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 July 3, 1999 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, including 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 August 2, 1999
----- ------------------------------------
Common Stock, $.01 par value 158,058,000
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
<CAPTION>
XILINX, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended
(in thousands, except per share amounts) July 3, June 27,
1999 1998
-------- ----------
<S> <C> <C>
Net revenues $211,403 $ 149,525
Costs and expenses:
Cost of revenues 79,758 56,220
Research and development 26,009 20,803
Sales, general and administrative 39,539 31,434
-------- ----------
Operating costs and expenses 145,306 108,457
-------- ----------
Operating income 66,097 41,068
Interest income and other, net 5,679 416
-------- ----------
Income before provision for taxes on income, equity in joint
venture and cumulative effect of change in accounting principle 71,776 41,484
Provision for taxes on income 20,815 12,860
-------- ----------
Income before equity in joint venture and cumulative effect of
change in accounting principle 50,961 28,624
Equity in income (loss) of joint venture 654 (2,613)
-------- ----------
Income before cumulative effect of change in accounting principle 51,615 26,011
Cumulative effect of change in accounting principle - (26,646)
-------- ----------
Net income (loss) $ 51,615 $ (635)
======== ==========
Net income (loss) per share:
Basic
Income before cumulative effect of change in
accounting principle $ 0.33 $ 0.18
Cumulative effect of change in accounting principle - (0.18)
-------- ----------
Basic net income (loss) per share $ 0.33 $ -
======== ==========
Diluted
Income before cumulative effect of change in
accounting principle $ 0.31 $ 0.17
Cumulative effect of change in accounting principle - (0.17)
-------- ----------
Diluted net income (loss) per share $ 0.31 $ -
======== ==========
Shares used in per share calculations:
Basic 156,933 145,686
======== ==========
Diluted 168,413 153,676
======== ==========
<FN>
(See accompanying Notes to Condensed Consolidated Financial Statements.)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
XILINX, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands) July 3, April 3,
1999 1999
------------ -----------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 110,897 $ 53,584
Short-term investments 369,867 348,888
Accounts receivable, net 85,911 73,409
Inventories 66,081 52,036
Advances for wafer purchases 63,209 59,450
Deferred income taxes and other current assets 85,459 70,342
------------ -----------
Total current assets 781,424 657,709
Property, plant and equipment, at cost 225,610 187,482
Accumulated depreciation and amortization (92,744) (85,777)
------------ -----------
Net property, plant and equipment 132,866 101,705
Long-term investments 97,555 94,002
Restricted investments 34,358 34,358
Investment in joint venture 93,253 91,057
Advances for wafer purchases 13,515 36,694
Developed technology and other assets 15,302 54,723
------------ -----------
TOTAL ASSETS $ 1,168,273 $1,070,248
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 33,682 $ 23,326
Accrued payroll, other accrued liabilities and interest payable 38,209 32,164
Income tax payable 40,229 25,998
Deferred income on shipments to distributors 81,759 85,709
------------ -----------
Total current liabilities 193,879 167,197
Deferred tax liabilities 23,895 23,733
Put warrants 13,520 -
Stockholders' equity:
Preferred stock, $.01 par value - -
Common stock, $.01 par value 1,573 1,562
Additional paid-in capital 294,063 293,231
Retained earnings 658,675 607,060
Treasury stock, at cost - (5,112)
Accumulated other comprehensive income (17,332) (17,423)
------------ -----------
Total stockholders' equity 936,979 879,318
------------ -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,168,273 $1,070,248
============ ===========
<FN>
(See accompanying Notes to Condensed Consolidated Financial Statements.)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
XILINX, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended
(in thousands) July 3, June 27,
1999 1998
---------- ----------
<S> <C> <C>
Increase (decrease) in cash and cash equivalents
Cash flows from operating activities:
Net income (loss) $ 51,615 $ (635)
Adjustments to reconcile net income (loss) to net cash provided by operating
activities:
Cumulative effect of change in accounting principle - 26,646
Depreciation and amortization 8,409 8,152
Undistributed (earnings) / losses of joint venture (654) 2,613
Changes in assets and liabilities:
Accounts receivable (12,502) (16,958)
Inventories 5,125 14,390
Deferred income taxes and other (4,615) (3,913)
Accounts payable, accrued liabilities and income taxes payable 40,282 5,463
Deferred income on shipments to distributors (3,950) 10,135
---------- ----------
Total adjustments 32,095 46,528
---------- ----------
Net cash provided by operating activities 83,710 45,893
Cash flows from investing activities:
Purchases of available-for-sale investments (667,778) (105,481)
Proceeds from sale or maturity of available-for-sale investments 641,913 73,270
Property, plant and equipment (9,880) (7,774)
---------- ----------
Net cash used in investing activities (35,745) (39,985)
Cash flows from financing activities:
Acquisition of treasury stock (5,289) (53,659)
Proceeds from issuance of common stock 13,102 15,123
Proceeds from sales of put warrants 1,535 -
---------- ----------
Net cash provided by / (used) in financing activities 9,348 (38,536)
---------- ----------
Net increase / (decrease) in cash and cash equivalents 57,313 (32,628)
Cash and cash equivalents at beginning of period 53,584 166,861
---------- ----------
Cash and cash equivalents at end of period $ 110,897 $ 134,233
========== ==========
Schedule of non-cash transactions:
Tax benefit from stock options $ 10,126 $ 6,514
Issuance of treasury stock under employee stock plans 10,400 28,702
Supplemental disclosures of cash flow information:
Interest paid 5 6,501
Income taxes paid $ 361 $ 1,946
<FN>
(See accompanying Notes to Condensed Consolidated Financial Statements.)
</TABLE>
XILINX, INC.
NOTES TO CONDENSED CONSOLIDATED 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 April 3, 1999. The balance
sheet at April 3, 1999 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
July 3, 1999 are not necessarily indicative of the results that may be expected
for the year ending April 1, 2000.
2. Inventories are stated at the lower of cost (first-in, first-out) or
market (estimated net realizable value). Inventories at July 3, 1999 and April
3, 1999 are as follows:
<TABLE>
<CAPTION>
(in thousands) July 3, April 3,
1999 1999
-------- ---------
<S> <C> <C>
Raw materials $ 5,965 $ 5,139
Work-in-process 37,245 27,824
Finished goods 22,871 19,073
-------- ---------
$ 66,081 $ 52,036
======== =========
</TABLE>
3. The computation of basic net income (loss) per share for all years
presented is derived from the information on the face of the statement of
operations, 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 (loss) per share. The total shares used in the
denominator of the diluted net income (loss) per share calculation includes 11.5
million and 8.0 million incremental common shares attributable to outstanding
options for the first quarter of fiscal year 2000 and 1999, respectively.
Outstanding options to purchase approximately 0.2 million and 6.1 million shares
for the first quarter of fiscal year 2000 and 1999, respectively, under the
Company's Stock Option Plan were not included in the treasury stock calculation
to derive diluted net income (loss) per share as their inclusion would have had
an anti-dilutive effect.
4. The components of comprehensive income (loss) for the three month periods
ended July 3, 1999 and June 27, 1998 are as follows:
<TABLE>
<CAPTION>
Three months ended
(in thousands) July 3, June 27,
1999 1998
--------- ---------
<S> <C> <C>
Net income (loss) $ 51,615 $ (635)
Cumulative translation adjustment 891 (2,135)
Unrealized (loss) on available for sale securities,
net of tax (800) (82)
--------- ----------
Comprehensive income (loss) $ 51,706 $ (2,852)
========= ==========
</TABLE>
The components of accumulated other comprehensive income (loss) at July 3, 1999
and April 3, 1999 are as follows:
<TABLE>
<CAPTION>
(in thousands) July 3, April 3,
1999 1999
--------- ---------
<S> <C> <C>
Cumulative translation adjustment $(16,764) $ (17,655)
Unrealized (loss) / gain on available for sale securities,
net of tax (568) 232
--------- ----------
Accumulated other comprehensive income (loss) $(17,332) $ (17,423)
========= ==========
</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.
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). The Company has 20% equity
ownership in USIC and has the right to receive up to 31.25% of the wafer
capacity from this facility. The Company is accounting for this investment
using the equity method of accounting with a one-month lag in recording the
Company's share of results for the entity.
In June 1999, the Company was informed by UMC Group that Xilinx's equity
position in USIC will be converted into shares of UMC which are publicly traded
on the Taiwan Stock Exchange. The transaction is expected to be completed
during fiscal 2000, and we cannot currently predict the value or liquidity of
the UMC shares Xilinx will obtain following the merger, if consummated.
7. From 1997 to 1999, the Board of Directors of the Company approved stock
repurchase programs that allow the Company to repurchase shares of its common
stock. During the first quarter of fiscal 2000, the Company repurchased 124,000
shares of common stock under the Company's authorized repurchase program at a
cost of $5.3 million. In conjunction with the stock repurchase program, during
the quarter ended July 3, 1999, the Company sold put warrants that entitle the
holder of each warrant to sell to the Company, by physical delivery, one share
of common stock at a specified price, ranging from $52 to $56 per share. The
outstanding put warrants are exercisable only on their maturity date of October
25, 1999.
The put warrants have been classified separately on the balance sheet to reflect
the maximum potential obligation of the Company of $13.5 million as of July 3,
1999. There was no impact on basic and diluted net income per share resulting
from these transactions in the three months ended July 3, 1999.
8. In the first quarter of fiscal 2000, Xilinx signed a letter of intent to
acquire Philips Semiconductors' line of low-power complex programmable logic
devices (CPLDs). The acquisition was completed in the second quarter of fiscal
2000.
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 2000 COMPARED TO THE FIRST
- --------------------------------------------------------------------------------
QUARTER OF FISCAL 1999
- -------------------------
NET REVENUES
Net revenues of $211.4 million in the first quarter of fiscal 2000 represented a
41.4% increase from the comparable prior year quarter of $149.5 million.
Product lines that experienced significant growth include the XC4000XL,
XC4000XLA, XC9500, Spartan, and Virtex families. The increase was partially
offset by decreased revenues relating to the Company's mature XC4000 and XC3000
families.
The Company currently classifies its product offerings into four categories.
Base products consist of the Company's mature product families that are
currently manufactured on technologies greater than 0.5 micron; this includes
the XC2000, XC3000, XC3100, XC4000 and XC7000 families. Mainstream products are
currently manufactured on 0.5 micron technology and include the XC4000E,
XC4000EX, XC5200 and XC9500 product lines. Advanced products include the
Company's newest technologies manufactured on 0.35 micron and smaller, which
include the XC4000XL, XC4000XV, XC4000XLA, XC9500XL, Virtex, Spartan and
SpartanXL product lines. The Company's Support products make up the remainder
of its product offerings and include serial proms, HardWire, and software.
Revenues of Advanced products increased to $80.2 million in the first quarter of
fiscal 2000 from $24.4 million in the first quarter of fiscal 1999 and revenues
of Mainstream products increased to $79.0 million from $65.6 million. This was
the first quarter that Advanced product revenues surpassed Mainstream product
revenues. During the same periods, revenues of Base products decreased to $31.8
million from $41.5 million and revenues of Support products increased to $20.4
million from $18.0 million. 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 can
continue to do so in the future.
International revenues represented approximately 30.8% of total revenues in the
first quarter of fiscal 2000 and 36.1% in the prior year quarter. International
revenues are derived from customers in Europe, Japan and Asia Pacific/Rest of
World. Revenues during the first quarter of fiscal 2000 as compared to the
first quarter of fiscal 1999 from Europe increased to $39.6 million from $35.4
million, Japan increased to $14.6 million from $12.7 million, and Asia
Pacific/Rest of World reached a record of $10.9 million from $5.8 million.
Asia Pacific/Rest of World experienced 85.9% revenue increase in the first
quarter of fiscal 2000 as compared to the same quarter a year ago primarily as a
result of the stronger economic environment in those regions following the
economic turmoil of a year ago.
GROSS MARGIN
Gross margin was $131.6 million, or 62.3% of revenues for the first quarter of
fiscal 2000 as compared to $93.3 million, or 62.4% of revenues, for the first
quarter of fiscal 1999. During the first three months of fiscal 2000, the
Company continued to experience high margins from 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 $26.0 million, or 12.3% of revenues
for the first quarter of fiscal 2000, as compared to $20.8 million, or 13.9% of
revenues, for the first quarter of fiscal 1999. Although total expenditures on
research and development increased significantly, they decreased as a percent of
revenue because of strong revenue growth. The 25.0% increase in expenditures
over the prior year period was associated with designing and developing new
product architectures of complex, high density devices including wafer
purchases, software development, increased labor-related costs, and testing of
new products. 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.
SALES, GENERAL AND ADMINISTRATIVE
Sales, general and administrative expenses were $39.5 million, or 18.7% of
revenues for the first quarter of fiscal 2000 as compared to $31.4 million, or
21.0% of revenues for the first quarter of fiscal 1999. Although total sales,
general and administrative expenses increased, they decreased as a percent of
revenue because of strong revenue growth. The 25.8% increase in sales, general
and administrative expenses was primarily attributable to increased marketing
expenses for new product introductions, increased sales commissions on higher
revenues from U.S. distributors along with increased personnel and legal costs.
The Company remains committed to controlling administration 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 sales, general and
administrative expenses in the future.
INTEREST AND OTHER, NET
Interest and other income, net for the first quarter of fiscal 2000 increased
$5.3 million from the first quarter of fiscal 1999 primarily due to the decrease
in interest expense related to the convertible notes which were redeemed in the
fourth quarter of fiscal 1999 and net foreign exchange gains. In addition,
average cash and investment balances have increased in the first three months of
fiscal 2000 as compared to the prior year period resulting in increased interest
income of $1.4 million. 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 $20.8 million for the first quarter of
fiscal 2000 as compared to $12.9 million in the same prior year period,
representing effective tax rates of 29.0% and 31.0%, respectively. The lower
tax rate is primarily due to increased profits in foreign operations where the
tax rate is lower than the U.S. 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 $0.7 million equity
in income of joint venture for the first quarter of fiscal 2000 as compared to
$2.6 million net losses for the first quarter of fiscal 1999. The fiscal 1999
net losses were a result of the continued ramp in production of the wafer
fabrication facility. The fiscal 2000 net gains are recorded as USIC began to
have volume wafer production and shipments.
HEDGING
The Company uses forward currency exchange contracts to reduce financial market
risks. The Company's sales to Japanese customers are denominated in yen while
its purchases of processed silicon wafers from Japanese foundries are primarily
denominated in U.S. dollars. Gains and losses on foreign currency forward
contracts that are designated and effective as hedges of anticipated
transactions, for which a firm commitment has been attained, are deferred and
included in the basis of the transaction in the same period that the underlying
transactions are settled. Gains and losses on any instruments not meeting the
above criteria would be recognized in income in the current period. In fiscal
2000, the Company has also begun to share the yen exchange rate risk with some
of its Japanese customers through risk sharing agreements. As the Company will
continue to have a net yen exposure in the near future, it will continue to
mitigate the exposure through yen hedging contracts. In addition, the Company
does not expect that hedging instruments outstanding as of July 3, 1999, will
have a material impact on the Company's future results of operations.
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 July 3, 1999 remained strong. Total
current assets exceeded total current liabilities by 4.0 times, compared to 3.9
times at April 3, 1999. The Company has used a combination of equity and debt
financing and cash flow from operations to support on-going business activities,
secure manufacturing capacity from foundry partners, 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 2000. As of July 3, 1999, the Company had cash,
cash equivalents and short-term investments of $480.8 million and working
capital of $587.5 million. Cash generated by operations of $83.7 million for
the first three months of fiscal 2000 was $37.8 million higher than the $45.9
million generated from the first three months of fiscal 1999. Increases in cash
generated by operations resulted primarily from the cash flow impact of
increased net income, increased receipt against advances for wafer purchases,
and increases in accounts payable, accrued liabilities and income tax payable.
Cash flows used for investing activities during the three months ended July 3,
1999 included net investment purchases of $25.9 million and $9.9 million for
property, plant and equipment. During the first three months of fiscal 1999,
investing activities included net short-term investment purchases of $32.2
million and $7.8 million of property, plant and equipment acquisitions.
Net cash flows provided by financing activities were $9.3 million in the first
three months of fiscal 2000 and were attributable to $13.1 million in proceeds
from the issuance of common stock under employee stock plans and $1.5 million in
proceeds from sales of put warrants, offset by acquisition of treasury stock
during the quarter of $5.3 million. For the comparable fiscal 1999 period, cash
used in financing activities included $53.7 million in acquisition of treasury
stock offset by $15.1 million of proceeds from employee stock plans.
Stockholders' equity increased by $57.7 million during the first three months of
fiscal 2000, principally as a result of the $51.6 million in net income for the
three months ended July 3, 1999. In addition, the proceeds from the issuance of
common stock under employee stock plans of $13.1 million, related tax benefits
from stock options of $10.1 million, and $1.5 million in proceeds from sales of
put warrants contributed to the increase, which were partially offset by the
transfer of $13.5 million from equity to put warrants, and $5.3 million in
acquisition of treasury stock.
The Company has available credit 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 July 3, 1999, 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 competition and cyclical market patterns. Cyclical market patterns are
characterized by several factors, including:
- reduced product demand;
- limited visibility of demand for products beyond three to nine months;
- accelerated erosion of average selling prices; and
- volatile capacity availability.
Our results of operations are affected by several factors. These factors include
general economic conditions, conditions specific to technology companies and to
the semiconductor industry in particular, decreases in average selling prices
over the life of particular products and the timing of new product introductions
(by us, our competitors and others.) In addition, our results of operations are
affected by 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, the
impact of new technologies which result in rapid escalation of demand for some
products in the face of equally steep declines in demand for others, and the
inability to predict the success of our customers' products into their markets.
Market demand for our 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 we 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 affect our
financial condition and results of operations. We attempt 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 these and
other factors, our past results, including those described in this report, are
much less reliable predictors of the future than with companies in many older,
more stable and less dynamic industries. Based on the factors noted herein, we
may experience substantial period-to-period fluctuations in future operating
results.
Our future success depends in a large part on the continued service of our key
technical, sales, marketing and management personnel and on our 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 our financial condition and
results of operations.
Sales and operations outside of the United States subject us to the risks
associated with conducting business in foreign economic and regulatory
environments. Our financial condition and results of operations could be
adversely affected by unfavorable economic conditions in countries in which we
do significant business and by changes in foreign currency exchange rates
affecting those countries. For example, we have sales and operations in
Southeast Asia and Japan. Past economic weakness in these markets adversely
affected revenues, and such conditions may occur in the future. Customers may
face reduced access to capital and exchange rate fluctuations may adversely
affect their ability to purchase our products. In addition, our ability to sell
at competitive prices may be diminished. Currency instability may increase
credit risks as the weak currencies may impair our customers' ability to repay
existing obligations. Any or all of these factors could adversely affect our
financial condition and results of operations in the near future.
Our financial condition and results of operations are becoming increasingly
dependent on a global economy. Any instability in worldwide economic
environments could lead to a contraction of capital spending. Additional risks
to us include government regulation of exports, imposition of tariffs and other
potential trade barriers, reduced protection for intellectual property rights in
some countries and generally longer receivable collection periods. Our 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. We cannot predict whether quotas, duties, taxes or other charges or
restrictions will be imposed by the United States or other countries upon the
import or export of our products in the future or what effect, if any, such
actions would have on our financial condition and results of operations.
Many of our operations are centered in an area of California that has been
seismically active. Should there be a major earthquake in this area, our
operations may be disrupted. This type of disruption could result in our
inability to ship products in a timely manner, thereby materially adversely
affecting our financial condition and results of operations.
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 our common stock.
DEPENDENCE UPON INDEPENDENT MANUFACTURERS AND SUBCONTRACTORS
We do not manufacture the wafers used for our products. During the past several
years, most of our wafers have been manufactured by UMC and Seiko Epson
Corporation (Seiko Epson), with recent wafers also manufactured by USIC. We
have depended upon these suppliers and others to produce wafers with competitive
performance and cost attributes which include transitioning to advanced
manufacturing process technologies, producing wafers at acceptable yields and
delivering them in a timely manner. While the timeliness, yield and quality of
wafer deliveries have met our requirements to date, we cannot assure that our
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, floods, or earthquakes, as well as
disruptions to access to adequate supplies of electricity, natural gas or water
could cause delays in shipments of our products, and could have a material
adverse effect on our results of operations. We are 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 delivery, or any other circumstance
that would require us to seek alternative sources of supply, could delay
shipments and have a material adverse effect on our financial condition and
results of operations.
Our growth will depend in a large part upon our ability to obtain increased
wafer fabrication capacity and assembly services from suppliers that are cost
competitive. We consider various alternatives in order to secure additional
wafer capacity. These alternatives include, without limitation, equity
investments in, or loans, deposits, or other financial commitments to
independent wafer manufacturers. We also consider the use of contracts which
commit us to purchase specified quantities of wafers over extended periods. We
are currently able to obtain wafers from existing suppliers in a timely manner.
However, at times we have 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 to satisfy
customer delivery dates, as well as our ability to process products for
shipment. In addition, a significant increase in general industry demand or any
interruption of supply could reduce our supply of wafers or increase our cost of
such wafers. These events could have a material adverse affect on our financial
condition and results of operations.
DEPENDENCE ON NEW PRODUCTS
Our future success depends in a large part on our ability to develop and
introduce on a timely basis new products which address customer requirements and
compete effectively on the basis of price, density, functionality and
performance. The success of new product introductions is dependent upon several
factors, including:
- timely completion of new product designs;
- our ability to utilize advanced manufacturing process technologies;
- achieving acceptable yields;
- the availability of supporting software design tools;
- utilization of predefined cores of logic; and
- market acceptance.
We cannot assure that our product development efforts will be successful or that
our new products will achieve market acceptance. Revenues relating to our
mature products are expected to continue to decline in the future. As a result,
we will be increasingly dependent on revenues derived from newer products along
with cost reductions on current products. We rely 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 that enable us to increase revenues while
maintaining consistent margins. To the extent that such cost reductions and new
product introductions do not occur in a timely manner, or to the extent that our
products do not achieve market acceptance at prices with higher margins, our
financial condition and results of operations could be materially adversely
affected.
COMPETITION
Our FPGAs and CPLDs compete in the programmable logic marketplace, with a
substantial majority of our revenues derived from our FPGA product families.
The industries in which we compete are intensely competitive and are
characterized by rapid technological change, product obsolescence and continuous
price erosion. We expect increased competition, both from existing competitors
and from a number of new companies that may enter our market. We believe that
important competitive factors in the programmable logic market include:
- product pricing;
- product performance, reliability and density;
- the 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.
Our 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. In
addition, we would anticipate continued price reductions proportionate with our
ability to lower the cost of manufacture for established products. However, we
cannot assure that we will be successful in achieving these strategies. Our
major sources of competition are comprised of several elements:
- 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 CPLD devices; and
- other providers of new or emerging programmable logic products.
We compete with custom gate array manufacturers on the basis of lower design
costs, shorter development schedules, reduced inventory risks and field
upgradability. The primary attributes of custom gate arrays are high density,
high speed and low production costs in high volumes. We continue to develop
lower cost architectures intended to narrow the gap between current custom gate
array production costs (in high volumes) and PLD production costs. We compete
with high density programmable logic suppliers on the basis of performance, the
ability to deliver complete solutions to customers, voltage and customer support
by taking advantage of the primary characteristics of our PLD product offerings
which include: flexibility, high speed implementation, quick time-to-market and
system level capabilities. Competition among CPLD suppliers and manufacturers
of new or emerging programmable logic products is based primarily on price,
performance, design, customer support, software utility and the ability to
deliver complete solutions to customers. Some of our current or potential
competitors have substantially greater financial, manufacturing, marketing and
technical resources than we do. To the extent that such efforts to compete are
not successful, our financial condition and results of operations could be
materially adversely affected.
The benefits of programmable logic have attracted a number of companies to this
market. Competition is based primarily on density, speed, design, price or
software utility. We recognize that different applications require different
programmable technologies, and we are developing architectures, processes and
products to meet these varying customer needs. Recognizing the increasing
importance of standard software solutions, we have developed common software
design tools that support the full range of integrated circuit products. We
believe that automation and ease of design are significant competitive factors
in the programmable logic market.
Several companies, both large and small, have introduced products that compete
with ours or have announced their intention to enter this market. Some of our
competitors may possess innovative technology, which could prove superior to our
technology in certain applications. In addition, we anticipate potential
competition from suppliers of logic products based on new technologies. Some of
our current or potential competitors have substantially greater financial,
manufacturing, marketing and technical resources than we do. This additional
competition could adversely affect our financial condition and results of
operations.
We could also face competition from our licensees. Under a license from us,
Lucent Technologies is manufacturing and marketing our non-proprietary XC3000
FPGA products and is employing that technology to provide additional FPGA
products offering higher density. Seiko Epson has rights to manufacture our
products and market them in Japan and Europe, but is not currently doing so.
Advanced Micro Devices is licensed to use certain of our patents to manufacture
and market products.
INTELLECTUAL PROPERTY
We rely upon patent, trademark, trade secret and copyright law to protect our
intellectual property. We cannot assure 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 our
competitors, have asserted patent, copyright and other intellectual property
rights to technologies that are important to us. We cannot assure that third
parties will not assert infringement claims against us in the future, that
assertions by third parties will not result in costly litigation or that we
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 costs and diversion of
our resources. Any infringement claim or other litigation against us or by us
could materially adversely affect our financial condition and results of
operations. See Part II - Other Information, Item 1 - Legal Proceedings for a
discussion of litigation between Xilinx and Altera Corporation.
COMPUTER INFORMATION SYSTEMS
In order to compete effectively in an industry characterized by rapid
technological change, intense competition and cyclical market patterns, we
continually evaluate our computer information systems. As a result, we have
recently implemented new computer information systems or system enhancements
relating to our semiconductor manufacturing, software manufacturing, order entry
processing and financial applications.
Like most other companies using computer information systems in their
operations, we are currently working to resolve the potential impact of the Year
2000 on the processing of date-sensitive information by our computerized
information systems, as well as the vendor and customer date-sensitive
computerized information electronically transferred to us. 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 our systems that have
time-sensitive software may recognize a year ending in "00" as 1900 rather than
the year 2000, which could result in miscalculations, classification errors or
system failures.
We have performed a thorough review of our internal use software and hardware
applications and software products in order to identify those applications and
products that are not Year 2000 compliant. Currently, our Year 2000 efforts have
been focused on final Year 2000 integrated verification for the software and
hardware applications identified in the review in addition to those newly
implemented or enhanced. We are also placing additional emphasis on finalizing
the assessment of our outside suppliers and other critical business partners.
We believe that our internal computer system implementation or enhancement
efforts principally conducted to improve competitive and operating efficiencies,
as described above, have also addressed some of our internal Year 2000
compliance issues. Additional internal information systems are also currently
being upgraded and are expected to be completed by the end of this calendar
year, although we cannot assure these upgrades will be completed as scheduled.
Electronic data interchange modifications have been completed that are intended
to ensure all dates are handled properly, although we cannot assure that all
dates will be handled properly. With regard to all information technology
hardware, including desktops, servers, networking and telecom equipment, we have
completed our assessments and nearly all of the necessary upgrades. The
remaining upgrades are expected to be completed by the second quarter of fiscal
2000, although we cannot assure these upgrades will be completed as scheduled.
We believe that our software releases beginning with version M1.5i and including
version M2.1i which we started shipping in July 1999, are Year 2000 compliant,
although we cannot assure that they are Year 2000 compliant. However, some of
our customers are running product versions that are not Year 2000 compliant. We
have been encouraging such customers to migrate to the current product version.
We plan to take several steps to minimize any Year 2000 effects, including
miscalculations, classification errors or system failures. Our internal
preparedness includes specific steps that will be taken in anticipation of the
Year 2000. In addition, we are relying on a contingency plan which has been
developed and is now being implemented which includes manual workarounds,
attention to inventory levels, the ability to utilize both our San Jose and
Ireland manufacturing facilities for shipment and having multiple vendors who
can provide critical services, wafer assembly as well as test products.
The costs directed solely towards Year 2000 compliance are not incremental to
us, but rather represent a reallocation of existing resources. To date, we have
incurred less than $1.5 million on efforts directed solely towards Year 2000
compliance and expect to incur a total of less than $2.0 million when the
process is completed, although we cannot assure that this will be the case. The
costs of addressing potential problems are not currently expected to have a
material adverse impact on our financial position, results of operations or cash
flows in future periods. If, however, we, our customers or vendors are unable
to resolve such processing issues on a timely, cost-effective basis, our
financial condition and results of operations could be adversely affected.
The statements 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;
- our ability to allocate and/or obtain qualified resources to resolve
Year 2000 issues;
- our ability to work effectively with vendors and other critical
business partners; and
- our effectiveness at encouraging customers to migrate towards our
current software product version.
We cannot assure that we will be able to successfully modify all systems and
products to comply with Year 2000 requirements, which could have a material
adverse effect on our financial condition and results of operations. If we were
to discontinue our Year 2000 preparedness at this time, we would not be able to
ensure all internal networks and desktops were operational, nor ensure third
party vendors were able to meet our inventory demands or send information
electronically. In addition, disruptions to the economy generally resulting
from the Year 2000 issues could also materially adversely impact us. We could
be subject to litigation for computer system failures such as equipment
shutdowns or failure to properly date business records. At this time, we cannot
reasonably estimate the amount of potential liability and lost revenue.
EURO CURRENCY
Beginning in 1999, 11 member countries of the European Union established fixed
conversion rates between their existing sovereign currencies and adopted 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. We are continuing to assess the Euro's impact on our business.
We are reviewing the ability of our accounting and information systems to handle
the conversion, the ability of foreign banks to report on dual currencies, the
legal and contractual implications of agreements, as well as reviewing our
pricing strategies. We expect that any additional modifications to our
operations and systems will be completed on a timely basis and do not believe
the conversion will have a material adverse impact on our operations. However,
we cannot assure that we will be able to successfully modify all systems and
contracts to comply with Euro requirements.
LITIGATION
We are currently engaged in several legal matters. See "Legal Proceedings" in
Part II.
<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 have 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. Both Altera
and the Company have filed motions with the Court for summary judgement with
respect to certain of the issues pending in the litigation. Those motions are
still pending.
On July 22, 1998, Altera and Joseph Ward, a former Xilinx employee, filed suit
against the Company in Superior Court in Santa Clara County, California, arising
out of the Company's efforts to prevent disclosure of certain Company
confidential information. 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. 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.
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) 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 August 11, 1999 /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>
<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-01-2000
<PERIOD-START> APR-04-1999
<PERIOD-END> JUL-03-1999
<CASH> 110,897
<SECURITIES> 369,867
<RECEIVABLES> 95,803
<ALLOWANCES> 9,892
<INVENTORY> 66,081
<CURRENT-ASSETS> 781,424
<PP&E> 225,610
<DEPRECIATION> 92,744
<TOTAL-ASSETS> 1,168,273
<CURRENT-LIABILITIES> 193,879
<BONDS> 0
0
0
<COMMON> 1,573
<OTHER-SE> 935,406
<TOTAL-LIABILITY-AND-EQUITY> 1,168,273
<SALES> 211,403
<TOTAL-REVENUES> 211,403
<CGS> 79,758
<TOTAL-COSTS> 79,758
<OTHER-EXPENSES> 65,548
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5
<INCOME-PRETAX> 71,776
<INCOME-TAX> 20,815
<INCOME-CONTINUING> 51,615
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 51,615
<EPS-BASIC> 0.33 <F1>
<EPS-DILUTED> 0.31
<FN>
<F1> Represents basic earnings per share.
</TABLE>
