10-Q 1 0001.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) [ X ] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended July 1, 2000 or -------------- [ ] Transition report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from ______ to ______. COMMISSION FILE NUMBER 0-18548 XILINX, INC. (Exact name of registrant as specified in its charter) DELAWARE (State or other jurisdiction of incorporation or organization) 77-0188631 (I.R.S. Employer Identification No.) 2100 LOGIC DRIVE, SAN JOSE, CA 95124 (Address of principal executive offices, including Zip Code) (408) 559-7778 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such requirements for the past 90 days. YES [ ] NO [ X ] Class Shares Outstanding at July 28, 2000 ----- ----------------------------------- Common Stock, $.01 par value 328,600,000 PART I. FINANCIAL INFORMATION Item 1. Financial Statements
XILINX, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) Three Months Ended (in thousands, except per share amounts) July 1, July 3, 2000 1999 -------- -------- Net revenues . . . . . . . . . . . . . . . . . . . . . . . . . . $364,875 $211,403 Costs and expenses: Cost of revenues. . . . . . . . . . . . . . . . . . . . . . 136,929 79,758 Research and development. . . . . . . . . . . . . . . . . . 43,193 26,009 Sales, general and administrative . . . . . . . . . . . . . 63,399 39,539 -------- -------- Operating costs and expenses . . . . . . . . . . . . . 243,521 145,306 -------- -------- Operating income . . . . . . . . . . . . . . . . . . . . . . . . 121,354 66,097 Interest income and other, net . . . . . . . . . . . . . . . . . 8,960 5,679 -------- -------- Income before provision for taxes on income and equity in joint venture . . . . . . . . . . . . . . . . . . . . . . . . . . . 130,314 71,776 Provision for taxes on income. . . . . . . . . . . . . . . . . . 36,488 20,815 -------- -------- Income before equity in joint venture. . . . . . . . . . . . . . 93,826 50,961 Equity income of joint venture . . . . . . . . . . . . . . . . . - 654 -------- -------- Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 93,826 $ 51,615 ======== ======== Net income per share: Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 0.29 $ 0.16 ======== ======== Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . $ 0.27 $ 0.15 ======== ======== Shares used in per share calculations: Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . 326,030 313,865 ======== ======== Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . 353,448 336,825 ======== ======== (See accompanying Notes to Condensed Consolidated Financial Statements.)
XILINX, INC. CONDENSED CONSOLIDATED BALANCE SHEETS July 1, April 1, (in thousands) 2000 2000 ------------ ----------- (Unaudited) (Audited) ASSETS CURRENT ASSETS: Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . $ 149,341 $ 85,548 Short-term investments. . . . . . . . . . . . . . . . . . . . . . . 538,560 522,202 Accounts receivable, net. . . . . . . . . . . . . . . . . . . . . . 218,309 135,048 Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . 160,187 131,307 Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . 77,900 91,282 Advances for wafer purchases. . . . . . . . . . . . . . . . . . . . 4,810 22,485 Other current assets. . . . . . . . . . . . . . . . . . . . . . . . 51,194 53,053 ------------ ----------- Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . 1,200,301 1,040,925 ------------ ----------- Property, plant and equipment, at cost:. . . . . . . . . . . . . . . . . 358,020 336,942 Accumulated depreciation and amortization . . . . . . . . . . . . . (105,681) (96,568) ------------ ----------- Net property, plant and equipment. . . . . . . . . . . . . . . . . . . . 252,339 240,374 Long-term investments. . . . . . . . . . . . . . . . . . . . . . . . . . 176,070 185,073 Investment in United Microelectronics Corp . . . . . . . . . . . . . . . 705,704 838,923 Developed technology and other assets. . . . . . . . . . . . . . . . . . 43,847 43,344 ------------ ----------- TOTAL ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,378,261 $2,348,639 ============ =========== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable. . . . . . . . . . . . . . . . . . . . . . . . . . $ 77,192 $ 56,361 Accrued payroll and payroll related liabilities . . . . . . . . . . 31,925 29,796 Income tax payable. . . . . . . . . . . . . . . . . . . . . . . . . 34,962 27,982 Deferred income on shipments to distributors. . . . . . . . . . . . 154,381 115,002 Other accrued liabilities . . . . . . . . . . . . . . . . . . . . . 17,642 15,571 ------------ ----------- Total current liabilities. . . . . . . . . . . . . . . . . . . . . . . . 316,102 244,712 ------------ ----------- Deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . 264,940 327,272 Commitments and contingencies. . . . . . . . . . . . . . . . . . . . . . - - STOCKHOLDERS' EQUITY: Preferred stock, $.01 par value (none issued) . . . . . . . . . . . - - Common stock, $.01 par value. . . . . . . . . . . . . . . . . . . . 3,267 3,255 Additional paid-in capital. . . . . . . . . . . . . . . . . . . . . 492,697 487,634 Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . 1,353,336 1,259,510 Accumulated other comprehensive (loss) / income . . . . . . . . . . (52,081) 26,256 ------------ ----------- Total stockholders' equity. . . . . . . . . . . . . . . . . . . 1,797,219 1,776,655 ------------ ----------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY. . . . . . . . . . . . . $2,378,261 $2,348,639 ============ =========== (See accompanying Notes to Condensed Consolidated Financial Statements.)
XILINX, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Three Months Ended (in thousands) July 1, July 3, 2000 1999 ---------- ---------- Increase (decrease) in cash and cash equivalents Cash flows from operating activities: Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 93,826 $ 51,615 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . 13,673 8,409 Undistributed earnings of joint venture . . . . . . . . . . . . . . . . . . . - (654) Changes in assets and liabilities: Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . (83,261) (9,250) Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (10,595) 5,125 Other prepaid assets. . . . . . . . . . . . . . . . . . . . . . . . . 953 (457) Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . (1,883) (13,887) Other assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . (4,344) 6,477 Accounts payable. . . . . . . . . . . . . . . . . . . . . . . . . . . 20,831 10,356 Other accrued liabilities . . . . . . . . . . . . . . . . . . . . . . 4,200 6,046 Income tax payable. . . . . . . . . . . . . . . . . . . . . . . . . . 48,599 23,880 Deferred income on shipments to distributors. . . . . . . . . . . . . 39,379 (3,950) ---------- ---------- Total adjustments . . . . . . . . . . . . . . . . . . . . . . 27,552 32,095 ---------- ---------- Net cash provided by operating activities. . . . . . . . 121,378 83,710 Cash flows from investing activities: Purchases of available-for-sale investments. . . . . . . . . . . . . . . . . . . . . . . (908,666) (667,778) Proceeds from sale or maturity of available-for-sale investments . . . . . . . . . . . . 902,016 641,913 Purchases of property, plant and equipment . . . . . . . . . . . . . . . . . . . . . . . (21,944) (9,880) ---------- ---------- Net cash used in investing activities . . . . . . . . . (28,594) (35,745) Cash flows from financing activities: Acquisition of treasury stock. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (53,828) (5,289) Proceeds from issuance of common stock . . . . . . . . . . . . . . . . . . . . . . . . . 15,081 13,102 Proceeds from sales of put warrants. . . . . . . . . . . . . . . . . . . . . . . . . . . 9,756 1,535 ---------- ---------- Net cash (used in) /provided by financing activities. (28,991) 9,348 ---------- ---------- Net increase in cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . 63,793 57,313 Cash and cash equivalents at beginning of period . . . . . . . . . . . . . . . . . . . . . . 85,548 53,584 ---------- ---------- Cash and cash equivalents at end of period . . . . . . . . . . . . . . . . . . . . . . . . . $ 149,341 $ 110,897 ========== ========== Schedule of non-cash transactions: Tax benefit from stock option exercises. . . . . . . . . . . . . . . . . . . . . . . . . $ 34,066 $ 10,126 Issuance of treasury stock under employee stock plans. . . . . . . . . . . . . . . . . . 53,828 10,400 Supplemental disclosures of cash flow information: Interest paid. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ - $ 5 Income taxes paid. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 361 (See accompanying Notes to Condensed Consolidated Financial Statements.)
XILINX, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 1. The accompanying interim consolidated financial statements have been prepared in conformity with generally accepted accounting principles and should be read in conjunction with the Xilinx, Inc. (Xilinx or the Company) consolidated financial statements for the year ended April 1, 2000. The balance sheet at April 1, 2000 is derived from audited financial statements. The interim financial statements are unaudited but reflect all adjustments which are, in the opinion of management, of a normal, recurring nature necessary to present fairly the statements of financial position, results of operations and cash flows for the interim periods presented. The results for the three-month period ended July 1, 2000 are not necessarily indicative of the results that may be expected for the year ending March 31, 2001 or any future period. 2. Inventories are stated at the lower of cost (first-in, first-out) or market (estimated net realizable value). Inventories at July 1, 2000 and April 1, 2000 are as follows:
(in thousands) July 1, April 1, 2000 2000 -------- -------- Raw materials. . $ 6,126 $ 6,602 Work-in-process. 107,697 78,697 Finished goods . 46,364 46,008 -------- -------- $160,187 $131,307 ======== ========
3. The computation of basic net income per share for all periods presented is derived from the information on the face of the statement of operations, and there are no reconciling items to net income. The total shares used in the denominator of the diluted net income per share calculation includes 27.4 million and 23.0 million incremental common shares attributable to outstanding options for the first quarter of fiscal year 2001 and 2000, respectively. Outstanding options to purchase approximately 2.9 million and 0.4 million shares for the first quarter of fiscal year 2001 and 2000, respectively, under the Company's Stock Option Plan were not included in the treasury stock calculation to derive diluted net income per share as their inclusion would have had an anti-dilutive effect. In addition, the put warrants disclosed in Note 5 did not have any impact on basic or diluted net income per share in the three months ended July 1, 2000 and July 3, 1999 as their inclusion would have had an anti-dilutive effect. 4. The changes in components of comprehensive income for the periods presented are as follows:
Three months ended (in thousands) July 1, July 3, 2000 1999 --------- -------- Net income. . . . . . . . . . . . . . . . . . . . . . . $ 93,826 $ 51,615 Cumulative translation adjustment . . . . . . . . . . . (160) 891 Unrealized losses on available for sale securities arising during the period, net of tax . . . . . . . . (77,819) (800) Reclassification adjustment for losses on available for sale securities, net of tax, included in earnings (358) - --------- --------- Comprehensive income. . . . . . . . . . . . . . . . . . $ 15,489 $ 51,706 ========= =========
The components of accumulated other comprehensive income (loss) at July 1, 2000 and April 3, 2000 are as follows:
(in thousands) July 1, April 1, 2000 2000 --------- ---------- Cumulative translation adjustment. . . . . . . . $ (210) $ (49) Unrealized (loss) / gain on available for sale securities, net of tax. . . . . . . . . . . (51,871) 26,305 --------- ---------- Accumulated other comprehensive (loss) / income. $(52,081) $ 26,256 ========= ==========
5. Our Board of Directors has approved stock repurchase programs that allow us to repurchase shares of our common stock. During the first three months of fiscal 2001, we repurchased 839,000 shares of common stock under our authorized repurchase program at a cost of $53.8 million. In conjunction with the stock repurchase program, during the three months ended July 1, 2000, we sold put warrants that entitle the holder of each warrant to sell to us, by physical delivery, one share of common stock at a specified price, ranging from $56 to $66 per share. The outstanding put warrants will expire at various dates through July 2001. As of July 1, 2000, 1.4 million put warrants are outstanding. 6. In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, (FASB 133), "Accounting for Derivative Instruments and Hedging Activities", which requires adoption in fiscal years beginning after June 15, 2000 while earlier adoption is permitted at the beginning of any fiscal quarter. We are required to adopt by fiscal 2002. The effect of adopting the Standard is currently being evaluated but is not expected to have a material effect on our consolidated results of operations or financial position. FASB 133 will require us to recognize all derivatives on the balance sheet at fair value. Derivatives that are not hedges must be adjusted to fair value through income. If the derivative is a hedge, depending on the nature of the hedge, changes in the fair value of derivatives will either be offset against the change in fair value of the hedged assets, liabilities, or firm commitments through earnings or recognized in accumulated other comprehensive income until the hedged item is recognized in earnings. The ineffective portion, if any, of a derivative's change in fair value will be immediately recognized in earnings. In December 1999, the Securities and Exchange Commission (SEC) issued SEC Staff Accounting Bulletin No. 101 (SAB 101), "Revenue Recognition in Financial Statements." SAB 101 summarizes certain of the SEC's views in applying generally accepted accounting principles to revenue recognition in financial statements. We believe that our current revenue recognition policy is consistent with the guidance of SAB 101. 7. In 1996, Xilinx, United Microelectronics Corporation (UMC) and other parties entered into a joint venture to construct a wafer fabrication facility in Taiwan, known as United Silicon Inc. (USIC). We had a 20% equity ownership in USIC and had the right to receive up to 31.25% of the wafer capacity from this facility. We accounted for this investment using the equity method of accounting with a one-month lag in recording our share of results for the entity. In January 2000, our equity position in USIC was converted into shares of UMC which are publicly traded on the Taiwan Stock Exchange. As a result of this merger, we own approximately 222 million shares of UMC common stock, which represent approximately 2% of the combined UMC Group. We retain equivalent wafer capacity rights in UMC as we previously had in USIC, as long as we retain a percentage of our shares of UMC common stock. If our holdings fall below this level, our wafer capacity rights would be decreased prorated by the UMC shares we hold. (See also, Item 2, Management's Discussion and Analysis of Financial Condition and Results of Operations - Factors Affecting Future Operating Results - Investment Company Act of 1940.) Due to restrictions imposed by UMC and the Taiwan Stock Exchange, the majority of our UMC shares may not be sold until July 2000. These regulatory restrictions will gradually expire between July 2000 and January 2004. At July 1, 2000, the restricted portion of our UMC investment totaled $396.5 million. In June 2000, UMC distributed a dividend, in the form of dividend shares, at the rate of 200 shares for every 1,000 UMC shares held. Xilinx's dividend will equal approximately 44 million shares. 8. On June 7, 1993, we filed suit against Altera Corporation (Altera) in the United States District Court for the Northern District of California for infringement of certain of our patents. Subsequently, Altera filed suit against Xilinx, alleging that certain of our products infringe certain Altera patents. Fact and expert discovery have been completed in both cases, which have been consolidated. Both Altera and Xilinx filed motions with the Court for summary judgement with respect to certain of the issues pending in the litigation. In October 1999, the Court ruled on all but one of the motions. As a result of those rulings, Altera is left with one claim against Xilinx, which remains the subject of a Company motion for summary judgment. A ruling on this motion is pending. The Court's rulings also dismissed certain claims by us, leaving intact claims of infringement by Altera under two Company patents. The remaining claims against Altera will be decided at a trial scheduled to begin on October 5, 2000. If the remaining claim against Xilinx survives the motion for summary judgment, it will be decided at a trial, which is unscheduled at this point. On April 20, 1995, Altera filed an additional suit against Xilinx in the Federal District Court in Delaware, alleging that our XC5200 family infringes an Altera patent. We answered the Delaware suit denying that the XC5200 family infringes the patent in suit, asserting certain affirmative defenses and counterclaiming that the Altera Max 9000 family infringes certain of our patents. The Delaware suit was transferred to the United States District Court for the Northern District of California. On July 22, 1998, Altera and Joseph Ward, a former Xilinx employee, filed suit against Xilinx in Superior Court in Santa Clara County, California, arising out of our efforts to prevent disclosure of certain Company confidential information. Altera's suit requests declaratory relief and claims Xilinx engages in unfair business practices and interference with contractual relations. On September 10, 1998 we filed cross claims against Altera and Ward for unfair competition and breach of contract, among other claims, in the California action. On October 20, 1998, Altera and Ward filed crossclaims against Xilinx for malicious prosecution of civil action and defamation. On September 15, 1999, the Court dismissed all of our claims against Altera and Mr. Ward, finding that we were unable to show any damages we suffered as a result of any actions by Mr. Ward. Claims against Xilinx are still pending. On May 31, 2000, Altera filed an additional suit against Xilinx in the Federal District Court for the Northern District of California, alleging that certain Xilinx products, including our Virtex FPGAs, infringe three Altera patents. Altera's suit requests unspecified monetary damages as well as issuance of an injunction to prevent Xilinx from selling allegedly infringing parts. Xilinx has answered the complaint, denied the allegations, and has filed a counterclaim alleging that Altera is infringing additional Company patents. Altera's motion for expedited discovery was denied by the Court. The ultimate outcome of these matters cannot be determined at this time. Management believes that it has meritorious defenses to such claims and is defending them vigorously. The foregoing is a forward-looking statement subject to risks and uncertainties, and the future outcome of these matters could differ materially due to the uncertain nature of each legal proceeding and because the lawsuits are still in the pre-trial stages. There are no other pending legal proceedings of a material nature to which we are a party or of which any of our property is the subject. We know of no legal proceedings contemplated by any governmental authority or agency. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations The following discussion contains forward-looking statements, which involve numerous risks and uncertainties. Actual results may differ materially. Certain of these risks and uncertainties are discussed under "Factors Affecting Future Operating Results". RESULTS OF OPERATIONS: FIRST QUARTER OF FISCAL 2001 COMPARED TO THE FIRST -------------------------------------------------------------------------------- QUARTER OF FISCAL 2000 ------------------------- NET REVENUES We currently classify our product offerings into four categories by technology. Base products consist of our mature product families that are currently manufactured on technologies of 0.6-micron and older; this includes the XC2000, XC3000, XC3100, XC4000 and XC7000 families. Mainstream products are currently manufactured on 0.35 and 0.5-micron technologies and include the XC4000E, XC4000EX, XC4000XL, XC5200, XC9500, XC9500XL, Spartan(TM) and CoolRunner(R) product lines. Advanced products include our newest technologies manufactured on 0.25-micron and smaller, which include the XC4000XV, XC4000XLA, Spartan XL, Spartan-II, Virtex(TM), and Virtex-E product lines. Our Support products make up the remainder of our product offerings and include serial proms, HardWire, and software. Net revenues of $364.9 million in the first quarter of fiscal 2001 represented a 72.6% increase from the comparable prior year quarter of $211.4 million. Product lines that experienced significant growth during the three-month period include the XC4000XLA, XC9500, Spartan, and Virtex families. The increases in revenues of Advanced products are due to the introduction and strong market acceptance of XC4000XLA, Spartan XL and Virtex products. Increases in revenues of Mainstream products are attributable mainly to growth in the XC4000XL, Spartan, XC9500 and XC9500XL product lines. Revenues of Base products decreased slightly as customers migrated to newer product offerings. Revenues of Support products increased due to increased sale of serial proms, driven by growth in supporting Spartan and Virtex families. We have historically been able to offset much of the revenue declines of our mature technologies with increased revenues from newer technologies, although no assurance can be given that we can continue to do so in the future. The revenue by technology for the three month periods ended July 1, 2000 and July 3, 1999 are as follows:
Three Months Ended (in millions) July 1, July 3, 2000 1999 -------- -------- Base products. . . . $ 29.3 $ 31.7 Mainstream products. 153.1 121.8 Advanced products. . 155.5 37.5 Support products . . 27.0 20.4 -------- -------- Total revenue. . . . $ 364.9 $ 211.4 ======== ========
International revenues represented approximately 36.3% of total revenues in the first quarter of fiscal 2001 as compared to 30.8% in the prior year period. The revenue by geography for the three month periods ended July 1, 2000 and July 3, 1999 are as follows:
Three Months Ended (in millions) July 1, July 3, 2000 1999 -------- -------- North America . . . . . . . $ 232.5 $ 146.4 Europe. . . . . . . . . . . 74.2 39.6 Japan . . . . . . . . . . . 32.6 14.6 Asia Pacific/Rest of World. 25.6 10.8 -------- -------- Total revenue . . . . . . . $ 364.9 $ 211.4 ======== ========
The European revenue increases are driven by the 4000XLA and Virtex families. The revenue increases in Japan are mainly driven by the Virtex family. Asia Pacific/Rest of World revenue increases are driven by the CPLD, Virtex and the 4000X Product families. GROSS MARGIN Gross margin was $227.9 million for the first quarter of fiscal 2001, or 62.5% of revenues as compared to $131.6 million, or 62.3% of revenues in the first quarter of fiscal 2000. The slight increase in gross margin percentage compared to last year was driven by product mix as well as continued benefits from cost improvements and manufacturing process technology advances. We recognize that ongoing price reductions for our integrated circuits are a significant element in expanding the market for our products. Management believes that gross margin objectives of approximately 62% of revenues are consistent with expanding market share while realizing acceptable returns, although there can be no assurance that future gross margins will remain in this range. RESEARCH AND DEVELOPMENT Research and development expenditures were $43.2 million, or 11.8% of revenues for the first quarter of fiscal 2001 as compared to $26.0 million, or 12.3% of revenues for the first quarter of fiscal 2000. Although total expenditures on research and development increased significantly, they decreased as a percent of revenue because of strong revenue growth. The 66.1% increase in expenditures over the prior year period was primarily due to designing and developing new product architectures of complex, high density devices including wafer purchases, development of advanced process technologies, software development, increased labor-related costs, and testing of new products. We remain committed to a significant level of research and development effort in order to maintain our technology leadership in the programmable logic industry. SALES, GENERAL AND ADMINISTRATIVE Sales, general and administrative expenses were $63.4 million, or 17.4% of revenues for the first quarter of fiscal 2001 as compared to $39.5 million, or 18.7% of revenues for the first quarter of fiscal 2000. Although total sales, general and administrative expenses increased, they decreased as a percent of revenue because of strong revenue growth. The increases in sales, general and administrative expenses were primarily attributable to increased marketing expenses and increased sales costs on higher revenues along with increased personnel costs. We remain committed to controlling administrative expenses. However, the timing and extent of future legal costs associated with the ongoing enforcement of our intellectual property rights are not readily predictable and may increase significantly in the future. INTEREST AND OTHER, NET Interest and other income, net increased to $9.0 million in the first quarter of fiscal 2001 from $5.7 million in the same prior year quarter. The increases were primarily due to the increased average cash and investment balances in the first three months of fiscal 2001 as compared to the prior year quarter resulting in increased interest income of $4.7 million over the prior year period. The amount of net interest and other income in the future will continue to be impacted by the level of our average cash and investment balance, prevailing interest rates, and foreign currency exchange rates. PROVISION FOR INCOME TAXES We recorded a tax provision of $36.5 million for the first quarter of fiscal 2001 as compared to $20.8 million in the same prior year period, representing effective tax rates of 28.0% and 29.0%, respectively. The lower tax rate is primarily due to increased profits in foreign jurisdictions where the tax rate is lower than the U.S. rate. JOINT VENTURE EQUITY INCOME Prior to the conversion of USIC shares to UMC shares, we recorded our proportional ownership of the net income of USIC, a wafer fabrication joint venture located in Taiwan, as joint venture equity income. We recorded $0.7 million equity in income of joint venture for the first quarter of fiscal 2000. As a result of the conversion of our equity position in USIC to shares of UMC in January 2000, as discussed in Note 7, we no longer record joint venture equity income. HEDGING We use forward currency exchange contracts to reduce financial market risks. Our sales to Japanese customers are denominated in yen while our purchases of processed silicon wafers from Japanese foundries are primarily denominated in U.S. dollars. Gains and losses on foreign currency forward contracts that are designated and effective as hedges of anticipated transactions, for which a firm commitment has been attained, are deferred and included in the basis of the transaction in the same period that the underlying transactions are settled. Gains and losses on any instruments not meeting the above criteria are recognized in income in the current period. We are also sharing the yen exchange rate risk with some of our Japanese customers through risk sharing agreements. As we will continue to have a net yen exposure in the near future, we will continue to mitigate the exposure through yen hedging contracts. No currency forward contracts were outstanding as of July 1, 2000. INFLATION To date, the effects of inflation upon our financial results have not been significant. FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES --------------------------------------------------------- Our financial condition at July 1, 2000 remained strong. Total current assets exceeded total current liabilities by 3.8 times, compared to 4.3 times at April 1, 2000. We have used a combination of equity and cash flow from operations to support on-going business activities, secure manufacturing capacity from foundry partners, make acquisitions and investments in complementary technologies, obtain facilities and capital equipment and finance inventory and accounts receivable. We continued to generate positive cash flows from operations during the first three months of fiscal 2001. As of July 1, 2000, we had cash, cash equivalents and short-term investments of $687.9 million and working capital of $884.2 million. Cash generated by operations of $121.4 million for the first three months of fiscal 2001 was $37.7 million higher than the $83.7 million generated from the first three months of fiscal 2000. Increases in cash generated by operations resulted primarily from the cash flow impact of increased net income, and increases in accounts payable, income taxes payable, and deferred income on shipments to distributors which were partially offset by increases in accounts receivable and inventories. Cash flows used for investing activities during the three months ended July 1, 2000 included net investment purchases of $6.7 million, and $21.9 million for property, plant and equipment. During the first three months of fiscal 2000, investing activities included net investment purchases of $25.9 million, and $9.9 million of property, plant and equipment acquisitions. Net cash flows used by financing activities were $29.0 million in the first three months of fiscal 2001 and were attributable to $53.8 million in acquisition of treasury stock, offset by $15.1 million proceeds from the issuance of common stock under employee stock plans and $9.7 million in proceeds from sales of put warrants. For the comparable fiscal 2000 period, cash provided by financing activities of $9.3 million included $13.1 million of proceeds from issuance of common stock under employee stock plans and $1.5 million in proceeds from sales of put warrants, offset by acquisition of treasury stock of $5.3 million. Stockholders' equity increased $20.6 million during the first three months of fiscal 2001, principally as a result of the $93.8 million in net income for the three months ended July 1, 2000. In addition, the proceeds from the issuance of common stock under employee stock plans of $15.1 million, related tax benefits from stock options of $34.1 million, and $9.7 million in proceeds from sales of put warrants contributed to the increase, which were partially offset by $78.3 million in unrealized losses on available-for-sale securities primarily from our investment in UMC stock, the cumulative translation adjustment, and $53.8 million for acquisition of treasury stock. We have available credit facilities for up to $46.2 million of which $6.2 million is intended to meet occasional working capital requirements for our wholly owned Irish subsidiary. As of July 1, 2000, we have $1.4 million in outstanding borrowings under the lines of credit. We anticipate that existing sources of liquidity and cash flow from operations will be sufficient to satisfy our cash needs for the foreseeable future. We will continue to evaluate opportunities to obtain additional wafer capacity, procure additional capital equipment and facilities, develop new products, and acquire businesses, products or technologies that would complement our businesses and may use available cash or other sources of funding for such purposes. FACTORS AFFECTING FUTURE OPERATING RESULTS ---------------------------------------------- The semiconductor industry is characterized by rapid technological change, intense competition and cyclical market patterns. Cyclical market patterns are characterized by several factors, including: - reduced product demand; - limited visibility of demand for products beyond three months; - accelerated erosion of average selling prices; and - tight capacity availability. Our results of operations are affected by several factors. These factors include general economic conditions, conditions specific to technology companies and to the semiconductor industry in particular, decreases in average selling prices over the life of particular products and the timing of new product introductions (by us, our competitors and others.) In addition, our results of operations are affected by the ability to manufacture sufficient quantities of a given product in a timely manner, the timely implementation of new manufacturing technologies, the ability to safeguard patents and intellectual property from competitors, the impact of new technologies which result in rapid escalation of demand for some products in the face of equally steep declines in demand for others, and the inability to predict the success of our customers' products in their markets. Market demand for our products, particularly for those most recently introduced, can be difficult to predict, especially in light of customers' demands to shorten product lead times and minimize inventory levels. Unpredictable market demand could lead to revenue volatility if we were unable to provide sufficient quantities of specified products. In addition, any difficulty in achieving targeted wafer production yields could adversely affect our financial condition and results of operations. We attempt to identify changes in market conditions as soon as possible; however, the dynamics of the market make prediction of and timely reaction to such events difficult. Due to these and other factors, our past results, including those described in this report, are much less reliable predictors of the future than with companies in many older, more stable and less dynamic industries. Based on the factors noted herein, we may experience substantial period-to-period fluctuations in future operating results. Our future success depends in a large part on the continued service of our key technical, sales, marketing and management personnel and on our ability to continue to attract and retain qualified employees. Particularly important are those highly skilled design, process, software and test engineers involved in the manufacture of existing products and the development of new products and processes. The competition for such personnel is intense, and the loss of key employees could have a material adverse effect on our financial condition and results of operations. Sales and operations outside of the United States subject us to the risks associated with conducting business in foreign economic and regulatory environments. Our financial condition and results of operations could be adversely affected by unfavorable economic conditions in countries in which we do significant business and by changes in foreign currency exchange rates affecting those countries. For example, we have sales and operations in Asia Pacific and Japan. Past economic weakness in these markets adversely affected revenues, and such conditions may occur in the future. Customers may face reduced access to capital and exchange rate fluctuations may adversely affect their ability to purchase our products. In addition, our ability to sell at competitive prices may be diminished. Currency instability may increase credit risks as the weak currencies may impair our customers' ability to repay existing obligations. Any or all of these factors could adversely affect our financial condition and results of operations in the near future. Our financial condition and results of operations are becoming increasingly dependent on the global economy. Any instability in worldwide economic environments could lead to a contraction of capital spending by our customers. Additional risks to us include government regulation of exports, imposition of tariffs and other potential trade barriers, reduced protection for intellectual property rights in some countries and generally longer receivable collection periods. Moreover, our financial condition and results of operations could be affected in the event of political conflicts in Taiwan where our main foundry partner, UMC, is located. Our business is also subject to the risks associated with the imposition of legislation and regulations relating specifically to the import or export of semiconductor products. We cannot predict whether quotas, duties, taxes or other charges or restrictions will be imposed by the United States or other countries upon the import or export of our products in the future or what effect, if any, such actions would have on our financial condition and results of operations. We do not directly manufacture our silicon wafers. Presently, all of our wafers are manufactured by our foundry partners in Taiwan by UMC and in Japan by Seiko. We depend on our foundry partners to deliver reliable silicon wafers, with acceptable yields, in a timely manner. If our foundry partners are unable to produce and deliver silicon wafers that meet our specifications, including acceptable yields, our results of operation could be adversely affected. Our foundry partners in Taiwan and Japan and many of our operations in California are centered in areas that have been seismically active in the recent past. Should there be a major earthquake in our operating locations in the future, our operations, including our manufacturing activities, may be disrupted. This type of disruption could result in our inability to ship products in a timely manner, thereby materially adversely affecting our financial condition and results of operations. The securities of many high technology companies have historically been subject to extreme price and volume fluctuations, which may adversely affect the market price of our common stock. DEPENDENCE UPON INDEPENDENT MANUFACTURERS AND SUBCONTRACTORS We do not manufacture the semiconductor wafers used for our products. During the past several years, most of our wafers have been manufactured by UMC and Seiko, with recent wafers also manufactured by USIC until its merger into UMC. We are dependent upon these suppliers and others to produce wafers with competitive performance and cost attributes which include transitioning to advanced manufacturing process technologies, producing wafers at acceptable yields and delivering them in a timely manner. While the timeliness, yield and quality of wafer deliveries have met our requirements to date, we cannot guarantee that our wafer suppliers will not experience future manufacturing problems, including delays in the realization of advanced manufacturing process technologies. Additionally, disruption of operations at these foundries for any reason, including natural disasters such as fires, floods, or earthquakes, as well as disruptions in access to adequate supplies of electricity, natural gas or water could cause delays in shipments of our products, and could have a material adverse effect on our results of operations. We are also dependent on subcontractors to provide semiconductor assembly services. Any prolonged inability to obtain wafers or assembly services with competitive performance and cost attributes, adequate yields or timely delivery, or any other circumstance that would require us to seek alternative sources of supply, could delay shipments and have a material adverse effect on our financial condition and results of operations. Our growth will depend in large part upon our ability to obtain additional wafer fabrication capacity and assembly services from suppliers that are cost competitive. We consider various alternatives in order to secure additional wafer capacity. These alternatives include, without limitation, equity investments in, or loans, deposits, or other financial commitments to independent wafer manufacturers. We also consider the use of contracts which commit us to purchase specified quantities of wafers over extended periods. We are currently able to obtain wafers from existing suppliers in a timely manner. However, at times we have been unable, and may in the future be unable, to fully satisfy customer demand because of production constraints, including the ability of suppliers and subcontractors to provide materials and services to satisfy customer delivery dates, as well as our ability to process products for shipment. In addition, a significant increase in general industry demand or any interruption of supply could reduce our supply of wafers or increase our cost of such wafers. These events could have a material adverse effect on our financial condition and results of operations. DEPENDENCE ON NEW PRODUCTS Our success depends in large part on our ability to develop and introduce new products which address customer requirements and compete effectively on the basis of price, density, functionality and performance. The success of new product introductions is dependent upon several factors, including: - timely completion of new product designs; - ability to utilize advanced manufacturing process technologies; - achieving acceptable yields; - availability of supporting software design tools; - utilization of predefined cores of logic; - market acceptance; and - successful deployment of systems by our customers. We cannot assure that our product development efforts will be successful or that our new products will achieve market acceptance. Revenues relating to our mature products are expected to decline in the future. As a result, we will be increasingly dependent on revenues derived from newer products along with cost reductions on current products. We rely primarily on obtaining yield improvements and corresponding cost reductions in the manufacture of existing products and on introducing new products which incorporate advanced features and other price/performance factors that enable us to increase revenues while maintaining consistent margins. To the extent that such cost reductions and new product introductions do not occur in a timely manner, or to the extent that our products do not achieve market acceptance at prices with higher margins, our financial condition and results of operations could be materially adversely affected. COMPETITION Our PLDs compete in the logic industry. The industries in which we compete are intensely competitive and are characterized by rapid technological change, product obsolescence and continuous price erosion. We expect increased competition, both from our primary competitors, Altera Corporation, and Lattice Semiconductor Corporation and from a number of new companies that may enter our market. We believe that important competitive factors in the programmable logic industry include: - product pricing; - product performance, reliability and density; - the adaptability of products to specific applications; - ease of use and functionality of software design tools; - functionality of predefined cores of logic; and - the ability to provide timely customer service and support. Our strategy for expansion in the logic market includes continued introduction of new product architectures which address high volume, low cost applications as well as high performance, leading-edge density applications. In addition, we anticipate continued price reductions proportionate with our ability to lower the manufacturing cost for established products. However, we cannot provide assurance that we will be successful in achieving these strategies. Our major sources of competition are comprised of several elements: - providers of high density programmable logic products characterized by FPGA-type architectures; - providers of high volume and low cost FPGAs as programmable replacement for ASICs and application specific standard products (ASSPs).; - providers of high speed, low density CPLD devices; - the manufacturers of custom gate arrays; - providers of competitive software development tools; - other providers of new or emerging programmable logic products. We compete with high density programmable logic suppliers on the basis of device performance, the ability to deliver complete solutions to customers, device power consumption and customer support by taking advantage of the primary characteristics of our PLD product offerings which include: flexibility, high speed implementation, quick time-to-market and system level capabilities. We compete with ASIC manufacturers on the basis of lower design costs, shorter development schedules, reduced inventory risk and field upgradability. The ASIC market segment has been declining, and ASICs are being replaced by other logic options. The primary attributes of ASICs are high density, high speed and low production costs in high volumes. We continue to develop lower cost architectures intended to narrow the gap between current ASIC production costs (in high volumes) and PLD production costs. As PLDs have increased in density and performance and decreased in cost due to the advanced manufacturing processes, they have become more directly competitive with ASICs. With the introduction of our Spartan family, which is Xilinx's low cost programmable replacement for ASICs, we seek to grow by directly competing with other companies in the ASIC segment. Many of the companies in the ASIC segment have substantially greater financial, technical and marketing resources than Xilinx. Consequently, there can be no assurance that we will be successful in competing in the ASIC segment. Competition among PLD suppliers and manufacturers of new or emerging programmable logic products is based primarily on price, performance, design, customer support, software utility and the ability to deliver complete solutions to customers. Some of our current or potential competitors have substantially greater financial, manufacturing, marketing, distribution and technical resources than we do. To the extent that our efforts to compete are not successful, our financial condition and results of operations could be materially adversely affected. The benefits of programmable logic have attracted a number of companies to this market. We recognize that different applications require different programmable technologies, and we are developing architectures, processes and products to meet these varying customer needs. Recognizing the increasing importance of standard software solutions, we have developed common software design tools that support the full range of integrated circuit products. We believe that automation and ease of design are significant competitive factors in the PLD segment. Several companies, both large and small, have introduced products that compete with ours or have announced their intention to enter the PLD segment. Some of our competitors may possess innovative technology, which could prove superior to our technology in certain applications. In addition, we anticipate potential competition from suppliers of logic products based on new technologies. Some of our current or potential competitors have substantially greater financial, manufacturing, marketing and technical resources than we do. This additional competition could adversely affect our financial condition and results of operations. We could also face competition from our licensees. Under a license from us, Lucent Technologies has rights to manufacture and market our XC3000 FPGA products and also employ that technology to provide additional high density FPGA products. Seiko Epson has rights to manufacture some of our products and market them in Japan and Europe, but is not currently doing so. We granted a license to use certain of our patents to Advanced Micro Devices (AMD). AMD produced certain programmable logic devices under that license through its wholly owned subsidiary, Vantis. In June 1999, AMD sold the Vantis subsidiary to Lattice Semiconductor Corporation. INTELLECTUAL PROPERTY We rely upon patent, trademark, trade secret and copyright law to protect our intellectual property. We cannot assure that such intellectual property rights can be successfully asserted in the future or will not be invalidated, circumvented or challenged. From time to time, third parties, including our competitors, have asserted patent, copyright and other intellectual property rights to technologies that are important to us. We cannot assure that third parties will not assert infringement claims against us in the future, that assertions by third parties will not result in costly litigation or that we would prevail in such litigation or be able to license any valid and infringed patents from third parties on commercially reasonable terms. Litigation, regardless of its outcome, could result in substantial costs and diversion of our resources. Any infringement claim or other litigation against us or by us could materially adversely affect our financial condition and results of operations. (See Part II - Other Information, Item 1 - Legal Proceedings for a discussion of litigation between Xilinx and Altera Corporation.) INVESTMENT COMPANY ACT OF 1940 The Investment Company Act of 1940 regulates mutual funds and closed-end investment companies that are traded on the public stock markets. The 1940 Act, and rules issued under it, contain provisions and set forth principles that are designed to differentiate "true" operating companies from companies that may be considered to have sufficient investment company-like characteristics to require regulation by the 1940 Act's complex procedural and substantive requirements. These provisions apply to companies that own or hold securities, as well as companies that invest, reinvest and trade in securities, and particularly focus on determining the primary nature of a company's activities, including whether an investing company controls and does business through the entities in which it invests or, instead, holds its securities investments passively and not as part of an operating business. In January 2000, as a result of USIC's merger with UMC (see Note 7 to Condensed Consolidated Financial Statements), we received approximately 222 million shares of UMC stock, which are publicly traded on the Taiwan Stock Exchange. We view this investment in UMC as an operating investment primarily intended to secure adequate wafer manufacturing capacity. However, because of the success of our investments during the last year, including our strategic wafer manufacturing investments, at least from the time of the completion of the merger of USIC into UMC in January 2000, we believe that we could be viewed as holding a larger portion of our assets in investment securities than is presumptively permitted by the 1940 Act for a company not registered as an investment company. We believe we should not be considered an investment company under the Act and should not be subject to regulation thereunder. We are prepared, if necessary, to seek exemptive or no-action relief from the SEC. However, there can be no assurance that the SEC will agree. If the SEC does not concur, we may, as a result, be required to divest ourselves or change the mix of assets that we consider strategically necessary for the conduct of our operations. Such divestitures could have a material adverse effect upon our business and results of operations. EURO CURRENCY Beginning in 1999, 11 member countries of the European Union established fixed conversion rates between their existing sovereign currencies and adopted the Euro as their common legal currency. During the three-year transition, the Euro will be available for non-cash transactions and legacy currencies will remain legal tender. We are continuing to assess the Euro's impact on our business. We are reviewing the ability of our accounting and information systems to handle the conversion, the ability of foreign banks to report on dual currencies, the legal and contractual implications of agreements, as well as reviewing our pricing strategies. We expect that any additional modifications to our operations and systems will be completed on a timely basis and do not believe the conversion will have a material adverse impact on our operations. However, we cannot assure that we will be able to successfully modify all systems and contracts to comply with Euro requirements. LITIGATION We are currently engaged in several legal matters. See "Legal Proceedings" in Part II. Item 3. Quantitative and Qualitative Disclosures about Market Risk INTEREST RATE RISK Our exposure to interest rate risk relates primarily to our investment portfolio. Our primary aim with our investment portfolio is to invest available cash while preserving principal and meeting liquidity needs. The portfolio includes tax-advantaged municipal bonds, tax-advantaged auction rate preferred municipal bonds, commercial paper, and U.S. Treasury securities. In accordance with our investment policy, we place investments with high credit quality issuers and limit the amount of credit exposure to any one issuer. These securities are subject to interest rate risk and will decrease in value if market interest rates increase. A hypothetical 10% increase in interest rates would not materially affect the fair value of our available-for-sale securities. FOREIGN CURRENCY RISK We use forward currency exchange contracts to reduce financial market risks. Our sales to Japanese customers are denominated in yen while our purchases of processed silicon wafers from Japanese foundries are primarily denominated in U.S. dollars. Gains and losses on foreign currency forward contracts that are designated and effective as hedges of anticipated transactions, for which a firm commitment has been attained, are deferred and included in the basis of the transaction in the same period that the underlying transactions are settled. Gains and losses on any instruments not meeting the above criteria would be recognized in income in the current period. A 15% adverse change in yen exchange rates based on historical average rate fluctuations would have had approximately a 1.0% adverse impact on revenue for the first three months in fiscal years 2001 and 2000. We are also sharing the yen exchange rate risk with some of our Japanese customers through risk sharing agreements. As we will continue to have a net yen exposure in the near future, we will continue to mitigate the exposure through yen hedging contracts. However, no currency forward contracts were outstanding as of July 1, 2000. Our investments in several subsidiaries and in the UMC securities are recorded in currencies other than the U.S. dollar. As these foreign currency denominated investments are translated at each month end during consolidation, fluctuations of exchange rates between the foreign currency and the U.S. dollar increase or decrease the value of those investments. If permanent changes occur in exchange rates after an investment is made, the investment's value will increase or decrease accordingly. These fluctuations are recorded within stockholders' equity as a component of accumulated other comprehensive income. Also, as our subsidiaries maintain investments denominated in other than local currencies, exchange rate fluctuations will occur. PART II. OTHER INFORMATION Item 1. Legal Proceedings On June 7, 1993, we filed suit against Altera Corporation (Altera) in the United States District Court for the Northern District of California for infringement of certain of our patents. Subsequently, Altera filed suit against Xilinx, alleging that certain of our products infringe certain Altera patents. Fact and expert discovery have been completed in both cases, which have been consolidated. Both Altera and Xilinx filed motions with the Court for summary judgement with respect to certain of the issues pending in the litigation. In October 1999, the Court ruled on all but one of the motions. As a result of those rulings, Altera is left with one claim against Xilinx, which remains the subject of a Company motion for summary judgment. A ruling on this motion is pending. The Court's rulings also dismissed certain claims by us, leaving intact claims of infringement by Altera under two Company patents. The remaining claims against Altera will be decided at a trial scheduled to begin on October 5, 2000. If the remaining claim against Xilinx survives the motion for summary judgment, it will be decided at a trial, which is unscheduled at this point. On April 20, 1995, Altera filed an additional suit against Xilinx in the Federal District Court in Delaware, alleging that our XC5200 family infringes an Altera patent. We answered the Delaware suit denying that the XC5200 family infringes the patent in suit, asserting certain affirmative defenses and counterclaiming that the Altera Max 9000 family infringes certain of our patents. The Delaware suit was transferred to the United States District Court for the Northern District of California. On July 22, 1998, Altera and Joseph Ward, a former Xilinx employee, filed suit against Xilinx in Superior Court in Santa Clara County, California, arising out of our efforts to prevent disclosure of certain Company confidential information. Altera's suit requests declaratory relief and claims Xilinx engages in unfair business practices and interference with contractual relations. On September 10, 1998 we filed cross claims against Altera and Ward for unfair competition and breach of contract, among other claims, in the California action. On October 20, 1998, Altera and Ward filed crossclaims against Xilinx for malicious prosecution of civil action and defamation. On September 15, 1999, the Court dismissed all of our claims against Altera and Mr. Ward, finding that we were unable to show any damages we suffered as a result of any actions by Mr. Ward. Claims against Xilinx are still pending. On May 31, 2000, Altera filed an additional suit against Xilinx in the Federal District Court for the Northern District of California, alleging that certain Xilinx products, including our Virtex FPGAs, infringe three Altera patents. Altera's suit requests unspecified monetary damages as well as issuance of an injunction to prevent Xilinx from selling allegedly infringing parts. Xilinx has answered the complaint, denied the allegations, and has filed a counterclaim alleging that Altera is infringing additional Company patents. Altera's motion for expedited discovery was denied by the Court. The ultimate outcome of these matters cannot be determined at this time. Management believes that it has meritorious defenses to such claims and is defending them vigorously. The foregoing is a forward-looking statement subject to risks and uncertainties, and the future outcome of these matters could differ materially due to the uncertain nature of each legal proceeding and because the lawsuits are still in the pre-trial stages. There are no other pending legal proceedings of a material nature to which we are a party or of which any of our property is the subject. We know of no legal proceedings contemplated by any governmental authority or agency. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits None (b) Reports on Form 8-K None Items 2, 3, 4 and 5 are not applicable and have been omitted. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. XILINX, INC. ------------- Date August 10, 2000 /s/ Kris Chellam ---------------------- ------------------------- Kris Chellam Senior Vice President of Finance and Chief Financial Officer (as principal accounting and financial officer and on behalf of Registrant)