<PAGE>
SECURITIES AND EXCHANGE COMMISSION WASHINGTON DC 20549
FORM 10-K
(Mark One)
[X] Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934 for the fiscal year ended September 30, 2000
[_] Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 Commission File No. 0-19856
XIRCOM, INC.
2300 Corporate Center Drive
Thousand Oaks, California 91320
Telephone: (805) 376-9300
California (State of Incorporation)
95-4221884 (IRS Employer Identification No.)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Title of Class: Common Stock, $.001 Par Value
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 filing
requirements for the past 90 days. Yes [X] No [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [_]
Based on the closing sale price of the Common Stock on the Nasdaq Stock Market
on November 1, 2000, the aggregate market value of the voting stock held by
non-affiliates of the Registrant was $378,832,637. Shares of Common Stock held
by each officer and director and by each person who owns 5% or more of the
outstanding Common Stock have been excluded in that such persons may be deemed
to be affiliates. This determination of affiliate status is not necessarily a
conclusive determination for other purposes.
The number of shares outstanding of Registrant's Common Stock, $.001 par value,
was 29,698,692 as of November 1, 2000.
DOCUMENTS INCORPORATED BY REFERENCE
Part III incorporates information by reference from the Registrant's Proxy
Statement for its Annual Meeting of Shareholders to be held on January 19, 2001.
1 XIRCOM, INC.
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PART 1
ITEM 1. BUSINESS
This Annual Report contains trend analysis and other forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. Actual results
could differ materially from those projected in the trend analysis and other
forward-looking statements contained herein, as a result of the risk factors set
forth elsewhere in this report.
Xircom is a leading global provider of mobile networking and information access
solutions for mobile computer users. Our connectivity solutions allow mobile
users worldwide to connect notebook and handheld computers to corporate
networks, the Internet, intranets, extranets, and other online resources. We are
focused on the design, development, manufacture, marketing and support of mobile
information access products for notebook and handheld computers and other
computing devices. Our products are recognized for innovative technology, high
reliability and broad compatibility. We sell and support our products in over
100 countries through distributors, resellers, electronic channels and global
original equipment manufacturer ("OEM") partnerships. Headquartered in Thousand
Oaks, California, we have regional headquarters in Belgium and Singapore, and
have 1,900 employees worldwide.
We were founded in 1988, and pioneered the use of the personal computer ("PC")
parallel port to connect notebook PCs to local area networks ("LANs"). Our
Pocket LAN Adapter(TM) product established the mobile information access market,
and by 1992, had become the leading solution for connecting notebook PCs to
LANs. In 1992, we became the first company in the industry to ship a LAN adapter
compliant with the standards set by the Personal Computer Memory Card
International Association ("PCMCIA" or "PC Card"). In 1994 and 1995, we expanded
our offerings to include multi-function LAN+Modem ("Combo card") and modem-only
PC Cards. In 1998, we introduced our patented RealPort(TM) Integrated PC Card
with its built-in connector system, which eliminates external cables and solves
a major problem faced by mobile users of PC Cards--broken, lost or forgotten
cables and broken pop-out jacks.
In June 2000, we announced an acquisition, which is strategic to our positioning
as a unique provider of both wired and wireless data access solutions. On June
27, 2000, we acquired Omnipoint Technologies Inc. ("OTI") from VoiceStream(TM)
Wireless Corporation ("VoiceStream"). Concurrent with the acquisition of OTI, we
formed an alliance with VoiceStream, the largest US provider of Global System
for Mobile Communications ("GSM")-based personal communications services. The
acquisition and strategic alliance are expected to enhance our position in the
wireless data access market by adding GSM, and General Packet Radio Service
("GPRS") products and technology to our Wide Area Network ("WAN") data access
solutions, and provide us with an entry into a GSM market estimated to reach 400
million users worldwide by the year-end 2001. We further expect that this
acquisition and alliance with VoiceStream will allow us to provide GSM and GPRS
wireless solutions enabling mobile users to access the Internet, retrieve email,
and connect to home and office networks with speeds up to 115 Kbps, depending
upon network operators' service offerings.
In 1999, we entered the market for sub-handheld devices by purchasing the Rex(R)
PC Card Organizer product line from Franklin Electronic Publishers,
Incorporated. During November 2000, we introduced the REX 6000 MicroPDA. The Rex
6000 MicroPDA is a micro-personal digital assistant ("MicroPDA"), which includes
a touch screen and stylus for input and access of data, and allows the user to
customize and download web content through our www.rex.net website. The Rex
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family of products includes an organizer, contact list, to-do list, memo pad,
world clock, and web synchronization capability, all in a PC Card form factor.
During January 2000, we extended our RealPort Integrated PC Card family, which
features built-in connectors, with the RealPort2(TM) Integrated PC Card. The
RealPort2 Integrated PC Card can be used alone or mixed and matched with other
RealPort2 Integrated PC Cards, enabling notebook users to purchase the exact
combination of communication technologies that they need.
2 XIRCOM, INC.
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In 1999 we began shipping our first MiniPCI form factor 56K modems, and during
the first half of fiscal 2000 began shipping MiniPCI form factor LAN Adapters
and Combo cards. MiniPCI provides OEMs with a flexible and low cost
configuration alternative for communications functionality in notebook computers
and handheld PCs. It incorporates the same essential electronics, functionality,
and software drivers of standard PCI expansion devices into a very small
daughter card that OEMs can connect to the motherboard within the device.
During August 2000, we introduced our SpringPort Modem 56 GlobalACCESS
Springboard(TM) module for the Handspring Visor. The SpringPort modem is
designed for use with the Visor's Springboard(TM) expansion slot to provide
users with remote access to information from their handheld computer.
Also during August 2000, we expanded our universal serial bus ("USB") product
offerings through the introduction of our PortStation(TM) ADSL USB modem module
allowing asynchronous digital subscriber line ("ADSL") Internet access at speeds
over 100 times the download speed of a 56Kbps modem.
Market Background
LANs and the Internet offer greater productivity and lower systems costs by
enabling workgroups and geographically dispersed organizations to share
information, applications and resources, such as printers, file servers and
communication devices. Wide area networking has created "enterprise networks" of
broadly interconnected PCs that can access LANs from almost any location.
Simultaneous with the growth in both LANs and the Internet, continuing
technological advances have been made in portable PCs, often referred to as
laptop or notebook computers. An increasingly mobile workforce requiring a
higher level of productivity is driving the growing use of notebook PCs. Today,
mobile professionals travel frequently among a variety of locations including
office, home, airport, automobile, hotel, branch offices or customer sites. In
addition, notebooks PCs are becoming the machines of choice in the education
market.
Competitive and productivity demands are requiring an ever-larger number of
mobile professionals to maintain continual connectivity to their corporate
intranets, email and the Internet. This trend toward mobile computing has
resulted in the increased use of notebook PCs and handheld computing devices
both on the road and in the office. International Data Corporation ("IDC")
estimates that the total remote and mobile computing workforce in the U.S.,
including work extenders, mobile professionals, telecommuters and mobile data
collectors, will be 42.5 million people in 2001, increasing to 55.4 million in
2004. These industry trends are creating a strong demand for notebook computers.
IDC estimates that total worldwide notebook PC shipments will be 31.4 million
units in 2001 and 46.3 million in 2004.
In connection with the growth of notebook PCs over the last several years, there
has been a significant increase in the number of PC users accessing a corporate
network, the Internet or an online service from a "remote" location. To do so
requires a modem on the client PC or other computing device and a remote access
server or communications server on the corporate network. The modem market has
grown substantially over the last several years, and today nearly all notebook
PCs are equipped with a modem.
The principal devices for portable computing connectivity are the PC Card, a
credit card-sized electronic component that can be inserted into a slot on a
portable computer, and the MiniPCI card, a very small daughter card that OEMs
can connect to the motherboard within a PC. The PC Card and MiniPCI card can
include a modem, LAN connection, or a combination of these. Cahners In-Stat
Group estimates that in the year 2001 14.4 million PC Cards and 12.3 million
MiniPCI LAN, modem and combo cards will be shipped worldwide.
We expect the proliferation of wireless-ready handheld computing and
communications devices coupled with the reliance on data and messaging as a
primary communications medium and the resultant demand for
3 XIRCOM, INC.
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connectivity to increase the already intense demand for continual connectivity.
EMC World Cellular Database estimates that the market for GSM subscribers will
grow from approximately 300 million at the end of 2000 to over 600 million by
the end of 2003. EMC World Cellular Database also estimates that an additional
100 million TDMA (Time Division Multiple Access) subscribers will become part of
this market when the IS-136 standard converges with GSM with the adoption of
EDGE (Enhanced Data Rates for Global Evolution) in 2001-2002. Cahners In-Stat
Group estimates that the market for worldwide wireless Internet subscribers will
grow from 33 million in 2000 to nearly 743 million in 2004.
Product Considerations
We believe two major considerations are particularly important within our set of
PC Card, Integrated PC Card and MiniPCI products: communication technologies and
the evolution of form factor.
Communication Technologies. Our vision is to enable mobile information access in
--------------------------
an environment of varying communication options and at ever-increasing speeds.
The table below presents a progression of communication technologies, along with
projected communication speeds, from today into the future.
<TABLE>
<CAPTION>
------------------------------ --------------------------- --------------------------- ---------------------------
Communication Options Present 1+ Years 2+ Years
------------------------------ --------------------------- --------------------------- ---------------------------
<S> <C> <C> <C>
GSM/CDMA GPRS/1xRTT EDGE/3G
Wide Area Wireless 9.6-14.4Kb Up to 115Kb/144Kb 384Kb-2Mb
------------------------------ --------------------------- --------------------------- ---------------------------
802.11b 802.11b 802.11a/HiperLAN
Local Area Wireless 2-11Mb 11Mb 24Mb-57Mb
------------------------------ --------------------------- --------------------------- ---------------------------
Infrared Bluetooth Bluetooth
Personal Area Wireless 1-4Mb 720Kb 10Mb
------------------------------ --------------------------- --------------------------- ---------------------------
Ethernet Gigabit Ethernet 10G Ethernet
Local Area Wired 10/100Mb HPNA 10Mb
------------------------------ --------------------------- --------------------------- ---------------------------
V.90 ADSL/Cable VDSL
Wide Area Wired 56Kb 1-6Mb 25-50Mb
------------------------------ --------------------------- --------------------------- ---------------------------
</TABLE>
Evolution of Form Factor. We integrate the latest global communications
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technologies into more reliable and convenient form factors. Our first product,
the Pocket Ethernet Adapter, made it possible for notebook PC users to access
their corporate networks. As the mobile computing revolution began to take hold,
smaller, less cumbersome internal adapters, rather than external solutions, were
needed. We modified our products to the PC Card form factor, an internal adapter
that required custom cable connectors. However, PC Card users cited cables as
their number one problem, as they are prone to breakage or loss when moving from
place to place.
We solved this problem for mobile users with our patented RealPort Integrated PC
Card. It allows users to plug standard RJ-45 Ethernet and RJ-11 telephone cords
directly into the integrated PC Card's built-in connectors, eliminating the need
for proprietary cables.
This year, we enhanced the integrated PC Card design with the RealPort2
Integrated PC Card, with built-in connectors. The design of this card allows the
user to use one RealPort2 adapter alone, or mix-and-match with another RealPort2
adapter, thereby purchasing only what is required to create a customized access
solution.
MiniPCI provides OEMs a flexible and low cost configuration alternative for
communications functionality in notebook computers and handheld PCs. It
incorporates the same essential electronics, functionality, and software drivers
of standard PCI expansion devices into a very small daughter card that OEMs can
place inside the device. In 1999, we began shipping our first MiniPCI form
factor 56K modems and Combo cards, and during the first half of fiscal 2000,
began shipping MiniPCI form factor LAN Adapters.
4 XIRCOM, INC.
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The table below presents the PC Card form factor evolution and each form
factor's percentage contribution to our total net sales for the 1999 and 2000
fiscal years.
<TABLE>
<CAPTION>
-------------------- ------------ ----------------- ------------------- ------------------ --------------------
Form Factor Pocket PC Card Integrated PC MiniPCI Integrated PC Card
Adapter Card (RealPort) (RealPort2)
-------------------- ------------ ----------------- ------------------- ------------------ --------------------
Year of 1990 1994 1998 1999 2000
Introduction
-------------------- ------------ ----------------- ------------------- ------------------ --------------------
Characteristics Fully Removable Fully Internal, Fully Internal, Fully Internal,
External Internal Card, Removable Non-removable Removable,
External Cable Mix-and-Match
Connectors
-------------------- ------------ ----------------- ------------------- ------------------ --------------------
<S> <C> <C> <C> <C> <C>
Revenue Contribution:
-------------------- ------------ ----------------- ------------------- ------------------ --------------------
Fiscal 2000 - 28% 57% 6% 4%
-------------------- ------------ ----------------- ------------------- ------------------ --------------------
Fiscal 1999 - 46% 50% - -
-------------------- ------------ ----------------- ------------------- ------------------ --------------------
</TABLE>
Other significant form factors are employed in connecting handheld computing
devices to networks. Our SpringPort modem is designed for use with the
Handspring(TM) Visor's(TM) Springboard(TM) expansion slot. Our CompactCard
products are Type II CompactFlash+-compliant cards that are inserted into an
external expansion slot on Pocket PC handheld devices to connect to networks.
Products
We classify our products into the following major categories. Discussions of
products within these major categories follow.
Wired Products
. Integrated PC Card, PC Card, and MiniPCI products;
. Handheld adapter products;
. Conference room networking; and,
. Port expansion products.
Wireless Products
. PC Card adapter products;
. Handheld adapter products; and,
. Integrated solutions--modems and modules.
MicroPDA Products
. Rex micro-personal digital assistant ("MicroPDA").
Wired Products
PC Card, Integrated PC Card, MiniPCI Products.
Communication technologies--LAN. We believe we offer the industry's broadest
-------------------------------
family of PC Card LAN adapters that operate on Ethernet and Token Ring
topologies and are compatible with all widely-used wiring. Our LAN adapters
incorporate pre-configured software drivers that support over 50 different
network operating systems and communication protocols. Most of our adapters
include DOS-, Microsoft Windows-, Windows 95-, Windows 98-, Windows NT 4.0, and
Windows 2000-based menu-driven software for simple, fast installation. Our
SpringPort Modem 56 Global ACCESS Springboard modules support the Palm operating
system. Our CompactCard Ethernet 10(TM) connects Pocket PC users to 10Mbps
Ethernet networks.
We shipped the industry's first external parallel port LAN adapter, the Pocket
Ethernet Adapter(TM), in May 1989, and shipped the first commercially available
parallel port adapter for Token Ring networks, the Xircom
5 XIRCOM, INC.
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Pocket Token Ring Adapter(TM), in December 1989. Net sales from Pocket LAN
Adapter products are now negligible, as the Integrated PC Card, PC Card and
MiniPCI have become the preferred form factors for connecting notebook PCs to
networks.
During 1991, the PCMCIA made the development of PC Cards possible by defining
certain dimensional interface standards for use by a variety of PC peripherals,
including memory cards, fax modems, LAN adapters and disk drives. The PC Card
interface, or slot, is now incorporated into nearly all notebook computers,
allowing users to insert the PC Card peripheral device, which is the size of a
thick credit card. We were the first to ship an Ethernet LAN adapter card
compliant with the PCMCIA standard in early 1993. Other first customer shipment
dates of key LAN adapter products are as follows:
<TABLE>
<S> <C>
CreditCard Ethernet Adapter(TM) February 1993
CreditCard Token Ring Adapter(TM) December 1993
CreditCard Ethernet Adapter 10/100(TM) June 1996
CardBus Ethernet Adapter 10/100(TM) 32-bit October 1996
CreditCard Ethernet Adapter 10/100 (Second-generation) November 1996
RealPort(TM) Ethernet 10/100-- August 1998
Features a built-in Ethernet connector for cable-free Ethernet connections
RealPort(TM) CardBus Ethernet 10/100 August 1998
RealPort2(TM) Ethernet 10/100-- January 2000
Allows users to mix-and-match the exact combination of connectors needed
RealPort2(TM) CardBus Ethernet 10/100 January 2000
MiniPCI Type 3B Ethernet 100 May 2000
</TABLE>
Communication technologies--Combo. In February 1994, we began shipping the first
---------------------------------
Combo cards--PC Cards offering both a LAN adapter and a modem in a single PCMCIA
card. The CreditCard Ethernet+ Modem(TM) adapter quickly achieved market
acceptance and received a number of industry awards for technical excellence. We
commenced shipments of the second-generation CreditCard Ethernet+Modem II(TM)
adapter in September 1994 and in July 1995 were the first to ship in volume a
combination PC Card product incorporating a V.34 modem with a LAN adapter. First
customer shipment dates of key Combo card products are as follows:
<TABLE>
<S> <C>
CreditCard Ethernet+Modem February 1994
CreditCard Ethernet+Modem II September 1994
CreditCard Ethernet+Modem 28.8 July 1995
GlobalACCESS(TM) CreditCard Ethernet 10/100+Modem 33.6(TM) adapter-- January 1997
Allows users to connect in over 160 countries
CreditCard Ethernet 10/100+Modem 56(TM) adapter-- July 1997
Incorporates a 56Kbps modem and 10/100Mbps Ethernet adapter in a single PC Card
RealPort Ethernet 10/100+Modem 56(TM)-- May 1998
Features built-in modem, Ethernet and telephone pass-through connectors for cable-free
Ethernet and modem connections
RealPort CardBus Ethernet 10/100+Modem 56(TM) August 1998
MiniPCI Type 1B Combo April 1999
</TABLE>
Communication technologies--Modem. We commenced shipment of our first modem-only
---------------------------------
PC Card in September 1995. The original CreditCard Modem 28.8(TM) adapter
incorporated the latest V.34 standard and broadened our remote access solutions
by adding a modem-only option for notebook PC users who require high-speed
remote access to corporate networks, commercial online service, or the Internet.
First customer shipment dates of key modem-only adapters are as follows:
6 XIRCOM, INC.
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<TABLE>
<S> <C>
CreditCard Modem 28.8 September 1995
CreditCard Modem 33.6(TM) adapter-- October 1996
Features the V.34-1996 standard
GlobalACCESS(TM) CreditCard Modem 56(TM) adapter-- July 1997
Allows users to connect in over 160 countries
CreditCard GSM(TM) PC Card-- September 1997
Provides wireless data, fax and Short Message Service (SMS) communications
using GSM cellular phones
RealPort Modem 56-GlobalACCESS(TM)-- August 1998
Features built-in modem and telephone pass-through connectors
for cable-free modem connections
RealPort Modem 56(TM) October 1998
RealPort CardBus Modem 56-GlobalACCESS(TM) October 1998
MiniPCI Type 1B Modem 56 February 1999
RealPort2 Modem 56-GlobalACCESS(TM) January 2000
RealPort2 CardBus Modem 56-GlobalACCESS(TM) February 2000
</TABLE>
Handheld Connectivity Solutions. In August 2000 we began shipping our
SpringPort(TM) Modem 56 GlobalACCESS Springboard(TM) module for the
Handspring(TM) Visor(TM). The SpringPort modem is a 56K V.90 modem, which
enables users to rapidly synchronize, communicate, and exchange information
worldwide. Our SpringPort modem is designed for use with the Visor's
Springboard(TM) expansion slot and includes the integrated connector system
first introduced in our patented RealPort PC Card products.
During June 1999, we began shipping our first products for handheld
computers--the CompactCard line for Pocket PC machines. Our CompactCard Ethernet
10(TM) is a Type II CompactFlash+-compliant card that is inserted into an
external expansion slot on Pocket PC handheld devices to connect to 10Mbps
Ethernet networks. In January 2000, we began shipping our CompactCard Modem56
GlobalACCESS(TM) and CompactCard GSM(TM) products for Pocket PC handheld
devices. The CompactCard line of products also ship with a Xircom CardCaddy(TM)
converter that enables the CompactCard to fit larger handheld Type II PC Card
slots.
Conference Room Networking. During April 2000, we began shipping our
NetStation(TM) all-in-one conference room networking device for notebook and
handheld PC users. This solution is designed to provide multiple mobile notebook
and handheld PC users access to the corporate network from the conference room,
eliminating the need for expensive customized networking furniture. The device
ships in either four- or eight-port models, features built-in retractable
Category 5 Ethernet cables, and can auto-negotiate 10 or 100 Mbps network
speeds.
Port Expansion System. During August 2000, we expanded our universal serial bus
("USB") product offerings through the introduction of our PortStation(TM) ADSL
USB modem module allowing asynchronous digital subscriber line ("ADSL") Internet
access at speeds over 100 times the download speed of a 56Kbps modem. We entered
the USB port expansion market during the fourth quarter of 1999, with the
introduction of our PortStation port expansion system products. Our port
expansion system products, marketed under the names PortStation and PortGear(TM)
are lines of configurable products designed to offer a broad set of access and
port expansion capabilities to both enterprise and small office/home office
("SOHO") users through a single USB connection to a PC. These port expansion
system products also offer consumers a selection of standardized devices for
peripheral-to-PC connectivity, including USB hubs, port converters and cables
for PC and Apple platforms.
7 XIRCOM, INC.
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Our PortStation port expansion system products offer separate modules with
individual connection ports, such as Ethernet LAN, ADSL and 56K modem, USB hub,
serial port, and parallel port, and connect to a single USB port on the host PC.
Mix-and-match port expansion modules snap together allowing the user to
configure the system for specific needs. PortStation port expansion system
products support a number of PC operating systems, including Microsoft Windows
95, Windows 98, Windows NT 4.0, and Windows 2000.
Wireless Products
PC Card Adapter Products--Wireless LAN. In September 2000, we introduced our
CreditCard Wireless Ethernet Adapter for notebook PC users. Jointly developed
with Cisco Systems, Inc., this wireless Ethernet adapter is a Type II PC Card
that is compliant with the Institute of Electrical and Electronics Engineers
("IEEE") 802.11b high-rate standard and provides users with fast and secure
wireless LAN access. Wireless LANs eliminate the need for cables and allow
notebook users to roam freely in a building without physically connecting to the
network. With a maximum data rate of 11 megabits per second, Wireless LANs offer
performance comparable to a wired network enabling users with untethered access
to real-time information anywhere within a building or corporate campus. Our
CreditCard Wireless Ethernet Adapter can be used with Cisco Systems' Aironet
Access Points, and supports Windows 95, 98, NT 4.0, and 2000.
Handheld Connectivity Solutions--Wireless Data module. In November 2000, we
introduced our SpringPort Wireless Data module. When connected to a GSM, PCS, or
PDC mobile phone, the module enables wireless Internet connection for Handspring
Visor handheld computers. Our SpringPort Wireless Data module snaps into the
Visor's Springboard expansion slot and connects via widely used mobile phones,
to provide the user with unlimited wireless Internet access without incurring
additional monthly service fees.
Integrated Solutions--modems and modules. Our RedHawk II product is a compact,
GSM-based wireless data terminal that connects to virtually any device capable
of generating or receiving data, from portable retail terminals to security
systems, enabling cost-effective, applications-specific, two-way communications
and control. This terminal uses GSM features such as:
. Voice;
. Data and messaging with security;
. Encryption; and,
. Message delivery acknowledgement.
Our RedHawk(TM) II product is compatible with GPRS-enabled systems and we expect
it to be software-upgradeable to GPRS functionality in the near future.
The core of our RedHawk(TM) II module is our Eagle(TM) II, a self-contained GSM
radio with full type approval, built for low-cost, application-specific, two-way
communication control. Its modular design supports PCS 1900, GSM 900 and DCS
1800 for complete worldwide coverage. The Eagle II operates on two networks,
900/1900 and 900/1800, selectable by AT command. Our Eagle II product is also
compatible with GPRS-enabled systems and we expect it to be software-upgradeable
to GPRS functionality in the near future.
Both the RedHawk II and Eagle II products passed GSM formal type approval (FTA)
in October 2000. The development of both the RedHawk II and Eagle II integrated
solutions was in process by OTI as we acquired OTI and formed our Wireless
Technology Group in June 2000.
MicroPDAs
REX PC Card Organizer. In September 1999, we acquired the REX PC Card Organizer
product line, and thereby entered the market for sub-handheld or microPDA
devices. The Rex solution is focused on making personal data readily available
in a small form factor. Its functionality includes an organizer, contact list,
to-do
8 XIRCOM, INC.
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list and memo pad, all of which synchronize through a PC Card slot or a docking
cradle, with similar data resident on a host PC. The REX PC Card Organizer
weighs approximately 1.4 ounces and is the same size as a standard notebook PC
Card--small enough to fit comfortably into a small purse, wallet or shirt
pocket.
REX 6000 MicroPDA. In November 2000, we introduced the REX 6000 MicroPDA which,
in addition to the features offered by the REX PC Card Organizer, features a
touch screen and stylus to enable users to input and access their organizer,
contact list, to-do list and memo pad. Also, through our new website
www.rex.net, users can customize and download web content including news, stock
-----------
quotes, sports and weather reports to the REX 6000 MicroPDA. The REX 6000
MicroPDA synchronizes with a host PC through a PC Card slot or a docking cradle,
and is the same size as the REX PC Card Organizer.
Industry Leadership
We are a worldwide leader in simplifying the installation and configuration of
PC Card mobile information access products by incorporating certain proprietary
software coding in our installation routines. We have developed an intelligent
Windows-based installation utility now shipping with most Xircom adapters.
Although the Windows 95 operating system improved the installation process for
PC Card adapters and other peripherals, add-on hardware often requires driver
updates to enhance features or performance. Therefore, installation utilities
and related driver software remains an important feature of the products.
We ship our products globally and have developed expertise in obtaining
worldwide homologation including local telephone approvals in over 50 countries,
including: France, Germany, the United Kingdom, Japan, Australia, the
Netherlands, Denmark, Belgium and Austria. We have developed a modem design,
which is a single, worldwide solution and has a programmable Data Access
Arrangement ("DAA"). Xircom GlobalACCESS modem products offer notebook users one
card for worldwide use, and CountrySelect(TM) software, which easily configures
the modem DAA to local dialing conventions when traveling from country to
country.
Device driver software is also a key component of our products. Device drivers
allow the hardware and firmware (the software code which provides operating
instructions to the hardware) to interact with the communications port on the PC
in which the LAN adapter or modem is being installed (e.g., the PCMCIA, or
CardBus slot). We design our leading products to operate with the major
operating systems, including Microsoft Millennium, Windows 2000, Windows 98,
Windows 95, Windows NT and Windows 3.1. We have also developed Driver
Development Kits that include a library of software interfaces and source code
examples to substantially reduce the time required for other network operating
system vendors to develop drivers for our products. We believe that our family
of products incorporates software drivers for a broader range of computers and
network operating systems than any other family of external LAN adapters
currently commercially available.
Some of our technical advancements and accomplishments since 1989 include:
. Pioneered the use of the PC parallel port for LAN connectivity;
. Participated with Zenith Data Systems and Intel Corp. in the development of
Enhanced Parallel Port ("EPP") technology;
. Were first to ship an Ethernet PC Card LAN adapter;
. Were first to ship a parallel port modem offering higher throughput than a
serial port modem;
. Were first to ship a PC Card combining a LAN adapter and a modem;
. Were first to incorporate full-duplex Ethernet technology in our PC Card
LAN adapters offering up to twice the data throughput on an Ethernet
network;
. Were first to incorporate and ship 100 Mbps Ethernet technology in a PC
Card;
9 XIRCOM, INC.
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. Were first to ship a 32-bit CardBus adapter for connecting CardBus-equipped
notebook computers to 10 Mbps and 100 Mbps networks;
. Were first to ship a 56 Kbps modem and a 100 Mbps Ethernet adapter on a
single PC Card;
. Were first to ship an Integrated PC Card featuring built-in connectors and
a 56 Kbps modem and a 10/100 Mbps Ethernet on a single Integrated PC Card;
. Passed GSM FTA (Formal Type Approval) on the Redhawk II, and Eagle II
(900/1800) products.
Research and Development
The market for our products is characterized by rapidly changing technology,
short product life cycles and evolving industry standards. We believe that
technical innovation in our products is required to make them more desirable
than other notebook connectivity solutions. Our expertise lies in developing
small form factor products, which require a high degree of electronic component
integration and careful circuitry design. In addition, use of Application
Specific Integrated Circuits ("ASIC") reduces the number of semiconductor
devices required in our products, resulting in lower manufacturing cost and
higher product reliability. We use flash memory in our products to allow users
to make enhancements or other changes by downloading software.
We expect customers for our wired and wireless PC Card and port expansion system
products to continue to demand higher speeds and bandwidth. We are focusing our
development efforts on new versions of our Integrated PC Card and PC Card LAN
adapters (both 16-bit PC Card and 32-bit CardBus buses), modem-only cards, Combo
cards and port expansion systems. Such new versions may combine LAN, modem,
ISDN, digital subscriber line, cable modem, and local and wide area wireless
communications technologies.
Our current research and development efforts include:
. Development of wireless Type II PC Cards with GSM/GPRS functionality, Dual
Band 900/1800 and 900/1900 support;
. Development of wireless Springboard module for HandSpring Visor, with
GSM/GPRS functionality;
. Development of high speed wireless devices including wireless wide area
network, wireless LAN, and wireless personal area network products for PCs,
handheld and MicroPDA products;
. Continued development of MicroPDA products to include features such as
wireless connectivity, synchronization and download of data;
. Continued development of value-added services for our MicroPDA products,
such as our www.rex.net website;
. Continued development of integrated solutions such as wireless data
terminals using GSM, GPRS and other technologies;
. Continued development of communications adapters in the RealPort2,
Springboard, and compact flash form factors;
. Cost reduction of current products;
. Ongoing feature enhancement of current products; and,
. Support for the Company's OEM customers, including continued development of
Mini-PCI adapters.
We participate in leading organizations that drive industry standards. As an
active industry participant, the Company has been able to ensure
interoperability of its products with standard hardware platforms and operating
systems. These organizations include:
. PCMCIA;
. Wireless Ethernet Compatibility Association ("WECA");
. Mobile Advisory Council ("MAC");
. Portable Computer and Communications Association ("PCCA");
. International Telecommunications Standards Users Group ("ITSUG") GSM
working party;
10 XIRCOM, INC.
<PAGE>
. European Telecommunications Standards Institute ("ETSI");
. Bluetooth Special Interest Group;
. PCI Special Interest Group, Mini-PCI Working Group;
. USB Implementers Forum;
. IEEE 1384 Committee for high-speed serial expansion busses (FireWire);
. 1394 Trade Association;
. HiperLAN/2 Global Forum;
. Compact Flash Association;
. ADSL Forum; and,
. WAP (Wireless Application Protocol) Forum.
We have adopted a Distributed Development Environment ("DDE") to facilitate the
remote physical location of some of our engineers. DDE provides structured
development methodologies and high-speed network links into our corporate
development network. A key component of DDE is the use of our products by the
engineers that develop and support them. We believe that DDE results in
increased productivity and retention of key employees. Currently, program
participants include engineers located in Austin, Texas; Provo and Alpine, Utah;
and Kontich, Belgium.
Approximately 15% of our 1,900 employees were engaged in research and
development activities as of September 30, 2000. During fiscal years 2000, 1999
and 1998, we incurred research and development expenditures of $37,847,000,
$24,557,000 and $16,599,000, respectively.
Marketing
We sell our products primarily through domestic and international distributors.
U.S. distributors include major national distributors of computers and
networking equipment such as Ingram Micro Inc. ("Ingram Micro"), Tech Data
Corporation ("Tech Data") and Merisel, Inc., and national reseller organizations
such as MicroAge, Inc. and Inacom Corp. We also sell to a number of original
equipment manufacturer customers including notebook computer manufacturers, such
as Dell Computer Corporation ("Dell"), Intel Corporation ("Intel"),
International Business Machines ("IBM"), Compaq Computer Corporation ("Compaq"),
and Gateway Inc. Dell accounted for 19%, and Ingram Micro accounted for 16%, of
net sales for fiscal 2000. Ingram Micro accounted for 19%, and Tech Data
accounted for 10%, of net sales for fiscal 1999. Ingram Micro accounted for 13%
of net sales in fiscal 1998.
Internationally, we sell products through a worldwide network of distributors.
International sales (sales to customers outside the U.S.) comprised 47% of total
net sales in fiscal 2000, 53% of total net sales in fiscal 1999 and 52% of total
net sales in fiscal 1998 (see Note Twelve of the accompanying Consolidated
Financial Statements). During the 1999 and prior fiscal years, the majority of
our international sales were denominated in U.S. dollars. Beginning with fiscal
2000, the majority of our international sales are denominated in Euro.
We generally seek to develop the markets for our products through marketing
programs that promote end-user demand. We generate brand recognition through
trade advertising, participation in trade shows and public relations activities.
We have a field sales organization and an inside sales/telemarketing function
who seek to create demand by calling directly on resellers, VARs and end-users,
but fulfill demand through distributors. We also have field sales personnel and
support engineers to sell our products to OEMs.
Backlog
We manufacture our products to our forecast of near-term demand and maintain
inventories of finished goods and top-level subassemblies to satisfy customer
orders. We generally ship our products within one week after receipt of orders
from distributors and within four weeks after receipt of orders from OEM
customers, although some OEM customers submit orders for scheduled deliveries
over a longer period. Under certain circumstances as specified in applicable
agreements, orders from distribution customers may be cancelable without penalty
11 XIRCOM, INC.
<PAGE>
and OEM customers may reschedule or cancel orders outside a certain minimum time
period. We generally do not seek to maintain any significant backlog. Backlog
was not significant at September 30, 2000.
Competition
We believe that the principal competitive factors in the market for our PC Card
adapter products and indirectly competitive products are:
. Brand name recognition;
. Compatibility with many brands of notebook computers and software
applications;
. Quality and reliability;
. Price;
. Size, especially with respect to MiniPCI form factor and the latest
subnotebook and handheld PCs;
. Ease of use;
. Low power consumption; and,
. Customer support and service.
Additional principal competitive factors in the market for PC Card LAN adapters
and indirectly competitive products are:
. Support of commonly used topologies, network wiring systems and network
operating systems; and,
. Performance (including data transfer speeds).
Additional principal competitive factors for PC Card modems are:
. Support of industry standards; and,
. Performance (primarily throughput, but also error control, connection
maintenance and compression).
The PC Card LAN adapter market has become significantly more competitive, and is
occupied by a number of competitors that have substantially greater financial,
development, manufacturing and marketing resources and market presence than do
we, including 3Com Corporation and its Megahertz brand (collectively "3Com"). In
addition, our branded products compete for end-user customers with Dell, Intel
and IBM, which purchase these products through an OEM relationship with us and
market these products under their own brand names.
3Com Corporation introduced a Type III PC Card with integrated connectors in
June, 2000, with the announced intent of competing directly with us in the
integrated PC Card market. We have initiated suit against 3Com in the United
States District Court for the Central District of California, alleging that the
3Com Type III PC Card products infringe certain U.S. patents held by Xircom. The
outcome of this litigation is uncertain at this time, and there can be no
guarantee that we will be successful in securing any relief, injunctive action,
or damages from 3Com relating to their Type III PC card products.
Other manufacturers of desktop LAN adapters offering PC Card adapters include,
D-Link Systems, Inc., Linksys Group, Inc., and Netgear, Inc. In the Combo card
market, our most significant competitor is 3Com, although other companies,
including TDK Systems ("TDK"), Psion PLC, D-Link Systems, Inc., and Linksys
Group, Inc. also offer Ethernet+Modem PC Cards. We also consider Intel to be a
competitor in this market, although they purchase products through an OEM
relationship with us. We are likely to experience additional competition from
large companies that address other segments of the PC Card market.
Our PC Cards compete indirectly and our port expansion systems compete directly
with companies that provide alternative means to connect notebook computers to
LANs, such as docking stations or port replicators with built-in networking
capabilities. Compaq, Toshiba, IBM, NEC Corporation and others offer docking
stations for some of their notebook PCs. Although docking stations historically
enjoyed some competitive advantage
12 XIRCOM, INC.
<PAGE>
because they provide a broader range of functionality than just a LAN
connection, the standardization provided by PC Card slots reduces the demand for
this additional functionality. In addition, the use of peripheral devices
provides the PC user an upgrade path as speed or other enhancements to the
network are developed.
Ethernet interface chipsets on PC system boards, which eliminate the need for a
LAN adapter, have been offered only in a limited number of notebook PCs to-date,
generally because the chipset solution adds cost and complexity to the base PC
and requires the PC manufacturer to provide networking technical support. The
use of the MiniPCI form factor solution for networking notebook computers has
become more predominant. As a result, we believe that PC Card and MiniPCI
solutions for networking notebook computers will continue to dominate the market
for the foreseeable future because of the performance, flexibility and range of
choices they offer to both users and PC manufacturers.
In the modem-only PC Card market, competition is significant. 3Com holds a
significant market share for PC Card modems and offers a proprietary feature
called XJACK, which now incorporates an "autosensing" pop out RJ-11/45
telephone/Ethernet LAN jack into the PC Card case. Other competitors in this
market include Boca Research, Psion Dacom, Ltd., TDK, and many others, including
manufacturers who may hold leading or significant market shares within specific
countries. We believe that we can continue to leverage our engineering, sales
and manufacturing resources with our RealPort Integrated PC Card 56K modems
because of its patented built-in connector system, as well as market recognition
with our Combo card solutions. However, the introduction by 3Com of a competing
Type III PC Card with integrated connectors represents an additional challenge
to our market share in the event we are unsuccessful in securing the relief we
have requested in our U.S. patent infringement litigation against 3Com. PC
vendors increasingly are including modems and LAN devices on their notebook PCs,
however, we believe that many enterprise customers will continue to prefer a
modem and a LAN device in a PC Card slot, due to the cost ownership benefits of
standardization and serviceability.
Manufacturing
We believe that high-volume, low-cost manufacturing has become a core competency
in competing effectively in the PC Card market. As a result, we build the
majority of our PC Card adapters at our manufacturing facility in Penang,
Malaysia. We purchase most key components in Penang directly from third-party
suppliers with local representation. We inspect these components for quality and
perform final assembly, test, packaging and shipping in Penang. Single third-
party suppliers manufacture all of our Rex MicroPDA products and wireless
products.
Although we generally use standard parts and components for our products,
certain key components used in our products are currently available from only
one source, and others are available from a limited number of sources.
Components currently available from one source include proprietary Ethernet
chipsets (used in the CreditCard Ethernet and Combo Adapters) fabricated by
Atmel Corp. and Broadcom Corporation, a Token Ring chipset from Texas
Instruments, and a standard modem chipset (used in all modem and Combo products)
from Lucent Technologies. In addition, other components, including other
semiconductor devices, transceivers, transformers, injection molded plastic
parts, and metal stampings, are available or acquired from a single source or a
limited number of sources.
Proprietary Rights and Licenses
We seek to protect our intellectual property rights in certain of our products
and technologies through patents, copyrights, trade secrets, and trademarks. We
hold 19 United States patents and 3 foreign patents relating to the RealPort
Integrated PC Card, parallel port, and PC Card operating, networking and data
transfer technologies. We hold 88 United States patents and 22 foreign patents
for wireless data transfer and other technologies. Other United States patent
applications are in progress relating to our current research and development
efforts in these and other areas of innovation. We hold 8 United States
registered trademarks with additional applications pending, and claim common law
trademark right to numerous additional marks. We
13 XIRCOM, INC.
<PAGE>
evaluate the applicability of our intellectual property rights to products of
third parties when appropriate. We have several license agreements with third
parties granting rights related to our parallel port data transfer technology in
return for paid-up license fee payments. We also seek to protect our proprietary
rights through a comprehensive trade secret protection program, which includes
the disciplined use of employee and third party nondisclosure agreements.
Employees
As of September 30, 2000, we employed 1,913 persons, including 394 in sales,
marketing and customer support; 299 in engineering and product development;
1,062 in operations; and 158 in finance and other administrative areas.
Our success depends on our continued ability to attract and retain qualified
personnel. Competition for such personnel in the computer networking industry is
intense and we must provide competitive salary, stock incentive and benefit
packages to attract such personnel. We perform development activities in
Thousand Oaks, California; Colorado Springs, Colorado; Austin, Texas; Provo and
Alpine, Utah; and, Kontich, Belgium. None of our employees is represented by a
collective bargaining arrangement. We believe that our relations with our
employees are good.
Factors Affecting Stock Price
As discussed in Management's Discussion and Analysis of Financial Condition and
Results of Operations on pages 18 to 29 of this document, the market price of
our common stock may fluctuate substantially over short time periods due to a
number of factors, including factors that could affect our future financial
performance. The price may also be affected by factors that influence the
overall market for stocks, or the market for stocks of high technology companies
in particular.
Executive Officers of the Registrant
The following presents certain information with respect to our executive
officers, and their ages as of November 1, 2000.
Name Age Position
Dirk I. Gates 39 Chairman of the Board, President and Chief
Executive Officer
Steven F. DeGennaro 37 Senior Vice President and Chief Financial
Officer
Robert W. (Sam) Bass 54 Senior Vice President, Worldwide Operations and
General Manager, Access Products Division
Marc M. Devis 40 Senior Vice President, Worldwide Sales and
Marketing
Randall H. Holliday 50 General Counsel and Secretary
Mr. Gates has served as our Chairman of the Board since January 1995 and as our
President and a Director since its incorporation in November 1988. He has also
served as our Chief Executive Officer since October 1991.
Mr. DeGennaro has served as our Senior Vice President and Chief Financial
Officer since June 2000 and Vice President, Finance and Chief Financial Officer
since June 1996. He had previously served from May 1995 to June 1996 as our Vice
President, Finance and Chief Accounting Officer and from January 1994 to May
1995 as our Corporate Controller and Chief Accounting Officer. Prior to joining
the Company in 1993, Mr. DeGennaro was a senior manager at KPMG Peat Marwick, a
big-five accounting firm. Mr. DeGennaro is a CPA.
Mr. Bass has served as our General Manager, Access Products Division since
November 2000, and continues to serve as our Senior Vice President, Worldwide
Operations, a position he has held since August 1997. He served as our Vice
President, Operations since January 1992. From September 1990 until joining us,
Mr. Bass
14 XIRCOM, INC.
<PAGE>
served as Vice President of Operations for Fibermux Corporation, a provider of
intelligent hubs to the LAN market.
Mr. Devis has served as our Senior Vice President, Worldwide Sales and Marketing
since April 1999, our Senior Vice President, Worldwide Sales since July 1997,
our Senior Vice President, Europe and Asia-Pacific Sales and Marketing since
August 1996 and our Vice President, Europe and Asia-Pacific Sales and Marketing
since January 1995. He had previously served, since June 1991, as Managing
Director of Xircom Europe NV.
Mr. Holliday has served as our General Counsel and Secretary since January 1995.
In December 1993, Mr. Holliday joined us as Corporate Counsel. From March 1990
to December 1993, Mr. Holliday was Division Counsel of Abex Aerospace Division,
Pneumo Abex Corporation, a manufacturer of aircraft hydraulic components.
ITEM 2. PROPERTIES
Our headquarters are located in two adjacent leased facilities of 87,000 and
50,000 square feet in Thousand Oaks, California. These facilities accommodate
corporate administration, engineering, marketing, and Americas' regional sales
and customer support. We conduct Americas' regional distribution in a portion of
another adjacent 50,000 square-foot leased facility. We also conduct engineering
in two adjacent leased facilities of 26,000 and 19,000 square feet in Colorado
Springs, Colorado. We own two adjacent facilities for manufacturing and
distribution in Penang, Malaysia. We lease facilities for our European
subsidiaries in Kontich, Belgium; Paris, France; Basingstoke, England;
Grassbrunn, Germany; and Stockholm, Sweden; and facilities for our Asia-Pacific
sales and marketing operations in Singapore; Hong Kong; Tokyo, Japan; Beijing
and Shanghai, China; Seoul, Korea; and Sydney and Melbourne, Australia. We have
signed a facilities lease for a new 200,000 square foot headquarters building to
be constructed in Thousand Oaks. We believe our existing facilities, together
with our planned facilities expansions, are adequate for our current needs.
Additional facilities proximate to our existing facilities are also available
for lease to meet future needs.
Financial information regarding leases and lease commitments are contained in
Note 11 of Notes to Consolidated Financial Statements.
ITEM 3. LEGAL PROCEEDINGS
We are presently involved in three patent related lawsuits.
3Com Corporation v. Xircom, Inc., United States District Court, District of
Utah, Civil Action Case No. 2:00CV-0426G, filed May 26, 2000, service of Summons
and Complaint made upon Xircom August 18, 2000. The original complaint alleges
infringement of 3Com's U.S. patent numbers 6,012,953, 5,532,898, 5,696,660 and
5,777,836 by certain products of Xircom. The Complaint seeks certain injunctive
relief and compensatory damages. Xircom has filed its Answer and Counterclaim in
response to the Complaint. Xircom denies all infringement and all claims by 3Com
for entitlement to damages or other relief. Further proceedings are pending.
Xircom, Inc. v. 3Com Corporation, United States District Court, Central District
of California, Case No. 00-10198 WJR, filed September 21, 2000, service of
Summons and Complaint made upon 3Com September 21, 2000. The complaint alleges
infringement of Xircom's U.S. patent numbers 5,773,332, 5,940,275, 6,115,257,
and 6,095,851 by certain products of 3Com. The Complaint seeks certain
injunctive relief and compensatory damages. Further proceedings are pending.
Northrop Grumman Corporation v. Intel Corporation, 3Com Corporation, Xircom,
Inc., D-Link Systems, Inc, and The Linksys Group, United States District Court,
Eastern District of Texas, Beaumont Division, Civil Action No. 1:00CV-652, filed
September 25, 2000, service of Summons and Complaint made upon Xircom September
27, 2000. The complaint alleges infringement of Northrop Grumman's U.S. Patent
No. 4,453,229
15 XIRCOM, INC.
<PAGE>
by certain products of Xircom. The Complaint seeks certain injunctive relief and
compensatory damages. Xircom has filed its Answer and Counterclaim in response
to the Complaint. Xircom denies all infringement and all claims by Northrop
Grumman for entitlement to damages or other relief. Further proceedings are
pending.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED SHAREHOLDER MATTERS
Our Common Stock began trading on The Nasdaq Stock MarketSM on March 31, 1992
under the symbol XIRC. We have not paid cash dividends on our Common Stock and
do not plan to pay cash dividends for the foreseeable future. As of November 1,
2000, there were 258 holders of record and approximately 23,200 beneficial
holders of our Common Stock. The following table presents the high and low
closing stock price for our Common Stock as quoted on The Nasdaq Stock MarketSM
National Market System.
Fiscal 2000 High Low
--------------------------------------------------------------------------------
First quarter $ 75 $ 43-1/4
Second quarter 70-13/32 34-1/16
Third quarter 48-7/8 31-3/16
Fourth quarter $ 50-3/16 $ 24-15/16
Fiscal 1999 High Low
--------------------------------------------------------------------------------
First quarter $ 35-17/32 $ 17-1/2
Second quarter 45-1/4 23-15/16
Third quarter 30-1/16 18-13/16
Fourth quarter $ 47-7/16 $ 30-7/32
Recent sales of unregistered securities
On June 27, 2000, VoiceStream Wireless Corporation acquired 1,201,079 shares of
our Common Stock valued at $50,000,000 in a private transaction in which we
acquired Omnipoint Technologies, Inc., a Delaware corporation. These shares were
offered and sold pursuant to Section 4(2) of the Securities Act, as amended. No
underwriting discounts or commissions were paid in connection with such
issuance.
On December 10, 1999, KPMG LLP acquired 40,000 shares of our Common Stock valued
at $1,600,000 to satisfy an indebtedness in a private transaction. In addition,
on October 1, 1999, the former shareholders and other service providers of
Entrega Technologies, Inc. acquired 408,588 shares of our Common Stock in a
private transaction in which we acquired Entrega Technologies, Inc., a
California corporation. In both cases, these shares were offered and sold
pursuant to Section 4(2) of the Securities Act, as amended. No underwriting
discounts or commissions were paid in connection with either issuance. On
December 22, 1999, we filed a Registration Statement on Form S-3 to register the
above referenced shares, which became effective on January 19, 2000.
On February 17, 1999, Intel Corporation exercised a warrant which had been
issued in 1997 and pursuant to the terms of the warrant agreement, elected to
receive 514,314 shares at no additional cost in lieu of purchasing 1,509,903
shares at an exercise price of $27.01. Concurrent with the warrant exercise,
Xircom repurchased 514,314 shares of common stock held by Intel for a total
price of $19,775,000, or $38.45 per share. These shares were offered and sold
pursuant to Section 4(2) of the Securities Act, as amended. No underwriting
discounts or commissions were paid in connection with either issuance.
16 XIRCOM, INC.
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The following table presents selected balance sheet and statement of operations
data as of and for the fiscal years ended September 30, 1996 through 2000.
<TABLE>
<CAPTION>
(In thousands, except per share amounts) 2000 1999 1998 1997 1996
---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Statement of operations data
Net sales $496,199 $424,436 $276,947 $184,575 $166,757
Cost of sales 279,318 243,248 179,377 126,300 107,437
---------------------------------------------------------------------------------------------------------------
Gross profit 216,881 181,188 97,570 58,275 59,320
Research and development expenses 37,847 24,557 16,599 12,799 9,537
Sales and marketing expenses 96,512 87,348 50,699 43,012 32,723
General and administrative expenses 19,648 15,143 10,757 8,259 6,543
In-process research and development and
other nonrecurring acquisition related
charges/(1)/ 22,400 2,232 - 2,163 -
Amortization of goodwill and other
acquisition-related intangibles 4,565 - - - -
Special charges/(2)/ 4,150 2,364 - - 1,505
--------------------------------------------------------------------------------------------------------------
Operating income (loss) from continuing
operations 31,759 49,544 19,515 (7,958) 9,012
Other income (expense), net 9,332 1,785 4,191 3,172 (1,338)
--------------------------------------------------------------------------------------------------------------
Income (loss) from continuing operations
before income taxes 41,091 51,329 23,706 (4,786) 7,674
Income tax provision (benefit) 16,063 16,724 7,852 (1,437) 2,506
----------------------------------------------------------------------------------------------------------------
Income (loss) from continuing
operations/(1)(2)/ 25,028 34,605 15,854 (3,349) 5,168
Discontinued operations:
Operating income (loss), net of income
taxes - - - (226) 784
Loss on disposal, net of income taxes - - - (6,275) -
--------------------------------------------------------------------------------------------------------------
Net income (loss)/(1)(2)/ $ 25,028 $ 34,605 $ 15,854 $ (9,850) $ 5,952
--------------------------------------------------------------------------------------------------------------
Diluted earnings (loss) per share/(1)(2)/:
Continuing operations $ .82 $ 1.35 $ .68 $ (.16) $ .26
Net income (loss) $ .82 $ 1.35 $ .68 $ (.46) $ .30
Balance sheet data
Working capital $338,815 $135,480 $116,062 $ 95,501 $ 34,711
Total assets $541,549 $275,496 $197,935 $147,930 $107,201
Long-term obligations, net of current
portion $ - $ - $ - $ - $ 1,860
Shareholders' equity $450,959 $174,920 $134,751 $113,427 $ 65,603
--------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Fiscal 2000 includes $22,440 ($21,626, net of tax benefit) or $.71 per share
for write-off of in-process research and development and other nonrecurring
acquisition related charges and special charges. Fiscal 1999 includes $2,232
($1,607, net of tax benefit) or $.06 per share for write-off of in-process
research and development. Fiscal 1997 includes $2,163 ($1,514, net of tax
benefit) or $.07 per share for write-off of in-process research and development.
17 XIRCOM, INC.
<PAGE>
(2) Fiscal 2000 includes $4,150 ($3,112, net of tax benefit) or $.10 per share
for provision for customer insolvency. Fiscal 1999 includes $2,364 ($1,702, net
of tax benefit) or $.07 per share for future operating lease payments related to
facilities to be vacated. Fiscal 1996 includes $1,505 ($1,023, net of tax
benefit) or $.05 per share for loss on sale of the Netwave product line.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This Annual Report contains trend analysis and other forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. Actual results
could differ materially from those projected in the trend analysis and other
forward-looking statements contained herein, as a result of the risk factors set
forth below and other cautionary language contained elsewhere in this report.
Results of Operations
---------------------
Net Sales
(in thousands) 2000 Change 1999 Change 1998
--------------------------------------------------------------------------------
Net sales $496,199 17% $424,436 53% $276,947
Net sales-- 2000 versus 1999
Net sales increased 17% to $496.2 million in 2000 from $424.4 million in 1999.
We derive net sales principally from shipments of Integrated PC Card, PC Card
and Mini-PCI card products (collectively "adapter products"). The adapter
products connect notebook PCs to networks, the Internet and online services
using the following functionalities:
. Fast Ethernet, Ethernet and Token Ring local area network ("LAN");
. Multifunction LAN and modem ("Combo cards"); and,
. Modem.
We also derive net sales from shipments of USB port expansion solution products,
which enable users to add peripheral devices to their computer via a single USB
connection, Rex MicroPDA, and the NetStation(TM) product family (our all-in-one
conference room networking device for notebook and handheld PC users).
The increase in net sales was primarily due to increased shipments of Fast
Ethernet PC Cards and Combo cards. We attribute this increase to growth in
overall market demand for local and wide area network connectivity products and
an increase in unit sales of our adapter products by our OEM customers. These
increases in our adapter products were partially offset by a decrease in sales
of lower margin modem-only products.
Sales to our OEM customers during 2000 increased by 137% over the prior year. We
believe this growth in sales of our adapter products by OEM customers may be
indicative of several factors, including:
. Continued increased market acceptance of our Combo cards and Fast Ethernet
cards within our RealPort and RealPort2(TM) Integrated PC Card families of
products;
. An increase in shipments of our low cost MiniPCI cards;
. Increased growth rate in shipments of notebook PCs, which in turn require
network and modem connections; and,
. An increase in the rate that notebook PCs are attached to information
sources.
18 XIRCOM, INC.
<PAGE>
Net sales by our distribution customers (the "branded" business) declined by 8%
during 2000 as compared to the prior year. We believe this decrease is primarily
due to a shift in fulfillment of orders through the OEM channel as opposed to
the distribution channel.
Total unit shipments of adapter products for 2000 increased 45% from the prior
year, but average selling prices declined due to increased competition in the
market for adapter products and an increased shipment mix of MiniPCI cards,
which have lower selling prices than PC cards.
Revenues from our products as a percentage of total revenues were as follows
(based on technology):
(percentage of total revenue) 2000 1999 1998
--------------------------------------------------------------------------------
LAN Adapters 32% 29% 30%
Combo Cards 57% 57% 48%
Modem 7% 10% 21%
Other 4% 4% 1%
Sales of Mini-PCI card products as a percentage of total sales were 6% in 2000
(13% in the fourth quarter of 2000) and are expected to continue to increase
during 2001.
International sales. Total international sales (shipments to our customers
located outside the U.S.) as a percentage of total sales were 47% in 2000, 53%
in 1999 and 52% in 1998. Net sales from our adapter cards grew at a faster rate
in the U.S. than in the Europe and the Asia-Pacific regions during 2000 as
compared to the prior years as a result of higher fulfillment of OEM shipments.
Net sales-- 1999 versus 1998
Net sales increased 53% to $424.4 million in 1999 from $276.9 million in 1998.
The increase in net sales in 1999 from 1998 was primarily due to increased
shipments of Ethernet PC Cards and Combo cards. We attribute this increase to
growth in overall market demand for local and wide area network connectivity
products and an increase in unit sales of our adapter products by our
distribution customers and OEM customers. We believe this growth in sales of our
adapter products in our branded business and by OEM customers may be indicative
of several factors:
. An increased growth rate in shipments of notebook PCs, which in turn require
network and modem connections;
. An increase in the rate that notebook PCs are attached to information
sources;
. Continuing increased market acceptance of our Combo cards and Fast Ethernet
cards; and,
. Increased market acceptance of our RealPort Integrated PC Card family of
products.
These increases were partially offset by a decrease in the volume of lower
margin modem-only product sales we made to our OEM customers. Unit shipments of
adapter products increased 47% in 1999 over 1998 but average selling prices
declined due to increased competition in the market for adapter products.
19 XIRCOM, INC.
<PAGE>
Gross Profit
(in thousands) 2000 Change 1999 Change 1998
--------------------------------------------------------------------------------
Gross profit $216,881 20% $181,188 86% $97,570
Percentage of net sales 43.7% 42.7% 35.2%
Gross profit-- 2000 versus 1999
Gross profit consists of net sales, less cost of sales. Cost of sales includes
material, labor, manufacturing overhead and other costs of sales. Other costs of
sales include provisions for excess and obsolete inventory, warranty expense and
royalty payments to certain licensers of software incorporated into our
products.
The increase in gross profit as a percentage of net sales during 2000 was
primarily attributable to a greater product mix and higher gross margins of our
RealPort Integrated PC Card family of products versus our comparably featured
Type II PC Card products; a decrease in our fixed manufacturing costs as a
percentage of sales; and, a decrease in sales of our modem-only products, which
typically generate lower gross profit margins than our other products. These
increases in gross profit as a percentage of sales were partially offset by a
greater mix of sales to our OEM customers, which generally result in lower gross
profit margins, versus our distribution partners, and higher sales of Mini-PCI
card products, which have a significantly lower margin than other OEM products
such as integrated PC cards.
During 2001, we expect gross profit to decrease materially as a percentage of
sales as our mix of sales to our OEM customers continues to increase and our
product mix continues to trend to the low price and low margin MiniPCI form
factor.
Gross profit-- 1999 versus 1998
The increase in gross profit as a percent of net sales in 1999 compared to 1998
was primarily attributable to:
. The higher gross margins of our RealPort Integrated PC Card family of
products, which began shipping in the third quarter of fiscal 1998, versus
the comparably featured Type II PC Card products;
. A decrease in our fixed manufacturing costs as a percentage of sales; and,
. A decrease in the sales volume of our modem-only products, which typically
generate lower gross profit margins than our other products, and in
particular, reduced sales of modem-only products to our OEM customers, which
generate lower gross profit margins than sales made through our distribution
partners.
Research and Development
(in thousands) 2000 Change 1999 Change 1998
--------------------------------------------------------------------------------
Research and development $37,847 54% $24,557 48% $16,599
Percentage of net sales 7.6% 5.8% 6.0%
We increased our research and development expenses in 2000 by 54% as compared to
the prior year as a result of our decision to increase staffing and expenditures
to develop wireless data solutions for wireless networks for mobile technology
customers and to support expanded branded and OEM product offerings including
our RealPort2 Integrated PC Cards, PortStation(TM) ADSL USB modems,
SpringPort(TM) Modem for Handspring Visor, Rex MicroPDA and NetStation products.
We expect total expenditures for research and development to continue to
increase during 2001 due to our continued development of wireless networks for
mobile technology customers, Rex MicroPDA products, our www.rex.net website, and
-----------
our planned expenditures on product enhancements and new product introductions.
20 XIRCOM, INC.
<PAGE>
Our research and development expenses increased in 1999 in absolute dollars
compared to 1998 as a result of our decision to increase staffing and
expenditures to support expanded branded and OEM product offerings, including
our PortStation port expansion system and the CompactCard line of products.
Sales and Marketing
(in thousands) 2000 Change 1999 Change 1998
--------------------------------------------------------------------------------
Sales and marketing $96,512 11% $87,348 72% $50,699
Percentage of net sales 19.5% 20.6% 18.3%
Our sales and marketing expenses increased in 2000 and decreased as a percentage
of net sales as compared to the prior year primarily due to:
. Additional staffing and sales and marketing activities required to support
expanded branded markets;
. Expenses to support new products such as RealPort2(TM) integrated PC Cards,
the PortStation and PortGear port expansion systems, CompactCard adapters,
Rex MicroPDA, and NetStation conference room networking lines of products;
and,
. Expansion of our OEM sales organization.
Partially offsetting these increases were the lower sales and marketing
expenditures that generally are associated with OEM sales versus branded
business sales. As we pursue further product and market expansion activities, we
expect sales and marketing expenses for 2001 to increase.
We increased sales and marketing expenses in 1999 in both absolute dollars and
as a percentage of net sales as compared to 1998. The increase in expenses was
due to sales and marketing activities and additional staffing required to
support expanded branded markets, expansion of our OEM sales organization, the
opening and operation of a new regional headquarters in Tokyo, Japan, and
expenses to support the launch of new products such as the PortStation(TM) port
expansion system and the CompactCard line of products.
General and Administrative
(in thousands) 2000 Change 1999 Change 1998
--------------------------------------------------------------------------------
General and administrative $19,648 30% $15,143 41% $10,757
Percentage of net sales 4.0% 3.6% 3.9%
Our general and administrative expenses increased in 2000 as compared to 1999 to
support growth in our organization, including the acquisition of OTI in our
third quarter of 2000, and continued expenditures on our information systems
hardware and software. We expect general and administrative expenses to increase
during 2001 due to the effect of a full year of OTI expenses being included in
our results of operations, the continued growth in our organization, and
expansion of information systems hardware and software.
Our general and administrative expenses increased in 1999 as compared to 1998 to
support growth in our organization and, to a lesser extent, continued
expenditures on our information systems hardware and software, including Year
2000 upgrades. During 1998, we initiated modification efforts of computer
software issues associated with the Year 2000 project.
In-process Research and Development and Other Nonrecurring Charges
In 2000, we recorded a charge to operations of $22.4 million, consisting of a
$19.5 million charge for the write-off of in process research and development in
connection with the purchase of OTI and a $2.9 million
21 XIRCOM, INC.
<PAGE>
non-recurring charge for transaction and transition costs related to the
acquisition of Entrega. Transaction charges include certain investment advisory
fees and accounting and legal expenses. Transition charges include costs of
severance and future operating lease payments related to facilities we have
vacated.
In 1999, we recorded a charge to operations of $2.2 million for the write-off of
in-process research and development in connection with the purchase of the Rex
product line
We based the amounts allocated to in-process research and development on
established valuation techniques in the high technology industry. As of the date
of the acquisitions, the projects associated with the in-process efforts had not
yet reached technological feasibility and the research and development in
process had no alternative future uses. Accordingly, we charged these amounts to
expense on the date of the acquisitions.
We determined the fair values of the in-process research and development
technology by using the income approach, which discounts expected future cash
flows to present value. The discount rate used in the present value calculation
of 25% was derived from a weighted average cost of capital analysis, adjusted
upward to reflect risks related to the characteristics and applications of the
technology, existing and future markets, and assessments of the life cycle stage
of the technologies. We assumed no material expense reductions or synergies as a
result of integrating the acquired in-process technologies and, therefore, the
valuation assumptions do not include such anticipated cost savings. As of the
OTI acquisition date, we estimated that the projects under development, which
primarily related to GSM and GPRS technologies, were approximately 85% and 20%
complete. We expect these projects to be completed within the next twelve
months.
Amortization of goodwill and other acquisition-related intangibles As a result
of our acquisition of the Rex product line in September 1999 and OTI in June
2000, we recorded goodwill and other acquisition-related intangible assets of
approximately $55.9 million, and are amortizing them over 3 to 5 years. We
expect ongoing amortization of goodwill and other acquisition related
intangibles associated with the above acquisitions to total approximately $2.8
million per quarter for the next several years.
Special charges
During 2000, we recorded special charges to operations totaling $4.2 million,
net. The special charges consist primarily of a provision for customer
insolvency of $4.2 million related to the bankruptcy filings of MicroAge, Inc.
in the United States and two European subsidiaries of CHS Electronics, Inc.
Also included in Special charges is a one-time non-cash charge of $1.0 million
relating to our modification of the Company's 1997 Patent Stock Option Plan from
a variable to a fixed plan. We expect ongoing compensation amortization expense
associated with unvested options granted under the patent plan to total $150,000
per quarter over the next several quarters.
These charges are offset by a special credit of $1.0 million recorded by us
relating to our reserve for future operating lease payments established during
1999. During 1999, we recorded a charge to operations of $2.4 million for future
operating lease payments for facilities we planned to vacate. In fiscal 2000,
our occupancy plans were revised due to our acquisition of OTI, and therefore we
reduced our reserve for future operating lease payments by $1.0 million. The
total reserve for future operating lease payments is net of estimated sublease
income.
22 XIRCOM, INC.
<PAGE>
Other Income, Net
(in thousands) 2000 Change 1999 Change 1998
--------------------------------------------------------------------------------
Other income, net $9,332 423% $1,785 (57%) $4,191
Percentage of net sales 1.9% 0.4% 1.5%
Other income, net is primarily comprised of interest and dividend income we earn
from our cash and short-term investments. This amount is offset by early payment
discounts taken by our customers, foreign currency transaction losses, and
losses on disposals of fixed assets. The increase in Other income, net during
fiscal 2000 as compared to the prior year period was due primarily to increased
interest income resulting from a higher balance of cash and short-term
investments, and higher interest rates, partially offset by an increase in
foreign exchange losses and losses on disposals of fixed assets. Our interest
income was $15.9 million, $4.9 million and $4.3 million, and our net foreign
currency transaction losses were $2.0 million in 2000 and gains were $438,000
and $1.4 million, in 1999 and 1998, respectively. In addition, during fiscal
2000, we recorded a loss of $1.6 million upon the abandonment of certain
capitalized assets. Net other income for 1999 decreased as compared to 1998
primarily due to an increase in discounts earned by our customers on early
payments to us and a decrease in gains on our foreign currency transactions.
Income Tax Provision
(in thousands) 2000 Change 1999 Change 1998
--------------------------------------------------------------------------------
Income tax provision $16,063 (4%) $16,724 113% $7,852
Effective tax rate 39.1% 32.6% 33.1%
Our effective tax rate was 39.1% in 2000, 32.6% in 1999 and 33.1% in 1998. The
difference between our effective tax rate during 2000 and the 35% federal
statutory tax rate was due primarily to the write-off of non-deductible in-
process research and development charges related to our acquisition of OTI,
partially offset by the use of tax preferred investments, state income taxes,
and benefits from the tax holiday status of our operations in Malaysia. We
expect an effective tax rate of 22% for our 2001 fiscal year.
The difference between our effective tax rate during 1999 and the 35% federal
statutory tax rate was due primarily to benefits we received from the tax
holiday status of our manufacturing operations in Malaysia and use of tax
preferred investments for our cash equivalents. In addition, an income tax
benefit has not been recorded for the losses attributable to Entrega during 1999
since such losses have been utilized at the shareholder level based on Entrega's
S-Corporation status during those periods.
Net Income
Net income and net income per diluted share for 2000, excluding the write-off of
in-process research and development and other non-recurring acquisition related
charges, amortization of goodwill and other acquisition related intangibles, and
special charges, was $53.8 million and $1.76, respectively, compared to $37.9
million and $1.48, respectively, for 1999. Net income and net income per diluted
share for 2000 was $25.0 million and $.82, respectively, compared to $34.6
million and $1.35, respectively, for 1999.
Risk Factors
------------
We may be unable to remain competitive in the mobile information access
industry, which could reduce our profitability. The market for notebook PC Card
adapters has grown rapidly since the PCMCIA introduced a standard form factor
for PC Card LAN adapters in 1993. Companies in the PC, desktop LAN adapter and
modem industries with greater name recognition and greater financial resources
than us, have a significant presence in the PC Card adapter market. As a result,
we have faced increased competition in our industry. Actions by our
23 XIRCOM, INC.
<PAGE>
competitors, which continue to influence this competitive environment, include
price reductions, new product introductions, targeted challenges to our
intellectual property, promotional efforts, and changes in the level of channel
inventory. We expect competition to remain intense and as a result, we may lose
some of our business to our competitors. Further, we believe that the market for
PC Card LAN adapters, modems and Combo cards will continue to be price
competitive, and thus we could continue to experience lower selling prices,
lower gross profit margins and reduced profitability levels than earned from
such products in the past.
If our manufacturing facility becomes unable to produce our products
efficiently, we may be forced to increase prices or suffer reduced profit
margins.
Our manufacturing facility, located in Malaysia, produces substantially all of
our PC Card adapter products. We may be unable to achieve significant additional
efficiencies from this facility. If we are unable to achieve additional cost
reductions through increased production or manufacturing efficiencies we may be
unable to keep pace with our competitors' cost or price reductions to an extent
necessary to maintain or increase our market share without adversely affecting
gross profit margins. In addition, interruptions in the supply of products could
occur if we are unable to accurately forecast demand levels, or react
sufficiently rapidly to changes. This in turn could adversely affect future
sales. We also face risks associated with maintaining production facilities
overseas, including management of a distant and remote manufacturing facility,
currency fluctuations and potential instability in the local country. This is
particularly of concern to us in light of recent economic and political
uncertainty in Malaysia and in Asia generally.
Any changes in the mix of products we sell and in the types of customers to whom
we sell could reduce our profit margins.
Certain of our products have lower gross profit margins than others. As a
result, changes in our product mix could result in variations in overall gross
profit margin. See "Management's Discussion and Analysis of Financial Conditions
and Results of Operations" for a discussion of the relative margins of our
different products. In addition, shipments to our OEM customers generally result
in lower average selling prices and gross profit margins than sales made through
our distribution partners. Furthermore, the increased percentage of revenue from
OEM customers during 2000 as compared to 1999 has resulted in an increased
concentration in our customer base. With this increased customer concentration,
we have increased our dependency on a more limited number of customers at lower
average selling prices and gross profit margins than sales made through our
distribution partners. These trends may continue, as we anticipate a continuing
increase in OEM revenues as a percentage of sales. PC Card functionalities
continue to migrate to different form factors such as MiniPCI or other on board
access card solutions, resulting in lower selling prices and gross profit
margins than in traditional PC Card adapters.
Our inability to compete successfully in international markets may reduce our
sales.
Our sales may be subject to government controls and other risks such as:
. Federal restrictions on export;
. Export licenses;
. Trade restrictions;
. Changes in tariff and freight rates;
. Currency fluctuations;
. Economic instability; and,
. Political instability.
As a result of recent and potential factors such as currency fluctuations and
economic instability impacting international markets, we could encounter
difficulties in accessing new and existing international markets or experience
increased credit risks. Such credit risks could include insolvency of customers
or other
24 XIRCOM, INC.
<PAGE>
impairments of customers' ability to repay amounts owed to us. These credit
risks could also include insolvency of vendors or other impairments of our
vendors' ability to supply materials to us.
Foreign currency fluctuations could adversely affect our results.
We face exposure to adverse movements in foreign currency exchange rates. These
exposures may change over time and could have a material adverse impact on our
financial results. We do substantially all our manufacturing at our facility in
Malaysia and we operate regional sales and marketing headquarters located in
Belgium, Singapore and Japan. As a result a substantial portion of our operating
expenses are denominated in the Malaysian ringgit, the Euro, the Singapore
dollar and the Japanese yen. The majority of our international sales were
denominated in U.S. dollars in 1999 and prior fiscal years. However, beginning
with fiscal year 2000, the majority of our international sales are denominated
in the Euro. We hedge certain foreign currency fluctuations and continue to
evaluate the impact of such foreign currencies on our foreign exchange exposure.
We only hedge foreign currency exposures associated with certain assets and
liabilities denominated in currencies other than the functional currencies and
do not hedge anticipated foreign currency cash flows. This hedging activity is
intended to offset the financial impact of foreign currency fluctuations on
certain nonfunctional currency assets and liabilities, but this hedging activity
may not be successful in fully offsetting such financial impact.
We could incur unnecessary expenses if we are unable to accurately predict
product sales.
We generally ship products within one to four weeks after receipt of orders.
Therefore, our sales backlog is typically minimal. Accordingly, our expectations
of future net sales are based largely on our own estimates of future demand and
not on firm customer orders. If our net sales do not meet expectations,
profitability would be adversely affected, as we may not be able to reduce
expenses at the same pace in the near term.
Our sales could be reduced if we are unable to respond quickly to changes in
demand for our products.
Our net sales can be affected by changes in the quantity of products that our
distributor and OEM customers maintain in their inventories. We believe that our
distribution partners carry relatively low quantities of our inventory compared
to that of our competitors. We also have taken steps, beginning in the second
quarter of fiscal 1999, to reduce the levels of inventory maintained by our OEM
customers. We believe that these actions enable us to react more quickly to
changes in market demand. However, we may also be affected more directly and
more rapidly by changes in the market, including the impact of any slowdown or
rapid increase in end user demand. Despite our efforts to minimize channel
inventory exposure, distribution partners and OEM customers may still choose to
reduce their inventories below current levels, which could cause a reduction in
our net sales.
If we are unable to develop new products in a timely manner, we risk losing our
customers.
Our success is dependent on our ability to continue to introduce new
products with advanced features, functionality and solutions that our customers
demand. We may be unable to continue to timely introduce new products that are
accepted by the market, or that sell through to end users in quantities
sufficient to make the products viable for the long-term. Sales of our new
products may negatively impact sales of existing products. In addition, we may
have difficulty establishing our products' presence in markets where we do not
currently have significant brand recognition.
If we are unable to successfully market wireless wide area network products, we
could experience loss of sales and decreased revenue.
Our wireless wide area network product strategy is dependent on the success of
wireless carriers in their efforts to deploy GPRS and its packet switching
capabilities in their wireless GSM networks. We may be unable to achieve sell
through of our wireless wide area network products to end users in commercially
viable quantities if carriers fail to:
25 XIRCOM, INC.
<PAGE>
. Successfully complete GPRS network trials;
. Incorporate GPRS infrastructure into their GSM networks;
. Achieve satisfactory throughput speeds; or,
. Market GPRS capable terminals in commercial quantities.
In addition, we may be unsuccessful in our efforts to obtain formal type
approval on our future wireless products. Failure to obtain such approval in a
timely manner may prohibit our timely offerings of new wireless products.
We may be unable to manufacture our products because we are dependent on a
limited number of qualified suppliers for our components.
Because of frequent technology changes and rapid industry growth, the cost and
availability of components used to manufacture our products may fluctuate.
Because some components, including custom chipsets, are available from sole
suppliers, we risk having an inadequate supply of components due to a number of
factors, including:
. Supplier manufacturing constraints;
. Excess of demand versus supply;
. National political or economic changes; and,
. Other risks not within our control.
Although we have not experienced any significant parts shortages over the past
year, many components we use require long-lead purchase orders thereby limiting
our flexibility to change order quantities in the event of changes in demand.
Any supply source interruptions, limitations on availability, or inability to
develop alternative sources as needed could adversely affect our ability to
deliver products and, in turn, our future earnings.
Rapid technological changes and short product life cycles in our industry could
harm our business.
Rapid technological change and short product life cycles characterize the
industry in which we operate. The industry includes competitors with greater
financial and technical resources than us, including, in particular, 3Com. While
we have historically been successful in developing or integrating leading
technology into our products, ongoing investment in research and development is
required for us to maintain our technological position. We may need to increase
the rate of such investment depending on competitive factors, and we may not be
able to innovate as quickly as our competitors.
If networking capability is included in extension modules to PCs or in the PC
itself, it could result in a reduction in the demand for add-on networking
devices. Our ability to retain our market share and operating results are also
dependent on continued growth in the underlying markets for notebook computers,
notebook networking products, and the notebook-to-network connection rate.
An inability to adequately protect our proprietary technology may result in us
losing our competitive position.
We may be unable to protect our intellectual property adequately through patent,
copyright, trademark and other protection. For example, patents issued to us may
not be upheld as valid if litigation over the patent were initiated.
Alternatively, competitors may succeed in designing around the claims of issued
patents, thereby avoiding infringement of applicable patents. If we are unable
to protect or enforce our intellectual property adequately, it could allow
competitors to duplicate our technology or may otherwise limit any competitive
technological advantage we may have. Because of the rapid pace of technological
change in the communications industry we believe our success is likely to depend
more upon continued innovation, technical expertise, marketing skills and
customer support and service rather than upon legal protection of our
26 XIRCOM, INC.
<PAGE>
proprietary rights. However, we will continue to seek to secure appropriate
intellectual property rights for our innovations, and will aggressively assert
our intellectual property rights when necessary.
With the proliferation of new products and rapidly changing technology in the
mobile information access market, there has been a significant volume of patents
or similar intellectual property rights held by third parties. Given the nature
of our products and development efforts, there are risks that third parties
could assert patent or intellectual property rights claims against us. These
risks include the cost of licensing or designing around a given technology. If a
claimant refuses to offer such a license on terms acceptable to us, there is a
risk of incurring substantial litigation or settlement costs regardless of the
merits of the allegations. In the event of litigation, if we do not prevail we
may be required to pay significant damages and/or to cease sales and production
of infringing products. Refer to Item 3 Legal Proceedings on pages 15-16 of this
document for a discussion of specific legal proceedings.
We currently use software licensed from third parties in certain of our Combo,
modem-only, Token Ring, port expansion system and MicroPDA products. Our
operating results could be adversely affected by a number of factors relating to
this third-party software, including:
. Failure by a licensor to accurately develop, timely introduce, promote or
support the software;
. Delays in shipment of our products;
. Excess customer support or product return costs experienced by us due to
errors in licensed software; or,
. Termination of our relationship with such licensors.
Any inability to attract and retain qualified managerial and other skilled
personnel could harm our operations.
Our continued success depends, in part, on our ability to identify, attract,
motivate and retain qualified managerial, technical and sales personnel. Because
our future success is dependent on our ability to manage effectively the
enhancement and introduction of existing and new products and the marketing of
such products, we are particularly dependant on our ability to identify,
attract, motivate and retain qualified managers, engineers and salespersons. The
loss of the services of a significant number of our engineers or sales people or
one or more of our senior officers or managers could be disruptive to our
development efforts or business relationships and could seriously harm our
business.
If we are unable to effectively integrate processes, products or businesses that
we create or acquire, we could experience disruptions to our business.
The recently acquired Wireless Technology Group ("WTG" formerly OTI) must be
integrated with our existing business structure. If we are ineffective in
integrating WTG within our business or fail to do so with acquisitions that we
have made in the past or may make in the future, we may face disruptions to our
business activities, and our business may be seriously harmed.
If we are unable to renew our tax reinvestment allowance in Malaysia, we could
incur additional tax liability.
Since its inception, we have received tax holiday status on our manufacturing
operations in Malaysia. Under this tax holiday, the earnings of our
manufacturing subsidiary were not taxable in Malaysia. This tax holiday expired
in October 2000. In October 2000, we received notification that we have been
granted a reinvestment allowance for new capital investment in our manufacturing
operations in Malaysia. We cannot be assured that we will be able to renew or
extend this allowance.
Liquidity and Capital Resources
As of September 30, 2000, we had $113.3 million in cash and cash equivalents and
$195.2 million in short term investments. Our operating activities provided cash
of approximately $52.6 million in 2000, primarily due to net income plus
depreciation and amortization, in-process research and development and other
non-
27 XIRCOM, INC.
<PAGE>
cash charges, and increases in current and deferred income tax liabilities,
partially offset by increases in accounts receivable and decreases in accounts
payable and accrued liabilities. Income taxes payable increased primarily due to
the timing of payments for income taxes. Accounts payable and accrued
liabilities decreased primarily due to the timing of payments for component
inventory purchases offset by an increase in accounts payable for capital
expenditures. Accounts receivable increased due to higher fourth quarter net
sales in 2000 versus that of 1999.
We used $245.1 million of cash in investing activities in 2000, primarily for
the purchase of short-term investments and capital expenditures. Our short-term
investments consist of financial instruments, including auction rate securities
with interest rates or dividends that reset within 90 days, but with longer-term
underlying contractual maturities. Our capital expenditures were primarily for
information systems software and hardware, increased headcount, and the purchase
of manufacturing equipment for use in our Penang, Malaysia facility. We
anticipate an increase in our rate of capital expenditures over the next twelve
months for information systems hardware and software, and purchase of land and
leasehold improvements associated with new leased facilities.
Our financing activities provided $170.1 million in cash during 2000. This was
primarily the result of $223.1 million in net proceeds from the sale of 4.6
million shares of our Common Stock (including the exercise of the underwriters'
over-allotment option) in an underwritten public offering at a price of $51.25,
and $13.1 million from the issuance of common stock through stock option
exercises and employee stock purchase plans. These increases were partially
offset by the use of $61.1 million to repurchase 1.6 million shares of our stock
under a repurchased plan authorized by our board of directors. As of September
30, 2000, we had 900,000 shares available for repurchase under our stock
repurchase program. In addition, during 2000 we used cash of $5.0 million to
repay notes payable.
We have an unsecured bank credit facility allowing borrowings up to $25.0
million. We also have credit facilities totaling $5.5 million, denominated in
Malaysian ringgit, with banks in Malaysia. We had no borrowings outstanding and
approximately $30.2 million in borrowings available under our credit facilities
as of September 30, 2000.
We believe that cash on hand, borrowings available under our existing facilities
or from other financing sources and cash provided by operations will be
sufficient to support our working capital and capital expenditure requirements
for at least the next twelve months. However, we cannot assure that future cash
requirements to fund operations will not require us to seek additional capital
sooner than the twelve months, or that such additional capital will be available
when required on terms acceptable to us.
Item 7A. Qualitative and Quantitative Disclosures About Market Risk
The following discussion about our market risk disclosures involves
forward-looking statements. Actual results could differ materially from those
projected in the forward-looking statements.
Our portfolio of cash equivalents and short-term investments is of a short-term
nature, and we have no borrowings outstanding. Accordingly, we are not subject
to significant market price risk related to investments. However, our interest
income is sensitive to changes in the general level of taxable and tax-free
short-term U.S. interest rates. Based on our investment mix and balances as of
September 30, 2000, if average short term market interest rates had been 100
basis points lower over the last twelve months, our interest income and income
before taxes would have been approximately $3.1 million lower.
Our operating results are exposed to weak economic conditions in foreign markets
and changes in exchange rates, primarily between the U.S. dollar and the Euro,
the Malaysian ringgit, and the Japanese yen. Beginning with fiscal year 2000,
the majority of our international sales are denominated in the Euro. When the
dollar
28 XIRCOM, INC.
<PAGE>
strengthens against the Euro or the yen, we experience a decrease in the value
of sales in currencies other than the functional currency.
In our European and Japanese markets, respectively, we are a net receiver of the
Euro and the yen. As such, we benefit from a weaker U.S. dollar versus the Euro
and the Japanese yen. Our Malaysian operations are net payers of currencies
other than the U.S. dollar. As such, our operating results may be adversely
affected by a weaker U.S. dollar versus the Malaysian ringgit.
To mitigate the short-term effect of changes in currency exchange rates on our
foreign currency-based expenses, we purchase and hold Malaysian ringgits in
advance of the due date of our underlying obligations. In addition, we hedge our
Euro currency exposures associated with certain assets and liabilities
denominated in currencies other than the functional currencies by utilizing
forward contracts. This hedging program reduces, but does not eliminate, the
impact of U.S. dollar/Euro currency exchange rate movements.
29 XIRCOM, INC.
<PAGE>
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Xircom, Inc.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
(In thousands, except per share amounts)
Fiscal Years Ended September 30 2000 1999 1998
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $496,199 $424,436 $ 276,947
Cost of sales 279,318 243,248 179,377
--------------------------------------------------------------------------------------------------------------------
Gross profit 216,881 181,188 97,570
Research and development expenses 37,847 24,557 16,599
Sales and marketing expenses 96,512 87,348 50,699
General and administrative expenses 19,648 15,143 10,757
In-process research and development and
other nonrecurring acquisition related charges 22,400 2,232 -
Amortization of goodwill and other
acquisition-related intangibles 4,565 - -
Special charges 4,150 2,364 -
--------------------------------------------------------------------------------------------------------------------
Total operating expenses 185,122 131,644 78,055
--------------------------------------------------------------------------------------------------------------------
Operating income 31,759 49,544 19,515
Interest income 15,915 4,911 4,256
Other expense, net (6,583) (3,126) (65)
--------------------------------------------------------------------------------------------------------------------
Income before income taxes 41,091 51,329 23,706
Income tax provision 16,063 16,724 7,852
--------------------------------------------------------------------------------------------------------------------
Net income $ 25,028 $ 34,605 $ 15,854
--------------------------------------------------------------------------------------------------------------------
Basic earnings per share $ .87 $ 1.44 $ .69
Diluted earnings per share $ .82 $ 1.35 $ .68
</TABLE>
30 XIRCOM, INC.
<PAGE>
Xircom, Inc.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(In thousands, except share and per share information)
September 30 2000 1999
-------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 113,284 $ 135,630
Short-term investments 195,205 -
Accounts receivable, net of allowances for sales returns and
bad debts of $9,578 ($11,891 in 1999) 53,203 38,012
Income tax receivable 2,377 300
Inventories 24,483 23,563
Deferred income taxes 14,674 15,195
Prepaid expenses and other current assets 9,045 9,696
-------------------------------------------------------------------------------------------------------------
Total current assets 412,271 222,396
Property and equipment, net 74,734 40,536
Goodwill and other acquired intangibles, net 50,921 10,416
Other assets 3,623 2,148
-------------------------------------------------------------------------------------------------------------
Total assets $ 541,549 $ 275,496
-------------------------------------------------------------------------------------------------------------
Liabilities and shareholders' equity
Current liabilities:
Notes payable $ - $ 9,138
Accounts payable 34,014 31,591
Accrued liabilities 39,442 42,235
Accrued income taxes - 3,952
-------------------------------------------------------------------------------------------------------------
Total current liabilities 73,456 86,916
Deferred income taxes 17,134 13,660
Commitments and contingencies
Shareholders' equity:
Preferred Stock, 2,000,000 shares authorized, none issued - -
Common Stock, $.001 par value, 125,000,000 shares authorized;
29,812,511 shares outstanding at September 30, 2000
(24,563,614 in 1999) 30 24
Paid-in capital 404,008 151,925
Retained earnings 47,999 22,971
Accumulated other comprehensive loss (1,078) -
-------------------------------------------------------------------------------------------------------------
Total shareholders' equity 450,959 174,920
-------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 541,549 $ 275,496
-------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes
31 XIRCOM, INC.
<PAGE>
Xircom, Inc.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Retained Accumulated
Common Stock Earnings Other
(In thousands) -------------------- Paid-in (Accumulated Comprehensive
Shares Amount Capital Deficit) Loss Total
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at September 30, 1997 22,672 $23 $140,892 $(27,488) $ - $113,427
Net income - - - 15,854 - 15,854
Issuance of Common Stock 123 - 500 - - 500
Issuance of Common Stock under
Employee Stock Option and Stock
Purchase Plans 416 - 4,058 - - 4,058
Tax benefit related to employee
stock options - - 912 - - 912
--------------------------------------------------------------------------------------------------------------------
Balance at September 30, 1998 23,211 23 146,362 (11,634) - 134,751
--------------------------------------------------------------------------------------------------------------------
Net income - - - 34,605 - 34,605
Issuance of Common Stock 126 - 741 - - 741
Issuance of Common Stock under
Employee Stock Option and Stock
Purchase Plans 1,227 1 15,618 - - 15,619
Repurchase of Common Stock (514) - (19,775) - - (19,775)
Exercise of stock warrants 514 - - - - -
Tax benefit related to employee
stock options - - 8,549 - - 8,549
Compensation expense related to
stock options and stock
appreciation rights - - 430 - - 430
--------------------------------------------------------------------------------------------------------------------
Balance at September 30, 1999 24,564 24 151,925 22,971 - 174,920
--------------------------------------------------------------------------------------------------------------------
Comprehensive income:
Net income - - - 25,028 - 25,028
Cumulative translation adjustment - - - - (1,078) (1,078)
--------------------------------------------------------------------------------------------------------------------
Comprehensive income - - - 25,028 (1,078) 23,950
Issuance of Common Stock 5,983 6 288,652 - - 288,658
Issuance of Common Stock under
Employee Stock Option and Stock
Purchase Plans 866 1 13,192 - - 13,193
Repurchase of Common Stock (1,600) (1) (61,104) - - (61,105)
Tax benefit related to employee
stock options - - 9,960 - - 9,960
Compensation expense related to
stock options and stock
appreciation rights - - 1,383 - - 1,383
--------------------------------------------------------------------------------------------------------------------
Balance at September 30, 2000 29,813 $30 $404,008 $ 47,999 $(1,078) $450,959
--------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes
32 XIRCOM, INC.
<PAGE>
Xircom, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(In thousands)
Fiscal Years Ended September 30 2000 1999 1998
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating activities
Net income $ 25,028 $ 34,605 $ 15,854
Adjustments to derive cash flows from operating activities:
In-process research and development and other non-cash
charges 25,511 5,248 23
Depreciation and amortization 22,448 13,939 7,993
Deferred income taxes 3,334 1,008 4,053
Loss on disposal/abandonment of fixed assets 1,628 320 153
Changes in assets and liabilities, net of the effect of
acquisitions:
Accounts receivable (18,890) (9,508) (19,602)
Income tax receivable (2,077) (15) 4,721
Inventories (920) (3,689) 11,997
Prepaid expenses and other current assets 693 (4,573) (2,398)
Accounts payable and accrued liabilities (10,168) 23,454 17,836
Income taxes payable 6,008 9,193 3,275
---------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 52,595 69,982 43,905
Investing activities
Purchases of property and equipment (44,901) (27,255) (18,555)
Purchases of short-term investments (1,513,636) - -
Sales of short-term investments 1,318,431 - -
Proceeds from sale of fixed assets 88 113 203
(Increase) decrease in other assets (3,010) (2,150) 30
Cash paid for acquisition (2,033) (13,250) -
---------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (245,061) (42,542) (18,322)
Financing activities
Proceeds from issuance of common stock 236,213 15,638 4,538
Repurchase of common stock (61,105) (19,775) -
Proceeds from issuance of debt obligations - 8,538 3,125
Repayment of debt obligations (4,988) (2,025) (2,541)
---------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 170,120 2,376 5,122
Net (decrease) increase in cash and cash equivalents (22,346) 29,816 30,705
Cash and cash equivalents at beginning of period 135,630 105,814 75,109
---------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 113,284 $ 135,630 $ 105,814
---------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes
33 XIRCOM, INC.
<PAGE>
Xircom, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE ONE: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation
The accompanying consolidated financial statements include the accounts of
Xircom, Inc. (the "Company") and its wholly-owned subsidiaries. All intercompany
balances and transactions have been eliminated. As further described in Note
Two, the Company acquired Entrega Technologies, Inc. ("Entrega") on October 1,
1999. The acquisition was accounted for as a pooling-of-interests. Accordingly,
the consolidated financial statements give retroactive effect to the merger of
the Company and Entrega to reflect the combined financial position and
operations of the Company and Entrega for all dates and periods presented.
Business
The Company designs, develops, manufactures, markets and supports products that
enable users to connect mobile and remote notebook and handheld computers to
corporate networks, the Internet, intranets and other online resources from a
variety of locations.
Cash equivalents and short-term investments
All highly liquid investments with maturities of three months or less at the
date of purchase are considered to be cash equivalents. Short-term investments
primarily consist of U.S., state and municipal government obligations, including
auction rate securities, and investment grade corporate debt securities,
including commercial paper and auction rate securities. Short-term investments,
except auction rate securities, mature between three months and one year from
the purchase date. Auction rate securities carry interest or dividend rates that
reset within every ninety days but have underlying contractual maturities of
greater than one year. All cash equivalents and short-term investments are
classified as available for sale. Cost approximates market value for all
classifications of cash equivalents and short-term investments. Realized gains
and losses were not significant and were derived using the specific
identification method.
The following is a summary of cash balances and available for sale securities at
September 30, 2000 and 1999 (in thousands):
<TABLE>
<CAPTION>
September 30 2000 1999
---------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash balances $ 21,494 $ 27,922
Money market mutual funds 83,807 107,708
U.S., state, and municipal government obligations 105,834 -
Corporate debt securities 97,354 -
---------------------------------------------------------------------------------------------------
$308,489 $135,630
---------------------------------------------------------------------------------------------------
Included in cash and cash equivalents 113,284 135,630
Included in short-term investments 195,205 -
---------------------------------------------------------------------------------------------------
$308,489 $135,630
---------------------------------------------------------------------------------------------------
</TABLE>
Concentration of credit risk
Financial instruments that potentially subject the Company to significant
concentration of credit risk consist primarily of cash, cash equivalents,
short-term investments, and accounts receivable. Five financial institutions
manage substantially all of the Company's cash, cash equivalents, and short-term
investments.
The Company sells its products primarily through two-tier distributors or
original equipment manufacturers. The Company makes periodic evaluations of the
creditworthiness of its customers and generally does not require collateral. As
of September 30, 2000 and 1999, three customers accounted for a total of 62% and
36%, respectively, of total trade accounts receivable. The carrying amounts
reported in the balance sheets for certain of the company's financial
instruments, including cash and cash equivalents, accounts receivable, accounts
34 XIRCOM,INC.
<PAGE>
Xircom, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
payable and notes payable approximate their fair value because of their short
maturities. The fair values of investments are determined using quoted market
prices for those securities or similar financial instruments.
Inventories
Inventories are carried at the lower of cost (determined on a first-in,
first-out basis) or market.
Property and equipment
Property and equipment is stated at cost. Depreciation and amortization is
provided using the straight-line method over the estimated useful lives of the
assets, ranging from one to ten years. Leasehold improvements are amortized
using the straight-line method over the term of the related lease or the useful
life of the asset, whichever is shorter.
During the year ended September 30, 2000, the Company recorded a loss of
$1,600,000 upon the abandonment of certain capitalized assets which is included
in Other income, net in the accompanying Consolidated Statements of Income.
Goodwill and purchased intangible assets
Goodwill and purchased intangible assets are comprised of amounts recorded in
business acquisitions stated at cost less accumulated amortization. Amortization
is provided using the straight-line method over the economic lives of the
assets, generally three to five years (see Note Two).
Revenue recognition
The Company recognizes revenue from product sales when shipped. The Company
makes a provision for the estimated amount of product returns or credits that
may occur under these contracts in the period of sale and has a policy of
reserving channel inventory held by its customers in excess of one-month supply.
The Company also has contractual agreements that permit distributors and dealers
to return products or receive price protection credits under certain
circumstances. The Company generally provides a lifetime limited warranty
against defects in the hardware component and a two-year limited warranty on the
software component of its network adapters and modem products. In addition, the
Company provides telephone support to purchasers of its products as needed to
assist them in installation or use of the products. The Company makes provisions
for these costs in the period of sale.
Licensing agreements
The Company has entered into agreements with third parties to license software
and hardware that is incorporated into or sold with certain of the Company's
products. Royalties associated with such licenses are accrued and expensed as
cost of goods sold when the products are shipped.
Research and development
Research and development costs are expensed as incurred.
Advertising costs
The Company expenses advertising costs as incurred. Advertising expense, net,
totaled $8,315,000, $9,861,000 and $4,032,000 for fiscal 2000, 1999 and 1998,
respectively.
In-process research and development and other nonrecurring charges
In fiscal 2000, the Company recorded a charge to operations of $22,400,000,
consisting of a $19,535,000 charge for the write-off of in process research and
development in connection with the purchase of Omnipoint Technologies, Inc. from
VoiceStream Wireless Corporation (see Note Two) and a $2,865,000 non-recurring
charge for transaction and transition costs related to the acquisition of
Entrega.
35 XIRCOM, INC.
<PAGE>
Xircom, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In fiscal 1999, the Company recorded a charge to operations of $2,232,000 for
the write-off of in-process research and development in connection with the
purchase of the Rex product line (see Note Two).
Special charges
During fiscal 2000, the Company recorded Special charges to operations totaling
$4,150,000, net. The Special charges primarily consist of a provision for
customer insolvency of $4,150,000 related to the bankruptcy filings of MicroAge,
Inc. in the United States and two European subsidiaries of CHS Electronics, Inc.
Also included in Special charges is a one-time non-cash charge of $1,000,000
relating to the modification of the Company's 1997 Patent Stock Option Plan from
a variable to a fixed plan.
These charges are offset by a special credit of $1,000,000 recorded by the
Company relating to its reserve for future operating lease payments established
during fiscal 1999. During fiscal 1999, the Company recorded a charge to
operations of $2,364,000 for future operating lease payments for facilities it
planned to vacate. In fiscal 2000, the Company's occupancy plans were revised
due to its acquisition of Omnipoint Technologies, Inc., and therefore the
Company reduced its reserve for future operating lease payments by $1,000,000.
The total reserve for future operating lease payments is net of estimated
sublease income.
Foreign currency transactions
The functional currency of most of the Company's foreign subsidiaries is the
U.S. dollar. However, beginning October 1, 1999, the majority of the Company's
sales in Europe are denominated in the Euro, and as such, the functional
currency of the Company's European trading subsidiary has been changed to the
Euro. Translation adjustments are recorded in Accumulated other comprehensive
loss.
The Company has a program to manage its foreign currency risk. As part of this
program, the Company enters into forward contracts to hedge exposures to foreign
currency fluctuations of certain assets and liabilities denominated in a
currency other than the functional currency. These contracts are designated as
effective hedges and, accordingly, gains and losses on these forward contracts
are recognized in the same period the offsetting gains and losses of hedged
assets and liabilities are realized and recognized. Gains and losses on forward
contracts, to the extent they differ in amount from the hedged assets and
liabilities, are included in Other income, net. There were no outstanding
forward contracts as of September 30, 2000. Net gains (losses) from foreign
currency transactions totaled ($1,964,000), $438,000 and $1,426,000 for fiscal
2000, 1999 and 1998, respectively, and are recognized currently in Other income,
net.
Earnings per share
Basic earnings per share is calculated using the weighted average common shares
outstanding for the period, and excludes dilutive securities. Diluted earnings
per share reflects the dilution to earnings that would occur if stock options
and other dilutive securities resulted in the issuance of common stock. The
weighted average number of shares used for basic and diluted earnings per share
were as follows:
36 XIRCOM, INC.
<PAGE>
Xircom, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Fiscal Years Ended September 30 2000 1999 1998
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Weighted average number of shares--basic 28,901,000 24,104,000 22,931,000
Effect of dilutive securities:
Employee stock options 1,705,000 1,456,000 485,000
Warrant -- 86,000 --
Other dilutive securities -- 36,000 40,000
------------------------------------------------------------------------------------------------------
Diluted 30,606,000 25,682,000 23,456,000
------------------------------------------------------------------------------------------------------
</TABLE>
Certain shares issuable under stock options in fiscal 2000, 1999 and 1998, and
warrants of 1,509,903 in fiscal 1998 have been excluded from the computation of
diluted earnings per share because the effect would be antidilutive.
Employee stock option and stock purchase plans
Employee stock option and stock purchase plans are accounted for under
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees," which requires the recognition of expense when the option price is
less than the fair value of the stock at the date of grant. The Company
generally awards options for a fixed number of shares at an option price equal
to the fair value at the date of grant. The Company, through its acquisition of
Entrega, has a plan under which stock appreciation rights have been granted. The
Company has adopted the disclosure-only provisions of Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation." See
Note Nine.
Effects of recent accounting pronouncements
In June 1998, Statement of Financial Accounting Standards No. 133, Accounting
for Derivative Instruments and Hedging Activities ("SFAS 133") was issued. SFAS
133, as amended will require the Company to record all derivatives as assets or
liabilities at fair value. Gains or losses resulting from changes in the values
of those derivatives would be accounted for depending on the use of the
derivatives and whether it qualifies for hedge accounting. The impact of SFAS
133 on the Company's financial statements will depend on a variety of factors,
including the extent of the Company's hedging activities, the types of hedging
instruments used and the effectiveness of such instruments. The Company does not
expect the initial adoption of SFAS 133 to have a material effect on its results
of operations or financial position. The Company is required to adopt SFAS 133
in the first quarter of fiscal 2001.
In December 1999, the Securities and Exchange Commission issued Staff Accounting
Bulletin No. 101 ("SAB 101"), Revenue Recognition in Financial Statements.
SAB 101 provides guidance for revenue recognition under various circumstances.
The accounting and disclosures prescribed by SAB 101 will be effective in the
fourth quarter of the Company's fiscal year ending September 30, 2001, and
retroactive to the beginning of that fiscal year. The Company does not believe
the effects of adoption will be material to its financial position or results of
operations.
Use of estimates
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Rapid technological change and short product life cycles
characterize the industry in which the Company operates. As a result, estimates
are required to provide for product returns, price protection, product
obsolescence and warranty returns. Historically, actual amounts recorded under
these programs have not varied significantly from estimated amounts. Actual
results may differ, however, from those estimates, although management does not
believe that any differences would materially affect the Company's financial
position or reported results.
37 Xircom, Inc.
<PAGE>
Xircom, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Reclassifications
As required by Emerging Issues Task Force (EITF) Issue 00-15, Classification in
the Statement of Cash Flows of the Income Tax Benefit Received by a Company upon
Exercise of a Nonqualified Employee Stock Option, stock option income tax
benefits are classified within cash from operations in the cash flows statement.
Prior period cash flows statements have been restated to conform to this
presentation. Certain other reclassifications of previously reported amounts
have been made to conform to the current year's presentation.
NOTE TWO: ACQUISITIONS
Acquisition of Omnipoint Technologies, Inc.
On June 27, 2000, the Company purchased all of the outstanding shares of
Omnipoint Technologies, Inc. ("OTI") from VoiceStream Wireless Corporation. OTI
is a developer and integrator of advanced wireless communication technologies
such as Global System for Mobile Communication ("GSM") and General Packet Radio
Services ("GPRS") which will provide users access to mobile internet protocol
("IP") based data.
The acquisition was accounted for using the purchase method of accounting and
accordingly, the purchase price was allocated to the tangible and intangible net
assets acquired on the basis of their respective fair values on the acquisition
date. The fair value of intangible assets was determined based upon an
independent valuation using a combination of methods, including an income
approach for the acquired in-process technologies, an avoided cost approach for
the customer base and a cost approach for the value of the workforce-in-place.
Under the terms of the agreement, Xircom issued 1,201,079 shares valued at
$50,000,000, in exchange for all outstanding shares of OTI. In addition, Xircom
assumed 216,762 unvested employee stock options with an in-the-money value of
approximately $8,300,000, certain liabilities totaling approximately $5,100,000,
and incurred other acquisition related expenses of approximately $400,000. The
total purchase price was allocated to tangible assets of $884,000, deferred tax
liabilities of $661,000, and intangible assets, including in-process research
and development of $19,535,000, customer base of $485,000, workforce-in-place of
$1,167,000 and goodwill of $42,261,000.
Goodwill is being amortized over its estimated useful life of five years. The
other acquired intangible assets are being amortized over their estimated useful
lives of three to five years. The amount allocated to acquired in-process
research and development was charged to expense upon completion of the
acquisition because technological feasibility had not been established and no
future alternative uses existed. To determine the value of in-process research
and development, the expected future cash flows, including costs to achieve
technological feasibility, were discounted at an after-tax rate of 25%, taking
into account risks related to the characteristics and applications of the
technology, existing and future markets, and assessments of the life cycle stage
technology. As of the acquisition date, it was estimated that the projects under
development, which primarily related to GSM and GPRS technologies, were
approximately 85% and 20% complete. These projects are expected to be completed
within the next twelve months.
This allocation is preliminary and subject to adjustments as the Company
completes its review and evaluation of the acquired assets and assumed
liabilities.
The following unaudited pro forma financial information presents the combined
results of operations of the Company and OTI as if the acquisition had occurred
as of the beginning of each period presented, after giving effect to certain
adjustments, including amortization of goodwill and intangible assets, but
excludes the non-recurring charge for the write-off of in-process research and
development related to OTI.
38 XIRCOM, INC.
<PAGE>
Xircom, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands except per share amounts)
Fiscal Years Ended September 30 2000 1999
-----------------------------------------------------------------------
Net sales $496,893 $428,490
Net income $ 31,485 $ 17,651
Pro forma earnings per share:
Basic $ 1.05 $ .70
Diluted $ .98 $ .65
The pro forma results are not necessarily indicative of those that would have
actually occurred had the acquisitions taken place at the beginning of the
periods presented.
Entrega Technologies Inc.
On October 1, 1999, the Company completed its acquisition of Entrega.
Incorporated in January 1998, Entrega designs and manufactures a selection of
standardized devices for connecting peripherals to personal computers, including
Universal Serial Bus hubs, port converters and cables that complement the
Company's own product offerings. The acquisition was accounted for as a
pooling-of-interests. The Company issued 266,195 shares of its common stock in
exchange for all of the outstanding shares of Entrega, and assumed and exchanged
all outstanding options to purchase Entrega stock for options to purchase an
aggregate of 76,914 shares of the Company's common stock. The Company also
issued 142,393 shares of its common stock valued at $5,782,000 to repay certain
indebtedness of Entrega. There were no intercompany transactions between the two
companies.
Separate financial information of the combined entities for fiscal 1999 and 1998
were as follows:
<TABLE>
<CAPTION>
(in thousands) Xircom Entrega Combined
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Fiscal 1999
Net sales $408,890 $15,546 $424,436
Operating income (loss) 57,396 (7,852) 49,544
Net income (loss) 43,004 (8,399) 34,605
Total assets 269,318 6,178 275,496
Total liabilities $ 85,179 $15,397 $100,576
-------------------------------------------------------------------------------------------------------------------
Fiscal 1998
Net sales $276,056 $ 891 $276,947
Operating income (loss) 21,923 (2,408) 19,515
Net income (loss) 18,321 (2,467) 15,854
Total assets 195,224 2,711 197,935
Total liabilities $ 58,506 $ 4,678 $ 63,184
-------------------------------------------------------------------------------------------------------------------
</TABLE>
Separate diluted earnings per share for Xircom were $1.69 and $0.78 for fiscal
1999 and 1998, respectively.
Rex product line
On September 27, 1999, the Company purchased the Rex product line from Franklin
Electronic Publishers Incorporated, a developer and marketer of handheld
electronic reference products. The acquisition was accounted for as a purchase
with the results of operations included in the Company's financial statements
from the date of acquisition. Pro forma results for fiscal 1999 and 1998,
assuming the acquisition occurred on October 1, 1997, would not be materially
different from the results reported. Cash paid for the acquisition was
$13,250,000, comprised of fair value of assets acquired of $15,618,000 less
liabilities assumed of $2,368,000. Of the assets acquired, $2,232,000 was
written off as in-process research and development, and $10,291,000
39 XIRCOM, INC.
<PAGE>
Xircom, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
was recorded as goodwill and other intangible assets. Amortization of
intangibles is provided using the straight-line method over five years.
The amounts allocated to in-process research and development were based on
established valuation techniques in the high technology industry. At the date of
each acquisition mentioned above, the projects associated with the in-process
efforts had not yet reached technological feasibility and the research and
development in process had no alternative future uses. Accordingly, these
amounts were expensed on the respective dates of each acquisition.
NOTE THREE: INVENTORIES
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
September 30 2000 1999
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Finished goods $ 8,813 $ 12,757
Sub-assemblies 669 492
Work-in-process 3,565 3,578
Component parts 11,436 6,736
-------------------------------------------------------------------------------------------------------------------
$ 24,483 $ 23,563
-------------------------------------------------------------------------------------------------------------------
NOTE FOUR: PROPERTY AND EQUIPMENT
Property and equipment consists of the following (in thousands):
September 30 2000 1999
-------------------------------------------------------------------------------------------------------------------
Land $ 1,304 $ 1,300
Building and improvements 5,127 4,709
Leasehold improvements 7,441 6,877
Computer equipment and software 65,948 23,734
Machinery and equipment 34,883 30,211
Furniture and fixtures 6,587 4,737
-------------------------------------------------------------------------------------------------------------------
121,290 71,568
Less accumulated depreciation and amortization (46,556) (31,032)
-------------------------------------------------------------------------------------------------------------------
$ 74,734 $ 40,536
-------------------------------------------------------------------------------------------------------------------
NOTE FIVE: GOODWILL AND OTHER ACQUIRED INTANGIBLES
Goodwill and other acquired intangible assets consists of the following (in
thousands):
September 30 2000 1999
-------------------------------------------------------------------------------------------------------------------
Goodwill $ 51,161 $ 7,844
Other acquired intangible assets 4,699 2,947
-------------------------------------------------------------------------------------------------------------------
55,860 10,791
Less accumulated amortization (4,939) (375)
-------------------------------------------------------------------------------------------------------------------
$ 50,921 $ 10,416
-------------------------------------------------------------------------------------------------------------------
</TABLE>
40 XIRCOM,INC.
<PAGE>
Xircom,Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE SIX: ACCRUED LIABILITIES
Accrued liabilities consist of the following (in thousands):
<TABLE>
<CAPTION>
September 30 2000 1999
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Payroll and related benefits $ 9,199 $ 8,469
Warranty reserve 7,476 9,301
Accrued marketing costs 5,271 6,618
Other 17,496 17,847
-------------------------------------------------------------------------------------------------------------------
$39,442 $42,235
-------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE SEVEN: BANK BORROWINGS AND NOTES PAYABLE
The Company has a credit facility with a bank for borrowings up to $25,000,000
at the bank's reference rate or at a LIBOR-based rate. The agreement expires in
December 2001. As of September 30, 2000, there were no borrowings outstanding
under this agreement.
The Company has credit facilities denominated in Malaysian ringgit with other
banks, that permit borrowings of up to $5,500,000 under bankers acceptance
agreements at the banks' prevailing market rate, and on a revolving credit and
term loan basis at the banks' reference rate plus 1.0% (7.8% as of September 30,
2000).
Entrega had a $5,000,000 revolving line of credit with a bank at the prime rate.
As of September 30, 1999, borrowings of $4,988,000 were outstanding under this
agreement. The agreement expired and was fully repaid on October 1, 1999.
Entrega had notes payable to its former principal shareholder bearing interest
at 8% and subordinated to its line of credit. During the year ended September
30, 1999, $500,000 of such notes were converted into 85,817 shares of Common
Stock. As of September 30, 1999, borrowings of $4,150,000 were outstanding under
such notes. On October 1, 1999, the notes were converted into 108,071 shares of
Xircom Common Stock.
The Company had approximately $30,200,000 available under its credit facilities
as of September 30, 2000. Interest expense totaled $97,000, $555,000 and
$115,000 for fiscal 2000, 1999 and 1998, respectively, and is included in Other
income, net.
NOTE EIGHT: INCOME TAXES
The income tax provision includes the following (in thousands):
<TABLE>
<CAPTION>
Fiscal Years Ended September 30 2000 1999 1998
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current:
Federal $ 8,368 $ 12,164 $ 441
State 127 1,628 351
Foreign 3,886 3,440 2,516
---------------------------------------------------------------------------------------------------------------------
12,381 17,232 3,308
Deferred:
Federal 3,380 1,515 4,544
State 302 447 752
Valuation allowance - (2,470) (752)
---------------------------------------------------------------------------------------------------------------------
3,682 (508) 4,544
---------------------------------------------------------------------------------------------------------------------
$ 16,063 $ 16,724 $ 7,852
---------------------------------------------------------------------------------------------------------------------
</TABLE>
41 XIRCOM,INC.
<PAGE>
Xircom, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Significant components of the Company's deferred tax assets and liabilities are
as follows (in thousands):
<TABLE>
<CAPTION>
September 30 2000 1999
----------------------------------------------------------------------------------------------
<S> <C> <C>
Book reserves not deductible for tax $ 14,319 $ 14,632
Book in excess of tax depreciation 1,828 1,517
Research and development credit 2,004 -
----------------------------------------------------------------------------------------------
Total deferred tax asset 18,151 16,149
----------------------------------------------------------------------------------------------
Foreign operations (17,134) (12,489)
State taxes (1,031) (458)
Other (618) (151)
----------------------------------------------------------------------------------------------
Total deferred tax liabilities (18,783) (13,098)
----------------------------------------------------------------------------------------------
Net deferred tax asset (liability) $ (632) $ 3,051
----------------------------------------------------------------------------------------------
Balance sheet classification of the net deferred tax asset (liability) is as
follows (in thousands):
September 30 2000 1999
----------------------------------------------------------------------------------------------
Current deferred tax asset $ 14,674 $ 15,195
Noncurrent deferred tax asset, included in other assets 1,828 1,516
Noncurrent deferred tax liability (17,134) (13,660)
----------------------------------------------------------------------------------------------
$ (632) $ 3,051
----------------------------------------------------------------------------------------------
</TABLE>
At September 30, 2000, the Company has research and development credit
carryforwards of $2,004,000, which expire from 2014 to 2015.
In prior years, the Company established a valuation allowance against its state
net operating loss carryforwards to reflect the uncertainty of realizing such
deferred tax assets. In fiscal 1998, the valuation allowance was reduced due to
the realization of certain of these loss carryforwards. In fiscal 1999, the
remainder of the loss carryforwards was realized and, accordingly, the related
valuation allowance of $2,470,000 was eliminated.
A reconciliation of the provision for income taxes with the tax computed by
applying the 35% federal statutory tax rate is as follows (in thousands):
<TABLE>
<CAPTION>
Fiscal Years Ended September 30 2000 1999 1998
------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Computed expected tax $ 14,382 $ 17,965 $ 8,297
State income taxes, net of federal benefit 250 1,273 227
Research and development credit (1,376) (832) (1,082)
Foreign operations (4,188) (1,302) 280
Valuation allowance on deferred tax asset -- (2,470) (793)
Tax exempt interest income (1,437) (936) --
S-Corporation losses of Entrega -- 2,940 863
Non-deductible research and development costs 6,837 -- --
Non-deductible amortization of goodwill 740 -- --
Non-deductible acquisition costs 608 -- --
Other 247 86 60
------------------------------------------------------------------------------------------
$ 16,063 $ 16,724 $ 7,852
------------------------------------------------------------------------------------------
</TABLE>
42 XIRCOM, INC
<PAGE>
Xircom, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
At September 30, 2000, foreign earnings of $75,242,000 have been retained
indefinitely by subsidiary companies for reinvestment, on which no additional
U.S. tax has been provided. If repatriated, additional taxes of approximately
$26,335,000 on these earnings, net of available foreign tax credit
carryforwards, would be due. The Company has tax holiday status on its
operations in Malaysia, which expired in October 2000. Income before income
taxes for all foreign operations was $39,089,000, $23,837,000 and $17,337,000
for fiscal 2000, 1999 and 1998, respectively.
NOTE NINE: COMMON STOCK AND RELATED PLANS
On December 9, 1999, the Company sold 4,600,000 shares of Common Stock
(including the exercise of the underwriters' over-allotment option) in an
underwritten public offering at a price of $51.25, and realized net proceeds of
approximately $223,100,000.
During the third and fourth quarters of fiscal 2000, the Company's Board of
Directors authorized the repurchase of up to 2,500,000 shares of the Company's
common stock. The stock repurchase plan was primarily intended to offset
dilution caused by the issuance of shares and assumption of employee stock
options by Xircom in connection with its acquisition of OTI. During the fiscal
year ended September 30, 2000, the Company repurchased approximately 1,600,000
shares of its common stock at a total cost of $61,105,000 under the program.
During fiscal 2000, the Company satisfied certain indebtedness owed to a vendor
by issuing 40,000 shares valued at $1,600,000.
During fiscal 1999, Intel Corporation exercised a warrant, which had been issued
in fiscal 1997. Pursuant to the terms of the warrant agreement, Intel elected to
receive 514,314 shares at no additional cost in lieu of purchasing 1,509,903
shares at an exercise price of $27.01. Concurrent with the warrant exercise,
Xircom repurchased 514,314 shares of common stock held by Intel for a total
price of $19,775,000, or $38.45 per share.
The Company's employee stock option plans provide for option grants designated
as either nonqualified or incentive stock options. Although the board of
directors has the authority to set other terms, the options generally vest over
a three to four year period and expire five to seven years from the date of
grant. As of September 30, 2000, the Company had 4,346,470 shares of common
stock available for future grant under its stock option plans.
Information regarding stock options outstanding as of September 30, 2000 is as
follows:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------------------ ----------------------------
Weighted-
Weighted- Average Weighted-
Average Remaining Average
Exercise Contractual Exercise
Shares Price Life (Years) Shares Price
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Under $18.00 1,900,088 $12.66 4.43 945,390 $13.03
$18.00-$34.00 2,549,638 $28.81 6.18 443,094 $24.68
Over $34.00 1,407,573 $44.07 6.65 66,270 $39.25
</TABLE>
As of September 30, 2000, 1999 and 1998, stock options to purchase 1,454,754,
845,884 and 1,002,368 shares were exercisable at weighted average exercise
prices of $17.78, $11.99 and $12.52, respectively.
43 XIRCOM, INC.
<PAGE>
Xircom, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table is a summary of activity for the Company's stock option
plans:
<TABLE>
<CAPTION>
Option price per share
--------------------------------------------
Number of Weighted-
shares Low High Average
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Outstanding at October 1, 1997 2,705,124 $7.63 $27.75 $12.48
Granted 1,600,689 $5.83 $26.00 $12.06
Exercised (256,044) $5.83 $20.25 $10.65
Canceled (380,586) $8.63 $27.75 $12.42
-------------------------------------------------------------------------------------------------------
Outstanding at September 30, 1998 3,669,183 $5.83 $27.75 $12.42
Granted 2,445,008 $5.83 $46.94 $25.12
Exercised (1,103,812) $5.83 $27.75 $12.28
Canceled (473,317) $8.63 $35.31 $13.74
-------------------------------------------------------------------------------------------------------
Outstanding at September 30, 1999 4,537,062 $5.83 $46.94 $19.08
Granted and assumed 2,753,521 $0.01 $70.41 $36.79
Exercised (762,783 $5.73 $42.00 $13.56
Canceled (670,501) $0.01 $70.41 $26.87
-------------------------------------------------------------------------------------------------------
Outstanding at September 30, 2000 5,857,299 $0.01 $70.41 $27.24
-------------------------------------------------------------------------------------------------------
</TABLE>
The Company's 1994 Employee Stock Purchase Plan (ESPP) allows employees to
purchase Common Stock of the Company, through payroll deductions, at 85% of the
market value of the shares at the beginning or end of the offering period,
whichever is lower. The plan provides for the grant of rights to employees to
purchase up to a total of 1,400,000 shares of common stock. As of September 30,
2000, 715,990 shares were available for issuance under this plan. Information
regarding shares issued under the plan is as follows:
<TABLE>
<CAPTION>
Number of Price per share
----------------------------------
Fiscal Years Ended September 30 shares issued Low High
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
2000 102,637 $21.68 $33.52
1999 122,869 $14.66 $19.13
1998 160,036 $ 8.50 $ 8.61
</TABLE>
The Company, through its acquisition of Entrega, has a plan under which stock
appreciation rights have been granted to certain of its employees or other
associates. As of September 30, 2000, stock appreciation rights based on 1,716
shares were outstanding at a weighted average strike price of $5.83.
The Company maintains a defined contribution 401(k) plan under which its U.S.
employees are eligible to participate. Participants may make, within certain
limitations, voluntary contributions based upon a percentage of their
compensation. The Company makes matching contributions based on a participant's
contribution up to a specified maximum percentage of the participant's
contribution. Participants vest in the Company's contributions based on years of
service. Company contributions were $506,000, $370,000 and $261,000 for fiscal
2000, 1999 and 1998, respectively.
Fair value disclosures of employee stock options
Had the Company recognized employee stock option-related compensation expense in
accordance with SFAS 123 and used the Black-Scholes option valuation model for
determining the weighted average fair value of options granted after September
30, 1995, its net income and earnings per share would have been as follows (in
thousands, except per share amounts):
44 XIRCOM, INC.
<PAGE>
<TABLE>
<CAPTION>
Fiscal Years Ended September 30 2000 1999 1998
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income $ 25,028 $ 34,605 $15,854
Pro forma stock compensation expense, net (13,376) (6,836) (3,545)
-------------------------------------------------------------------------------------------------
Pro forma net income $ 11,652 $ 27,769 $12,309
-------------------------------------------------------------------------------------------------
Pro forma basic earnings per share $ .40 $ 1.15 $ .54
-------------------------------------------------------------------------------------------------
Pro forma diluted earnings per share $ .39 $ 1.11 $ .54
-------------------------------------------------------------------------------------------------
</TABLE>
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized over the options' vesting periods. The pro forma effect on net
income for fiscal 1999 and 1998 is not representative of the pro forma effect on
net income in future years because it does not take into consideration pro forma
compensation expense related to grants made prior to fiscal 1996.
The fair value of the options was estimated at the date of grant using a Black-
Scholes option pricing model with the following weighted-average assumptions for
2000, 1999 and 1998: risk-free interest rates of 6.64%, 5.04% and 5.55%,
respectively; volatility factors of the expected market price of the Company's
common stock of .73, .67 and .67, respectively; dividend yields of 0%; and
expected life of the options of 4 years. These assumptions resulted in weighted-
average fair values of $23.30, $13.72 and $6.63 for each stock option granted in
2000, 1999 and 1998, respectively.
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options. The Company's employee stock options have
characteristics significantly different from those of traded options such as
vesting restrictions and extremely limited transferability. In addition, the
assumptions used in option valuation models (see above) are highly subjective,
particularly the expected stock price volatility of the underlying stock.
Because changes in these subjective input assumptions can materially affect the
fair value estimate, in management's opinion, the existing models do not provide
a reliable single measure of the fair value of its employee stock options.
<TABLE>
<CAPTION>
NOTE TEN: SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Fiscal Years Ended September 30 (in thousands) 2000 1999 1998
--------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash paid:
Interest $ 98 $ 380 $ 74
Income taxes $ 8,604 $ 7,535 $ 807
</TABLE>
NOTE ELEVEN: COMMITMENTS AND CONTINGENCIES
Under certain license agreements (see Note One), the Company is required to pay
specified amounts of per unit royalties based on sales of certain of its
products. Some of these agreements also contain minimum quarterly and annual
volume requirements. Certain of these agreements expire on specific dates,
others continue in effect as long as the technology is incorporated into the
Company's products, and some can be terminated by either party after specified
notice periods. Royalties under these agreements amounted to $922,000, $594,000,
and $649,000 for fiscal 2000, 1999 and 1998, respectively.
The Company leases its facilities and certain equipment under operating leases
expiring on various dates through 2011. Rent expense was $2,797,000, $1,693,000
and $1,665,000 for fiscal 2000, 1999 and 1998, respectively. As of September 30,
2000, minimum future rental payments under all non-cancelable operating leases
for facilities and equipment were as follows (in thousands):
45 XIRCOM, INC.
<PAGE>
Operating
Fiscal Years Ended September 30 leases
------------------------------------------------------------------------------
2001 $ 3,367
2002 5,207
2003 5,163
2004 5,344
2005 4,860
Thereafter 18,703
------------------------------------------------------------------------------
$42,644
------------------------------------------------------------------------------
Legal proceedings
The Company is involved in certain claims and legal proceedings, including
patent disputes that arise in the normal course of business.
On May 26, 2000, 3Com Corporation (3Com) filed a complaint in the United States
District Court for the District of Utah, alleging infringement of several 3Com
patents by products of the Company. The complaint seeks certain injunctive
relief and compensatory damages. Xircom filed its answer and counterclaim in
response to the original complaint. Xircom denies all infringement and all
claims by 3Com for entitlement to damages or other relief. Further proceedings
are pending. Xircom is unable to predict the outcome of these proceedings or the
time at which they may be resolved.
On September 25, 2000, Northrop Grumman Corporation filed a lawsuit in the
United States District Court, Eastern District of Texas, Beaumont Division
alleging patent infringement of a single Northrop Grumman patent against Intel
Corporation, 3Com Corporation, Xircom, Inc., D-Link Systems, Inc., and The
Linksys Group. The Complaint seeks certain injunctive relief and compensatory
damages. Xircom has filed its Answer and Counterclaim in response to the
Complaint. Xircom denies all infringement and all claims by Northrop Grumman for
entitlement to damages or other relief. Further proceedings are pending. Xircom
is unable to predict the outcome of these proceedings or the time at which they
may be resolved.
In the opinion of the Company, the outcome of any of these matters will not have
a material adverse effect on the Company's consolidated financial position but
could be material to its results of operations in any one accounting period.
NOTE TWELVE: SEGMENT AND GEOGRAPHIC INFORMATION
The Company operates in two segments within its business of the design,
development, manufacture, marketing and support of mobile information access
products for notebook computers and handheld devices. For management purposes,
the Company is divided into two primary business segments: the "OEM" business,
which includes operations specific to the Company's domestic and international
original equipment manufacturer customers, and the "Branded" business, which
includes operations specific to the Company's domestic and international
distribution customers. The Company sells most of its products in each of its
segments. The OEM business has a vice president who reports directly to the
Senior Vice President of Worldwide Sales and Marketing ("SVP"), and the Branded
business has three vice presidents, each of whom report directly to the SVP. The
SVP reports directly to the Chief Executive Officer ("CEO"), who is the Chief
Operating Decision Maker as defined by SFAS 131. The measures of profitability
reviewed by the CEO for these segments consist of net sales, gross profit, and
certain identifiable operating expenses. The majority of the Company's operating
expenses are not allocated to these segments, but are treated as corporate
expenses (unallocated). Fiscal year 2000, 1999 and 1998 revenues and expenses
attributable to each business segment are presented in the table below. In
addition, there is no allocation, direct or indirect, of assets and liabilities
to these business segments. The Company had no inter-segment sales during the
periods presented.
46 XIRCOM, INC.
<PAGE>
Xircom, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
(in thousands) Branded OEM Unallocated Total
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Fiscal 2000
Net sales $ 320,759 $ 175,440 $ - $ 496,199
Cost of sales 158,848 120,470 - 279,318
-----------------------------------------------------------------------------------------------------------------
Gross profit 161,911 54,970 - 216,881
Research and development expenses - - 37,847 37,847
Sales and marketing expenses 76,218 6,669 13,625 96,512
General and administrative expenses - - 19,648 19,648
In-process research and development and other
unallocated charges - - 31,115 31,115
-----------------------------------------------------------------------------------------------------------------
Total operating expenses 76,218 6,669 102,235 185,122
-----------------------------------------------------------------------------------------------------------------
Operating income (loss) 85,693 48,301 (102,235) 31,759
Other income, net - - 9,332 9,332
-----------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes $ 85,693 $ 48,301 $ (92,903) $ 41,091
-----------------------------------------------------------------------------------------------------------------
Fiscal 1999
Net sales $ 350,379 $ 74,057 $ - $ 424,436
Cost of sales 191,472 51,776 - 243,248
-----------------------------------------------------------------------------------------------------------------
Gross profit 158,907 22,281 - 181,188
Research and development expenses - - 24,557 24,557
Sales and marketing expenses 72,720 3,863 10,765 87,348
General and administrative expenses - - 15,143 15,143
In-process research and development and other
nonrecurring charges - - 4,596 4,596
-----------------------------------------------------------------------------------------------------------------
Total operating expenses 72,720 3,863 55,061 131,644
-----------------------------------------------------------------------------------------------------------------
Operating income (loss) 86,187 18,418 (55,061) 49,544
Other income, net - - 1,785 1,785
-----------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes $ 86,187 $ 18,418 $ (53,276) $ 51,329
-----------------------------------------------------------------------------------------------------------------
Fiscal 1998
Net sales $ 222,352 $ 54,595 $ - $ 276,947
Cost of sales 133,791 45,586 - 179,377
-----------------------------------------------------------------------------------------------------------------
Gross profit 88,561 9,009 - 97,570
Research and development expenses - - 16,599 16,599
Sales and marketing expenses 41,076 2,365 7,258 50,699
General and administrative expenses - - 10,757 10,757
Total operating expenses 41,076 2,365 34,614 78,055
-----------------------------------------------------------------------------------------------------------------
Operating income (loss) 47,485 6,644 (34,614) 19,515
Other income, net - - 4,191 4,191
-----------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes $ 47,485 $ 6,644 $ (30,423) $ 23,706
-----------------------------------------------------------------------------------------------------------------
</TABLE>
Two customers accounted for 19% and 16%, respectively, of net sales for fiscal
2000. Two customers accounted for 20% and 10%, respectively, of net sales for
fiscal 1999. A single customer accounted for 13% of net sales in 1998. All such
customers were in the branded business. Net sales are attributed to the
following locations and were derived from the location of the Company's regional
operating unit having invoiced the sale.
47 XIRCOM, INC.
<PAGE>
Xircom, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Fiscal Years Ended September 30 (in thousands) 2000 1999 1998
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
United States $276,934 $213,490 $144,912
Belgium 165,485 151,811 90,017
Singapore 53,780 57,032 42,018
Other - 2,103 -
-------------------------------------------------------------------------------------------------------------------
$496,199 $424,436 $276,947
-------------------------------------------------------------------------------------------------------------------
Net sales from the Company's products as a percentage of total net sales were as follows:
Fiscal Years Ended September 30
(percentage of total revenue) 2000 1999 1998
-------------------------------------------------------------------------------------------------------------------
LAN Adapters 32% 28% 30%
LAN+Modem 57% 57% 48%
Modem 7% 10% 21%
Other 4% 5% 1%
-------------------------------------------------------------------------------------------------------------------
Long-lived assets were located in the following countries:
September 30 (in thousands) 2000 1999 1998
-------------------------------------------------------------------------------------------------------------------
United States $44,474 $15,361 $ 8,261
Malaysia 26,934 22,297 17,784
Other foreign countries 3,326 2,878 1,238
-------------------------------------------------------------------------------------------------------------------
$74,734 $40,536 $27,283
-------------------------------------------------------------------------------------------------------------------
NOTE THIRTEEN: SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
Quarter ended
-----------------------------------------------------------------------------
(in thousands, except per share data) Dec. 31 Mar. 31 June 30 Sept. 30 Fiscal Year
-------------------------------------------------------------------------------------------------------------------
Fiscal 2000
Net sales $ 124,111 $ 111,250 $ 126,706 $ 134,132 $ 496,199
Gross profit 57,073 49,370 54,503 55,935 216,881
Net income 12,725/(1)/ 7,838/(2)/ (5,107)/(3)/ 9,572 25,028
Diluted earnings per share $ .46/(1)/ $ .25/(2)/ $ (.17)/(3)/ $ .31 $ .82
-------------------------------------------------------------------------------------------------------------------
Fiscal 1999
Net sales $ 98,498 $ 101,872 $ 108,439 $ 115,627 $ 424,436
Gross profit 39,434 43,229 46,805 51,720 181,188
Net income 7,609 9,461 9,864 7,671/(4)/ 34,605
Diluted earnings per share $ .30 $ .37 $ .39 $ .29/(4)/ $ 1.35
-------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Net income for the period includes $2,865,000 ($2,091,450, net of income
taxes) or $.07 per share related to non-recurring transaction and
transition charges from the acquisition of Entrega.
(2) Net income for the period includes $4,150,000 ($3,112,500, net of income
taxes) or $.10 per share for a customer insolvency charge.
(3) Net income for the period includes $19,535,000 ($19,535,000, net of income
taxes) or $.62 per share for the write-off of in-process research and
development related to the OTI acquisition.
(4) Net income for the period includes $4,596,000 ($3,309,000 net of income
taxes) or $0.13 per share for the write-off of in-process research and
development and other non-recurring charges for future operating lease
payments related to facilities to be vacated.
48 XIRCOM, INC.
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
THE BOARD OF DIRECTORS AND SHAREHOLDERS
XIRCOM, INC.
We have audited the accompanying consolidated balance sheets of Xircom, Inc. as
of September 30, 2000 and 1999, and the related consolidated statements of
income, shareholders' equity and cash flows for each of the three years in the
period ended September 30, 2000. Our audits also included the financial
statement schedule listed in the Index at Item 14(a). These financial statements
and schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Xircom, Inc. at
September 30, 2000 and 1999, and the consolidated results of its operations and
its cash flows for each of the three years in the period ended September 30,
2000, in conformity with accounting principles generally accepted in the United
States. Also, in our opinion, the related financial statement schedule, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
/s/ ERNST & YOUNG LLP
Woodland Hills, California
October 17, 2000
49 XIRCOM, INC.
<PAGE>
ITEM 9. DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
NONE.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information with respect to directors of Xircom is incorporated by reference
from the information under the caption "Election of Directors" in the Company's
Proxy Statement for its 2001 Annual Meeting of Shareholders. Information with
respect to executive officers of Xircom is described in Item 1 of this Annual
Report on Form 10-K. Information with respect to delinquent filings under
Section 16(a) of the Securities Exchange Act of 1934 is incorporated by
reference from the information under the caption "Section 16(a) Beneficial
Ownership Reporting Compliance" in the Company's Proxy Statement for its 2001
Annual Meeting of Shareholders.
ITEM 11. EXECUTIVE COMPENSATION
Incorporated by reference from the information under the caption "Executive
Officer Compensation" in the Company's Proxy Statement for its 2001 Annual
Meeting of Shareholders.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Incorporated by reference from the information under the caption "Security
Ownership of Certain Beneficial Owners and Management" in the Company's Proxy
Statement for its 2001 Annual Meeting of Shareholders.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated by reference from the information under the caption "Executive
Officer Compensation" in the Company's Proxy Statement for its 2001 Annual
Meeting of Shareholders.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
Page in Form 10-K
<S> <C>
(a) (1) The following consolidated financial statements of Xircom, Inc. and the
Report of Independent Auditors, are included in Item 8 of this document:
Consolidated Statements of Income - Years ended
September 30, 2000, 1999 and 1998 30
Consolidated Balance Sheets at September 30, 2000 and 1999 31
Consolidated Statements of Shareholders' Equity - Years ended
September 30, 2000, 1999 and 1998 32
Consolidated Statements of Cash Flows - Years ended
September 30, 2000, 1999 and 1998 33
Notes to Consolidated Financial Statements 34-48
Report of Ernst & Young LLP, Independent Auditors 49
(2) Consolidated financial statement schedule:
Schedule II - Valuation and Qualifying Accounts 51
All other schedules are omitted because they are not applicable or the required
information is shown in the consolidated financial statements or notes thereto.
(3) Exhibits included herein (numbered in accordance with Item 601 of Regulation S-K) 52-53
</TABLE>
(b) Reports on Form 8-K filed in the fourth quarter of fiscal 2000
The Company filed a report on Form 8-K on July 18, 2000 pursuant to Item 5 of
Form 8-K ("Other Events"). The report related to a press release issued by the
Company on July 17, 2000 announcing the Company's financial results for the
three- and nine-month periods ended June 30, 2000. A copy of the press release
was filed as an exhibit to such report.
50 XIRCOM, INC.
<PAGE>
SCHEDULE II
Xircom, Inc.
VALUATION AND QUALIFYING ACCOUNTS
(in thousands)
<TABLE>
<CAPTION>
Additions
--------------------------------
Balance at Charged to Charged to
Beginning Costs and Other Balance at
Description of Period Expenses Accounts/(1)/ Deductions End of Period
------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Fiscal 2000
Deducted from asset
accounts:
Allowance for sales returns $10,442 $28,082 $ - $32,817 $ 5,707
Allowance for bad debts 1,449 5,665 $ 50 3,293 3,871
--------------------------------------------------------------------------------------------------------------------
Total allowance $11,891 $33,747 $ 50 $36,110 $ 9,578
--------------------------------------------------------------------------------------------------------------------
Liability reserves:
Warranty $9,301 $4,476 $ - $ 6,301 $ 7,476
--------------------------------------------------------------------------------------------------------------------
Fiscal 1999
Deducted from asset
accounts:
Allowance for sales returns $ 7,378 $17,517 $ 1,995 $16,448 $10,442
Allowance for bad debts 1,236 269 - 56 1,449
--------------------------------------------------------------------------------------------------------------------
Total allowance $ 8,614 $17,786 $ 1,995 $16,504 $11,891
--------------------------------------------------------------------------------------------------------------------
Liability reserves:
Warranty $ 6,264 $ 5,915 $ 313 $ 3,191 $ 9,301
--------------------------------------------------------------------------------------------------------------------
Fiscal 1998
Deducted from asset
accounts:
Allowance for sales returns $ 5,757 $15,523 $ - $13,902 $ 7,378
Allowance for bad debts 497 750 - 11 1,236
--------------------------------------------------------------------------------------------------------------------
Total $ 6,254 $16,273 $ - $13,913 $ 8,614
--------------------------------------------------------------------------------------------------------------------
Liability reserves:
Warranty $ 4,041 $ 6,367 $ - $ 4,144 $ 6,264
--------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Amounts in 2000 and 1999 were assumed in connection with the purchase of
Omnipoint Technologies, Inc. and the Rex product line, respectively.
51 XIRCOM, INC.
<PAGE>
EXHIBITS INCLUDED HEREIN (NUMBERED IN ACCORDANCE WITH ITEM 601 OF REGULATION
S-K)
Exhibit
Number Description of Document
-------------------------------------------------------------------------------
3.1 Amended Articles of Incorporation of Xircom, Inc. (incorporated
by reference to Exhibit 3.1 of the Company's report on Form 10-Q
for the quarter ended December 31, 1999)
3.2 Bylaws of Xircom, Inc. (incorporated by reference to Exhibit 3.3
of Amendment No. 3 to the Company's registration statement on
Form S-1, No. 33-45667)
4.1 Form of Common Stock Certificate (incorporated by reference to
Exhibit 4.1 of Amendment No. 3 to the Company's registration
statement on Form S-1, No. 33-45667)
10.1 Form of Indemnification Agreement (incorporated by reference to
Exhibit 10.3 of the Company's report on Form 10-Q for the
quarter ended March 31, 1992)
10.9 1992 Stock Option Plan of the Company, as amended and restated
on January 23, 1998, and forms of agreement thereunder
(incorporated by reference to Exhibit 4.1 of the Company's
registration statement on Form S-8 filed on April 21, 1998, No.
333-50591)
10.10 1992 Director Stock Option Plan of the Company, as amended and
restated on January 22, 1999, and forms of agreement thereunder
(incorporated by reference to Exhibit 4.2 of the Company's
registration statement on Form S-8 filed on April 20, 1999, No.
333-76621)
10.26 1994 Employee Stock Purchase Plan, as amended and restated as of
January 22, 1999, and forms of agreement thereunder
(incorporated by reference to Exhibit 4.2 of the Company's
registration statement on Form S-8 filed on April 20, 1999, No.
333-76621)
10.27 Facility lease agreement, dated as of March 29, 1994, between
Metropolitan Life Insurance Company and the Company
(incorporated by reference to Exhibit 10.1 of the Company's
report on From 10-Q for the quarter ended March 31, 1994)
10.28 Facility lease agreement, dated as of March 29, 1994, between
Metropolitan Life Insurance Company and the Company
(incorporated by reference to Exhibit 10.2 of the Company's
report on From 10-Q for the quarter ended March 31, 1994)
10.31 Xircom, Inc. Common Stock and Warrant Purchase Agreement, of
January 13, 1997, between Xircom, Inc. and Intel Corporation
(incorporated by reference to Exhibit 10.31 of the Company's
report on Form 10-Q for the quarter ended March 31, 1997)
10.31b Investor Rights Agreement, dated February 28, 1997, between
Xircom, Inc. and Intel Corporation (incorporated by reference to
Exhibit 10.31 of the Company's report on Form 10-Q for the
quarter ended March 31, 1997)
10.33 1995 Stock Option Plan, as amended and restated on September 22,
2000 (incorporated by reference to Exhibit 99.1 of the Company's
registration statement on Form S-8 filed on October 24, 2000,
No. 333-48496)
52 XIRCOM, INC.
<PAGE>
Exhibit
Number Description of Document
-------------------------------------------------------------------------------
10.34 1997 Patent Award Stock Option Plan, adopted July 25, 1997, and
forms of agreement thereunder (incorporated by reference to
Exhibit 4.4 of the Company's registration statement on Form S-8
filed on April 21, 1998, No. 333-50591)
10.35 Entrega Technologies, Inc. Stock Option Plan, as amended
(incorporated by reference to Exhibit 4.1 of the Company's
registration statement on Form S-8 filed on October 15, 1999,
No. 333-89099)
10.36 2000 Stock Plan, as adopted on January 21, 2000 (incorporated by
reference to Exhibit 99.1 of the Company's registration
statement on Form S-8 filed on April 18, 2000, No. 333-35036)
10.37 Agreement and Plan of Reorganization by and among VoiceStream
Wireless Corporation, Omnipoint Finance, LLC, Omnipoint
Technology Holdings, Inc., Xircom, Inc., and OTHI Acquisition
Co. dated as of June 12, 2000 (incorporated by reference to
Exhibit 10.37 of the Company's report on Form 10-Q for the
quarter ended June 30, 2000)
21.1 Subsidiaries of Xircom, Inc. (see page 54)
23.1 Consent of Ernst & Young LLP, Independent Auditors (see page 55)
24.1 Power of Attorney (see page 56)
27.1 Financial Data Schedule
53 XIRCOM, INC.
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES OF THE COMPANY
Xircom AB
Xircom Asia Pacific Pte. Ltd.
Xircom Asia Limited
Xircom Australia Pty. Ltd.
Xircom Deutschland GmbH
Xircom Europe B.V.B.A.
Xircom France, S.A.R.L.
Xircom International Holdings Pte. Ltd.
Xircom International, Ltd.
Xircom Japan KK
Xircom Operations (Malaysia) Sdn. Bhd.
Xircom Shanghai Telecommunications Warehousing Co. Ltd.
Xircom U.K., Ltd.
Xircom Wireless Corporation
Entrega Technologies, Inc.
Master-Pack (PG) Sdn. Bhd.
Rehis SRL
54 XIRCOM, INC.
<PAGE>
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statements
(Form S-8 Nos. 333-50591, 333-76621, 333-89099, 333-35036, and 333-48496)
pertaining to the 1992 Director Stock Option Plan, 1992 Stock Option Plan, 1994
Employee Stock Purchase Plan, 1995 Stock Option Plan, 1997 Patent Award Stock
Option Plan, Entrega Technologies, Inc. Stock Option Plan and 2000 Stock Plan
and in the Registration Statements (Form S-3 Nos. 33-93972 and 333-93395) of
Xircom, Inc. and in the related Prospectuses of our report dated October 17,
2000, with respect to the consolidated financial statements and schedule of
Xircom, Inc., included in this Annual Report (Form 10-K) for the year ended
September 30, 2000.
/s/ ERNST & YOUNG LLP
Woodland Hills, California
November 30, 2000
55 XIRCOM, INC.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
XIRCOM, INC.
Date: November 30, 2000 By: /s/ DIRK I. GATES
-------------------------------------
Dirk I. Gates
Chairman of the Board
President and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Dirk I. Gates and Steven F. DeGennaro, jointly
and severally, his attorneys-in-fact, each with the power of substitution for
him in any and all capacities, to sign any amendments to this Report on Form
10-K, and to file the same, with exhibits thereto and other documents in
connection therewith with the Securities and Exchange Commission, hereby
ratifying and confirming all that each of said attorneys-in-fact, or his
substitute or substitutes, may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
has been signed below by the following persons in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/ DIRK I. GATES Chairman of the Board, November 30, 2000
----------------------------- President and Chief Executive Officer
Dirk I. Gates (Principal Executive Officer)
/s/ STEVEN F. DEGENNARO Senior Vice President and November 30, 2000
----------------------------- Chief Financial Officer
Steven F. DeGennaro (Principal Financial Officer and
Principal Accounting Officer)
/s/ MICHAEL F.G. ASHBY Director November 30, 2000
-----------------------------
Michael F.G. Ashby
/s/ KENNETH J. BIBA Director November 30, 2000
-----------------------------
Kenneth J. Biba
/s/ GARY J. BOWEN Director November 30, 2000
-----------------------------
Gary J. Bowen
/s/ CARL E. RUSSO Director November 30, 2000
-----------------------------
Carl E. Russo
/s/ WILLIAM J. SCHROEDER Director November 30, 2000
-----------------------------
William J. Schroeder
/s/ ROBERT R. STAPLETON Director November 30, 2000
-----------------------------
Robert R. Stapleton
/s/ DELBERT W. YOCAM Director November 30, 2000
-----------------------------
Delbert W. Yocam
</TABLE>
56 XIRCOM, INC.
