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 2, 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 November 2, 1999
----- --------------------------------------
Common Stock, $.01 par value 159,426,000
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
<CAPTION>
XILINX, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended Six Months Ended
(in thousands, except per share amounts) Oct. 2, Oct. 3, Oct. 2, Oct. 3,
1999 1998 1999 1998
-------- --------- -------- ---------
<S> <C> <C> <C> <C>
Net revenues . . . . . . . . . . . . . . . . . . . . . . . . $238,762 $156,515 $450,165 $306,040
Costs and expenses:
Cost of revenues. . . . . . . . . . . . . . . . . . . . 90,205 58,836 169,963 115,056
Research and development. . . . . . . . . . . . . . . . 29,345 22,560 55,354 43,363
Sales, general and administrative . . . . . . . . . . . 43,902 32,447 83,441 63,881
Write-off of in-process research and development. . . . 4,560 - 4,560 -
-------- --------- -------- ---------
Operating costs and expenses . . . . . . . . . . . 168,012 113,843 313,318 222,300
-------- --------- -------- ---------
Operating income . . . . . . . . . . . . . . . . . . . . . . 70,750 42,672 136,847 83,740
Interest income and other, net . . . . . . . . . . . . . . . 6,320 1,164 11,999 1,580
-------- --------- -------- ---------
Income before provision for taxes on income, equity
in joint venture and cumulative effect of change
in accounting principle. . . . . . . . . . . . . . . . . 77,070 43,836 148,846 85,320
Provision for taxes on income. . . . . . . . . . . . . . . . 22,350 13,589 43,165 26,449
-------- --------- -------- ---------
Income before equity in joint venture and cumulative
effect of change in accounting principle . . . . . . . . 54,720 30,247 105,681 58,871
Equity in income (loss) of joint venture . . . . . . . . . . 1,254 (2,381) 1,908 (4,994)
-------- --------- -------- ---------
Income before cumulative effect of change in . . . . . . . . 55,974 27,866 107,589 53,877
accounting principle
Cumulative effect of change in accounting principle. . . . . - - - (26,646)
-------- --------- -------- ---------
Net income . . . . . . . . . . . . . . . . . . . . . . . . . $ 55,974 $ 27,866 $107,589 $ 27,231
======== ========= ======== =========
Net income per share:
Basic
Income before cumulative effect of change in
accounting principle. . . . . . . . . . . . . . $ 0.35 $ 0.19 $ 0.68 $ 0.37
Cumulative effect of change in accounting principle. - - - (0.18)
-------- --------- -------- ---------
Basic net income per share . . . . . . . . . . . . . $ 0.35 $ 0.19 $ 0.68 $ 0.19
======== ========= ======== =========
Diluted
Income before cumulative effect of change in
accounting principle. . . . . . . . . . . . . . $ 0.33 $ 0.19 $ 0.63 $ 0.36
Cumulative effect of change in accounting principle. - - - (0.18)
-------- --------- -------- ---------
Diluted net income per share . . . . . . . . . . . . $ 0.33 $ 0.19 $ 0.63 $ 0.18
======== ========= ======== =========
Shares used in per share calculations:
Basic . . . . . . . . . . . . . . . . . . . . . . . . . 158,767 143,823 157,850 144,755
======== ========= ======== =========
Diluted . . . . . . . . . . . . . . . . . . . . . . . . 171,503 149,761 170,110 151,719
======== ========= ======== =========
<FN>
(See accompanying Notes to Condensed Consolidated Financial Statements.)
</TABLE>
<TABLE>
<CAPTION>
XILINX, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands) Oct. 2, April 3,
1999 1999
------------ -----------
<S> <C> <C>
(Unaudited) (1)
ASSETS
Current assets:
Cash and cash equivalents . . . . . . . . . . . $ 75,904 $ 53,584
Short-term investments. . . . . . . . . . . . . 352,343 348,888
Accounts receivable, net. . . . . . . . . . . . 94,809 73,409
Inventories . . . . . . . . . . . . . . . . . . 82,909 52,036
Advances for wafer purchases. . . . . . . . . . 55,649 59,450
Deferred income taxes and other current assets. 119,853 70,342
------------ -----------
Total current assets. . . . . . . . . . . . . . . . 781,467 657,709
Property, plant and equipment, at cost. . . . . . . 244,841 187,482
Accumulated depreciation and amortization . . . . . (99,697) (85,777)
------------ -----------
Net property, plant and equipment . . . . . . . 145,144 101,705
Long-term investments . . . . . . . . . . . . . . . 173,517 94,002
Restricted investments. . . . . . . . . . . . . . . 34,358 34,358
Investment in joint venture . . . . . . . . . . . . 97,960 91,057
Advances for wafer purchases. . . . . . . . . . . . 4,600 36,694
Developed technology and other assets, net. . . . . 40,598 54,723
------------ -----------
TOTAL ASSETS. . . . . . . . . . . . . . . . . . . . $ 1,277,644 $1,070,248
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable. . . . . . . . . . . . . . . . $ 32,040 $ 23,326
Accrued payroll and other accrued liabilities . 36,907 32,164
Income tax payable. . . . . . . . . . . . . . . 33,869 25,998
Deferred income on shipments to distributors. . 87,637 85,709
------------ -----------
Total current liabilities . . . . . . . . . . . . . 190,453 167,197
Deferred tax liabilities. . . . . . . . . . . . . . 22,796 23,733
Put warrants. . . . . . . . . . . . . . . . . . . . 46,320 -
Stockholders' equity:
Preferred stock, $.01 par value . . . . . . . . - -
Common stock, $.01 par value . . . . . . . . . 1,592 1,562
Additional paid-in capital. . . . . . . . . . . 316,035 293,231
Retained earnings . . . . . . . . . . . . . . . 714,649 607,060
Treasury stock, at cost . . . . . . . . . . . . - (5,112)
Accumulated other comprehensive income. . . . . (14,201) (17,423)
------------ -----------
Total stockholders' equity. . . . . . . . . . . . . 1,018,075 879,318
------------ -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY. . . . . $ 1,277,644 $1,070,248
============ ===========
<FN>
(1) Derived from audited financial statements.
(See accompanying Notes to Condensed Consolidated Financial Statements.)
</TABLE>
<TABLE>
<CAPTION>
XILINX, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended
(in thousands) Oct. 2, Oct. 3,
1999 1998
------------ ----------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS<S> <C> <C>
Cash flows from operating activities:
Net income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 107,589 $ 27,231
Adjustments to reconcile net income to net cash provided by operating
activities:
Cumulative effect of change in accounting principle. . . . . . . . . . . . . - 26,646
Depreciation and amortization. . . . . . . . . . . . . . . . . . . . . . . . 18,473 15,186
Write-off of in-process research and development . . . . . . . . . . . . . . 4,560 -
Undistributed (earnings) / losses of joint venture . . . . . . . . . . . . . (1,908) 4,994
Changes in assets and liabilities:
Accounts receivable. . . . . . . . . . . . . . . . . . . . . . . . . (21,400) (13,159)
Inventories. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,900 26,267
Other prepaid assets . . . . . . . . . . . . . . . . . . . . . . . . (31,204) (4,001)
Deferred income taxes and other assets . . . . . . . . . . . . . . . (13,277) (441)
Accounts payable, accrued liabilities and income taxes payable . . . 47,816 13,556
Deferred income on shipments to distributors . . . . . . . . . . . . 1,928 8,503
------------ ----------
Total adjustments. . . . . . . . . . . . . . . . . . . . . . 13,888 77,551
------------ ----------
Net cash provided by operating activities . . . . . . . 121,477 104,782
Cash flows from investing activities:
Purchases of available-for-sale investments . . . . . . . . . . . . . . . . . . . . . . (1,293,289) (405,320)
Proceeds from sale or maturity of available-for-sale investments. . . . . . . . . . . . 1,208,627 312,436
Purchases of restricted held-to-maturity investments. . . . . . . . . . . . . . . . . . - (36,228)
Proceeds from maturity of restricted held-to-maturity investments . . . . . . . . . . . - 36,145
Property, plant and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (30,021) (17,287)
Investment in joint venture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - (5,448)
Acquisition of the CPLD business from Phillips. . . . . . . . . . . . . . . . . . . . . (22,750) -
------------ ----------
Net cash used in investing activities. . . . . . . . . (137,433) (115,702)
Cash flows from financing activities:
Acquisition of treasury stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (5,289) (105,426)
Proceeds from issuance of common stock. . . . . . . . . . . . . . . . . . . . . . . . . 38,517 19,379
Proceeds from sales of put warrants . . . . . . . . . . . . . . . . . . . . . . . . . . 5,048 -
------------ ----------
Net cash provided by / (used in) financing activities. 38,276 (86,047)
------------ ----------
Net increase / (decrease) in cash and cash equivalents. . . . . . . . . . . . . . . . . . . 22,320 (96,967)
Cash and cash equivalents at beginning of period. . . . . . . . . . . . . . . . . . . . . . 53,584 166,861
------------ ----------
Cash and cash equivalents at end of period. . . . . . . . . . . . . . . . . . . . . . . . . $ 75,904 $ 69,894
============ ==========
Schedule of non-cash transactions:
Tax benefit from stock options. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 35,990 $ 7,925
Issuance of treasury stock under employee stock plans . . . . . . . . . . . . . . . . . 10,400 47,026
Supplemental disclosures of cash flow information:
Interest paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 6,466
Income taxes paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 11,164 $ 15,233
<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 and
six-month period ended October 2, 1999 are not necessarily indicative of the
results that may be expected for the year ending April 1, 2000. The three-month
and six-month periods ended October 2, 1999 consisted of thirteen and twenty-six
weeks, respectively. The three-month and six-month periods ended October 3,
1998 consisted of fourteen and twenty-seven weeks, respectively.
2. Inventories are stated at the lower of cost (first-in, first-out) or
market (estimated net realizable value). Inventories at October 2, 1999 and
April 3, 1999 are as follows:
<TABLE>
<CAPTION>
(in thousands) Oct. 2, April 3,
1999 1999
-------- ---------
<S> <C> <C>
Raw materials. . $ 7,258 $ 5,139
Work-in-process. 49,846 27,824
Finished goods . 25,805 19,073
-------- ---------
$ 82,909 $ 52,036
======== =========
</TABLE>
3. The computation of basic net income 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 per share. The total shares used in the denominator of the
diluted net income per share calculation includes 12.7 million and 12.3 million
incremental common shares attributable to outstanding options for the second
quarter and first six months of fiscal year 2000, respectively, as compared to
5.9 million and 7.0 million in the comparable fiscal 1999 periods, respectively.
Outstanding options to purchase approximately 0.3 million and 0.2 million shares
for the second quarter and first six months of fiscal year 2000, respectively,
and 11.6 million and 8.8 million shares in the comparable fiscal 1999 periods,
respectively, under the Company's Stock Option Plan were not included in the
treasury stock calculation to derive diluted net income per share as their
inclusion would have had an anti-dilutive effect. In addition, the put warrants
disclosed in Note 7 did not have any impact on basic or diluted net income per
share in the three and six months ended October 2, 1999 as their inclusion would
have had an anti-dilutive effect.
4. The components of comprehensive income for the three and six month
periods ended October 2, 1999 and October 3, 1998 are as follows:
<TABLE>
<CAPTION>
Three months ended Six months ended
(in thousands) Oct. 2, Oct. 3, Oct. 2, Oct. 3,
1999 1998 1999 1998
--------- -------- --------- ---------
<S> <C> <C> <C> <C>
Net income . . . . . . . . . . . . . . . . . . $ 55,974 $ 27,866 $107,589 $ 27,231
Cumulative translation adjustment. . . . . . . 3,346 (2,360) 4,237 (4,495)
Unrealized (loss) /gain on available for sale
Securities, net of tax. . . . . . . . . . (215) 102 (1,015) 20
--------- --------- --------- ---------
Comprehensive income . . . . . . . . . . . . . $ 59,105 $ 25,608 $110,811 $ 22,756
========= ========= ========= =========
</TABLE>
The components of accumulated other comprehensive income (loss) at October 2,
1999 and April 3, 1999 are as follows:
<TABLE>
<CAPTION>
(in thousands) Oct. 2, April 3,
1999 1999
--------- ----------
<S> <C> <C>
Cumulative translation adjustment . . . . . . . $(13,418) $ (17,655)
Unrealized (loss) / gain on available for sale
Securities, net of tax. . . . . . . . . . . (783) 232
--------- ----------
Accumulated other comprehensive income (loss) . $(14,201) $ (17,423)
========= ==========
</TABLE>
5. We are 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. Xilinx, 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). We have a 20% equity ownership in
USIC and have the right to receive up to 31.25% of the wafer capacity from this
facility. We are accounting for this investment using the equity method of
accounting with a one-month lag in recording our share of results for the
entity.
In June 1999, we were informed by UMC Group that our 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 we will
obtain following the merger, if consummated.
7. Our Board of Directors approved stock repurchase programs that allow us
to repurchase shares of our common stock. During the first six months of fiscal
2000, we repurchased 124,000 shares of common stock under our authorized
repurchase program at a cost of $5.3 million. In conjunction with the stock
repurchase program, during the six months ended October 2, 1999, we sold put
warrants that entitle the holder of each warrant to sell to us, by physical
delivery, one share of common stock at a specified price, ranging from $52 to
$68 per share. The outstanding put warrants will expire at various dates
through March 2000.
The put warrants have been classified separately on the balance sheet to reflect
our maximum potential obligation of $46.3 million to buy back 750,000 shares of
Common Stock as of October 2, 1999. During October 1999, 250,000 shares of put
warrants expired unexercised.
8. In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133, (FASB 133), "Accounting for
Derivative Instruments and Hedging Activities", which requires adoption in
fiscal years beginning after June 15, 2000 while earlier adoption is permitted
at the beginning of any fiscal quarter. We are required to adopt by fiscal
2002. The effect of adopting the Standard is currently being evaluated but is
not expected to have a material effect on our consolidated results of operations
or financial position. FASB 133 will require us to recognize all derivatives on
the balance sheet at fair value. Derivatives that are not hedges must be
adjusted to fair value through income. If the derivative is a hedge, depending
on the nature of the hedge, changes in the fair value of derivatives will either
be offset against the change in fair value of the hedged assets, liabilities, or
firm commitments through earnings or recognized in accumulated other
comprehensive income until the hedged item is recognized in earnings. The
ineffective portion, if any, of a derivative's change in fair value will be
immediately recognized in earnings.
9. We completed the acquisition of Philips Seminconductors' line of
low-power complex programmable logic devices (CPLDs) on August 2, 1999. The
total cost, including acquisition related fees, was approximately $22.8 million.
The purchase price allocation based on an independent appraisal resulted in a
$4.6 million charge to research and development in the second quarter. The
acquired in-process technology represents the appraised value of technologies in
the development stage that had not yet reached technological feasibility and
does not have alternative future uses.
10. On October 18, 1999, our Board of Directors approved a 2 for 1 split of
our Common Stock, which will be effected in the form of a 100% stock dividend.
The stock split is subject to the approval of Xilinx shareholders, who must
approve an amendment to the Company's articles of incorporation to increase our
authorized common stock. Subject to such approval, shareholders of record as
of December 17, 1999 would receive one additional share of Common Stock for
every share held, to be distributed on December 27, 1999. Shares, per share
amounts, common stock at par value, and additional paid-in capital have not been
restated to reflect the stock split.
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 2000
- --------------------------------------------------------------------------------
COMPARED TO THE SECOND QUARTER AND FIRST SIX MONTHS OF FISCAL 1999
- -----------------------------------------------------------------------------
NET REVENUES
Net revenues of $238.8 million in the second quarter of fiscal 2000 represented
a 52.5% increase from the comparable prior year quarter of $156.5 million.
Revenues for the first six months of fiscal 2000 were $450.2 million, a 47.1%
increase from the prior year comparable period. 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
our mature XC4000, XC3000 and XC2000 families.
We currently classify our product offerings into four categories. Base products
consist of our mature product families that are currently manufactured on
technologies of 0.6 micron and larger; this includes the XC2000, XC3000, XC3100,
XC4000 and XC7000 families. Mainstream products are currently manufactured on
0.35 and 0.5 micron technologies and include the XC4000E, XC4000EX, XC4000XL,
XC5200, XC9500, XC9500XL, Spartan and CoolRunner product lines. Advanced
products include our newest technologies manufactured on 0.25 micron and
smaller, which include the XC4000XV, XC4000XLA, Spartan XL and Virtex product
lines. Our Support products make up the remainder of our product offerings and
include serial proms, HardWire, and software. Revenues of Advanced products
increased to $60.5 million and $98.0 million in the second quarter and first six
months of fiscal 2000, from $1.0 million and $1.1 million in the prior year
comparable periods. The increases are due to the introduction and strong market
acceptance of XC4000XLA, Spartan XL and Virtex products. During the same three-
and six-month periods, revenues of Mainstream products increased to $128.6
million and $250.4 million from $99.5 million and $189.3 million in the prior
year periods. This is attributable mainly to growth in the XC4000XL, Spartan,
and XC9500, along with the acquisition of CoolRunner and introduction of
XC9500XL. Revenues of Base products decreased to $29.5 million and $61.2
million from $35.7 million and $77.2 million from prior year periods. The
XC3000 and XC4000 products experienced decreases as customers migrated to newer
product offerings. Revenues of Support products remain relatively flat at $20.2
million and $40.6 million in the fiscal 2000 three- and six-month periods
compared to $20.3 million and $38.4 million in the respective fiscal 1999
periods. We have historically been able to offset much of the revenue declines
of our mature technologies with increased revenues from newer technologies,
although no assurance can be given that we can continue to do so in the future.
The recent earthquakes in Taiwan did not impact the financial results in the
second quarter of fiscal 2000 and we expect little impact on our financial
results for the third fiscal quarter.
International revenues represented approximately 32.2%, and 31.5% of total
revenues in the second quarter and first six months of fiscal 2000 as compared
to 31.4%, and 33.7% in the prior year periods. International revenues are
derived from customers in Europe, Japan and Asia Pacific/Rest of World.
Revenues from Europe increased to $48.2 million and $87.8 million during the
second quarter and first six months of fiscal 2000, compared to $33.0 million
and $68.4 million in the prior year periods. Japan increased to $15.4 million
and $30.0 million during the second quarter and first six months of fiscal 2000,
compared to $10.0 million and $22.8 million in the prior year periods. Asia
Pacific/Rest of World increased to $13.3 million and $24.2 million during the
second quarter and first six months of fiscal 2000, compared to $6.1 million and
$12.0 million in the prior year periods. The European revenue increases are due
to several customer programs commencing production. The revenue increases in
Japan are the result of the stronger Japanese economy and a weaker dollar. Asia
Pacific/Rest of World experienced significant increases in revenue as a result
of economic recovery in those regions following the economic downturn a year
ago.
GROSS MARGIN
Gross margin was $148.6 million and $280.2 million for the second quarter and
first six months of fiscal 2000, respectively, or 62.2% of revenues for both
periods. Gross margin for the comparable periods of fiscal 1999 were $97.7
million and $191.0 million, respectively, or 62.4% of revenues for both periods.
Gross margin remained relatively flat as we continue to benefit from cost
improvements, manufacturing process technology advances and improved yields that
offset selling price reductions. We recognize that ongoing price reductions for
our integrated circuits are a significant element in expanding the market for
our products. Management believes that gross margin objectives of approximately
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 $29.3 million for the second quarter
and $55.4 million for the first six months of fiscal 2000, or 12.3% of revenues
for both periods. Research and development expenditures for the comparable
periods in the prior year were $22.6 million and $43.4 million, or 14.4% and
14.2% of revenues, respectively. Although total expenditures on research and
development increased significantly, they decreased as a percent of revenue
because of strong revenue growth. The 27.7% increase in expenditures over the
prior year's six month period was primarily due to 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, along with increased costs associated with the acquisition of the
CPLD business from Philips Semiconductors . We remain committed to a
significant level of research and development effort in order to continue to
maintain our technology leadership in the programmable logic marketplace.
SALES, GENERAL AND ADMINISTRATIVE
Sales, general and administrative expenses were $43.9 million, or 18.4% of
revenues and $83.4 million or 18.5% of revenues for the second quarter and first
six months of fiscal 2000, respectively. They were $32.4 million, or 20.7% of
revenues and $63.9 million or 20.9% of revenues in the comparable prior year
periods. Although total sales, general and administrative expenses increased,
they decreased as a percent of revenue because of strong revenue growth. The
increases in sales, general and administrative expenses were primarily
attributable to increased marketing expenses for new product introductions,
increased sales costs on higher revenues along with increased personnel and
facilities expenses. We remain committed to controlling administrative
expenses. However, the timing and extent of future legal costs associated with
the ongoing enforcement of our 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 increased to $6.3 million in the second quarter
of fiscal 2000 from $1.2 million in the prior year second quarter, and increased
to $12.0 million in the first six months of fiscal 2000 from $1.6 million in the
prior year's comparable period. The increases were primarily due to the
decrease in interest expense related to the convertible notes which were
redeemed in the fourth quarter of fiscal 1999. In addition, average cash and
investment balances have increased in both the second quarter and the first six
months of fiscal 2000 as compared to the prior year periods resulting in
increased interest income of $1.7 million and $3.1 million over the respective
prior year periods. The amount of net interest and other income in the future
will continue to be impacted by the level of our average cash and investment
balance, prevailing interest rates, and foreign currency exchange rates.
PROVISION FOR INCOME TAXES
We recorded a tax provision of $22.4 million and $43.2 million for the second
quarter and first six months of fiscal 2000, representing effective tax rates of
29.0% for both periods. We recorded a provision of $13.6 million and $26.4
million for the second quarter and first six months of fiscal 1999, representing
effective tax rates of 31.0% for both periods. The lower tax rate in fiscal
2000 is primarily due to increased profits in foreign jurisdictions where the
tax rate is lower than the U.S. rate.
JOINT VENTURE EQUITY INCOME
We record our 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). We recorded $1.3 million and $1.9 million equity
in income of joint venture for the second quarter and the first six months of
fiscal 2000, respectively, as compared to $2.4 million and $5.0 million equity
in net losses of joint venture in the prior year periods, respectively. The
fiscal 1999 equity in net losses of joint venture were a result of the early
stage in the production ramp of the wafer fabrication facility. The fiscal 2000
net gains were recorded as USIC began to have volume wafer production and
shipments.
HEDGING
We use forward currency exchange contracts to reduce financial market risks.
Our sales to Japanese customers are denominated in yen while our 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, we have also begun
to share the yen exchange rate risk with some of our Japanese customers through
risk sharing agreements. As we will continue to have a net yen exposure in the
near future, we will continue to mitigate the exposure through yen hedging
contracts. No currency forward contracts were outstanding as of October 2,
1999.
INFLATION
To date, the effects of inflation upon our financial results have not been
significant.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
- ---------------------------------------------------------
Our financial condition at October 2, 1999 remained strong. Total current
assets exceeded total current liabilities by 4.1 times, compared to 3.9 times at
April 3, 1999. We have 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.
We continued to generate positive cash flows from operations during the first
six months of fiscal 2000. As of October 2, 1999, we had cash, cash equivalents
and short-term investments of $428.2 million and working capital of $591.0
million. Cash generated by operations of $121.5 million for the first six
months of fiscal 2000 was $16.7 million higher than the $104.8 million generated
from the first six months of fiscal 1999. Increases in cash generated by
operations resulted primarily from the cash flow impact of increased net income,
and increases in accounts payable, accrued liabilities and income taxes payable,
which were partially offset by increases in accounts receivable and prepaids
related to a building deposit.
Cash flows used for investing activities during the six months ended October 2,
1999 included net investment purchases of $84.7 million, $30.0 million for
property, plant and equipment and $22.8 million for assets purchased from
Philips' CPLD business. During the first six months of fiscal 1999, investing
activities included net short-term investment purchases of $92.9 million, $17.3
million of property, plant and equipment acquisitions and an additional $5.4
million equity investment in the USIC joint venture.
Net cash flows provided by financing activities were $38.3 million in the first
six months of fiscal 2000 and were attributable to $38.5 million in proceeds
from the issuance of common stock under employee stock plans and $5.0 million in
proceeds from sales of put warrants, offset by acquisition of treasury stock of
$5.3 million. For the comparable fiscal 1999 period, cash used in financing
activities included $105.4 million in acquisition of treasury stock partially
offset by $19.4 million of proceeds from employee stock plans.
Stockholders' equity increased by $138.8 million during the first six months of
fiscal 2000, principally as a result of the $107.6 million in net income for the
six months ended October 2, 1999. In addition, the proceeds from the issuance
of common stock under employee stock plans of $38.5 million, related tax
benefits from stock options of $36.0 million, and $5.0 million in proceeds from
sales of put warrants contributed to the increase, which were partially offset
by the transfer of $46.3 million from equity to put warrants, and $5.3 million
in acquisition of treasury stock.
We have available credit facilities for up to $46.2 million of which $6.2
million is intended to meet occasional working capital requirements for our
wholly owned Irish subsidiary. At October 2, 1999, no borrowings were
outstanding under the lines of credit.
We anticipate that existing sources of liquidity and cash flow from operations
will be sufficient to satisfy our cash needs for the foreseeable future. We
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 our
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 in 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.
Our joint venture in Taiwan and many of our operations in California are
centered in areas that have been seismically active, as demonstrated by the
recent earthquakes in Taiwan. Those earthquakes disrupted manufacturing
activities at our joint venture for approximately 10 days. We expect little
impact on next quarter's financial results because we increased our wafer starts
earlier due to tightening foundry capacity and Year 2000 inventory planning.
Should there be a major earthquake in our operating locations in the future, our
operations may again 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 (such as the
substantial earthquakes that occurred in Taiwan on September 21, 1999 and
October 22, 1999), 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 large part upon our ability to obtain additional 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;
- market acceptance; and
- successful deployment of systems by our customers.
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 logic industry, 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 segment. We believe that important
competitive factors in the programmable logic business 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 industry 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 ASIC devices, including custom CMOS gate arrays and
standard cells;
- 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 and
processors.
We compete with custom gate array manufacturers on the basis of lower design
costs, shorter development schedules, reduced inventory risks and field
upgradability. The CMOS gate array market has been declining, and gate arrays
are being replaced by other logic options. 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 our efforts to compete are not successful, our financial
condition and results of operations could be materially adversely affected.
The benefits of programmable logic have attracted a number of competitors.
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 industry.
Several companies, both large and small, have introduced products that compete
with ours or have announced their intention to enter this market segment. 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.
Lattice Semiconductor 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. We recently applied final patches to internal information
systems, and believe that after applying these patches, these systems are now
Year 2000 compliant, although we cannot assure that they are. Electronic data
interchange modifications that are intended to ensure all dates are handled
properly have been completed, although we cannot assure that all dates will be
handled properly. We have completed the necessary upgrades with regard to all
information technology hardware, including desktops, servers, networking and
telecom equipment.
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 no more 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 that all internal networks and desktops would be operational, nor would
we be able to ensure that third party vendors would be 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.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
INTEREST RATE RISK
Our exposure to interest rate risk relates primarily to our investment
portfolio. Our primary aim with our investment portfolio is to invest available
cash while preserving principal and meeting liquidity needs. The portfolio
includes tax-advantaged municipal bonds, tax-advantaged auction rate preferred
municipal bonds, certificates of deposit, and U.S. Treasury securities. In
accordance with our investment policy, we place investments with high credit
quality issuers and limit the amount of credit exposure to any one issuer.
These securities are subject to interest rate risk and will decrease in value if
market interest rates increase. A hypothetical 10% increase in interest rates
would not materially affect the fair value of our available-for-sale securities.
FOREIGN CURRENCY RISK
We use forward currency exchange contracts to reduce financial market risks.
Our sales to Japanese customers are denominated in yen while our 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. A 15% adverse change in yen
exchange rates based on historical average rate fluctuations would have had
approximately a 1.0% adverse impact on revenue for the six months ended in
fiscal years 2000 and 1999.
We have several subsidiaries and an equity investment in the USIC joint venture
whose financial statements are recorded in currencies other than the U.S.
dollar. As these foreign currency financial statements are translated at each
month end during consolidation, fluctuations of exchange rates between the
foreign currency and the U.S. dollar increase or decrease the value of those
investments. If permanent changes occur in exchange rates after an investment
is made, the investment's value will increase or decrease accordingly. These
fluctuations are recorded as a component of stockholders' equity as a component
of accumulated other comprehensive income. To date, the USIC joint venture has
recorded $13.6 million in cumulative translation adjustments, as the New Taiwan
dollar has decreased in value against the U.S. dollar. Also, as our
subsidiaries and the USIC joint venture maintain investments denominated in
other than local currencies, exchange rate fluctuations will occur.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
On June 7, 1993, we filed suit against Altera Corporation (Altera) in the United
States District Court for the Northern District of California for infringement
of certain of our patents. Subsequently, Altera filed suit against Xilinx,
alleging that certain of our 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 Xilinx
in the Federal District Court in Delaware, alleging that our XC5200 family
infringes an Altera patent. We 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 our 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 Xilinx filed motions with the Court for summary judgement with
respect to certain of the issues pending in the litigation. On October 4, 1999,
the Court ruled on all but two of the motions. As a result of those rulings,
one of Altera's patents allegedly infringed by Xilinx was declared invalid, and
claims based on that patent were dismissed. On October 20, 1999, the Court
found that a second Altera patent was not infringed by Xilinx and dismissed all
claims based on that patent. As a result of these rulings, Altera is left with
one patent allegedly infringed by Xilinx. Our Motion for Summary Judgment on
that patent remains pending. The Court's rulings also dismissed certain claims
by us, leaving intact claims of infringement of three Company patents by Altera.
On July 22, 1998, Altera and Joseph Ward, a former Xilinx employee, filed suit
against Xilinx in Superior Court in Santa Clara County, California, arising out
of our efforts to prevent disclosure of certain Company confidential
information. Altera's suit requests declaratory relief and claims Xilinx
engages in unfair business practices and interference with contractual
relations. On September 10, 1998 we 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 Xilinx for malicious prosecution of civil action and defamation. On
September 15, 1999, the Court dismissed all of our claims against Altera and Mr.
Ward, finding that we were unable to show any damages we suffered as a result of
Mr. Ward's move to Altera. Claims against Xilinx are still pending.
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 is no other pending legal proceedings of a material nature to which we are
a party or of which any of our property is the subject. We know 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,
1999.
(1) Election of directors
Votes For Votes Against
---------- --------------
Bernard V. Vonderschmitt 138,390,430 398,712
Willem P. Roelandts 138,504,206 284,936
John L. Doyle 138,488,985 300,157
Philip T. Gianos 138,509,346 279,796
William Howard 138,498,743 290,399
Frank S. Sanda 135,769,144 3,019,998
(2) To ratify and approve an amendment to the Company's 1997 Stock
Option Plan to provide for an automatic annual increase in the number of shares
available for issuance under the 1997 Stock Plan beginning in 2000 and
continuing through 2004.
For Against Abstain No Vote
--- ------- ------- --------
73,041,669 49,923,313 190,461 15,633,699
(3) 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 1,000,000 shares.
For Against Abstain No Vote
--- ------- ------- --------
117,745,064 6,040,885 183,278 14,819,915
(4) To ratify the appointment of Ernst & Young LLP as independent
auditors of the Company for the fiscal year ended April 1, 2000.
For Against Abstain No Vote
--- ------- ------- --------
138,619,173 45,567 124,402 0
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits None
(b) Reports on Form 8-K None
Items 2, 3 and 5 are not applicable and have been omitted.
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 8, 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)
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<LEGEND>
This schedule contains summary information extracted from Xilinx, Inc.'s
CONSOLIDATED STATEMENTS OF INCOME AND CONSOLIDATED 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-01-2000 APR-01-2000
<PERIOD-START> JUL-04-1999 APR-04-1999
<PERIOD-END> OCT-02-1999 OCT-02-1999
<CASH> 75,904 75,904
<SECURITIES> 352,343 352,343
<RECEIVABLES> 103,692 103,692
<ALLOWANCES> 8,883 8,883
<INVENTORY> 82,909 82,909
<CURRENT-ASSETS> 781,467 781,467
<PP&E> 244,841 244,841
<DEPRECIATION> 99,697 99,697
<TOTAL-ASSETS> 1,277,644 1,277,644
<CURRENT-LIABILITIES> 190,453 190,453
<BONDS> 0 0
0 0
0 0
<COMMON> 1,592 1,592
<OTHER-SE> 1,016,483 1,016,483
<TOTAL-LIABILITY-AND-EQUITY> 1,277,644 1,277,644
<SALES> 238,762 450,165
<TOTAL-REVENUES> 238,762 450,165
<CGS> 90,205 169,963
<TOTAL-COSTS> 90,205 169,963
<OTHER-EXPENSES> 77,807 143,355
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 5
<INCOME-PRETAX> 77,070 148,846
<INCOME-TAX> 22,350 43,165
<INCOME-CONTINUING> 55,974 107,589
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 55,974 107,589
<EPS-BASIC> 0.35 0.68
<EPS-DILUTED> 0.33 0.63
</TABLE>
