six months
of fiscal year 1999, respectively, and 0.6 million and 0.5 million shares in
the comparable fiscal 1998 periods, 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 established 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.
The components of comprehensive income for the three and six month periods
ended October 3, 1998 and September 27, 1997 are as follows:
<TABLE>
<CAPTION>
Three months ended Six months ended
(in thousands) Oct. 3, Sept. 27, Oct. 3, Sept. 27,
1998 1997 1998 1997
--------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Net Income $ 27,831 $ 30,950 $ 54,860 $ 64,394
Cumulative translation adjustment (2,360) (3,457) (4,495) (3,610)
Unrealized gain on available for sale securities,
net of tax 102 50 20 (25)
--------- ----------- --------- -----------
Comprehensive Income $ 25,573 $ 27,543 $ 50,385 $ 60,759
========= =========== ========= ===========
</TABLE>
5. The Company is currently involved in various legal proceedings, (see
Part II, Item 1, Legal Proceedings). The legal proceedings with Altera
Corporation and Joseph Ward are of an uncertain nature and the lawsuits are
still in the pre-discovery or pre-trial stage, therefore the ultimate outcome
of these matters cannot be determined at this time. Management believes that
it has meritorious defenses to each claim and is defending them vigorously.
In addition, on July 31, 1998, the Lemelson Foundation Partnership filed a
lawsuit in the United States District Court in Phoenix, Arizona against the
Company and twenty-five (25) other United States semiconductor companies for
infringement of certain of its patents. The ultimate outcome of this matter
cannot be determined at this time. However, management does not currently
expect that this matter will have a material adverse effect on the Company's
financial condition and results of operations. The foregoing is a
forward-looking statement subject to risks and uncertainties, and the ultimate
outcome of this matter could differ materially due to the uncertain nature of
the litigation.
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). During the second
quarter of fiscal 1999, the Company invested additional equity of $5.4 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.
7. During the second quarter of fiscal 1999, the Company's Board of
Directors authorized another stock repurchase program whereby up to 3,000,000
shares of its 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 from this program and all previous stock repurchase
programs to meet the stock requirements of the Company's Stock Option and
Employee Qualified Stock Purchase plans. During the quarter ended October 3,
1998, the Company repurchased a total of 1,375,000 shares of common stock for
$51.8 million, and reissued 462,000 shares during the period for Stock Option
exercises and Stock Purchase Plan requirements. As of October 3, 1998, the
Company was holding approximately 2.9 million shares of treasury stock.
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: SECOND QUARTER AND FIRST SIX MONTHS OF FISCAL 1999
- ------------------------------------------------------------------------------
COMPARED TO THE SECOND QUARTER AND FIRST SIX MONTHS OF FISCAL 1998
- -----------------------------------------------------------------------------
REVENUES
Revenues of $156.4 million in the second quarter of fiscal 1999 represented a
4.1% increase from the comparable prior year quarter. The increase was
primarily attributable to the revenue growth of the Company's XC4000EX,
XC4000XL and XC9500 product lines. The increase was partially offset by the
decreased revenues relating to the Company's mature XC4000 family. Revenues
for the first six months of fiscal 1999 were $308.0 million, a 1% decrease
from the $311.0 million achieved in the prior year comparable period. Despite
the growth in second quarter revenues, revenues for the first six months of
fiscal 1999 were impacted by the overall slowdown in the semiconductor market
and the 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 revenues in the near term.
The Company currently classifies its product offerings into four categories.
The Base products consist of the Company's mature product families that use
technology greater than 0.6 micron; this includes the XC2000, XC3000, XC3100,
XC4000 and XC7000 families. Revenues for Base products represented 22.8% of
total revenues in the second quarter of fiscal 1999, as compared to 42.2% in
the second quarter of fiscal 1998. Mainstream products use 0.5 and 0.6 micron
technology and include the XC4000E, XC4000EX, XC5200 and XC9500 product lines.
Mainstream products represented 43.6% of total revenues in the second quarter
of fiscal 1999 and 39.3% of total revenues in the prior year second quarter.
Mainstream product revenues were primarily driven by the revenue increases in
the XC4000EX and XC9500 product lines. Advanced products include our newest
technologies on .35 micron and smaller which include the XC4000XL, XC4000XV
and Spartan product lines. Advanced products represented 20.6% and 6.0% of
total revenues in the second quarter of fiscal 1999 and 1998, respectively.
The revenue increase for the Advanced products was driven primarily from the
XC4000XL product family. The Company's Support products make up the remainder
of the product offerings and include serial proms, HardWire and software.
Support products represented 13.0% and 12.5% of total revenues in the second
quarter of fiscal 1999 and 1998, respectively. The Company has historically
been able to offset much of the revenue declines of its mature technologies
with increased revenues from newer technologies, although no assurance can be
given that the Company will continue to do so in the future.
International revenues represented approximately 31% of total revenues in the
second quarter of fiscal year 1999 in comparison to approximately 37% in the
prior year quarter. International revenues are derived from customers in
Europe, Japan and Asia Pacific/Rest of World which represented approximately
21%, 6% and 4% of the Company's worldwide revenues, respectively, in the
second quarter of fiscal 1999 as compared to approximately 21%, 11% and 6% of
worldwide revenues, respectively, in the second quarter of the prior fiscal
year. Japan and Asia Pacific/Rest of World experienced revenue declines in
the second quarter of fiscal 1999 as compared to the same quarter a year ago
primarily as a result of the weak economic environment in those regions.
Relative to the second quarter of fiscal 1998, Japan related revenues
experienced a decrease in both yen and equivalent US dollars. A comparison of
the erosion in the yen to US dollar exchange rate resulted in a decline of
approximately $1.5 million in the second quarter fiscal 1999 as compared to
the second quarter of the prior fiscal year.
GROSS MARGIN
Gross margin was $97.6 million, or 62.4% of revenues and $192.4 million or
62.5% of revenues for the second quarter and first six months of fiscal 1999,
respectively. Gross margin for the comparable periods of fiscal 1998 were
$94.2 million, or 62.7% of revenues, and $194.1 million, or 62.4% of revenues,
respectively. The stable gross margin percentages from the prior year three
and six month periods were due to the favorable impact of lower wafer prices
from wafer suppliers, manufacturing process technology improvements, and
improved yields that offset continued selling price reductions. The Company
recognizes that ongoing price reductions for its integrated circuits are a
significant element in expanding the market for its products. 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 can remain in
this range.
RESEARCH AND DEVELOPMENT
Research and development expenditures were $22.6 million for the second
quarter and $43.4 million for the first six months of fiscal 1999, or 14.4%
and 14.1% of revenues, respectively. Research and development expenditures
for the comparable periods in the prior year were $20.0 million and $39.9
million, or 13.3% and 12.8% of revenues, respectively. The increase in
expenditures over the prior year periods was primarily attributable to the
increased costs associated with designing and developing new product
architectures of complex, high density devices including increased
labor-related costs and testing of new products. Specifically, additional
costs are being incurred in connection with the Company's development of its
Virtex (XC4000XV) family members. 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 increased 3.9%, to $32.4
million in the second quarter of fiscal 1999 as compared to $31.2 million
incurred in the comparable prior year quarter, and remain consistent at $63.9
million for the first six months of fiscal 1999 as compared to the same
periods from the prior fiscal year. The increase in the second quarter
expenses was primarily attributable to increased labor-related costs and
increased marketing expenses for new product introductions. As a percentage
of revenues, marketing, general and administrative expenses were 20.7% for
both the second quarter and first six months of fiscal 1999 as compared to
20.8% and 20.5% for the comparable prior year periods, respectively. 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 $42.6 million and $85.2 million represented 27.2% and
27.6% of revenues in the second quarter and the first six months of fiscal
1999, respectively, as compared to $43.0 million and $90.3 million, or 28.6%
and 29.0% of revenues, respectively, from the comparable prior year periods.
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 second quarter of fiscal 1999 declined $0.6
million from the amount in the second quarter of fiscal 1998 and decreased
$2.5 million for the first six months of the current fiscal year over the
prior years' comparable period. Average cash and investment balances have
decreased in both the second quarter and first six months of fiscal 1999 as
compared to the prior year periods resulting in lower interest and other
income. In addition, the weakening of the yen relative to the US dollar
resulted in unfavorable foreign exchange losses in both the second quarter and
first six months of fiscal 1999 as compared to the same periods in fiscal
1998. The amount of net interest and other income in the future will continue
to be impacted by the level of the Company's average cash and investment
balance, prevailing interest rates and foreign currency exchange rates.
PROVISION FOR INCOME TAXES
The company recorded a tax provision of $13.6 million for the second quarter
of fiscal 1999 as compared to $13.9 million in the same prior year period
representing an effective tax rate of 31.0% for both periods. For the first
six months of fiscal 1999, the Company recorded a provision of $26.9 million
as compared to $30.0 million for the first six months of fiscal 1998
representing an effective tax rate of 31.0% and 31.8%, respectively. The
lower tax rate is primarily due to 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 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 (loss). The Company recorded $2.4
million and $5.0 million net losses for the second quarter and the first six
months of fiscal 1999, respectively as the wafer fabrication facility began
ramping up production. Many of the expenses associated with full foundry
operations are being incurred during 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 and shipments are
obtained.
HEDGING
Through fiscal year 1998, the Company's purchases of processed silicon wafers
from Japanese suppliers were denominated in yen. Beginning in fiscal 1999,
most wafers purchased from Japanese suppliers have been denominated in US
dollars. The Company continues to invoice Japanese customers in yen,
resulting in a net yen exposure. The Company is currently using hedging
instruments to limit its net yen related exposure. The use of hedging
instruments did not have a material impact on the Company's results of
operations for the three and six-month periods ended October 3, 1998. At
October 3, 1998, the unrealized gain or loss on all outstanding hedging
instruments was immaterial.
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 October 3, 1998 remained strong. Total
current assets exceeded total current liabilities by 4.2 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, fund acquisitions and make 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 six months of fiscal 1999. As of October 3, 1998, the Company had
cash, cash equivalents and short-term investments of $358.1 million and
working capital of $457.8 million. Cash generated by operations of $104.8
million for the first six months of fiscal 1999 was $11.6 million lower than
the $116.4 million generated from the first six 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 and a
decrease in deferred income taxes and other partially offset by the decrease
in cash spent on inventory as inventory receipts continue to be received
against the advance for wafer purchases. The $13.2 million, or 21.6% increase
in accounts receivable was primarily a result of the Company's continued
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.
Cash flows used for investing activities during the six months ended October
3, 1998, included net short-term investment purchases of $92.9 million, $17.3
million of property, plant and equipment, and an additional $5.4 million
equity investment in the USIC joint venture. In the first six months of
fiscal 1998, investing activities included an equity investment of $67.4
million in the USI joint venture, a $30.0 million advance to Seiko Epson for
wafer purchases, and $10.6 million of property, plant and equipment
acquisitions, which were partially offset by the net maturities of $35.7
million in short-term investments.
Net cash flows used by financing activities were $86.0 million in the first
six months of fiscal 1999, as the acquisition of treasury stock during the
period of $105.4 million was only partially offset by proceeds received from
the issuance of common stock under employee stock plans of $19.4 million. For
the comparable fiscal 1998 period, financing activities included $15.5 million
in proceeds from employee stock plans, which were almost completely offset by
the acquisition of treasury stock during the period of $15.2 million.
Stockholders' equity decreased by $27.7 million during the first six month of
fiscal 1999, principally as a result of the Company's stock buyback programs
whereby approximately 2.6 million shares were purchased during the six months
ended October 3, 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 October 3, 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.
Also, the Company's financial condition and results of operations are becoming
increasingly dependent on a global economy. The increased instability in
worldwide economic environments could lead to a contraction of capital
spending. 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 could 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.
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 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, voltage, the ability to deliver
complete solutions to customers, 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.
COMPUTER INFORMATION SYSTEMS
In order to compete effectively in an industry characterized by rapid
technological change, intense competitive pressure and cyclical market
patterns, the Company continually evaluates its computer information systems.
As a result, the Company has recently implemented information systems or
system enhancements relating to its semiconductor manufacturing and financial
applications. In addition, the Company is in the process of implementing
computer information systems relating to its software manufacturing and order
entry applications. The Company currently expects that these systems will be
implemented by the middle of calendar 1999. The time period for which these
systems are expected to be implemented represents a forward-looking statement
subject to risks and uncertainties and actual results may differ materially
from those described above due to a number of risk factors. These risk
factors include, but are not limited to, the complexity of the conversion
process and the new systems themselves, the transfer of data from old to new
systems and the need for employee training in connection with adopting these
new systems. Implementation of these new systems could potentially require
the Company to be without certain capabilities critical to normal business
operation (including processing customer orders and shipping product) for a
period of time until the new systems are operational. In addition, the
Company could encounter problems after implementation of these systems. There
can be no assurance that these risks would not have a material adverse impact
on the Company's financial condition and results of operations.
As is the case with most other companies using computer information systems 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.
The Company has performed a thorough review of its internal use software and
hardware applications and software products in order to identify those
applications and products that are not Year 2000 compliant. Currently the
Company's Year 2000 efforts have been focused on implementing the upgrades for
the software and hardware applications identified in the review as well as
assessing its outside suppliers and other critical business partners. The
Company believes that its internal computer system implementation or
enhancement efforts principally conducted to improve competitive and operating
efficiencies, as described above, will also address some of the Company's
internal Year 2000 compliance issues. Additional internal information systems
are also currently being upgraded. Electronic data interchange modifications
have been completed that are intended to ensure all dates are handled
properly, although there can be no assurance of this. With regard to all
information technology hardware, including desktops, networking and telecom
equipment, and servers, the Company has completed its assessment, has begun to
make the necessary upgrades and expects to complete the upgrades by mid
calendar 1999, although there can be no assurance of this. The Company
believes that its release M1.5 software is Year 2000 compliant, except for the
Japanese version, although there can be no assurance of this. The Japanese
version of release M1.5 is currently expected to be released during the
quarter ending January 2, 1999, although there can be no assurance of this.
However, some of the Company's customers are running product versions that are
not Year 2000 compliant. The Company has been encouraging such customers to
migrate to the current product version. The Company plans to take several
steps to minimize any Year 2000 effects such as miscalculations,
classification errors or system failures. Internal preparedness includes
specific steps that will be taken in anticipation of the Year 2000 as well as
relying on a contingency plan which would include the ability to utilize both
the San Jose and Ireland manufacturing facilities for shipment and having
multiple vendors who can provide critical wafer, assembly and test products
and services.
The time periods provided above represent forward-looking statements subject
to risks and uncertainties and actual results may differ materially from those
described above due to a number of risk factors. These factors include, but
are not limited to, the complexity of identifying potential Year 2000 issues,
the ability to allocate and/or obtain qualified resources to resolve Year 2000
issues, the ability to work effectively with vendors and other critical
business partners and the Company's effectiveness at encouraging customers to
migrate towards its current software product version. There can be no
assurance that the Company will be able to successfully, in a timely manner,
modify all systems and products to comply with Year 2000 requirements, which
could have a material adverse effect on the Company's financial condition and
results of operations.
The costs directed solely towards Year 2000 compliance are not incremental to
the Company, but represent a reallocation of existing resources. To date the
Company has incurred less than $1.0 million on efforts directed solely towards
Year 2000 compliance and expects to incur a total of less than $2.0 million
when the process has been completed, although there can be no assurance that
this will be the case. Although the 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, 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.
EURO CURRENCY
Effective January 1, 1999 11 member countries of the European Union are
scheduled to establish fixed conversion rates between their existing sovereign
currencies and the Euro and adopt the Euro as their common legal currency.
During the three year transition, the Euro will be available for non-cash
transactions and legacy currencies will remain legal tender. The Company is
assessing the Euro impact on its business including the ability to handle the
conversion in the accounting and other information systems, ability of foreign
banks to report on dual currencies, the legal and contractual implications of
contracts, and reviewing pricing strategies. The Company expects that
modifications to its operations and systems will be completed on a timely
basis and does not believe the conversion will have a material adverse impact
on the Company's operations. However, there can be no assurance that the
Company will be able to successfully modify all systems and contracts to
comply with Euro requirements on a timely basis.
LITIGATION
The Company is currently engaged in several lawsuits. See "Legal Proceedings"
in Part II.
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 October 25, 1998, both Altera and the Company filed motions
with the Court for summary judgement with respect to certain of the issues
pending in the litigation.
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 September 10, 1998 the Company filed cross claims against
Altera and Ward for unfair competition and breach of contract, among other
claims, in the California action. Subsequently, the Company dismissed its
suit for injunctive relief in Illinois. On October 20, 1998, Altera and Ward
filed crossclaims against the Company for malicious prosecution of civil
action and defamation.
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.
On July 31, 1998, the Lemelson Foundation Partnership (Lemelson) filed a
lawsuit in the United States District Court in Phoenix, Arizona against the
Company and twenty-five (25) other United States semiconductor companies for
infringement of certain of its patents. The ultimate outcome of this matter
cannot be determined at this time. However, management does not currently
expect that this matter will have a material adverse effect on the Company's
financial condition and results of operations. The foregoing is a
forward-looking statement subject to risks and uncertainties, and the ultimate
outcome of this matter could differ materially due to the uncertain nature of
the litigation.
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 4. Submission of Matters to a Vote of Security Holders
The following matters were submitted to a vote of security holders in
conjunction with the Annual Meeting of Stockholders of Xilinx held on August
6, 1998.
(a) Election of directors
Votes For Votes Withheld
--------- --------------
Bernard V. Vonderschmitt 64,430,033 530,234
Willem P. Roelandts 64,705,101 255,166
John L. Doyle 64,699,526 260,741
Philip T. Gianos 64,731,533 228,734
William Howard 64,721,059 239,208
(b) To ratify and approve an amendment to the Company's 1997 Stock Option Plan
to increase the number of shares reserved for issuance thereunder by 1,500,000.
For Against Abstain No Vote
---------- ---------- --------- ---------
38,056,406 26,759,224 144,637 7,529,987
(c) To ratify and approve an amendment to the Company's 1990 Employee
Qualified Stock Purchase Plan to increase the number of shares reserved
for issuance thereunder by 2,000,000 shares.
For Against Abstain No Vote
--------- ---------- --------- ---------
60,779,454 4,046,186 134,628 7,529,987
(d) To ratify the appointment of Ernst & Young LLP as independent auditors
of the Company for the fiscal year ended April 3, 1999.
For Against Abstain No Vote
--------- --------- --------- ---------
64,788,536 106,878 64,855 7,529,987
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits None
(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 November 11, 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)
<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> <C>
<PERIOD-TYPE> 3-MOS 6-MOS
<FISCAL-YEAR-END> APR-03-1999 APR-03-1999
<PERIOD-START> JUN-28-1998 MAR-29-1998
<PERIOD-END> OCT-03-1998 OCT-03-1998
<CASH> 69,894 69,894
<SECURITIES> 288,244 288,244
<RECEIVABLES> 80,449 80,449
<ALLOWANCES> 6,378 6,378
<INVENTORY> 58,709 58,709
<CURRENT-ASSETS> 599,339 599,339
<PP&E> 176,493 176,493
<DEPRECIATION> 83,801 83,801
<TOTAL-ASSETS> 931,342 931,342
<CURRENT-LIABILITIES> 141,522 141,522
<BONDS> 250,000 250,000
0 0
0 0
<COMMON> 715 715
<OTHER-SE> 521,722 521,722
<TOTAL-LIABILITY-AND-EQUITY> 931,342 931,342
<SALES> 156,443 308,046
<TOTAL-REVENUES> 156,443 308,046
<CGS> 58,814 115,637
<TOTAL-COSTS> 58,814 115,637
<OTHER-EXPENSES> 55,007 107,244
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 3,565 7,057
<INCOME-PRETAX> 43,786 86,745
<INCOME-TAX> 13,574 26,891
<INCOME-CONTINUING> 27,831 54,860
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 27,831 54,860
<EPS-PRIMARY> 0.39 0.76
<EPS-DILUTED> 0.37 <F1> 0.72 <F1>
<FN>
<F1> Represents basic earnings per share.
</TABLE>
